change; and any deputy collector receiving such notice shall immediately transmit the same to the collector of the district. Every notice required by this section shall be in such form, and shall contain such additional particulars, as the Commissioner of Internal Revenue may, from time to time, prescribe. Every person who fails or refuses to give such notice shall pay a penalty of one thousand dollars, and shall be fined not less than one hundred dollars nor more than two thousand dollars; and every person who gives a false or fraudulent notice shall, in addition to such penalty or fine, be imprisoned not less than six months nor more than two years. [R. S.] Act of July 20, 1868, ch. 186, 15 Stat. L. 126, 127; Act of Dec. 24, 1872, ch. 13, 17 Stat. L. 401. Notice of intention to spirits, see next section. rectify distilled "There seem to be three classes provided for in this section: first, any person engaged in or intending to be engaged in the business must give his name and residence in the notice; second, if a company or firm, the name and residence of each member of the firm must be given; and then another class, namely, every person interested or to be interested in the business must give name and residence." Kissinger v. Bean, (1875) 7 Biss. (U. S.) 60. Rectifier or distiller. A rectifier may rectify, purify, or refine distilled spirits or wines by any process other than original and continuous process. He may use high wines and cologne spirits, and recover from any substance, such as fruit that contains spirits by reason of its former use by rectifiers, and saloon washings that contain no fermented liquors or substances, any spirits which existed in that substance, upon which tax had been paid; but he has no right to create spirits, that is, take fruits, or beer, or any other fermented substances, and make spirits out of them. U. S. v. Marshall, (1876) 26 Fed. Cas. No. 15,726. One who has given notice as a rectifier and is licensed to carry on that business has no right to make spirits and carry on the business of a distiller without giving notice thereof and executing bond. U. S. v. Marshall, (1876) 26 Fed. Cas. No. 15,726. Capacity for "every twenty-four hours." This expression evidently means no more than average producing capacity in a given time. "A day of twenty-four hours" is named for the purpose of expressing with greater certainty and precision the exact period of duration for which the average capacity of production is to be ascertained. That nothing but "average" is intended is manifest from the fact that no distillery under ordinary conditions has any spirit-producing capacity in twenty-four hours. It requires three days, four days, and sometimes six days, to produce the articles desired. Chicago Distilling Co. v. Stone, (1891) 140 U. S. 653. [Notice of intention to rectify distilled spirits.] When any rectifier intends to rectify or compound any distilled spirits he shall, before emptying any package of distilled spirits for that purpose, give notice in duplicate to the collector of internal revenue for the district of his intention so to rectify, and submit such package for the inspection of a United States gauger, who shall duly weigh or gauge such package and its contents and make due return thereof, and such spirits shall not be emptied for rectification, nor rectified or compounded in the package, until gauged or weighed as herein above provided. And such notice and return shall be made in such form and contain such particulars as the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, may from time to time prescribe. [27 Stat. L. 200.] This is from the Legislative, Executive, and Judicial Appropriation Act of July 16, 1892, ch. 196, 27 Stat. L. 200, providing, "That section eight of an act entitled 'An act to amend the laws relating to internal revenue,' approved March first eighteen hundred and seventy-nine, be amended by striking out all after said number and substituting the language given above. The section as originally enacted (Act of March 1, 1879, ch. 125, sec. 8, 20 Stat. L. 341) read as follows: "SEC. 8. When any rectifier intends to rectify or compound any distilled spirits, he shall give notice in duplicate to the collector of the district, in such form, and giving such particulars as the Commissioner of Internal Revenue may prescribe; one of such notices to be forwarded by the collector to the Commissioner of Internal Revenue." Rectifier's bond. Section 7 of the Act of March 1. 