United States v. Two Hundred & Seventy-Eight Barrels of Distilled Spirits

CLIFFORD, Circuit Justice. Merchandise, articles, or objects on which taxes are imposed by the provisions of law, found in the possession or within the control of any person, in fraud of the internal revenue laws, or with the design to avoid the payment of such taxes, may be seized as provided in section 9 of the act of July 13, 1866, and the provision is, that the same shall be forfeited on that account. 14 Stat. 111. Founded, as the second and -third counts are, upon that provision, it is quite clear that they are drawn with technical accuracy, and it is not necessary to examine the fourth and fifth counts, as they were withdrawn before verdict. See, also, 13 Stat. 240; 14 Stat. 160, 162. All necessity for any discussion in regard to facts of the case is removed by the verdict of the jury, which shows that the theory assumed by the United States is correct: that the spirits described in the information were parcel of the spirits previously withdrawn from the bonded warehouses by means of the false and fraudulent bonds, and that the claimants were parties to the conspiracy by which the same were so withdrawn without the payment of the taxes to which they were subject under thé internal revenue laws. Nothing, therefore, remains.to be considered but the exceptions to the rulings and instructions of the court. Examination will first be made of the exceptions taken by the claimants to the rulings of the court in refusing the prayers they presented for instructions to the jury. They requested the court to instruct the jury that the spirits, if they had been deposited in a bonded ware [299] house, and had been removed therefrom upon application to the collector and by his authority, for rectification or transportation for exportation, were not liable to forfeiture. Unlimited as the language of the request is, argument is hardly necessary to show that it was properly refused, as the language is broad enough to save the spirits from forfeiture, even if found in the possession and within the control of the party who fraudulently withdrew them from the bonded warehouse. Fraud, it is sometimes said, will vitiate anything, but the request in this case makes no distinction between a possession obtained by fraud and that acquired according to law. Strictly examined, the theory of the request is, that the spirits were not liable to forfeiture if they had been formally withdrawn (no matter by what means) from the bonded warehouse where they had been deposited; but the court is of the opinion that a permit obtained by fraud from the collector to withdraw the spirits, as respects the perpetrator of the fraud, is a mere nullity, and such a party would have no better right to the possession of the spirits than he would have had if they had been stolen by him, or than he would have had if he had taken them by force from the public warehouse. Precisely the same objections apply to the second request for instruction to the jury, which was that if the spirits had been removed from a bonded warehouse upon application to the collector, and upon giving bonds to his acceptance and upon his permission, and were seized before the expiration of the time allowed for the rectification or transportation. then the spirits were not liable to forfeiture. Like the preceding, this request is based on the theory of law, that if the spirits passed out of the bonded warehouse by consent of the collector, no matter if his •consent was procured by the grossest fraud, or even by force, the spirits are not liable to forfeiture, even in the hands of the guilty party. Such a theory cannot be adopted, and need not be further examined. Apart from the qualification appended by the court to the third request, it would need no explanation, as it was given as requested, so far as respects the first-named claimant. The substance of the request was, that if the spirits had been removed from a bonded warehouse, as supposed in the preceding request, and had been bought by the claimants of the party who withdrew the same, or his agent, without knowledge of the fact that the bonds furnished were worthless, or that the spirits were removed from the warehouse with intent to defraud the United States, then the spirits were not liable to forfeiture. Given as the request was, so far as respects the first claimant, he has no grounds of complaint, unless it be with the verdict of the jury, as will presently more fully appear. Stated in the exact words of the court, the qualification annexed to the request was that if Boyden bought the spirits as agent for Harrington, and Boyden was cognizant of the fraud, Harrington would be so, and by his knowledge. Whether the knowledge Boyden had of the fraud was acquired before or after he was agent, to make the purchase for his principal, does not appear, but for the purpose of this investigation it must be assumed that it was before he was so employed, as the instruction, as given, is broad enough to include both theories. Authorities are not wanting where it is held that the principal is not bound by any such knowledge of his agent, unless the agent acquired the knowledge subsequent to his employment. Bank of U. S. v. Davis, 2 Hill, 