text:
Henderson's Distilled Spirits

ERROR to the Circuit Court for the Eastern District of Missouri; the case being thus:

On the 13th July, 1866, Congress passed an act to provide internal revenue, laying and levying taxes on many hundred products of the country. The act is a long act, having seventy-one sections, and covering seventy-five large and closely-printed pages of the statute-book. The first thirteen sections, which cover fifty-three of these pages, relate to the levying and collecting of taxes on a great variety of things, but not of a tax on spirits. Section 14th thus proceeds:

'That in case any goods or commodities for or in respect whereof any tax is or shall be imposed, or any materials, utensils, or vessels, proper or intended to be made use of, for or in the making of such goods or commodities, shall be removed, or shall be deposited, or concealed in any place with intent to defraud the United States of such tax, or any part thereof, all such goods and commodities, and all such materials, utensils, and vessels, respectively, shall be forfeited; and in every such case, and in every case, where any goods or commodities shall be forfeited under this act, or any other act of Congress relating to the internal revenue, all and singular the casks, vessels, cases, or other packages whatsoever containing, or which shall have contained, such goods or commodities respectively, and every vessel, boat, cart, carriage, or other conveyance whatsoever, and all horses or other animals, and all things used in the removal or for the deposit or concealment thereof, respectively, shall be forfeited; and every person who shall remove, deposit, or conceal, or be concerned in removing, depositing or concealing any goods or commodities for or in respect whereof any tax is or shall be imposed, with intent to defraud the United States of such tax or any part thereof, shall be liable to a fine or penalty of not exceeding $500.'

The sections from the 21st to the 45th relate to distilled spirits. The 28th section provides:

'That general bonded warehouses for the storage of spirits or other merchandise allowed by law to be placed in bond, may be established.'

And the 45th section enacts:

'That any person who shall remove any distilled spirits from the place where the same are distilled, otherwise than into a bonded warehouse, as provided by law, shall be liable to a fine of double the amount of the tax imposed thereon, or to imprisonment for not less than three months. All distilled spirits so removed, and all distilled spirits found elsewhere than in a bonded warehouse, not having been removed from such warehouse according to law, and the tax imposed by law on the same not having been paid, shall be forfeited to the United States, or may, immediately upon discovery, be seized, and after assessment of the tax thereon, may be sold by the collector for the tax and expenses of seizure and sale. And proceedings upon such seizure shall be according to existing provisions of law in relation to distraint, and in conformity with any regulations which shall be made by the Commissioner of Internal Revenue. And the burden of proof shall be upon the claimant of said spirits to show that the requirements of law in regard to the same have been complied with. And any person who shall aid or abet in the removal of distilled spirits from any distillery otherwise than to a bonded warehouse, as provided by law, or shall aid in the concealment of such spirits so removed, shall be liable, on conviction thereof, to a fine of not less than $200, or more than $1000, or to imprisonment for not less than three nor more than twelve months. And any person who shall remove, or shall aid or abet in the removal of any distilled spirits from any bonded warehouse, other than is allowed by law, shall be liable to a fine of not more than $1000, or to imprisonment for not less than three nor more than twelve months.'

Section 54th provides a fine of $100 and imprisonment not exceeding a year of any one who shall sell, remove, &c., any fermented liquor, on which no stamp or a fraudulent one has been affixed.

The act took effect generally from the 1st of August, 1866; but so far as it changed existing laws relative to distilled and fermented spirits, only from the 1st of September.

The 29th section enacts:

'That there shall be appointed by the Secretary of the Treasury an inspector for every distillery established according to law, who shall take an oath faithfully to perform his duties; and who shall take an account of all the meal and vegetable productions or other substances to be used for the purpose of producing spirits, when put into the mash-tub or otherwise used; and shall inspect, gauge, and prove all the spirits distilled, under such rules and regulations as may be prescribed by the Commissioner of Internal Revenue; and shall take charge of the bonded warehouse established for the distillery in conformity to law; and such warehouse shall be in the joint custody of such inspector and the owner thereof, his agent or superintendent; and when any spirits shall be placed in such warehouse, an entry therefor, in such form as shall be prescribed by regulations, shall immediately be made and signed by the owner of said spirits, and shall have indorsed thereon a certificate of the inspector that the spirits mentioned have been duly inspected and received in said warehouse, and such entry and certificate shall be filed with the collector of the district; and said inspector shall not engage in any other business while employed as an inspector.'

With this act in force, the attorney of the United States for the Eastern District of Missouri, filed an information in the District Court there, on the 7th of September, 1868, to enforce a forfeiture of one hundred barrels of distilled spirits. The fourth count of the information was founded on the first of the above two quoted sections; that is to say, upon the 14th section of the statute, and was as follows:

'That the said one hundred barrels of spirits were manufactured at some place within the United States, to the said attorney unknown, and between the 1st day of September, A.D. 1866, and the date of the said seizure, by some person or persons to the said attorney unknown, and were then and there goods and commodities on which a tax was then and there imposed by the provisions of law, and the same were removed from the place where distilled with intent to defraud the United States of such tax, the same being then and there unpaid, contrary to the form of the statutes of the United States in such case made and provided.'

One Henderson, of New Orleans, appeared to the monition issued on the information and claimed the spirits as owner. And he filed an answer, putting in issue the material matters alleged in the information, and further alleged that the said spirits 'were purchased by him while the same were in a bonded warehouse, and that he, the claimant, paid the tax imposed thereon by law before he removed the same from said bonded warehouse.' In answer to the count, the claimant denied that the 'spirits were removed from the place where distilled with intent to defraud the United States of any tax being then and there imposed as alleged.'

An agreement was filed in the District Court waiving a jury trial, and the case was heard by the judge upon the following facts, agreed to by the parties according to a stipulation filed before the trial:'1st. That Henderson purchased the spirits while in a bonded warehouse of the United States, at New Orleans, after the same had been placed therein by the owners of the distillery at which the same were made, and that he, Henderson, paid to the United States collector the taxes due on the spirits and removed them from the warehouse, according to law, without knowledge on his part at any time before seizure, of any fraud on the part of the distiller, either actual or alleged; that Henderson was a purchaser, innocent and bon a fide, and paid, himself, the tax on the spirits.

'2d. That he shipped the same to St. Louis, and that they were in his constructive possession at the time of seizure.

'3d. That they were manufactured and distilled at a distillery in the first collection district of Louisiana, in May and June, 1868, carried on in the name of Nimrod Johnson, by the use and means of certain boilers, stills, and other vessels of which Johnson was superintendent and owner.

'4th. That the fourth article in the information was true, but that Henderson subsequently to removal from the distillery and before removal from the bonded warehouse, and before seizure, paid the tax on said spirits, and was a bon a fide and innocent purchaser thereof.

'5th. That he was not a purchaser from the United States, and the United States at no time sold said spirits.'

The District Court gave judgment for the claimant and the Circuit Court affirmed the judgment, that court holding that as the overt act alleged, namely, the removal, was rightful, 'it was difficult to see how it could have been made to defraud the United States of the tax, and that a mere intent to defraud, formed or existing in the mind of the distiller, which intention had never been executed, or attempted to be, was not made a ground of forfeiture.'

The case was now here on error.

Mr. B. H. Bristow, Solicitor-General, and Mr. C. H. Hill, Assistant Attorney-General, for the United States, plaintiffs in error:

1. If these spirits were liable to forfeiture under any count of the information, the forfeiture attached at the moment of the commission of the offence, and can be enforced against the offending property in the hands of an innocent purchaser.

2. The case agreed on admits the truth of the allegations in the fourth count, namely, that the spirits were removed from the distillery 'with intent to defraud the United States of said tax, the same being then and there unpaid.' It then comes by plain words within the 14th section of the statute.

The fallacy of the reasoning of the Circuit Court was it assuming it to be impossible that one step in an attempt to defraud the government of the tax due upon those spirits could be their removal to a bonded warehouse. But it is notorious that spirits have often been removed to United States bonded warehouses from distilleries in accordance with conspiracies between distillers and warehousemen in order to defraud the government, by having the spirits secretly drawn off from the barrels; and under agreements with the revenue officers to have them released upon worthless security without payment of the tax.

Mr. J. A. Garfield, contra:

In Bennet v. Hunter, this court gave its construction of the 4th section of the act of July 7th, 1862, a highly penal statute, in which it is provided, 'that the title of, in, and to every piece or parcel of land upon which said tax has not been paid as above provided shall thereupon become forfeited to the United States.' In construing this statute, the Chief Justice, delivering the opinion of the court, said:

'It must be remembered that the primary object in the act was undoubtedly revenue,. . . and it seems unreasonable to give to an act considered as a revenue measure a construction which would defeat the right of the owner to pay the amount assessed, and relieve his land from the lien.'

Speaking of the claim set up by the plaintiffs in that case, that forfeiture worked eo instanti on the failure of the owner to pay the tax within the required time, the Chief Justice said:

title: Henderson's Distilled Spirits


text: Talk:Henderson's Distilled Spirits

license: Creative Commons - Attribution Share-Alike - https://creativecommons.org/licenses/by-sa/4.0/

title: Talk:Henderson's Distilled Spirits


text:
Henderson's Distilled Spirits/Opinion of the Court

'It is certainly proper to assume that an act of sovereignty so highly penal is not to be inferred from language capable of any milder construction.'