1879, ch. 125, 20 Stat. 341, which was distinctly repealed by Act of May 28, 1880, ch. 108, 21 Stat. L. 148, read as follows: "SEC. 7. Every rectifier shall, on filing with the collector his notice of intention to commence or continue business, after the passage of this act, and on the first day of May of each succeeding year, make and execute a bond in form prescribed by the Commissioner of Internal Revenue, with at least two sureties; said bond to be approved by the collector of the district. The penal sum of said bond shall not be less, in the case of a rectifier who rectifies by the process of redistilling or of leaching, or both, than double the amount of tax imposed by law on the spirits that can be rectified by such rectifier during a period of ten days; and the penal sum of the bond required of any rectifier by any other process than those hereinbefore named shall be fixed under such regulations as may be prescribed by the Commissioner of Internal Revenue; but in no case shall the penal sum be less than five hundred dollars nor more than fifty thousand dollars. The condition of said bond shall be that the principal shall faithfully comply with all the provisions of law in relation to the duties and business of rectifiers, and shall pay all taxes, penalties incurred, or fines imposed on him for violation of any of the said provisions. A new bond may be required in case of the death, insolvency, or removal of either of the sureties, and in any other contingency affecting its validity or impairing its efliciency, at the discretion of the collector or Commissioner of Internal Revenue. Any rectifier who, after the passage of this act, shall commence business without giving the bond required by this section, or who shall continue to carry on business, after demand made for such bond, without giving the same, or who shall fail to renew such bond when lawfully required, shall, on conviction, be fined not more than five thousand dollars; and any rectifier who shall give any false, forged, or fraudulent bond shall, on conviction, be subject to the penalties provided for in section fifty-four hundred and eighteen of the Revised Statutes." Sec. 3260. [Distiller to give bond.] Every person intending to commence or to continue the business of a distiller shall, on filing with the collector his notice of such intention, and before proceeding with such business, and on the first day of May of each succeeding year, execute a bond in the form prescribed by the Commissioner of Internal Revenue, conditioned that he shall faithfully comply with all the provisions of law relating to the duties and business of distillers, and shall pay all penalties incurred or fines imposed on him for a violation of any of the said provisions; and that he shall not suffer the lot or tract of land on which the distillery stands, or any part thereof, or any of the distillingapparatus, to be incumbered by mortgage, judgment, or other lien, during the time in which he shall carry on said business. Said bond shall be with at least two sureties, approved by the collector of the district, and for a penal sum not less than the amount of tax on the spirits that can be distilled in his distillery during a period of fifteen days. But in no case shall the bond exceed the sum of one hundred thousand dollars. The collector may refuse to approve said bond when, in his judgment, the situation of the distillery is such as would enable the distiller to defraud the United States; and in case of such refusal the distiller may appeal to the Commissioner of Internal Revenue, whose decision in the matter shall be final. A new bond shall be required in case of the death, insolvency, or removal of either of the sureties, and may be required in any other contingency at the discretion of the collector or Commissioner of Internal Revenue. Every person who fails or refuses to give the bond hereinbefore required, or to renew the same, or who gives any false, forged, or fraudulent bond, shall forfeit the distillery, distilling-apparatus, and all real estate and premises connected therewith, and shall be fined not less than five hundred dollars nor more than five thousand dollars, and imprisoned not less than six months nor more than two years. [R. S.] Act of July 20, 1868, ch. 186, 15 Stat. L. 127; Act of June 6, 1872, ch. 315, 17 Stat. L. 239; Act of Dec. 24, 1872, ch. 13, 17 Stat. L. 401. The word "double," where it appeared in the original section between the words "less than" and "the amount of tax," was stricken out, and the words, "But in no case shall the bond exceed the sum of one hundred thousand dollars" were added by Act of May 28, 1880, ch. 108, 21 Stat. L. 145, entitled, "An act to amend the laws in relation to internal revenue." The word "person" so includes a corporation engaged in distilling spirits that such corporation may give the bond required by the internal-revenue law and perform other acts required by law of distillers, in its corporate capacity. (1877) 15 Op. Atty.