United States v. One 1936 Model Ford 8212 De Luxe Coach, Motor No 18 3306511 Same v. Automobile Financing

• Decision Date: 22 May 1939
• Docket Number: 627,Nos. 10,s. 10
• Citation: 83 L.Ed. 1249,307 U.S. 219,59 S.Ct. 861
• Parties: UNITED STATES v. ONE 1936 MODEL FORD V—8 DE LUXE COACH, MOTOR NO. 18-3306511. SAME v. AUTOMOBILE FINANCING, Inc. Re
• Court: U.S. Supreme Court

307 U.S. 219

59 S.Ct. 861

83 L.Ed. 1249

UNITED STATES

v ONE 1936 MODEL FORD V—8 DE LUXE COACH, MOTOR

NO. 18-3306511.

SAME

v. AUTOMOBILE FINANCING, Inc.

Nos. 10, 627.

Reargued May 1, 1939.

Decided May 22, 1939.

Messrs. Frank Murphy, Atty. Gen., and Gordon Dean, of Washington, D.C., for the United States.

Messrs. Duane R. Dills and Eugene E. Heaton, both of New York City, for respondents.

Mr. Justice McREYNOLDS delivered the opinion of the Court.

In each of these causes the District Court, proceeding under the 'Liquor Law Repeal and Enforcement Act' of August 27, 1935, c. 740, 49 Stat. 872, 878, 27 U.S.C.A. § 40a, mitigated the forfeiture of an automobile seized for unlawful transportation of distilled spirits upon which the federal tax had not been paid. (One was seized December 3, 1936; the other, March 15, 1937.) The forfeiture was decreed in a proceeding based upon section 3450 R.S., 26 U.S.C.A. § 1441. The Circuit Courts of Appeals rightly approved and their judgments must be affirmed.

The facts, undisputed, are essentially alike in both causes. The points of law are the same. A statement based on Record No. 10 will suffice.

The Repeal Enforcement Act provides—

'Sec. 204 (§ 40a). (a) Whenever, in any proceeding in court for the forfeiture, under the internal-revenue laws, of any vehicle or aircraft seized for a violation of the internal-revenue laws relating to liquors, such forfeiture is decreed, the court shall have exclusive jurisdiction to remit or mitigate the forfeiture.

'(b) In any such proceeding the court shall not allow the claim of any claimant for remission or mitigation unless and until he proves (1) that he has an interest in such vehicle or aircraft, as owner or otherwise, which he acquired in good faith, (2) that he had at no time any knowledge or reason to believe that it was being or would be used in the violation of laws of the United States or of any State relating to liquor, and (3) if it appears that the interest asserted by the claimant arises out of or is in any way subject to any contract or agreement under which any person having a record or reputation for violating laws of the United States or of any State relating to liquor has a right with respect to such vehicle or aircraft, that, before such claimant acquired his interest, or such other person acquired his right under such contract or agreement, whichever occurred later, the claimant, his officer or agent, was informed in answer to his inquiry, at the headquarters of the sheriff, chief of police, principal Federal internal-revenue officer engaged in the enforcement of the liquor laws, or other principal local or Federal law-enforcement officer of the locality in which such other person acquired his right under such contract or agreement, of the locality in which such other person then resided, and of each locality in which the claimant has made any other inquiry as to the character or financial standing of such other person, that such other person had no such record or reputation.'

The following findings by the District Court, it is agreed, correctly set out 'the facts in this case.'—

The Ford automobile in question was sold by the Greenville Auto Sales, Incorporated the dealer) October 3, 1936, through its agent, Elrod, to Guy Walker, who in part payment exchanged an old car paid for by him, but registered in his wife's name. He was given terms for payment under a conditional sales contract, drawn by an agent of the dealer, in the name of his brother, Paul Walker, who formally executed the agreement. Guy Walker had the conditional sales contract drawn and executed in the name of his brother in order to place the title 'where his wife could not reach it'. Paul Walker had no interest in the transaction except to comply with his brother's request. Guy Walker made the transaction with the dealer. He selected the car, made the agreement and handled the transaction himself. Paul Walker drove the car from the dealer's place of business. Guy Walker at the time, and for two or three weeks after the purchase, was living at his brother's house. Only one payment was made on the conditional sales contract before the seizure, and that by Guy Walker to the dealer.