This principle of interpretation is applicable to this case.

2. The Circuit Court did not err in holding the spirits were not forfeited under the fourth count in the information. The 14th section, on which the fourth count is based, does not apply to the removal of spirits. That section applies to the removal from the place of manufacture, and to the deposit or concealment of articles named in the previous sections of the statute; among which articles liquors are not included. Subsequent sections, it is, which govern them, and the 45th section, which concludes this portion of the statute, provides a special and different penalty for the removal of spirits in violation of the law. Different penalties are provided by section 54th for the unlawful removal of fermented liquors, showing that Congress excepted them from the operation of section 14th; a view strengthened by the fact that the statute generally took effect on one date, but that the provisions relating to distilled and fermented liquors did not take effect till a later one.

Section 45th is, therefore, the law which applies to the allegation in the fourth count of the information. But the forfeiture prescribed in that section applies to the removal of spirits 'from the place where the same are manufactured otherwise than into a bonded warehouse,' and the removal of these spirits was not otherwise. It was a bonded warehouse of the United States.

The allegation in the fourth count that the spirits were removed 'from the place where distilled, with intent to defraud the United States of the tax,' and which allegation is admitted in the case agreed on to be true-is rendered nugatory by the other, the fact equally admitted, that the removal was made by the distiller himself to a bonded warehouse of the United States. This act was legal, was in pursuance of the statute, was the very course prescribed by the law 'to secure the payment of the tax.' No conspiracy-which is what, in truth, the opposing counsel assume to have existed-is alleged in the information, nor in the facts agreed on. The contrary appears from the case agreed on. If it did not, all the proceedings required of the inspector by the 29th section -numerous and stringent provisions-must be assumed in the absence of any proof, or even allegation, to the contrary to have taken place. And the fact that when Henderson purchased the spirits he paid the full amount of the tax, and received the collector's certificate of such payment, is conclusive that there was no conspiracy.

The government by accepting and retaining the taxes paid to it by the claimant, is estopped to say the property all the time belonged to it, by reason of previous forfeited title by the vendor or the claimant. Henderson had every possible assurance that he had acquired a perfect title to the property he purchased. If it now be declared forfeited, he loses both the tax and the property, by no fault or negligence on his part. In civil actions, and in all cases like this, which involve a mere right to property, estoppel binds the government as it does individuals.

Reply: Section 45th is widely different from section 14th. The gist of section 14th is the intent with which the spirits are removed; forfeiture only taking place where they are removed, deposited, or concealed in any place with intent to defraud the United States. In section 45th the intent with which the removal is made is immaterial, if they are removed elsewhere than to a bonded warehouse. Thus an information can be founded on section 45th, however innocent may have been the intention of the parties; but, when founded on section 14th, the intent to defraud the government becomes essential. The fact that an information for fraudulently removing spirits elsewhere than to a bonded warehouse may be founded either on section 14th or section 45th, does not show any conflict between the two sections, or that the one limits the other. Such cumulative remedies are very often provided in revenue laws.

Mr. Justice CLIFFORD delivered the opinion of the court.

Distilled spirits, upon which no tax had been paid according to law, were, by the thirty-second section of the act of the thirteenth of July, 1866, subject to a tax of two dollars on each and every proof gallon, to be paid by the distiller, owner, or any person having possession thereof, and the same section provided that the tax shall be a lien on the spirits distilled, and on the distillery used for distilling the same, with the stills, vessels, fixtures, and tools therein, &c. Express provision is also made by the fourteenth section of that act, that all goods or commodities, for or in respect whereof any tax is or shall be imposed, or any materials, utensils, or vessels proper or intended to be made use of for or in the making of such goods or commodities, in case they shall be removed or shall be deposited or concealed in any place with intent to defraud the United States of such tax, or any part thereof, shall be forfeited. Certain alterations are made in each of those provisions by the fourteenth section of the act of the second of March, 1867, but the alterations are not material to the present case, as the same section provides that the new provision shall not exclude any other remedy or proceeding provided by law, which beyond all doubt leaves in full operation the fourteenth section of the prior act.

Regular seizure of the one hundred barrels of distilled spirits in question was made on the first day of September, 1868, by the collector of the district, as alleged in the information, and the record shows that the information was duly filed by the district attorney on the seventh of the same month, in the District Court of the United States for the district where the seizure was made. Being a seizure on land, the claimant was entitled to a trial by jury, but he appeared and the parties entered into a stipulation waiving a jury and submitted the case to the court upon an agreed statement of facts, as they had a right to do, even before any legislative provision was enacted for waiving a jury by a written stipulation. Pursuant to that stipulation the parties were heard, and the District Court dismissed the information and rendered judgment for the respondent. Exceptions were duly taken by the district attorney and he sued out a writ of error and removed the cause into the Circuit Court, where the judgment rendered by the District Court was affirmed, and the United States thereupon sued out a writ of error to the Circuit Court and removed the cause into this court for re-examination.

Seizure of the spirits was made, as before explained, by the collector of internal revenue for the district, and it is alleged in the information that the collector still holds the same in his possession and custody as forfeited to the United States, under the provisions in the act to amend the existing laws relating to internal revenue. Six articles, each charging a forfeiture of the spirits in question, are contained in the information, but in the view of the case taken by the court it will only be necessary to examine the fourth in the series, which is as follows:

That the said one hundred barrels of spirits were manufactured at some place within the United States to said attorney unknown, and between the first day of September, 1866, and the date of said seizure, by some person or persons to said attorney also unknown, and were then and there goods and commodities on which a tax was then and there imposed by the provisions of law, and the same were removed from the place where distilled, with intent to defraud the United States of such tax, the same being then and there unpaid, contrary to the form of the statutes of the said United States in such case made and provided.

Seasonable claim in due form was made for the spirits by the defendant, and he appeared and filed an answer, denying all the material allegations of the information, and tendered an issue to the country, which was joined by the United States. Apart from that, he also answered each article separately, and in respect to the fourth article he denied that the spirits in question were removed from the place where distilled with intent to defraud the United States of any tax then and there imposed, as alleged in the information.

Evidently the answer was precisely equivalent to the general issue, and made it incumbent upon the United States to prove the charge as alleged, and the effect of the stipulation submitting the case to the court was to substitute the court for the jury as the tribunal to determine the issue of fact presented in the pleadings. Had the stipulation contained nothing further, it is clear that the evidence on the one side and the other must have been introduced to the court substantially as provided in the recent act of Congress upon that subject, but the parties went further and stipulated in writing as to what the facts in the case were, in which stipulation it is agreed that the fourth article in the information is true, and it is insisted by the United States that that stipulation is equivalent to a confession of guilt, and that it entitles the United States to judgment, and the court would certainly be of the same opinion if that admission was unaccompanied by what follows in the stipulation in the same connection.

Standing alone, it is an admission that the charge as contained in the fourth article of the information is true, but it must be read in connection with what follows as a part of the same stipulation, and the question is whether the qualification annexed to the admission that the fourth article of the information is true, changes the aspect of the evidence and entitles the defendant to the judgment rendered in his favor by the subordinate courts.

Appended to the admission that the fourth article in the information is true, is the statement that the defendant, subsequently to the removal of the spirits from the distillery, and before their removal from the bonded warehouse, and before the seizure, 'paid the tax on said spirits, and that he was a bon a fide and innocent purchaser;' and the question is whether that statement, appended as it is to the admission, qualifies the language of the admission in such a way that the admission does not establish the truth of the charge contained in the fourth article of the information.

Due weight must also be given to certain other facts stated in the stipulation in determining the question whether the judgment for the defendant was correct or incorrect. He was not the purchaser from the United States, nor have the United States ever sold the spirits in question, but the agreed statement also shows that he purchased the spirits while they were in a bonded warehouse in New Orleans, after the same had been placed therein by the owner of the distillery at which the same were distilled; that he paid the tax due on the spirits to the collector, and removed the same from the warehouse according to law, without any knowledge on his part, at any time before the seizure, of any fraud, either actual or alleged, on the part of the distiller; that the spirits were manufactured and distilled at a certain distillery in that district, in the months of May and June, prior to the seizure, by the person therein named, by the use and means of certain boilers, stills, and other vessels of which the distiller was superintendent and owner, and the parties agree to the effect that all the acts averred in the fifth and sixth articles of the information as having been done in respect to the spirits in question by some person unknown are true, when the averments are applied to the person named in the agreed statement as the manufacturer and distiller of the said spirits.

Four material ingredients are involved in the charge contained in the fourth article of the information: (1.) That the spirits were manufactured at some place within the United States, between the day therein named and the date of the seizure. (2.) That the spirits were then and there goods and commodities on which a tax was imposed by some provision of law then in force. (3.) That the spirits were removed from the place where distilled with intent to defraud the United States of such tax. (4.) That the tax was unpaid at the time the spirits were so removed, with such fraudulent intent.

Beyond all doubt the admission that the fourth article is true is a conclusive admission that each and every one of the well-pleaded allegations which it contains are also true, which, standing alone, would certainly be a confession on the record that the property is subject to forfeiture, unless it can be shown that the fourth article in the information is insufficient in law to warrant a judgment in favor of the United States.

