United States v. National Sur. Co. of Kansas City, Mo.

• Decision Date: 26 May 1903
• Docket Number: 1,161.
• Citation: 122 F. 904
• Parties: UNITED STATES v. NATIONAL SURETY CO. OF KANSAS CITY, MO.
• Court: U.S. Court of Appeals — Sixth Circuit

122 F. 904

UNITED STATES v. NATIONAL SURETY CO. OF KANSAS CITY, MO.

No. 1,161.

United States Court of Appeals, Sixth Circuit.

May 26, 1903

R. D Hill, for the United States.

Robert T. Hough, for defendant in error.

This suit was brought by the United States on two ordinary annual distillers' bonds, executed by Wilson Howard, with the defendant in error as surety thereon, one in 1896, and the other in 1897, and exactly similar in form and effect. The questions now presented for determination arise under a second amended petition in the cause.

The action was for the collection of certain special deficiency assessments made by the commissioner of internal revenue, and also for the amount of the tax on a specified number of gallons of spirits manufactured or distilled by said Howard during the term covered by the bonds, and subsequently deposited in a warehouse, and a warehousing bond executed to secure payment of the tax due thereon.

The suit was against the defendant in error alone, Wilson Howard having died before the institution of the suit. The amount claimed on account of special deficiency assessments was paid or judgment taken without contest in the court below, and recovery for the tax on the quantity of spirits deposited in the warehouse was resisted on the ground that a warehousing bond had been executed and accepted to secure payment of that tax, in consequence of which the contention is that the defendant surety company was not liable for such tax.

A reply to the defendant's answer was filed on behalf of the United States, setting forth that judgment had been obtained upon the warehousing bond, and execution duly and promptly issued thereon and returned nulla bona. The reply further averred that the surety on the warehousing bond was insolvent, and that since the execution of those bonds Wilson Howard had died, leaving no property whatever, and that his estate was insolvent. To this reply a demurrer by the defendant was sustained by the court, and the suit dismissed (112 F. 336), and to review that judgment writ of error was duly sued out and the case brought to this court.

Before SEVERENS and RICHARDS, Circuit Judges, and CLARK, District Judge.

CLARK District Judge, after making the foregoing statement, .

The distiller's bond on which the suit was brought was executed under the section 3260 of the Revised Statutes of the United States (U.S. Comp. St. 1901, p. 2114), as amended by the act of 1894, Act Aug. 27, 1894, c. 349, Sec. 67 (U.S Comp. St. 1901, p. 2117), which, so far as its provisions directly affect the matter now under consideration, is as follows:

'Every person intending to commence or to continue the business of a distiller shall, on filing with the collector his notice of such intention, and before proceeding with such business, and on the first day of May of each succeeding year, execute a bond in the form prescribed by the commissioner of internal revenue, conditioned that he shall faithfully comply with all the provisions of law relating to the duties and business of distillers, and shall pay all penalties incurred or fines imposed on him for a violation of any of the said provisions; and that he shall not suffer the lot or tract of land on which the distillery stands, or any part thereof, or any of the distilling apparatus, to be incumbered by mortgage, judgment, or other lien, during the time in which he shall carry on said business. said bond shall be with at least two sureties, approved by the collector of the district, and for a penal sum not less than the amount of tax on the spirits that can be distilled in his distillery during a period of fifteen days. But in no case shall the bond exceed the sum of one hundred thousand dollars.'

After reciting that Wilson Howard was engaged, and intended to be engaged, in the business of a distiller, the condition of the bond, so far as that need be given, is:

'Now, therefore, if the said Wilson Howard shall, in all respects, faithfully comply with all the provisions of law in relation to the duties and business of distillers, and shall pay all penalties incurred or fines imposed on him for a violation of any of the said provisions, and has not suffered and shall not suffer the lot or tract of land on which the distillery stands, or any part thereof, or any of the distilling apparatus, to be incumbered by mortgage, judgment, or other lien, during the time in which he has and shall carry on said business, then this obligation shall be void; otherwise it shall remain in full force.'

The warehousing bonds were executed pursuant to section 3293 of the Revised Statutes (U.S. Comp. St. 1901, p. 2133). In relation to the tax imposed on spirits it was enacted in section 48 of the act of August 27, 1894, c. 349, 28 Stat. 563 (U.S. Comp. St. 1901, p. 2110):

'That the tax herein imposed shall be paid by the distiller of the spirits, on or before their removal from the distillery or place of storage, except in case the removal therefrom without payment of tax is authorized by law; and (upon spirits lawfully deposited in any distillery warehouse, or other bonded warehouse, established under internal revenue laws) within eight years from the date of the original entry for deposit in any distillery warehouse, or from the date of original gauge of fruit brandy deposited in special-bonded warehouse, except in case of withdrawal therefrom without payment of tax as authorized by law.'

It has been suggested, rather than argued, that since the enactment of the law establishing bonded warehouses, and authorizing delay in payment of taxes due on spirits, upon the execution of a warehousing bond the sureties on the original official bond of the distiller are not liable for the tax secured by the warehousing bond.

We do not think, however, it requires discussion to show that the payment of the tax imposed on distilled spirits is the duty of the distiller under the law for which the surety on the distiller's bond would be liable up to the time when the warehousing bond is executed. It must be true, we think, that the surety on the distiller's bond is liable for the tax on spirits manufactured or produced in the event no warehousing bond is given. The case of Hart v. U.S., 95 U.S. 316, 24 L.Ed. 479, must be regarded as authority for the proposition that the surety would be liable for the tax under the circumstances just stated. It will also be observed, from the statement of facts found in that case, that the taxes assessed against the distiller, and sued for, were assessed against him on spirits which had been distilled and deposited in a bonded warehouse, and one of the defenses rested on the ground that the collector of internal revenue for that particular district had permitted a quantity of the spirits, more than sufficient to pay the taxes, to be removed from the bonded warehouse without the knowledge or consent of the sureties. Whether or not the usual warehousing bond was demanded and executed does not appear from the statement of the case. The defense was overruled, and it was adjudged that the sureties on the distiller's original or official bond were liable for the tax, and final judgment was rendered accordingly.

In the case of the United States v. Bicket et al., 24 Fed.Cas.No. 14,590, the action was against the distiller and the sureties on his official distiller's bond, and conditioned, in the very language of section 3260, for the performance of all the duties prescribed by law in relation to the duties and business of a distiller, and the breach of the bond averred in the declaration was that the distiller 'did not faithfully observe all the provisions of the law in regard to the duty of the distiller, in that he did not pay the tax which accrued against said distillery and upon the high wines manufactured by him therein,' and the sureties were adjudged responsible on the bond for the tax thus accrued.

In the case of the United States v. Rindskopf, 105 U.S. 418, 26 L.Ed. 1131, the suit was again upon a distiller's bond, and the breach assigned was the nonpayment of the tax due on a specified number of gallons of spirits alleged to have been distilled at the distillery between certain dates, and final judgment was had in favor of the government against the principal and sureties upon the bond.

In view of these and other cases which might be cited, we think it is not open to question that the payment of the tax imposed upon spirits distilled during the period of the bond is a duty the performance of which is secured by the bond, and for a failure to discharge which the sureties are...