United States v. Zerbey, 790

• Decision Date: 24 May 1926
• Docket Number: No. 790,790
• Citation: 271 U.S. 332,46 S.Ct. 532,70 L.Ed. 973
• Parties: UNITED STATES v. ZERBEY et al
• Court: U.S. Supreme Court

271 U.S. 332

46 S.Ct. 532

70 L.Ed. 973

UNITED STATES

v ZERBEY et al.

No. 790.

Argued March 3, 1926.

Decided May 24, 1926.

Mr. William D. Mitchell, Sol. Gen., of Washington, D. C., Mrs. Mabel Walker Willebrandt, Asst. Atty. Gen., and Mr. John J. Byrne, of Washington, D. C., for Lederer, Collector, and the United States.

[Argument of Counsel from pages 333-334 intentionally omitted] Messrs. Ralph Rymer, of Scranton, Pa., and John Davis and James M. Nicely, both of New York City, for Zerbey and National Surety Co.

[Argument of Counsel from page 335 intentionally omitted] Mr. Justice SANFORD delivered the opinion of the Court.

This case comes before us on a certificate from the Circuit Court of Appeals. Judicial Code, § 239 (Comp. St. § 1216).

It appears from the certificate that Zerbey on January 23, 1920, applied to the Commission of Internal Revenue, under the provisions of the National Prohibition Act,¹ for a permit to sell distilled spirits and wines for other than beverage purposes, and filed with his application a bond in the sum of $100,000, with the National Surety Company as surety. This bond was on Form 738, previously prescribed by the regulations, and recited, in accordance therewith that 'the conditions of this obligation is such that if the said principal shall fully and faithfully comply with all the requirements of the laws of the United States now or hereafter enacted and regulations issues pursuant thereto, respecting the sale or use of distilled spirits and wines for other than beverage purposes, then this obligation to be void; otherwise to remain in full force and virtue.' On January 26, the Commissioner issued to Zerbey a permit 'under the conditions that the provisions of the National Prohibition Act, and regulations issued thereunder, will be strictly observed.'

Thereafter the United States brought an action against Zerbey and the Surety Company in a Federal District Court, in which it was alleged that Zerbey had violated the condition of the bond in (a) failing and neglecting to keep records of his sales of distilled spirits, as required by the Prohibition Act and regulations, (b) selling and disposing of distilled spirits for beverage purposes, (c) diverting distilled spirits to other than beverage purposes, and (d) having in his possession whisky which had been withdrawn, for nonbeverage purposes only, from a bonded warehouse, of which he kept no record as required by the Prohibition Act and regulations; and that the full penal sum of the bond had been forfeited and was due by the defendants to the United States by reason of these breaches of the condition of the bond. It was not alleged that any damage or loss had been sustained by the United States as the result of these breaches. The defendants filed statutory demurrers, which were sustained by the District Court on the ground that the United States could not recover the full penal sum of the bond, but only such loss or damage as it had sustained in consequence of the breaches of the bond; and the suit was dismissed. And the case having been taken to the Circuit Court of Appeals by writ of error, it has certified that, for the proper decision of the case, it desires the instruction of this Court as to the following questions of law:

'(1) Is a bond conditioned upon compliance with the law of the United States and regulations issued pursuant thereto, respecting the sale or use of distilled spirits and wines for other than beverage purposes, given the United States by one to whom a permit to sell intoxicating liquors for other than beverage purposes has been issued under the provisions of section 6 of Title 2 of the National Prohibition Act and regulations promulgated thereunder, forfeitable upon breach of the condition in the full amount of its penal sum? (2) Is recovery upon breach of the condition of such a bond given by one holding such a permit limited to actual damages sustained by the United States?'

These questions, shortly stated, are, in effect: Whether a permit bond on Form 738 is a forfeiture bond entitling the United States to recover the full amount named on a breach of its condition, or a bond of indemnity for the actual damages sustained by the United States from such breach.

Section 6, Title 2, of the National Prohibition Act (Comp. St. Ann. Supp. 1923, § 10138 1/2 c) provides, with certain exceptions not here material, that:

'No one shall manufacture, sell, purchase, transport, or prescribe any liquor without first obtaining a permit from the Commissioner so to do. * * * The Commission may prescribe the form of all permits and applications and the facts to be set forth therein. Before any permit is granted the Commissioner may require a bond in such form and amount as he may prescribe to insure compliance with the terms of the permit and the provisions of this title.'

By Title 2, § 29 (Comp. St. Ann. Supp. 1923, § 10138 1/2 p), it is further provided that any person violating the provisions of any permit or of this title, shall be punished by either fine or imprisonment, or both; and, by Title 2, § 35 (Comp. St. Ann. Supp. 1923, § 10138 1/2 v), that a tax shall be assessed against any person responsible for an illegal sale in double the amount provided by the internal revenue...