Viewed in that light, as the admission must be, the next question is whether the statement appended to the admission is sufficient to save the property from condemnation in the possession of the defendant. Properly analyzed the statement appended to the admission contains two averments in avoidance of the consequences which would otherwise follow from the admitted acts of the antecedent owner: (1.) That the defendant paid the tax subsequent to the removal of the spirits from the distillery and before they were removed from the bonded warehouse and before the seizure by the collector. (2.) That he was a bon a fide and innocent purchaser, without notice that the spirits were forfeited as alleged in that article of the information.

Where the forfeiture is made absolute by statute the decree of condemnation when entered relates back to the time of the commission of the wrongful acts, and takes date from the wrongful acts and not from the date of the sentence or decree. Subsequent payment of the duties, therefore, is no defence to an information for a forfeiture founded upon antecedent wrongful acts, as the effect of such wrongful acts, where the forfeiture is made absolute by statute, is to divest the owner of all property in the goods seized and to vest the title to the same in the United States, in case a prosecution ensues, and a decree of condemnation follows, as the decree of condemnation when entered by a court of competent jurisdiction relates back to the date of the wrongful acts as alleged and proved at the trial or in the hearing of the cause. Repeated decisions of this court have established that rule in all cases where the forfeiture is made absolute by the act of Congress, and it necessarily follows that neither the subsequent payment of the duties nor the fact that the defendant is an innocent purchaser, without notice of the wrongful acts of the antecedent owner, constitutes any defence to the charge contained in the fourth article of the information. Many such adjudged cases are to be found in the reported decisions of this court, and it must be admitted that they establish the rule beyond all doubt, that the forfeiture becomes absolute at the commission of the prohibited acts, and that the title from that moment vests in the United States in all cases where the statute in terms denounces the forfeiture of the property as a penalty for a violation of law, without giving any alternative remedy, or prescribing any substitute for the forfeiture, or allowing any exceptions to its enforcement, or employing in the enactment any language showing a different intent; and that in all such cases it is not in the power of the offender or former owner to defeat the forfeiture by any subsequent transfer of the property even to a bon a fide purchaser for value without notice of the wrongful acts done and committed by the former owner. Established as that rule has been by the decisions of this court for more than half a century, it is insisted that it should be applied in the case before the court, and it is difficult to see any reason for rejecting the proposition, as the words of the act under which the fourth article of the information is drawn denounce the forfeiture of the property in terms as absolute and unqualified as any which can be chosen in our language. Goods and commodities falling within that provision, it is enacted, shall be forfeited in case they shall be removed with intent to defraud the United States of such tax, or any part thereof, and the language denouncing the forfeiture is explicit and absolute and without any qualification whatever. Compare the language of the act of Congress with the language employed in the fourth article of the information and it will be seen that the charge against the spirits is preferred in the same language as that employed in the act of Congress denouncing the forfeiture, as the fourth article alleges that the spirits in question were then and there goods and commodities on which a tax was then and there imposed by the provisions of law, and that the same were removed from the place where distilled with intent to defraud the United States of such tax, the same being then and there unpaid; and the admission set forth in the agreed statement is that the fourth article of the information is true, which is a direct confession that the prohibited acts charged in that article were done and committed at the time and place and by the person and in the manner therein alleged.

Concede all that and it is clear that the United States are entitled to judgment, if it be true that the forfeiture relates back to the date of the wrongful acts charged in the information. Escape from that conclusion, it would seem, is impossible, if it be admitted that the fourth article of the information sets forth a good cause of forfeiture, and it is clear that the affirmative of that proposition must be admitted, unless it be affirmed that the 14th section of the act of Congress, on which it is drawn, does not provide for such a forfeiture, under the circumstances therein described. Such a proposition, whether so intended or not, is precisely equivalent to a demurrer to the fourth article of the information or to a motion in arrest of judgment after verdict; and if so, then it follows, as shown by all the authorities upon the subject, that everything well pleaded in the fourth article of the information must be taken as true, which is the exact admission contained in the agreed statement. Nothing can be more certain in legal investigation than that the decree must have been for the United States if the claimant had demurred to the fourth article of the information, unless it can be held that the act of Congress denouncing the forfeiture is unconstitutional, as the article in question embodies the exact language of that provision, and it is equally certain that a motion in arrest of judgment would also have been unavailing for the same reason, and also because the validity of the act of Congress is beyond all doubt.

Congress possesses the power to levy taxes, duties, imposts, and excises, and it is as clear that Congress may enact penalties and forfeitures for the violation of such laws as it is that Congress may levy the taxes or duties or pass laws for their collection, safe-keeping, and disbursement.

Section fourteen, it is admitted, is broad enough in its terms to embrace the removal of spirits, on which there is a tax, from the place where distilled, with intent to defraud the United States of the tax, but it is suggested that another section of the same act requires that spirits, when removed from the place where distilled, shall be deposited in a bonded warehouse, and that the penalty imposed for a violation of that requirement is different from the penalty imposed by the fourteenth section of the act, and it must be admitted that the suggestion is correct, but it is impossible to see in what respect the suggestion tends to support the views of the defendant in the present case.

Suggestion is also made that it is not an illegal act to remove spirits from the place where distilled to a bonded warehouse, and that also is true, but the corollary attempted to be drawn from the two suggestions is a non-sequitur, and cannot be sustained, which is that the charge that the spirits were removed from the place where distilled, with intent to defraud the United States, cannot be true if it appears that the spirits were removed from the distillery to a bonded warehouse, as the removal of spirits from the place where distilled to a bonded warehouse is authorized by law. Undoubtedly such a removal of spirits from the place where distilled to a bonded warehouse, if made to secure the payment of the tax to the government, is a lawful act, but it is equally clear, if the removal is made even to a bonded warehouse to defraud the United States of the tax, that the act of removal is illegal, and that the spirits removed are forfeited.

Both of these suggestions, however, are founded upon the assumed theory that the record shows that the only removal of the spirits alleged or proved was a removal from the place where distilled to a bonded warehouse, but that assumption is wholly unsupported either by the charge contained in the fourth article of the information or by the admission that the fourth article is true, as exhibited in the agreed statement. On the contrary, the fourth article of the information alleges that the spirits were removed from the place where distilled, with intent to defraud the United States of the tax, without any specification as to the place to which the same were removed, or where they were deposited; nor is that omission any objection to the form of the charge, as that article of the information follows substantially the language of the fourteenth section of the act of Congress on which it is drawn.

Tested by the charge, as made in that article, and the admission applicable to it, as exhibited in the agreed statement, as the question must be, and it is clear that the spirits may have been removed elsewhere than to a bonded warehouse before they were placed in that depository by the owner and distiller. Such certainly would be the legal conclusion if the defendant had demurred to the information, and the court is of the opinion that the same conclusion must follow from the admission that the fourth article of the information is true, as the admission is expressed in the agreed statement.

Henderson, the claimant, purchased the spirits while they were in the bonded warehouse and after they had bee deposited therein by the owner of the distillery where the spirits were manufactured, and having made the purchase without notice that any fraud had been practiced by the distiller, and having paid the tax before the spirits were removed from the bonded warehouse, it is insisted by his counsel, in every possible form of argument, that his title is perfect and that the spirits are not liable to forfeiture, but the decisive answer to all that is the one already given, that the forfeiture relates back to the unlawful or wrongful acts of the antecedent owner, and that he cannot by any subsequent transfer of the property defeat the title of the United States, as settled by a series of decisions which, if traced to their source, have their origin in the early history of the common law.

Rules of decision of such long standing and so necessary to protect the public revenue cannot be changed, nor can it be admitted that the charge contained in the fourth article of the information may not be sustained, even if it appears that the only removal of the spirits made by the distiller was to the bonded warehouse, as assumed in argument by the defendant.

Unquestionably a removal of distilled spirits from the place where distilled to such a depository, if made to secure the payment of the tax, is a lawful act, but it is equally clear that if it is made with intent to defraud the United States of the tax it is an unlawful act, and subjects the spirits to forfeiture.

Grant that the removal was rightful, as assumed by the circuit judge, and the conclusion which he adopted would follow, but it cannot be assumed in this case that the removal was rightful, as the charge in the fourth article of the information is that it was made with intent to defraud the United States of the tax, and the admission in the agreed statement is that the fourth article of the information is true, which shows as fully as it can be shown that the United States are entitled to a decree of condemnation, unless it can be established that the fraudulent intent there charged could not under any circumstances be carried into effect by such a removal as that alleged in the fourth article of the information and admitted in the agreed statement.

Suppose it be true, as assumed in argument, that the only attempt made to execute the unlawful intent charged was the removal of the spirits from the place where distilled to the bonded warehouse, still it would by no means necessarily follow, as is supposed, that the removal was a legal act, as the removal, though to a bonded warehouse, may nevertheless have been made for the express purpose to defraud the United States of the tax, and if so, then the removal was indubitably an illegal act, and the spirits are properly subject to forfeiture as charged in the information.

Cases have arisen, as the records of this court show, where the removal to the bonded warehouse was made as a part of a preconcerted arrangement with other parties to avoid the payment of the tax, and it would not be difficult to suppose other cases where the removal of the spirits from the place where distilled to the bonded warehouse would be a necessary part of a well-devised scheme to defraud the United States by delivering the spirits to purchasers without the payment of the duties.