It was admitted that Guy Walker had a previous record and reputation for violating both state and federal laws relating to liquor. Paul Walker was convicted of violating the National Prohibition Act, 41 Stat. 305, in 1929, and was duly sentenced therefor, but his record and reputation since serving the sentence were good.

On the date when the sale was consummated the dealer submitted the contract to the Commercial Credit Company, the claimant here, who accepted by telephone, and subsequently on October 5th, in the usual course of business the dealer assigned the contract to the claimant and received a check therefor.

The claimant before accepting assignment of the sales contract made an investigation of Paul Walker by inquiring at the headquarters of the Sheriff of Greenville County, and at the headquarters of the Chief of Police of Greenville, the County and City where the interest was acquired and the locality where Paul Walker resided, as to his record and reputation for violation of the liquor law. Information was received from these offices that had no such record or reputation. Information was given, however, from the Sheriff's office that Guy Walker had both record and reputation as violator of state and federal laws$relating to liquor. No inquiry or investigation was made at the headquarters of the principal Federal internal-revenue officer engaged in the enforcement of the liquor laws in that locality, or at the headquarters of any other principal local or federal law enforcement officer of the locality as to Paul Walker, and no inquiry or investigation whatsoever was made of Guy Walker, the admitted real owner and purchaser of the automobile.

The claimant had Paul Walker investigated in August, 1936, by the Business Service Bureau of Greenville, South Carolina, in connection with the purchase of a refrigerator. No investigation at that time was made as to his reputation or record for violating the liquor laws; the investigation did disclose that he had a good reputation in the community where he lived, and this was the reputation given him by his employer at that time.

The claimant purchased the conditional sales contract in good faith believing that Paul Walker was the pur- chaser and owner of the automobile. It had no knowledge, information or suspicion of the true facts until after the automobile had been seized by federal officers.

Petitioner challenges the judgment below because of claimant's failure to establish compliance with the conditions imposed by subsection (b) section 204. Especially because claimant failed to show that it had no reason to believe the automobile was being used or would be used to violate the liquor laws; also because it made no adequate inquiry concerning the record and reputation of the real purchaser—Guy Walker.

Respondent's interest in the automobile is not questioned. It 'purchased the conditional sales contract in good faith, believing that Paul Walker was the purchaser and owner of the automobile. It had no knowledge, information or suspicion of the true facts until after the automobile had been seized.' This is enough to show compliance with subsection (b)(1). There was an interest acquired in good faith.

After investigation of the record and reputation of Paul Walker, followed by favorable reports, and believing him to be purchaser and owner of the automobile, claimant in good faith acquired the sales contract. It had no knowledge, information or suspicion that Paul Walker was only a 'straw' purchaser. This is enough to show compliance with subsection b)(2). The suggestion that since respondent knew automobiles were frequently used for violation of liquor laws it therefore had reason to believe that the one in question would be so used is not well founded. The findings positively affirm that it entertained no such belief or suspicion.

The difficult phrasing of subsection (b)(3) has produced divergent views concerning its meaning.

In Federal Motor Finance v. United States, 88 F.2d 90, 93, the Circuit Courts of Appeals Eighth Circuit said—

'We think the fair intendment of the language of subsection (3) concerning remission of forfeiture is that the appellant could not rely entirely upon a course of business whereby it acquired an interest in the car so nearly approximating the total value thereof without taking care to ascertain who the real owner was in possession of and using the car.'

In the causes now before us (4 Cir., 93 F.2d 771, 773; 5 Cir., 99 F.2d 498, 0), the Circuit Court of Appeals accepted the view that—

'The involved language of subsection (b)(3) of the act does permit the possible interpretation that the lienor is charged with the duty of making inquiry as to every one bearing a bad reputation or record, who may have a right under the contract of sale, whether or not it appears on the face of the instrument. See Federal Motor Finance v. United States, 8 Cir., 88 F.2d 90. But in our view Congress did not intend to impose upon the lienor the obligation to ascertain at his peril the identity of every person having an interest in the property and to make inquiry of the law enforcement officers as to the previous record and reputation of every such person, unless from the documents themselves or other surrounding circumstances the lienor possesses information which would lead a reasonably prudent and law-abiding person to make a further investigation.'

See also C.I.T. Corporation v. United States, 4 Cir., 86 F.2d 311, and United States v. C.I.T. Corporation, 2 Cir., 93 F.2d 469.

Counsel for petitioner now maintain: 'That under the language of the statute ((b)(3)) the claimant is required to investigate the real purchaser at its peril and that if it fails to do so, as between it and the...