-Gen. 230. "In the form prescribed by the commissioner of internal revenue." Whenever the commissioner of internal revenue prescribes a form of bond, it would be the duty of the distiller to give it in that form, but until he does so prescribe, it is sufficient if the distiller gives a bond in the form and with the condition contained in the statute, when it is received by the competent officer, and the notification of its approval given to the distiller. U. S. v. Thirty-Five Barrels Highwines, (1869) 2 Biss. (U. S.) 88. See U. S. v. Hodson, (1870) 10 Wall. (U. S.) 395. "Provisions of law relating to the duties and business of distillers" relates, among other matters, to the payment of the tax imposed on distilled spirits as a duty of the distiller under the law. U. S. v. National Surety Co., (C. C. A. 1903) 122 Fed. Rep. 904. Duties imposed by subsequent law. The condition of the bond that the principal shall in all respects faithfully comply with all the provisions of law in relation to the duties and business of distillers has relation to duties that may be imposed by law subsequently to the execution of the bond. U.S. v. Powell, (1871) 14 Wall. (U. S.) 500. While the bond undoubtedly covers not merely duties imposed by existing law, but duties belonging to and naturally connected with the business imposed by subsequent law, the new duties should have some relation to or connection with such business, and not be disconnected and foreign to it, and it was held that the sureties on the bond of a distiller were not liable for the reimbursement by the distiller to the United States of moneys paid by them to storekeepers required by the joint resolution of March 29, 1869, as such duty was not one so connected with or naturally belonging to the business of a distiller as to be within the reasonable contemplation of the parties to the bond at the time of its execution. U. S. v. Singer, (1872) 15 Wall. (U. S.) 122. "Shall pay all penalties incurred or fines imposed includes a fine imposed on conviction under section 3279, infra, when the fine remains unpaid, and the sureties are liable on their bond for the amount. U. S. v. Thompson, (1891) 45 Fed. Rep. 468. The locality where the distillery is intended to be placed, as described in the bond, is of the essence of the contract, and no other place than that named is within the meaning of the bond; and a bond given for carrying on the business "at the corner of Hudson street and East avenue, situate in the town of Canton," creates no liability in the sureties in respect to business carried on by the principal "at the corner of Hudson and Third streets," in this same town. U. S. v. Boecker, (1874) 21 Wall. (U. S.) 652. The execution of a warehouse bond, under section 3293, R. S., is not a release of the liability of the sureties to a bond given under this section. The distiller's bond is required to be executed in broad terms, and imposes upon the distiller and his surety the obligation to discharge every duty resting upon a distiller under the law, including the duty to pay the tax on distilled spirits, and the warehousing bond is required in order that the distiller may obtain delay in the payment of this debt and as additional security. U. S. v. National Surety Co., (C. C. A. 1903) 122 Fed. Rep. 904. Must recover on breach assigned. — An action on the bond, assigning as a breach of the condition of the bond the omission of the distiller to make the required entries in the book provided in section 3303, infra, and that by 66 means of the said omission" the distiller was enabled to defraud and did defraud the United States of the tax imposed by law, cannot be maintained except upon proof of the omission complained of and that by means of it the tax on the spirits produced was lost. It would not be sufficient to show that by other omissions of duty the government was thus defrauded, for that would be to change the entire ground of the action. U. S. v. Chouteau (1880) 102 U. S. 603. Defenses set up by sureties. It is no defense to an action against the sureties on the bond that the premises were encumbered by certain judgment liens, and that the officer approved the bond without having the property made free from incumbrances as against the claims of the government in accordance with the provisions of section 3262, infra. Osborne v. U. S. (1873) 19 Wall. (U. S.) 577. See also U. S. v. Hosmer, (1873) 26 Fed. Cas. No. 15,394; Hart v. U. S. (1877) 95 U. S. 316. That the collector permitted the distiller to remove spirits from the bonded warehouse, more than sufficient to pay all the taxes thereon, without first requiring payment of taxes due from the distiller, does not constitute a valid defense to an action on the bond. U. S. v. Hosmer, (1873) 26 Fed. Cas. No. 15,394. See also Hart v. U. S., (1877) 95 U. S. 316. Irregularity or illegality in assessment.In an action against a distiller and the sureties on his bond to recover taxes due