Inspectors of spirits are required to be appointed by the Secretary of the Treasury, and all distilled spirits, before being removed from the distillery, are required to be inspected and gauged by a general inspector, whose duty it is to mark the vessels or packages in the manner required by law, and penalties are prescribed and imposed in case the spirits are removed from the place where distilled without a compliance with those requirements.

Persons distilling spirits, and the owners of stills used for the purpose of distilling spirits, are required to keep books and to make certain entries therein, and to render certain accounts to assessors, and if they do not comply with those requirements they also are subject to certain penalties for the neglect.

Bonded warehouses are established for the storage of spirits to be placed therein to secure the payment of the duties imposed by law, and the provision is that if any person shall ship, transport, or remove any spirits under any other than the proper mark or brand, known to the trade as designating the kind and quality of the contents of the casks or packages containing the same, or cause the same to be done, he shall forfeit the same, and shall, on conviction thereof, be subject to and pay a fine of five hundred dollars.

Cautious merchants, in consequence of those regulations, and many others equally stringent, are often disinclined to purchase spirits at the place where distilled lest they should be subject to forfeiture, if equally favorable terms are offered by other parties who have made deposits in the bonded warehouses. Distillers, therefore, intending to evade the payment of the duties may find it a most effectual way to accomplish their unlawful designs, in case they can, by bribery or otherwise, secure the co-operation of the inspector, storekeeper, or collector, to remove the spirits to a bonded warehouse, as spirits placed in that depository are less subject to suspicion and sell more readily than before they were removed from the place where distilled.

Spirits placed in such a depository sell more readily than before they were removed, because they are regarded as less likely to be subject to forfeiture than while they remained in the distillery, but it is clear that the theory that an intent to defraud the United States cannot be predicated of a removal of spirits from the place where distilled to a bonded warehouse is an erroneous theory, as it is manifest that the dishonest distiller, if he can obtain the assistance of the inspector, storekeeper, or collector, as a partner or agent, will find such a removal an essential step in almost every scheme which he may devise to accomplish his wicked designs.

Viewed in any light, therefore, the court is of the opinion that the judgment of the Circuit Court is erroneous.

Questions are also presented in the record under the fifth and sixth articles of the information, but the court having come to the conclusion that the United States are entitled to judgment upon the fourth article of the information, do not deem it necessary to express any opinion as to the other questions.

JUDGMENT REVERSED and the cause remanded with instructions to render.

JUDGMENT FOR THE UNITED STATES.

Mr. Justice FIELD, with whom concurred the CHIEF JUSTICE and Mr. Justice MILLER, dissenting.


text: Talk:Henderson's Distilled Spirits/Opinion of the Court


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Henderson's Distilled Spirits/Dissent Field

Mr. Justice FIELD, with whom concurred the CHIEF JUSTICE and Mr. Justice MILLER, dissenting.

I am unable to concur in the judgment of the majority of the court, and will briefly state the grounds of my dissent.

The proceeding is an information for the forfeiture of one hundred barrels of distilled spirits. The forfeiture is not decreed, on the ground that the government has not received the taxes levied on the spirits, for it is admitted that these have been paid; nor on the ground that the claimant has committed or participated in the commission of any fraud in the acquisition of the property, for it is conceded that he purchased the spirits in good faith without knowledge of any defect or taint in his vendor's title. Nor is the forfeiture inflicted for any violation of law, in act or deed, on the part of the distiller of whom the claimant purchased. He only removed the spirits from the place of their manufacture to the bonded warehouse of the United States, and that was a lawful, and not an unlawful act. The forfeiture is decreed because the former owner, in removing the spirits to the bonded warehouse, intended at the time to defraud the government of the tax thereon-an intent, however, which he never attempted to carry into execution.

We thus have this singular and, I venture to say, unprecedented fact, in the history of judicial decisions in this country, that the property of a citizen honestly acquired, without suspicion of wrong in his vendor, is forfeited and taken from him because such vendor, at some period whilst owning the property, conceived the intent to defraud the government of the tax thereon, although such intent was never developed in action, and for the execution of which no step was even taken.

The presumption is that the majority of the court are right in this decision, and that the minority are mistaken in their views of the law governing the case. It is, therefore, with diffidence that I venture to dissent from their judgment, a diffidence which is greatly augmented by the declaration of the majority, that it is impossible to escape the conclusion which they have reached.

But for this conclusion I should have supposed that it would have been impossible, at this day and in this age, and in our country, to obtain a decree confiscating the property of a citizen for anything which a former owner of the property may have intended to do, but never did, with respect to it. I should have said that the intentions of the mind, lying dormant in the brain, had long since ceased to be subjects for which legislatures prescribed punishment. Against threatened injuries to person or property remedies are provided; and this, it is believed, is the extent to which legislation can legitimately go with respect to intentions, however fraudulent or wicked, so long as they remain undeveloped by action. Penalties and forfeitures are not inflicted at this day in any civilized and free government for the motives with which lawful acts are done.

The inability to ascertain, with certainty, the intentions of a party, except as they are exhibited in his acts, and the injustice which must necessarily follow any attempt to inflict punishment for them, except as they are thus exhibited, have hitherto, in this country, prevented any legislation of that character, unless such legislation is found in the present revenue act of Congress. The injustice in its operation of such legislation, assuming such legislation to exist, could not be more strikingly illustrated than in the present case. But I am not prepared to admit, notwithstanding the cogency and persuasiveness of the able and elaborate argument in the opinion of the majority, that there is any such legislation on our statute-book.

The act of Congress under which this proceeding was taken provides, in its twenty-eighth section, for the establishment of bonded warehouses for the storage of spirits 'to secure the payment of the internal revenue tax thereon,' and, in its forty-fifth section, prohibits 'the removal of distilled spirits from the place where the same are distilled otherwise than into a bonded warehouse, as provided by law,' imposing penalties upon parties making such removal, and declaring that 'the distilled spirits so removed' shall be forfeited to the United States.

The same act declares, in its fourteenth section, that if any goods or commodities, upon which a tax is imposed, or the materials, utensils, or vessels, proper or intended to be used in their manufacture, are removed, deposited, or concealed in any place, 'with intent to defraud the United States of such tax, or any part thereof,' they shall be forfeited to the United States. And it is upon the language of this section, as applied to the facts admitted by the parties, that the majority of the court found the decree of forfeiture.

The language is undoubtedly broad enough to cover any removal of spirits, upon which a tax has been imposed, from their place of manufacture; and, if it has any reference to articles of that character, it must be construed in connection with the language of the forty-fifth section. And the evident meaning of the two sections, if they are construed together, is, that the removal, for which a forfeiture is declared, is a removal to some other place than a bonded warehouse of the United States. Of a removal to such warehouse it is difficult to perceive how an intent to defraud the government can be, in truth, affirmed. It would be as reasonable to declare that a debtor had an intention to defraud his creditor when he placed in the hands of the latter the money to pay his demand. It is plain, in my judgment, or rather I should have said it was plain but for the opinion of the majority, that the removal of spirits forbidden by that section is a removal to some place beyond the reach of the government, or where the government would be in some way embarrassed or obstructed in the collection of its tax. It seems to me a strange application of the prohibition to make it cover a removal of spirits to a warehouse specially provided by the government for their reception, and where they are placed in the possession and custody of the officers of the United States.

But I am unable to convince myself that the fourteenth section has any reference whatever to the removal of distilled spirits. The previous sections of the act relate to taxes on a great variety of articles, of several hundred different kinds, and it does not include distilled spirits among them. The removal mentioned in the fourteenth section would seem, therefore, to apply to the removal from the place of their manufacture of the articles thus previously designated, or at least of articles mentioned in the statute, for the removal of which no different penalties are specifically prescribed.

The sections of the act, from the twenty-first to the forty-fifth inclusive, relate to the tax on distilled spirits, and contain numerous provisions applicable only to them. The punishment they prescribe for the removal of the spirits from the place of their manufacture, otherwise than to a bonded warehouse, in addition to their forfeiture, is different from the penalty prescribed by the fourteenth section, for the like removal of other goods. This fact would seem to be conclusive, if other reasons were wanting, that the fourteenth section has no reference to the removal of distilled spirits. The special provisions respecting them should except them, according to all established canons of interpretation, from the general language of that section.

'That a law,' says Chief Justice Marshall, 'is the best expositor of itself, that every part of an act is to be taken into view for the purpose of discovering the mind of the legislature, and that the details of one part may contain regulations restricting the extent of general expressions used in another part of the same act, are among those plain rules laid down by common sense for the exposition of statutes, which have been uniformly acknowledged.'

And it is laid down in the elementary treatises that where a general intention is expressed in one part of a statute, and a particular intention in another part, inconsistent with the general intention, the particular intention is to be regarded as an exception.

The suggestion by the counsel of the government, that a removal of distilled spirits to a bonded warehouse, although the law provides for such removal as a means for securing the payment of the tax, may be made with intent to defraud the United States of such tax, inasmuch as there may be an agreement between distillers and warehousemen to have the spirits secretly drawn out from the vessels, or to have the spirits released upon insufficient security, does not strike me as entitled to any consideration in this case. Conspiracies there undoubtedly may be with officers of the United States to defraud the government, but in the absence of any proof tending to establish such a conspiracy, the court would not be justified in imagining its existence for the purpose of working a forfeiture of goods in the hands of an innocent party. It would rather indulge the more rational and just presumption that all the officers of the government did their duty, until at least some evidence to the contrary was produced.

