Colonial Drug & Sales Co. v. Western Products Co.

• Decision Date: 11 December 1931
• Docket Number: No. 483.,483.
• Citation: 54 F.2d 216
• Parties: COLONIAL DRUG & SALES CO. v. WESTERN PRODUCTS CO.
• Court: U.S. Court of Appeals — Tenth Circuit

54 F.2d 216 (1931)

COLONIAL DRUG & SALES CO. v. WESTERN PRODUCTS CO.

No. 483.

Circuit Court of Appeals, Tenth Circuit.

December 11, 1931.

Robt. D. Charlton, of Denver, Colo., for appellant.

Hudson Moore, of Denver, Colo. (Wilbur F. Denious and Dayton Denious, both of Denver, Colo., on the brief), for appellee.

Before PHILLIPS and McDERMOTT, Circuit Judges, and POLLOCK, District Judge.

PHILLIPS, Circuit Judge.

The Colonial Drug & Sales Company brought this action against the Western Products Company to recover damages for breach of contract. The portions of such contract material to this inquiry are set forth in marginal note 1.

The amended complaint alleged that plaintiff and defendant are corporations organized under the laws of Colorado; that defendant was engaged in the manufacture of near beer; that in the process of such manufacture and as a by-product defendant produced alcohol; that under the Eighteenth Amendment and the National Prohibition Act (27 USCA) it was unlawful for defendant to dispose of such alcohol, except by a process commonly known as "wasting" or to agencies entitled to receive the same under federal permits.

It further alleged the making of such contract, the establishment of a bonded warehouse by plaintiff and defendant, the issuance under the National Prohibition Act (27 USCA) of a permit to sell and distribute alcohol, the manufacture of alcohol by defendant, the placing thereof in such warehouse, withdrawals and sales thereof under said contract by plaintiff in accordance with the National Prohibition Act and the regulations promulgated thereunder, and a compliance with such contract by plaintiff and defendant for eight years.

It further alleged that on November 12, 1929, defendant refused further to perform such contract, and that plaintiff suffered damages as a result of such breach.

Defendant demurred to the amended complaint on the ground that the court was without jurisdiction, and that it did not state facts sufficient to constitute a cause of action. The trial court held that there was no federal question presented by such complaint, that the contract was illegal under the laws of Colorado, and that plaintiff was not entitled to maintain an action thereon. Plaintiff has appealed.

Section 1, art. 22 of the Colorado Constitution provides:

"From and after the first (1st) day of January, 1916, no person, association or corporation shall, within this state, manufacture for sale or gift any intoxicating liquors; and no person, association or corporation shall import into this state any intoxicating liquors for sale or gift; and no person, association or corporation shall, within this state, sell or keep for sale any intoxicating liquors or offer any intoxicating liquors for sale, barter or trade; Provided, however, That the handling of intoxicating liquors for medicinal or sacramental purposes may be provided for by statute."

Section 3701, Colo. Comp. Laws 1921, provides:

"No person, association or corporation shall, within this state, manufacture for sale or gift any intoxicating liquors; and no person, association or corporation shall import into this state any intoxicating liquors for sale or gift; and no person, association or corporation shall, within this state, sell or keep for sale any intoxicating liquors or offer any intoxicating liquors for sale, barter or trade; and no person, association or corporation shall keep or have in his or its possession, for personal use or otherwise, any intoxicating liquors or permit another to have or keep or use intoxicating liquors on any premises owned or controlled by him, or give away or furnish any intoxicating liquors to another; Provided, however, That intoxicating liquors may be imported into this state and handled for medicinal and sacramental purposes only, in the manner prescribed in this act and no other."

Chapter 80, p. 220, Colo. Laws 1925, provides that any person "who shall be the owner of, or who shall operate or knowingly have in his possession any still used, designed or intended for the manufacture of intoxicating liquor, shall be deemed guilty of a felony."

That a state has the power to absolutely prohibit the manufacture of intoxicating liquor within its borders is settled law. Crane v. Campbell, 245 U. S. 304, 38 S. Ct. 98, 62 L. Ed. 304; Mugler v. Kansas, 123 U. S. 623, 8 S. Ct. 273, 31 L. Ed. 205.

Counsel for plaintiff contends, however, that under the Eighteenth Amendment, the National Prohibition Act, and the treasury regulations promulgated thereunder, plaintiff and defendant were authorized, upon the issuance to them of such permit, to manufacture and dispose of alcohol in Colorado; that, in as far as the Colorado laws conflicted with the Eighteenth Amendment and the National Prohibition Act, the former were abrogated.

In United States v. Lanza, 260 U. S. 377, 43 S. Ct. 141, 142, 67 L. Ed. 314, the court said:

"The amendment was adopted for the purpose of establishing prohibition as a national policy reaching every part of the United States and affecting transactions which are essentially local or intrastate, as well as those pertaining to interstate or foreign commerce. The second section means that power to take legislative measures to make the policy effective shall exist in Congress in respect of the territorial limits of the United States and at the same time the like power of the several states within their territorial limits shall not cease to exist. Each state, as also Congress, may exercise an independent judgment in selecting and shaping measures to enforce prohibition. Such as are adopted by Congress become laws of the United States and such as are adopted by a state become laws of that state. They may vary in many particulars, including the penalties prescribed, but this is an inseparable incident of independent legislative action in distinct jurisdictions.

"To regard the amendment as the source of the power of the states to adopt and enforce prohibition measures is to take a partial and erroneous view of the matter. Save for some restrictions arising out of the federal Constitution, chiefly the commerce clause, each state possessed that power in full measure prior to the amendment, and the probable purpose of declaring a concurrent power to be in the states was to negative any possible inference that in vesting the national government with the power of country-wide prohibition, state power would be excluded. In effect the second section of the Eighteenth Amendment put an end to restrictions upon the state's power arising out of the federal Constitution and left her free to enact prohibition...