by the principal, the sureties cannot defend on the ground of any irregularity or illegality in the assessment, but the tax must be paid, and the remedies given by sections 3220 and 3226, R. S., pursued. U. S. v. Black, (1874) 11 Blatchf. (U. S.) 538. Rights of persons claiming liens. In proceedings in rem against the real estate used and occupied as a distillery, the forfeiture attaches without regard to the owner's culpability or to the interest of outside parties; all persons claiming liens against the property, such as a mechanic's lien, should apply to the court in which the proceedings are had for the forfeiture and sale of the property, to be allowed to participate in the proceeds of its sale to the extent of the claims. Heidritter v. Elizabeth Oil-Cloth Co., (1881) @ Fed. Rep. 138. SEC. 67. [Refusal of bond from persons previously convicted.] That whenever any person intending to commence or to continue the business of a distiller shall execute a bond under the provisions of section thirtytwo hundred and sixty of the Revised Statutes of United States, and file the same with the collector of internal revenue for the district in which he proposes to distill, the collector may refuse to approve said bond if the person offering the same shall have been previously convicted, in a court of competent jurisdiction, of any fraudulent noncompliance with any of the provisions of law relating to the duties and business of distillers, or if the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, shall have compromised such an offense with the person upon the payment of penalties or otherwise, and, in case of such refusal, the person so proposing to distill may appeal to the Commissioner of Internal Revenue, whose decision in the matter shall be final. [28 Stat. L. 568.] This section 67 is from the Revenue Act of Aug. 27, 1894, ch. 349, 28 Stat. L. 568. Sec. 3261. [Bond not to be approved until law complied with.] No collector shall approve the bond of any distiller until all the requirements of the law and all regulations made by the Commissioner of Internal Revenue in relation to distilleries, in pursuance thereof, have been complied with. Every collector who violates this provision shall forfeit and pay two thousand dollars, and be dismissed from office. [R. S.] Act of July 20, 1868, ch. 186, 15 Stat. L. 131; Act of Dec. 24, 1872, ch. 13, 17 Stat. L. 401. Sec. 3262. [Distiller to be owner in fee-simple, or have written consent of owner, etc. bond in lieu of consent of owner.] No bond of a distiller shall be approved, unless he is the owner in fee, unincumbered by any mortgage, judgment, or other lien, of the lot or tract of land on which the distillery is situated, or unless he files with the collector, in connection with his notice, the written consent of the owner of the fee, and of any mortgagee, judgment-creditor, or other person having a lien thereon, duly acknowledged, that the premises may be used for the purpose of distilling spirits, subject to the provisions of law, and expressly stipulating that the lien of the United States for taxes and penalties shall have priority of such mortgage, judgment, or other incumbrance, and that in case of the forfeiture of the distillery premises, or of any part thereof, the title of the same shall vest in the United States, discharged from such mortgage, judgment, or other incumbrance. In any case where the owner of a distillery or distilling-apparatus, erected prior to the twentieth day of July, eighteen hundred and sixty-eight, has only an estate for a term of years or other estate less than fee-simple in the lot or tract of land on which the distillery is situated, the evidence of title to which shall have been duly recorded prior to that date; or in like case, where the lease or other evidence of title is held but was not required by the laws of the State to be recorded in order to be valid at the time of its execution; or in any case of such prior erection where the title was then, and has continued to be, in litigation; or in any case of such prior erection where such owner is possessed of the fee, but incumbered with a mortgage executed and duly recorded prior to said twentieth of July, eighteen hundred and sixtyeight, and not due, or in any case of such prior erection where the fee is held. by a feme-covert, minor, person of unsound mind, or other person incapable of giving consent, as hereinbefore required, the value of such lot or tract of land, together with the building and distilling-apparatus, shall be appraised in the manner to be prescribed by the Commissioner of Interral Revenue; and the collector may, at the discretion of the Commissioner, be authorized to accept, in lieu of the said written consent of the owner of the fee, the bond of such distiller, in such form as the Commissioner