This is a case of great hardship and manifest injustice. The claimant found the spirits in a bonded warehouse of the government, in custody of the officers of the United States. He paid to them the tax due on the goods, and he paid to the owner their value. He had no suspicions that his vendor ever entertained any intention to defraud the government of the tax levied on them, and if he ever had such suspicions he might well have supposed that his vendor had repented of his intention, when he delivered the property to the keeping of the officers of the United States.

The government through its officers took from the innocent purchaser the duties upon the goods, thus saying to him that the goods then belonged to the distiller who placed them in the warehouse. The government now declares through its officers that these goods all the time belonged to it by reason of the previous forfeiture, and thus the honest claimant loses both the taxes and the goods, or at least is left to the doubtful chances of obtaining the former by petition to the government, and the latter by action against his vendor.

The object of the act of Congress, under which the forfeiture is declared, is to raise revenue; and it seems to me that the severe construction in favor of forfeitures in the hands of innocent parties, given by the majority of the court, must have a tendency to defeat this object; for it will scarcely be possible for any one to purchase merchandise with safety when it may be seized and forfeited in his possession for reasons such as are assigned in this case.

I am of the opinion that the judgment of the court below should be affirmed.


text: Talk:Henderson's Distilled Spirits/Dissent Field


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Christmas v. Russell (81 U.S. 69)

APPEAL from the Circuit Court for the Southern District of Mississippi; the case being thus:

Richard Christmas, of Kentucky, on 30th November, 1859, sold to one Lyons, of Mississippi, an estate there, and received in consideration therefor his promissory notes, each for $16,666, payable to him the said Richard or bearer, with interest, with a mortgage on the estate.

These notes subsequently (May, 1866) passed into the hands of H. H. Christmas, also of Kentucky, the son of Richard by his first wife, who, in the following June, had a settlement and compromise with Lyons, who paid a certain sum in cash, and for the remainder executed his two promissory notes in favor of said H. H. Christmas, for $8339.90 each; one payable December 1st, 1866, and the other February 1st, 1868. These notes were to be secured by the mortgage aforementioned.

The said H. H. Christmas being indebted to Payne, Huntington & Co., of New Orleans, pledged to them, in February, 1867, the first of these notes. Neither note being paid, two suits were instituted on them in the Circuit Court of the United States for the Southern District of Mississippi; one in the name of H. H. Christmas, for the use of Payne, Huntington & Co., on the pledge above stated, and the other in his own name and for his own use.

A bill was also filed to foreclose the mortgage on the notes, on which these respective rights were asserted.

On the 1st May, 1868, H. H. Christmas entered into a written obligation with Mrs. Mary Christmas, the second wife of said Richard (and like her husband, of Kentucky); in which, in consideration of her assuming to pay the debt due to Payne, Huntington & Co., he transferred to her the note of Lyons, left in pledge with them. She having paid the note by a sale of her separate estate, made by Richard, under a power of attorney executed by his wife, and by a deed executed by him, as trustee for her, in June, 1868, the bill to foreclose the mortgage was amended, by showing this transfer and the payment of the amount due to P., H. & Co., and application was made to substitute her name for that of P., H. & Co., on the action at law. On the second of these notes a judgment was rendered on 13th November, 1868, for $8868. The other one remained in suit.

So far as to this part of the case. And now the subject-matter changes. It is thus:

On the 25th of May, 1860, one Russell, also of Kentucky, for himself and other persons there, for whom he sued, obtained a judgment for about $12,000 against the father, Richard Christmas, already named. The judgment was brought by writ of error to this court, and execution stayed by a supersedeas bond executed by the said Richard and one Yerger, and a certain Anderson, as his sureties. To induce Yerger and Anderson thus to become his sureties, Christmas had promised them a counter security of some sort, and he had in fact given them such security-the note of one Martin-which, however, to promote in some way his convenience, they had surrendered to him. The matter stood thus until the war of the rebellion closed, A.D. 1865. Christmas had during the war gone to Texas, and thence went to Havana, and thence to Europe. On reaching Liverpool he wrote, October 23d, 1865, a letter to Yerger, thus:

'I feel great uneasiness about your liability on the bond in suit of Russell against me. I have ever held the Lyons note as ''sacred for the payment of this debt, and have it now in New York endeavoring to sell it with the mortgage to pay this debt. I expect to hear from it daily. If not sold I will send it to you as soon as I return''.'

On the 14th of February, 1866, he wrote again, stating that he had countermanded the sale of the Lyons note, and that he would make a liberal arrangement with him, and adds:

'I could not safely send you Lyons's note by mail, as it is payable to me or bearer; hence, if lost, might put me to much trouble.'

On the 20th of February, 1866, he wrote again to Yerger, stating that he had written on the 17th, proposing that if Lyons would take up Russell's debt he would allow it as a credit, dollar for dollar, on the note; but reflecting that the judgment might not be affirmed in the Supreme Court of the United States, and that the note was well secured, he requests that no further action be had until he can be better informed, suggesting that the rents of the land subject to the mortgage would pay the amount for which Yerger was surety, and then adds:

'I will hold this note-$16,666, and many years' interest always subject to this debt, provided the judgment is affirmed, until which time let the matter rest where it is. When a compromise is made it must be through you as surety. I am sorry you told Lyons of our understanding, as he will be apt to let Russell know, and prevent an advantageous compromise.'

On the 21st of February, 1866, he wrote again from Liverpool, saying, 'I wrote you on the 17th and 20th,' suggesting that he had written to Burwell to compromise the Russell debt, and adds:

'You may rest assured I will protect you with the Lyons note. . . . This fact should not be known, to enable me to make a good compromise.'

On the 12th of May, 1866-after the transfer of the notes to his son, H. H. Christmas, which he says he had been compelled to make-he adds:

'In this I hope I have not lost sight of my purpose to protect you,' &c.

In this state of things-and Richard Christmas being now wholly insolvent-Russell and the others, for whom he had recovered the judgment, filed a bill in the same, the Circuit Court for the Southern District of Mississippi, against Lyons, still of Mississippi, and all three of the Christmases, father, wife, and son-these last three, like himself, as already mentioned, being citizens of Kentucky-setting forth the facts above stated, including the citizenship; and seeking to enjoin Lyons from paying his notes to either Mrs. Christmas or to the son, H. H. Cristmas, and seeking to cause the payment (when payment was to be made), to be made to them, on the ground of their already-mentioned judgment against the father, Richard Christmas (for the payment of which Yerger and Anderson, his sureties, had, by the affirmance of the judgment, in this court, become equally liable with him), and on the further ground that the said Richard had made an equitable assignment of the fund to them, and that they were in equity entitled to enforce the security.

The court below decreed for the complainants, 'it appearing,' as it said, 'that the said Richard, with intent to provide for the payment of the judgment, in case the same should be affirmed, and to induce the said Yerger and the said Anderson to become his sureties aforesaid, did agree to provide special indemnity to them; and with such intent, and to the end that said judgment should be paid, and his said sureties saved harmless, did assign to them, his said sureties, the debt mentioned in the complainants' bill, as due from the defendant, Lyons, to him, the said Richard;' 'and did so assign and set apart the said debt to the sureties aforesaid, as to give them a lien upon the said debt, which in equity they are entitled to enforce for the purpose of paying the said judgment, and that their lien attaches to and binds the debt due from Lyons, and not converted by said Harry and Richard, and which debt is evidenced by the judgments recovered in this court in favor of H. H. Christmas, and of H. H. Christmas for the use of Mary E. Christmas, and by a decree in this court against Lyons in favor of said H. H. Christmas and Mary E. Christmas, foreclosing the mortgage, executed by said Lyons, to secure the payment of said debt due by him as aforesaid.'

The court accordingly decreed payment to the complainants of the fund in court, which had been paid by Lyons, $7873, and that the said Lyons pay to them $8192, with interest from the 21st May, 1869.

From this decree the present appeal was taken. The errors assigned being—

First. That under the Constitution, which declares that the judicial power shall extend to 'controversies between citizens of different States,' the court below had no jurisdiction over the defendants, Richard, H. H., and Mary Christmas, who were stated in the bill to be citizens of Kentucky.

Second. That if this was not so, and if the court below had jurisdiction, the evidence did not authorize the conclusion that there had been an equitable assignment.

Mr. P. Phillips, for the appellants:

As to jurisdiction. The complainants are citizens of Kentucky, and Richard, H. H., and Mary Christmas, the only real defendants, are citizens of the same State. The controversy between these parties arises out of the question, whether Richard had made to the complainants, or to others for their benefit, an equitable assignment of the three original notes given by Lyons to Richard on the purchase of certain real estate. That controversy is for the first time brought to the notice of the court by the bill filed in this case. The court, therefore, by the language of the Constitution, had no jurisdiction of the controversy, unless the bill was a bill not original; that is to say, unless it was ancillary to a case of which it had jurisdiction. Then, indeed, as of a matter but ancillary to the former case, it would have jurisdiction, though it would not have it as of an original proceeding. This is all hornbook law.

Now, the bill here was an original bill, for it related to matters not before litigated in the court by the same persons, standing in the same interest.