460; Howard Ins. Co. v. Halsey, 8 N. Y. 274; Weisser’s Adm'rs v. Denison, 6 Seld. [10 N. Y.] 77: New York Cent. Ins. Co. v. National Protection Ins. Co., 20 Barb. 476; 1 Pars. Cont. 75; 2 Lead. Cas. Eq. 164. Those authorities hold that unless notice of the facts in question come to the knowledge of the agent while he is concerned for the principal, and in the course of the very transaction in which he is employed, the principal is not affected by the knowledge of the agent; but Judge Story admits that if the knowledge was acquired by the agent so near the transaction that the agent must be presumed to recollect it, the principal' is affected by that knowledge. Story, Ag. (16th Ed.) § 140. Such was the express ruling of the court in the case of Hovey v. Blanchard, 13 N. H. 145, and the reasons assigned in support of the ruling appear to be correct. Patten v. Merchants’ & Farmers’ Mut. Fire Ins. Co., 40 N. H. 375; Hargreaves v. Rothwell, 1 Keen, 158; Fuller v. Bennett, 2 Hare, 404; Hart v. Farmers’ & Mechanics’ Bank, 33 Vt. 252; 13 Am. Law Reg. 138. Contrary decisions hav.e been made upon the point in the courts of the past century. The court of common pleas held, in the case of Dresser v. Norwood, 108 E. C. L. 585, that the principal was not affected in the sale and purchase of merchandise with any knowledge acquired by his agent before his employment, but the case was carried to the exchequer chamber, where the judgment of the common pleas was unanimously overruled. Where the agent of the buyer purchases, on behalf of his principal, goods of the factor of the seller, the agent having present in his mind, at the time of the purchase, that the goods he is buying are not the goods of the factor, though sold in the factor’s name, the knowledge of the agent, however acquired, says the court, is the knowledge of the principal. Dresser v. Norwood, 17 C. B. (N. S.) 481. By the instruction in this case, the jury were told that if the agent was cognizant of the fraud at the time of the purchase, the principal was bound by that knowledge, and I am of the opinion that the charge was correct, whether the knowledge of the agent was acquired at that time or the day before, as the requirement of the instruction was, that the jury must find that the agent was cognizant of the [300] fraud at títe time lie made the purchase, else they would not he justified in finding that the principal was affected by the antecedent knowledge of the agent. Beyond question, the jury found that the first-named claimant was in the possession of the spirits with knowledge, at the time he made the purchase for the other claimant, that they had been withdrawn by fraud from the bonded warehouses, and that the tax to which they were subject had not been paid. Suggestion is made that the evidence did not warrant the finding of the jury, but the decisive answer to that suggestion is, that the only office of a bill of exceptions is to bring before the appellate court such questions as were duly raised and properly saved in the subordinate court. Exception was also taken to the ruling of the court in refusing to give the fourth request for instruction, which was to the effect as follows: That if the spirits, proved in the case not to have paid a tax, had passed through the rectifiers in which there were other spirits, and had in that way become mixed with them, then no portion of the spirits when rectified would be liable to forfeiture; but the court refused to give the .instruction as requested, and instructed the jury to the effect following: That if the spirits seized came from the rectifiers ' in which the spirits so fraudulently withdrawn from the bonded warehouses were mixed with other lots belonging to the claimants so that they could not be distinguished, the United States were entitled to a forfeiture of a fair proportion of the mixture, even though the mixture might liave been innocently made, provided the jury were satisfied, from the evidence under the instructions given by the court, that the spirits so fraudulently withdrawn would be by law forfeited if they had not been so mixed with other lots. That if the jury were satisfied, as aforesaid, that the spirits so fraudulently removed would have been forfeited if they had not been so mixed, and the jury also find that they were fraudulently so mixed by the claimants with knowledge that they had been so removed by fraud, and for the purpose of destroying the identity of the spirits and of defrauding the United States, then the entire quantity seized is forfeited. Extended reply to the objections taken to the ruling of the court in refusing to give the fourth request for instruction is unnecessary, as it obviously assumed that the rights of the United States were wholly lost by the intermixture, however made and by whomsoever the act was done. Such a rule cannot be adopted, as it .merges all distinction between an innocent and fraudulent act, and requires the same finding by the jury, whether the mixture was occasioned by mistake or was the result of fraudulent design. Gases where the intermix-ture is made by mutual consent or by the act of a third person need not be considered, as ft is conceded that the intermixture in this case was by the act of the claimants, and it is not pretended that the United States consented to the act. Where the intermixture was-made willfully and not by mutual consent, by tlie rules of the civil law, he who made it acquired the whole upon the ground of conversion, but the common law adopted the opposite rule, and with more policy and justice to-guard against fraud, gave the whole property, without requiring any account, to him whose-property was originally invaded, and its distinct character destroyed. 