may prescribe, with not less than two sureties, conditioned that in case the distillery, distilling-apparatus, or any part thereof, shall by final judgment be forfeited for the violation of any of the provisions of law, the obligors shall pay the amount stated in said bond. Said sureties shall be residents of the collection-district or county, or of an adjoining county in the same State in which the distillery is situated, and owners of unincumbered real estate in said district or county, or adjoining county, equal to such appraised value, and the penal sum of said bond shall be equal to the appraised value of said lot or tract of land together with the buildings and distilling-apparatus: Provided, That in case of any distillery sold at judicial or other sale in favor of the United States, a bond may be taken at the discretion of the Commissioner of Internal Revenue, in lieu of the written consent required by this section, and the person giving such bond may be allowed to operate such a distillery during the existence of the right of redemption from such sale, on complying with all the other provisions of law. And provided also, That the collector may at any time, at the discretion of the Commissioner, accept such bond as is authorized to be given by the distiller in lieu of the written consent of the owner of the fee in the case of a distillery erected prior to July twentieth, eighteen hundred and sixty-eight, notwithstanding such distillery has since then been increased by the addition of land or buildings adjacent or contiguous thereto, not owned by the distiller himself in fee; such bond to be for and in respect of such addition only, if the distillery be one which the distiller owns in fee or in respect to which he has procured the written consent of the owner of the fee or other incumbrance, otherwise to be for and in respect of the entire distillery as increased by such addition. [R. S.] Act of July 20, 1868, ch. 186, 15 Stat. L. 127; Act of April 10, 1869, ch. 18, 16 Stat. L. 41; Act of June 6, 1872, ch. 315, 17 Stat. L. 243; Act of Dec. 24, 1872, ch. 13, 17 Stat. L. 401. The last proviso was added by Act of May 28. 1880, ch. 108, sec. 2, 21 Stat. L. 145. Protection of surety. This statute does not make the United States a guarantor to the surety that the distillery property is free from incumbrances at the time of the approval of the bond given under section 3260, supra. Osborne v. U. S., (1873) 19 Wall. (U. S.) 577. See also U. S. v. Hosmer, (1873) 26 Fed. Cas. No. 15,394. The effect of a waiver executed by the owner in fee of the premises is not to convey to the distiller an interest in the premises, nor to give to the government anything more than a first or prior lien. A collector's sale in the summary mode prescribed in section 3197, R. S., passes nothing more than the interest of the delinquent distiller, and in order to affect the interest of the owner, a suit in equity in which he is made a party should be brought under the provisions of section 3207, R. S. Mansfield r. Excelsior Refining Co., (1890) 135 U. S. 326. Innocent purchaser. - The lien on the land whereon the distillery is situated is absolute and unconditional after the execution of the 'waiver, and secures to the government lien upon the distillery premises as against an innocent purchaser without notice. Milan Distilling Co. v. Tilson, (1880) 17 Fed. Cas. No. 9,539. Interest of mortgagee. This section clearly indicates that the interest of an innocent mortgagee or other person having a lien on the lot or tract of land on which the distillery is situated would not otherwise be included in a forfeiture for acts of the owner only." U. S. v. Stowell, (1890) 133 U. S. 15. A bond given as a substitute for the real estate, where the distiller holds simply a leasehold interest therein, is to be enforced as a penalty -as a punishment for fraud -- and is not intended as security simply. In an action on the bond, judgment should be given for the full amount of the bond, without deducting the amount realized from the sale of the distiller's personal property. U. S. v. Loeb, (1882) 14 Fed. Rep. 688. The forfeiture of real estate owned by the offender is limited to such as is connected with the distillery, to facilitate the carrying on of the business, and directly or indirectly conducive or contributory to that end, such as buildings, yards, enclosures, offices, stables, wine cellars, etc., used in the illicit business, but does not extend to the whole of a farm consisting of orchards, vineyards, pasture, grain fields, and woodland. U. S. v. Certain Piece of Land, (1870) 1 Sawy. (U. S.) 84. Sec. 3263. [Plan of distillery.] Every distiller and person intending to engage in the business of a distiller shall, previous to the approval of his bond, 3 F. S. 4.41 641 Volume III. |