The matter of this equitable assignment was never litigated before in the court, nor was the bill an addition to, or a continuance of, an original suit. It is therefore an original bill. Cases on the subject in this court are, Logan v. Patrick, Sims v. Guthrie, Dunn v. Clark, Clark v. Mathewson, and lately, Jones v. Andrews. In all these cases the suit was sustained irrespectively of citizenship; but in each the suit was but a continuation of a former controversy and between the same parties. The same is true of Dunlap v. Stetson, a circuit case. The absence of jurisdiction being thus clear, the decree must on that ground be reversed and the bill dismissed. This being so, the court cannot properly pass upon the other point. Any decision of it would be extrajudicial.

But if the court thinks that the jurisdiction exists, the case is clear on merits. As far back as Lord Hardwicke's time, and in Ridgway's Cases, in a suit where A. filed a bill against B., and one of his debtors, praying that the court would stay the money in the debtor's hands, and not suffer it to be paid to B., for fear of his misapplying it, B. having promised to pay the complainant's demand out of such specific debt, Lord Hardwicke refused to hear any argument on the question. He dismissed the bill, saying:

'If a debtor promises to pay his creditor out of the money to be recovered in a certain suit, and on the faith of this promise the creditor forbears to sue him, this creates no specific lien on the money recovered.'

And this same doctrine, declared frequently since, is thus presented with emphasis of late times in the Leading Cases in Equity:

'It is necessary, moreover, in order to constitute an assignment, either in law or in equity, that there should be such an actual or constructive appropriation of the subject-matter assigned as to confer a complete and present right on the assignee, even when the circumstances do not admit of its immediate exercise. A covenant on the part of a debtor, to apply a particular fund in payment of the debt as soon as he receives it, will not operate as an assignment, for it does not give the covenantee a right to the funds, save through the covenantor, and looks to a future act on his part as the means of rendering it effectual.'

Speaking of this extract, the Supreme Court of Ohio says:

'This rule seems to be well sustained and settled by the cases cited in its support.'

Mr. Hubley Ashton, contra:

Of course, if there is no jurisdiction the case is at an end, and no question of merits arises. But there is jurisdiction, for a bill of the character of the one filed in this case, to enjoin proceedings pending in the Circuit Court, and to prevent a wrongful use of the proceedings, is not regarded as an original suit; and non-resident plaintiffs in the proceedings sought to be enjoined, or as to which relief is sought, being in court as parties, may be made such by the bill. This court, in Freeman v. Howe, correct the case of Dunn v. Clark, relied on by Mr. Phillips. Referring to the opinion given in that case, they say:

'It would seem, from a remark in the opinion, that the power of the court upon the bill was limited to a case between the original parties to the suit. This was probably not intended, as any party may file a bill whose interests are affected by the suit at law.'

The jurisdiction exists then, and question of merits does arise.

From the best authorities on the subject of equitable assignments, the following propositions may be extracted: 1. Anything which shows an intention to assign on the one hand, and from which an assent to receive on the other may be inferred, will operate as an assignment if sustained by a sufficient consideration.

2. No writing or particular form of words is necessary if the consideration be proved, and the meaning of the parties apparent.

3. The obligation to indemnify sureties is a continuing obligation, and a sufficient consideration for a transfer or conveyance.

The object of the parties here is apparent. It was to place Yerger and Anderson in the position of sureties with specific indemnity. Christmas being under an express obligation to do so, and having obtained the surrender of the first indemnity on an understanding that he was to replace it by something equivalent, Yerger accepted it, and notified Lyons of the understanding with Christmas. It was a power of attorney coupled with an interest, a designation of the fund as one to be used by the surety with power to use it, and notice to the debtor of that power and its object.

There can be no doubt as to the effect of this pledge as between the parties. A court of chancery could enforce it against Christmas, and against any party occupying the position of H. H. Christmas, who took the note long after it was due, and for a pre-existing debt and not as actual payment. A party taking securities after maturity takes the title of the vendor subject to all equities by which it is affected. Then, as to Mrs. Christmas, the whole matter was conducted by Richard Christmas, who had, as her agent, full notice.

The right and justice of the claim of the sureties to have this debt applied to their relief is clear. The opposing title of the son and wife of Richard Christmas looks like a fabricated title. No fair-minded person can read the letter of October 23d, 1865, in which the elder Christmas declares that he has ever held the note 'sacred for the payment of this debt,' that he 'has it now in New York endeavoring to sell it in order to pay this debt,' and if not sold 'will send it to Russell,' and not feel a disposition to sustain the decree below, unless the claims of Mrs. Christmas and the son are clear, which they are not.

Reply: The language cited from Freeman v. Howe et al. was extra-judicial; dictum merely. It is unsupported by the two cases to which it refers, to wit: Pennock v. Coe, and Guy v. Tide-water Canal. The question now under consideration did not directly arise, nor is it even remotely referred to in the argument.

Mr. Justice SWAYNE delivered the opinion of the court.

title: Christmas v. Russell (81 U.S. 69)


text: Talk:Christmas v. Russell (81 U.S. 69)

title: Talk:Christmas v. Russell (81 U.S. 69)


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Christmas v. Russell (81 U.S. 69)/Opinion of the Court

Two questions have been argued and are presented for our consideration. They are:

Whether the residence of the parties as disclosed in the record was such as gave the court below jurisdiction of the case? and

Whether William Yerger and Warren P. Anderson had such a lien, by equitable assignment, upon the fund in controversy as warranted the decree appealed from.

The solution of these questions requires a brief statement of the case as it appears in the record

Richard Christmas held three notes of Lyons payable to himself, all dated November 30th, 1859, each for the sum of $16,666.50, and payable respectively, one, two, and three years from date. Richard Christmas assigned and delivered them to his son, H. H. Christmas. H. H. Christmas made a compromise with Lyons whereby these notes were delivered up to the maker, and he executed to H. H. Christmas, in their stead, two notes, each for $8339.90, one payable December 1st, 1866, the other February 1st, 1868. Both were secured by a mortgage upon real estate. H. H. Christmas hypothecated one of the notes to Payne, Huntington & Co., of New Orleans, to secure a debt which he owed them. Suits upon the notes were instituted in the court where this bill was filed. The suit upon one of the notes was in the name of H. H. Christmas for his own use. The other was in his name for the use of Payne, Huntington & Co. A bill was also filed in the same court to foreclose the mortgage. It set out the rights of H. H. Christmas and of Payne, Huntington & Co. touching the notes. On the 1st of May, 1868, H. H. Christmas entered into an agreement with Mary Christmas, whereby in consideration of her assuming the payment of the debt due to Payne, Huntington & Co., he transferred to her the note hypothecated to them. Payment to them was made out of her means, and they delivered up the note. The foreclosure bill was amended by the substitution of her name for that of Payne, Huntington & Co., and an application, which is still pending, was made for the like substitution in the suit at law upon the note transferred to her. A judgment was recovered upon the other note.

In this condition of things the complainants filed their bill. It alleges the following state of facts: Russell, now deceased, for himself and the use of the complainants other than his executors, recovered a judgment against Richard Christmas, which was taken to the Supreme Court of the United States by a writ of error. William Yerger and Warren P. Anderson became his sureties in the error bond. The judgment was affirmed by this court, and the sureties thus became liable on their bond. The sureties executed the bond upon a promise of indemnity by their principal. He subsequently gave them a lien for this purpose upon one of the original notes of Lyons. It is claimed that this lien attaches to the notes taken in substitution for them. Richard Christmas is hopelessly insolvent, and has gone into bankruptcy. The complainants seek to be subrogated to the rights of the sureties and to enforce the alleged lien for the satisfaction of the judgment. The bill alleges that the complainants are all residents of the State of Kentucky; that the defendants, Richard, H. H., and Mary Christmas are all residents of the same State, and that the defendants, Yerger and the legal representatives of Anderson and Lyons, are residents of the State of Mississippi.

No party to the original suits has had any connection with the filing of this bill. Lyons, the defendant in these suits, asks no protection against them. He did not answer the bill, but allowed a decree pro confesso to go against him. The case which the bill makes is wholly outside of the litigation in the suits at law. It is alien to everything involved in those proceedings. It alleges a lien upon the liability of Lyons, prior and paramount to the right of H. H. Christmas as plaintiff for his own benefit in one of the suits at law, and to that of Mary Christmas as cestui que use in the other. The controversy is wholly between them and the complainants. The bill is essentially an original one. In no sense can it be held to be auxiliary or ancillary to the action at law. Can such a bill be maintained?

The Constitution, article 3, limits the judicial power of the United States to 'controversies between citizens of different States.' There are exceptions which do not affect this case, and need not, therefore, be more particularly adverted to. The act of 1789 declares that 'no civil suit shall be brought. . . against an inhabitant of the United States by any original process in any other district than that whereof he is an inhabitant or in which he shall be found at the time of serving the writ.' The act of 1839 authorizes the voluntary appearance of parties in regard to whom there is no inherent and insuperable jurisdictional objection, in suits elsewhere than in the district in which they reside, or in which they may be found.