2 Kent, Comm. (11th Ed.) 448; Ryder v. Hathaway, 21 Pick. 305; Hart v. Ten Eyck, 2 Johns. Ch. 62; Willard v. Rice. 11 Metc. (Mass.) 493; Wingate v. Smith. 20 Me. 289; Taylor v. Jones. 42 N. H. 25, Hany exceptions, however, exist to that rule, and it is said that it is never carried further than necessity requires, and it is certain-that it never applies in cases where the goods can be distinguished and separated, as in that case no change of property takes place. 3 Bl. Comm. 405; Frost v. Willard, 9 Barb. 440; Curtis v. Groat. 6 Johns. 168. Divested of immaterial matters, the ease before tlie court presents the following facts. Distilled spirits fraudulently withdrawn from the bonded warehouses, and liable to forfeiture on that account, were mixed by the claimants with-other similar spirits of their own property, and the mixture so made by the claimants-was passed through the process of rectification: and the question is, whether the rectified product was subject to seizure and forfeiture.- because one moiety of the mixture-had been fraudulently withdrawn as aforesaid from the bonded warehouses. Examined carefully, it will be seen that the-fourth request for instruction affirms that no portion of the spirits tinder those circumstances would be liable to forfeiture, and as framed it admits of no exception or qualification, and therefore is plainly erroneous, as it te-clear that the spirits seized would be liable to forfeiture if the claimants knew, when they made the mixture, that the spirits which they mixed with their own had been fraudulently withdrawn from the bonded warehouses, and were then and there liable to forfeiture on. that account. Exceptional cases undoubtedly arise even under the rules of common law, where it is held that an undistinguishable confusion of goods with other goods of similar species works a conversion, and that the title passes to the party in possession; but the general rule is certainly the other way, unless the effect of the intermixture was not only to-destroy the identity, but to convert the substance into a new species. Different rules-apply where the intermixture is of goods or substances of different species, or where the effect of the intermixture is to produce something of a different species, unless the new speeies can be reduced to its former rude materials or elements. Pratt v. Bryant, 20 Vt. 333. Several cases decide that where the effect of the intermixture is to produce an entirely different species, then it may be held that there is a conversion, and the person whose property has been innocently taken [301] loses his property, bat has a right of action to recover its value. Silsbury v. McCoon. 3 Comst. [3 N. Y.] 379; Davis v. Easley, 13 Ill. 1921 Betts v. Lee, 5 Johns. 348; Brown v. Sax, 7 Cow. 95. Whenever goods of a similar hind are innocently intermixed, so that they cannot be distinguished, and they are not substantially destroyed, by the production of something of a different species, the several owners may reclaim their respective shares, and may take possession of the same wherever they can find it. if they can do so without a breach of the peace, or they may bring trover for the value of their respective proportions against the person in possession, after demand and notice. Ryder v. Hathaway, 21 Pick. 298; Pratt v. Bryant, 20 Vt. 333; Colwill v. Reeves, 2 Camp. 576; Bryant v. Ware. 30 Me. 295; Beach v. Schmultz, 20 Ill. 185; McDowell v. Rissell. 37 Pa. St. 165. Apply these rules to the first instruction given by the court, and it is clear that it was quite as favorable to the claimants as they had any right to expect. Rectification did not change the species of the spirits, but the effect of passing them through the rectifiers was to remove impurities, and perhaps to raise their value, and the instruction given by the court saved to the claimants the benefit of any such improvement in the spirits. The correctness of the second instruction is too obvious to re-quire any argument in its support. Objection is also made that the ninth section of the act of July 13. 1866, affords no legal foundation for tjie second and third counts in the information. Taxes were imposed on these spirits by the provisions of law, and they were found in the* possession and custody of the claimants, and within their control, and it must be assumed, under the finding of the jury, that the claimants held' the spirits in possession, for the purpose of selling and removing them, in fraud of the internal revenue laws, and with design to avoid the payment •of the taxes, and the provision is, that all such merchandise, articles, or objects may be seized by the collector, and the same shall be forfeited. U. S. v. One Still [Case No. 15,954]. [Aflirmed by supreme court in 11 Wall. (78 XT. S.) 356.] Judgment affirmed.