Whether a distiller incurs liability to forfeiture by failure to pay taxes to the Government, by carrying on the business without bond or with intent to defraud the Government, or by conducting a licensed business contrary to law or to the regulations prescribed by the Government, it seems to be settled that in none of these instances does the sale of the premises, on which the distillery is located, under a decree (456) of a Circuit Court of the United States in a proceeding in rem, pass the title of a mortgagee under a mortgage previously made, who has not permitted or connived at the illicit distillery. U.S. v.Stowell, 133 U.S. 1; Mansfield v. Excelsior Co., 135 U.S. 326. As a rule only the mortgagor's equity of redemption passes by such a sale under a judgment in rem, or by virtue of any decree rendered in a proceeding in which there were no parties other than the mortgagor. Mansfield v.Excelsior Co., supra. But the court instructed the jury in effect that the purchaser under the decree of the Circuit Court acquired the interest of the mortgagor and of all other claimants "who had knowingly permitted a distillery to be operated when they had the right to control the matter," and it seems to us that the instruction given is in strict accord with the rule laid down in U.S. v. Stowell, supra, pp. 14 and 15. After referring to the statutes, Justice Gray, delivering the opinion of the Court, said: "Congress has thus clearly manifested its intention that the forfeiture of land and buildings shall not reach beyond the right, title and interest of the distiller or of such other persons as have consented to the carrying on of the business of a distiller upon the premises. The intention of Congress, that no interest in land and business shall be forfeited which does not belong to some one who has participated in or consented to the carrying on of the business of distilling therein, is
further manifested in the provision of section 3262 of the Revised Statutes, which directs that 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 of land on which the distillery is located, or unless he files with the collector, in connection with his notice, the written consent of the owner of the fee or any mortgage or 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 (457) provisions, 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 any part thereof, the title of the same shall vest in the United States, discharged from such mortgage, judgment or other incumbrance."
The 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.
The Court in the same opinion subsequently construe section 3258 (making it a criminal offense to have "in possession any still, etc., set up") and section 3205 (in reference to sales of land for taxes) in connection with section 3281, to mean that the sale in either case passes to the purchaser only the right, title and interest of the offender. The law does not impute to a mortgagee, without any proof whatever, a guilty participation in the fraud of a mortgagor and declare his interest forfeited because the collector may have failed to secure the assent of all holders of liens, as he is required by law to do, before permitting the distiller to begin operations on the land. Where this precautionary requirement of the statute has not for any reason been complied with, and where at the same time there has been a connivance at or a less formal assent to the operations of the distiller on the part of the holder of the lien, it would seem to have been the purpose of Congress that the rights of the Government should be protected by the proceeding in equity, provided for in section 3208 of the Revised Statutes, whereby all persons, other than distillers, whose interests have been subjected by their conduct to forfeiture, might be concluded by the decree of (458) condemnation. Whatever may be the rule where proceedings in rem
are instituted against a vessel, the proceeding applicable to seizures of land for violation of the Internal Revenue laws is embodied in the statutes, and the Supreme Court of the United States have declared the intent of Congress to have been as we have already stated. The question presented is one of construction only, and we have been anticipated,
in passing upon it, by the Court that is the final arbiter in all controversies as to the meaning of the acts of Congress.
If the authorities cited did not warrant us in holding that there was no error in the instructions given or the rulings made by the court below (as to the effect of the judgment in rem) of which plaintiff can justly complain, we might add that, upon reasoning which by analogy supports that view of the law, it has been repeatedly held that sales of land, under the acts providing for the confiscation of property for participation in the Rebellion, passed only the right, title and interest of the offender for his life and not that acquired by any person under a mortgage executed "previously to his offense." U.S. v. Dunnington, 146 U.S. 346; Shieldsv. Sciff, 124 U.S. 351; Avegno v. Scharnedt, 113 U.S. 293. Conceding that the second assignment of error was taken in apt time, we cannot conceive how it can affect this controversy. According to the testimony offered for the plaintiff, the building for the distillery "was commenced on the stillhouse lot in the fall of 1878 and the spring of 1879." The defendant offered testimony tending to show that it was completed in the summer of 1879 and no distilling was done until late in the summer of 1879. While it was declared in U.S. v. Stowell, supra, that the government was not embarrassed by any rule requiring revenue laws imposing forfeitures to be construed like other penal statutes, it (459) was not intended to go to the other extreme and construe them, in the face of the express provisions referred to in that case, to mean that the mere erection of a house upon a tract of land or its use for the purpose of distilling should be constructive notice to the owner or to any subsequent purchaser of the superior right of the United States to insist upon its forfeiture and condemnation by a proceeding in rem, without actual notice to the owner. There is no principle upon which we would be prepared to admit that the connivance or guilty participation of an owner or mortgagee in a fraud upon the government, should be inferred from any testimony that constituted sufficient notice to a subsequent purchaser of an equitable claim. But the Supreme Court of the United States, in the case last cited, manifestly meant to construe the statutes as bringing under the same condemnation as the distiller only those holders of liens who have actual notice of the commission of the offense, and refrain from suppressing the illicit conduct, when they have the power to do so.
For the reasons given we hold that the judgment of the court below must be
Affirmed.
Cited: S. v. Jones, 175 N.C. 712.
(460)