In the light of these provisions it is clear that this bill cannot be maintained as an original one; and we think it equally clear that it cannot be maintained as an auxiliary or supplementary bill, because it is not one of that character. The case falls clearly within the rules laid down by this court, upon the subject of parties, in Shields v. Barrow. The several adjudications of this court upon the point under consideration have been referred to by the counsel on both sides. Those cases call for a few remarks. In the five earliest cases the defendants in the suits at law were complainants in the suits in equity. In one of them, Dunn v. Clark, a judgment had been recovered against Dunn and others in the Circuit Court for the District of Ohio. The plaintiff, who was a citizen of Virginia, had died. The defendants filed their bill in the same court, praying for an injunction and a conveyance of the premises. All the complainants and all the defendants in the chancery suit were citizens of Ohio. This court said: 'The injunction bill is not considered an original bill between the same parties as at law, but if other parties are made in the bill and different interests involved, it must be considered to that extent at least an original bill, and the jurisdiction of the Circuit Court must depend upon the citizenship of the parties.' It was further said, that as there appeared to be matters of equity in the case which could be investigated by a State court it would be reasonable and just to stay all proceedings on the judgment until the complainants should have time to seek relief from a State tribunal. The decree of the Circuit Court was modified accordingly.

In Freeman v. Howe, it appears that White had sued in the Circuit Court of the United States for Massachusetts and attached certain property of the defendant. The property was taken from the possession of the marshal by a writ of replevin issued from a State court. The marshal appeared in that court and set up as a defence that he held the property when it was taken from him, by virtue of process issued from the Circuit Court. This defence was overruled and the judgment against him was affirmed by the Supreme Court of the State. That judgment was reversed by this court upon the ground that the Circuit Court, having first acquired possession of the res, could not be deprived of that possession until the litigation there was brought to a close. This was the only point involved in the case and the only one decided. The learned judge who delivered the opinion remarked that the marshal's possession might have been protected by a proceeding in equity. In that connection he made certain remarks which were entirely proper as regards the facts of the case before him, but it is a misapprehension to suppose they are of universal application or that they can affect a case of the character of the one under consideration.

The last of this series of cases is Jones v. Andrews. Andrews, a citizen of New York, recovered a judgment in the Circuit Court of the United States for the Western District of Tennessee against Reed and Bryson, by default. For the satisfaction of that judgment he sued out a writ of garnishment to seize in the hands of the judgment debtors the notes to them of Jones, a citizen of Georgia. Thereupon Jones filed a bill in equity in the same court, wherein he alleged that Reed & Bryson had transferred the notes to Andrews in payment of their debt to him; that they owed Andrews nothing when he sued them; that the judgment was obtained by collusion, and that the writ of garnishment was a contrivance to enable Andrews to avoid the necessity of a direct suit against Jones, and to deprive Jones of a valid defence which he had against the notes. Andrews appeared in the case voluntarily. This court held that the bill was well brought as an original one under the act of 1839, and also as one incidental and auxiliary to the garnishment proceeding. On both points the judgment was correctly given. According to the face of the bill Jones was to be as much affected by the garnishment proceeding, and a bill was as necessary for his protection and to the due administration of justice as if he had been a party to the record in the garnishment case.

The course indicated in Dunn v. Clark should have been pursued in this case. The bill should have been filed in the proper State court and an application should have been made to the Circuit Court to hold the proceeds of the suits at law under its control until the right to them should have been settled by an adjudication of the State court between the conflicting claimants. There would be no more inconsistency or embarrassment in these different proceedings than there is where a mortgagor resorts in different courts to the several remedies which he is entitled to pursue at the same time. He may file a bill to foreclose in one court, sue at law to recover his debt in another, and bring an action of ejectment to recover possession of the mortgaged premises in a third. Each of such courts will see in the end that its process is not abused and that no wrong is done to the debtor.

The evidence relied upon to support the alleged lien, consists, so far as it is necessary to consider it, of letters from Richard Christmas to Yerger, written before Richard transferred to H. H. Christmas the notes originally given to Richard by Lyons. In a letter of the 25th of October, 1865, Richard said: 'I feel great uneasiness about your liability on the bond in suit of Russell against me. I have ever held the Lyons note as sacred for the payment of this debt, and have it now in New York, endeavoring to sell it, with the mortgage, to pay this debt; I expect to hear from it daily. If not sold I will send it to you as soon as I return.' On the 14th of February, 1866, he wrote: 'I could not safely send you the Lyons note by mail as it is payable to me or bearer-hence if lost might put me to much trouble.' On the 21st of the same month he said: 'You may rest assured I will protect you with the Lyons note.' In the next letter, of the 12th of May following, he announced the transfer of the notes to H. H. Christmas, and said: 'In this I hope I have not lost sight of my purpose to protect you.' These letters contain no words of transfer, and nothing which by construction or otherwise can have any effect in that way. At most they are only evidence of a promise to pay the judgment, if affirmed, out of the proceeds of one of the notes, and to send the note, if not sold, to Yerger.

An agreement to pay out of a particular fund, however clear in its terms, is not an equitable assignment; a covenant in the most solemn form has no greater effect. The phraseology employed is not material provided the intent to transfer is manifested. Such an intent and its execution are indispensable. The assignor must not retain any control over the fund-any authority to collect, or any power of revocation. If he do, it is fatal to the claim of the assignee. The transfer must be of such a character that the fundholder can safely pay, and is compellable to do so, though forbidden by the assignor. Where the transfer is of the character described, the fund-holder is bound from the time of notice. A bill of exchange or check is not an equitable assignment pro tanto of the funds of the drawer in the hands of the drawee. But an order to pay out of a specified fund has always been held to be a valid assignment in equity and to fulfil all the requirements of the law. These views are fatal to the claim asserted by the complainants in behalf of the sureties on the bond.

Upon both the grounds which have been considered, the decree of the Circuit Court must be REVERSED, AND THE BILL DISMISSED. The cause will be remanded with directions to.

PROCEED ACCORDINGLY.


text: Talk:Christmas v. Russell (81 U.S. 69)/Opinion of the Court


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Hurley v. Street

MOTION, by Mr. G. G. Wright, to dismiss a writ of error to the Supreme Court of Iowa.

Hurley sued Street to recover a lot of ground at Council Bluff. The defendant set up that the plaintiff had no title himself, and then relied on a tax sale, statute of limitation, and various other defences. The plaintiff demurred to four of these defences; assigning among other grounds of demurrer that 'the law authorizing the tax sale was unconstitutional and void.' The court overruled the demurrer, and the parties went to trial. On the trial much evidence was given about the character of the tax sale, the notice given, &c., tender of redemption-money, and other matters relating to the regularity of what had been done at the sale, but nothing of a different kind.

The court found for the defendant, and the defendant appealed to the Supreme Court of the State. The same sort of questions were there raised, and the same passed on; the Supreme Court finally affirming the decree. From that decree the case was brought here under an assumption that it came within the 25th section of the Judiciary Act, quoted supra, pp. 5, 6.

Mr. G. G. Wright and Mr. Lander, in support of the motion to dismiss, argued that it did not appear that any Federal question within the 25th section had been passed on; and that the decision was plainly made on other grounds not the subject of review here.

Mr. Moor, contra, reading a public act of the legislature of Iowa, under which the sale was alleged to have been made, and which made the tax deed conclusive evidence of certain things, tending to give regularity to sales under it, argued that the act was in the face of the fifth amendment to the Constitution of the United States, which ordains that no person shall 'be deprived of property except by due process of law.' He then argued that the plaintiff did raise the point of unconstitutionality under one of his grounds of demurrer, and that the court could not have decided against him without deciding that the act was constitutional.

Reply: The plaintiff did not stand on his demurrer, but went to trial. It does not even appear that the plaintiff showed a prim a facie title in himself. If so, certainly the question of the constitutionality of the tax sale could not have arisen. But assuming that he did, it does not appear that the decision turned on that question. In addition, the allegation of unconstitutionality is too general. It applies presumably in the first instance to the State constitution. But if it applied to the restriction in the fifth amendment of the Federal Constitution, that restriction is not one on the States, but only on the United States.

The CHIEF JUSTICE delivered the opinion of the court.

title: Hurley v. Street


text: Talk:Hurley v. Street

title: Talk:Hurley v. Street


text:
Hurley v. Street/Opinion of the Court

To give jurisdiction to this court upon error to the highest court of the State in which a judgment or decree has been rendered, it is necessary to show that some question under the 25th section of the Judiciary Act was made and decided, of which this court has cognizance by writ of error on appeal. This has been frequently ruled.

It does not appear from the record that any such question was either made or decided.

Much expense to suitors would be spared if counsel would attend to the principle above stated, and as we have said, frequently laid down, before advising their clients to resort to the appellate jurisdiction of this court from the decisions of the State courts. The writ of error must be

DISMISSED.

title: Hurley v. Street/Opinion of the Court


text: Talk:Hurley v. Street/Opinion of the Court


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Traders' Bank v. Campbell

APPEAL from the Circuit Court for the Northern District of Illinois.

The bankrupt act of the United States enacts by its 35th section that if any person being insolvent or in contemplation of insolvency, within four months before the filing of a petition by or against him, with a view to give a preference to any creditor having a claim against him procures his property to be seized or makes any payment, transfer, &c., thereof, directly or indirectly, the person receiving such payment, transfer, &c., having reasonable cause to believe the debtor to be insolvent, and that the payment, conveyance, &c., is in fraud of the act, the same shall be void, and the assignee may recover the property or its value.

Similarly its 39th section provides that if any person being insolvent or in contemplation thereof should make any payment or transfer of money or property, or give any warrant to confess judgment, or procure or suffer his property to be taken on legal process, with intent to give a preference or to defeat or delay the operation of the act, the money or property might be recovered back if the person receiving the payment or conveyance had reasonable cause to believe that a fraud on the act was intended, and that the debtor was insolvent.

The 20th section of the act provides 'that in all cases of mutual debts or mutual credits between the parties, the account between them shall be stated, and one debt set off against the other.'

The act was approved on the 2d of March, 1867. But a proviso at the end of its 50th section provides, 'that no petition or other proceeding under this act shall be filed, received, or commenced before the 1st day of June, A.D. 1867.'

With this statute and this proviso as part of it in force, Hitchcock & Endicott, traders in Chicago, and keeping their bank account with the Traders' National Bank there-the bank being in the habit of discounting their notes and collecting their drafts were requested by the bank, on the 6th of May, 1867, to furnish them with a statement of their affairs; the firm being at this time confessedly debtors of the bank, and in a much-embarrassed and really insolvent condition. A statement was soon furnished by the bookkeeper, which on the 24th of May was discovered by the bank to be untrue; the liabilities of the firm being set down in it much below their reality. Thereupon, on the 28th May, the bank brought a suit against Hitchcock & Endicott, in which, on an allegation of fraud, a capias was issued for the arrest of Hitchcock. To avoid this arrest the firm gave the bank a note, payable on demand, for the whole amount of their debt, which was $6707.43, with a warrant of attorney to confess judgment, and on the next day, the 29th, the bank entered a judgment in one of the State courts of Illinois for the debt, and $50 attorney's fee, less $325.20, the amount which the firm had in deposit account with the bank on that day. For this $325.20, the firm drew a check in favor of the bank, in virtue of which check, the sum just named was indorsed on the note as a credit. Execution for $6438 was immediately (May 29th) issued on this judgment and levied on a stock of goods belonging to the firm. In what was thus done the president of the bank acknowledged that he was aware of the insolvent condition of Hitchcock & Endicott, and had instituted his proceeding after taking the opinion of counsel, and learning from this source that the bankrupt law did not affect such cases until after the first day of June, the earliest time at which proceedings could be commenced under that law.

On the 30th of May Hotchkiss & Sons, of Connecticut, obtained a judgment against the same parties for a much smaller debt, on which execution was also issued and levied on the same goods.

On the 25th of June, some other creditors of Hitchcock & Endicott filed a petition in the District Court for Northern Illinois, praying to have them declared bankrupt, and on the 10th of July they were so declared; one Campbell being appointed the assignee in bankruptcy. On the 21st of the following August the goods of the firm were sold under the execution of the bank. At the same time the bank caused to be sold under the same execution a certain sum of $943, which it had received on the 12th of June by way of collections made by it in the ordinary course of business, of drafts belonging to the firm. The net sum raised by the execution on the goods was $6062.43. On the 21st of August, while things were standing in this way-the sheriff having as yet made no return of his execution-Campbell, the assignee in bankruptcy, filed a bill in chancery, in the District Court below, against the bank and Hotchkiss & Sons, alleging that each of them had obtained from Hitchcock & Endicott fraudulent preferences, and that the several judgments in their favor were void. Hotchkiss & Sons being non-residents no service was made on them. The bill prayed that the judgments be set aside, and that the defendants be ordered to pay over to the assignee the value of the goods sold under the two executions. With this bill thus pending, the sheriff (who as already mentioned, had not made any return to his execution), deposited $6500 raised under the bank's execution on the goods in the bank itself, receiving from it a 'certificate of deposit,' that he had deposited the sum named 'to the credit of himself subject to his order on the return of this certificate.' There was, however, an arrangement made by the bank with the sheriff that the money should remain with the institution as a deposit, to be used by it until the suit brought by Campbell should be decided, and that if it was decided in favor of the bank that the money should, in that case, be returned to the sheriff, but if decided against the bank, that then it should abide whatever decision was made. The balance ($562.43) of the $6062.43, the net proceeds of the execution of the goods, the sheriff retained in his own hands.

The execution in favor of Hotchkiss came to nothing, the property levied on in virtue of it being levied on subject to the prior execution of the bank.

Pleadings being made up, and evidence taken, the bill was dismissed as to the non-residents and unserved defendants, Hotchkiss & Sons. On the other part of the case, the court was of opinion that Hitchcock & Endicott were insolvent on the 28th of May, 1867; that the Traders' Bank had reason to suspect and believe the fact of such insolvency; that under such circumstances the firm gave to them the note and warrant of attorney in question; that on the 29th of May the bank appropriated as part payment of this note $325.20, then on deposit to the credit of the firm; that the payment of $325.20 upon the note and the judgment in favor of the bank were alike void, as fraudulent preferences.

The decree ordered that the assignee recover from the bank the $325.20 and interest from May 29th, 1867, also an amount equal to the judgment and costs rendered in favor of the bank with interest from May 29th, 1867, amounting in all to $7903.12.

This decree being affirmed in the Circuit Court the case was brought here on error.

Messrs. G. C. Campbell and B. C. Cook, for the appellants:

A preliminary point arises in view of the proviso of the 50th section. We submit that under that proviso the bill below did not lie, because all the acts which are complained of took place before the 1st of June, 1867, prior to which day the proviso declares that no petition or proceeding shall be begun. But waiving that, we submit that the decree is erroneous.

1. Because the proper parties were not before the court. In Shields v. Barrow, Mr. Justice Curtiss, in delivering the opinion of the court, says:

'The court can make no decree affecting the rights of any absent person, and can make no decree between the parties before it, which so far involves or depends upon the rights of an absent person that complete and substantial justice cannot be done between the parties to the suit without affecting those rights.'

title: Traders' Bank v. Campbell


text: Talk:Traders' Bank v. Campbell

title: Talk:Traders' Bank v. Campbell


text:
Traders' Bank v. Campbell/Opinion of the Court

Under this rule Hotchkiss & Sons were necessary parties. The goods and funds of the bankrupts had before bankruptcy been levied upon and sold by the sheriff, under two executions, one in favor of the bank and the other in favor of Hotchkiss & Sons. Upon the hearing the bill was dismissed as to Hotchkiss & Sons, and then decree rendered that the judgment in favor of the bank was void, and that it pay over to the assignee in bankruptcy $6500 of the proceeds of the executions, with interest from May 29th, 1867. This $6500 was still in the hands of the sheriff; that is, he held a certificate of deposit of the bank for that amount of the proceeds of sale; the balance, $562.43, he still held in cash. The judgment in favor of Hotchkiss & Sons has never been declared void, but is still in force, and when the judgment in favor of the bank was declared void, it became the first lien upon the funds in the sheriff's hands made from the goods of the bankrupts, and was and is entitled to be paid in full out of those funds. No reason exists why Hotchkiss & Sons cannot obtain from the State court an order upon the sheriff to pay their judgment in full. The sheriff could not successfully resist such rule by pleading the decree in this case, Hotchkiss & Sons not being parties to the bill. If the decree in this case operates to transfer to the assignee in bankruptcy the $6500 deposited by the sheriff with the bank, leaving in his hands only $562.43 with which to satisfy the judgment of Hotchkiss & Sons, it certainly affects the rights of these absent parties. If the sheriff can plead this decree in answer to a rule in the State court, to pay over the money, Hotchkiss & Sons are deprived of their money by decree in a case to which they are not a party. If the sheriff cannot plead the decree in answer to such rule he is left liable to Hotchkiss & Sons in that amount, and that by the operation of a decree in a case to which he was not a party.

2. The assignee should have applied to the State court for an order on the sheriff to pay over to him the proceeds of the execution in his hands. The judgments in question were obtained in the State courts prior to adjudication in bankruptcy; executions were issued, levied, and sale made by the sheriff prior to any proceedings to recover the property or proceeds. The fund of $7062.43 realized from the goods of Hitchcock & Endicott was therefore legally in the hands of the sheriff, and under the control of the State court when this bill was filed.

3. The bank has never received from the sheriff any amount whatever in satisfaction of the judgment recovered by it against Hitchcock & Endicott. As heretofore stated, the sheriff still holds the funds made from the property of Hitchcock & Endicott. The decree seems to have proceeded upon the hypothesis that the money deposited by the sheriff with the bank was a payment to it of the amount of the execution in its favor. This hypothesis is, however, inconsistent with the facts of the case.

If the assignee had applied to the State court for an order on the sheriff to pay over to him the funds realized upon the two executions, all parties would have been in court and bound by the order rendered, and equal and exact justice done to each. This proceeding, on the contrary, results in great wrong to the appellant. A decree is rendered against it for $7903.12 as money made from the bankrupts' estate, when in fact it has only realized $325.20. So that in consequence of an honest misconstruction of the bankruptcy act, the bank not only lose their entire claim of $6707.43, but some $1800 in addition thereto.

4. The decree rendered against the bank is for far too large a sum. The account stated between the bank and the bankrupts is thus:

Original amount of the bank's debt,.. $6,707

Cash collected on drafts, June 12th,. 928


text: Talk:Traders' Bank v. Campbell/Opinion of the Court