#### Richard Gregg *et al. v.*The United States.

*On Demurrer.*

*Between February*24,1863, *and March*3, 1864, *the claimants distil*“ *several lots” of liquors. They take the oath and give the bond prescribed by statute for the foreign exportation of distilled spirits, and ship them under bond to different cities for future exportation. They then change their minds, and, instead of exporting’ the liquors, expose them for sale in the home market. They claim an allowance for leakage in transitu, as though the liquor had been transported for consumption and sale, which the collector refuses, and exacts the full amount of taxes assessed at the inspection before shipment.*

Where, in 1863 and 1864, distillers ship spirits to different cities within the United States under bond *for foreign exportation*pursuant to *sec.*47, *act July*1,1862, (12 Stat. L., p. 432,) and then change their minds and put the spirits on the home market, they will not be entitled to the allowance for leakage in transportation given by *the proviso to sec.*12, *act March*3, 1863, (id., p. 723,) in the case of spirits “ *removed for sale ” to*a home market.

*Mr. V. B. Edwards*for tbe claimant:

This is a suit to recover duties exacted on liquors lost by leakage in course of transportation.

*By*the act of July, *1862,*sec. 47, distillers were authorized to remove liquors intended for export, without paying duties, upon giving bond to pay the duties unless the liquor should be exported. The purpose of this enactment was to exempt from tax liquors exported. Under this provision, tax was necessarily paid upon all liquors lost by leakage in process of transportation to the place of exportation.

By the act of March 3, 1863, sec. 12, the Commissioner of Internal Bevenue wa*s*authorized to make rules providing for deductions on amount of leakage from the quantity of spirituous liquors subject to taxation under the act to which this is an amendment (July 1,1862) not exceeding live per cent, of the amount *removed for*sale, and said deductions shall be so adjusted in. different parts of the United States as to be proportioned as nearly as practicable to the distances on which the manufacturer usually transports said liquor for the wholesale thereof.”

The Commissioner, under the act, made the regulations accordingly for deduction on account of leakage of liquors re*104moved for exportation, but confined the allowance to cases of liquors actually exported, and making no allowance for loss by leakage when the residue was not exported.

In the case presented by the petition certain liquors were removed for exportation, but were not exported, and the entire amount of the bond was exacted without any allowance for loss by leakage.

The clause authorizing the Commissioner to make regulations for deductions imposed a duty which he was bound to perform, and, whether performed or not, these claimants had an absolute right to the benefit of the deductions so to be made, which is claimed in this suit. *{Supervisors*v. *The U. S.,*4 Wallace, 435. See also 5 Selden, 163; 5 Johns., 113 ; 5 Sandf., 289; 1 Denio, 595; 9 How., 249 ; 3 Hill, 612.)

*Mr. T. JEL. Talbot,*(with whom was the *Assistant Attorney General,)*for the defendants.

I. The tax paid in this case was laid by sec. 41 of the act of July 1,1862, (12 Stat.L., 447.)

II. Sec. 47, of the same act, made no provisions for relieving, from payment of the tax laid in sec. 41, spirits which *were not exported.*

III. Neither did sec. 12, of the act of March 3, 1863, make such provision for relief of spirits removed for exportation, (last proviso.)

IY. This proviso merely authorized the Commissioner of Internal Revenue to make rules providing for deductions of tax in certain cases, not including removal for exportation; and no regulations for such deduction in case of removals like that of this claimant were ever made. If the Commissioner had been authorized to provide for the deductions now claimed, no exercise of such authority can be shown; and therefore the claimants were not entitled to such deductions.

Milligaw, J.,

delivered the opinion of the court.

This is an application by Richard Gregg, Washington Cockle, and Wm. R. Phelps, copartners, under the name of R. Gregg & Co., to recover $8,022 58, which they allege was illegally paid as duty assessed upon a quantity of liquors manufactured by *105them, at Peoria, Illinois, ancl transported to different points within the United States for exportation.

It appears in the petition that the claimants, from the 24th of February, 1863, to the 3d of March, 1864, distilled large quantities of liquors, “including several lots,” amounting to 800,793^-gallons; and, desiring to export the same, the petitioners shipped it from the city of Peoria, in different quantities, to the cities of Chicago, St. Louis, Cincinnati, Baltimore, Philadelphia, and New York; and when the liquors arrived at these different points, the claimants changed their mind and determined to expose their liquors to sale in the general home market. The shipments were made under bond, and prior to the payment of the duty assessed thereon. The time, quantity, and distances over which the liquors were transported are stated in the petition, as follows: “ On and prior to the 31st day of December, 1863, there were transported over one hundred and under three hundred miles, 17,787/^ gallons; over three hundred and under four hundred miles, 23,332T3^ gallons; and over one thousand miles, 71S,647yGG. And between January 1 and March 3,1864, there were transported, over one thousand miles, 101,003gal-lons.”

Under this state of facts it is alleged, that by the treasury regulations, the petitioners were entitled to a deduction of 40,112^ gallons, on account of leakage while the spirits were in transitu for exportation. The collector denied the deduction claimed, and exacted the full amount of taxes assessed, which the petitioners paid; and this action is now prosecuted to recover back the sum of $8,022 58 which it is alleged was thus illegally paid into the treasury.

The petition is demurred to, and the case now comes before us. on general demurrer, which involves the construction of the several acts of Congress in relation to the taxation of distilled spirits, and an allowance for leakage during their transportation to the place of sale.

This case is not in all respects like the case of *Thayer et al.,*determined at the present term of this court. In that case the claim rested on the leakage while the spirits were in a bonded warehouse; and in this, the claim is predicated on the leakage while the spirits were removed, under bond, from the place of distillation to the different points before designated for exportation. The two cases are somewhat analogous in the *106principles that govern them, and, so far as tbe rules announced in *Thayer’s Oase, ante,*are applicable to tbe present case, they must control it.

Tbe tax paid in tbe case in band was assessed under tbe 41st section of tbe *Act July*1, 1862, (12 Stat. L.,. p. 447,) wbicb provides “ That in addition to tbe duties payable for licenses herein provided, there shall be paid on all spirits that may be distilled and sold, or removed for consumption or sale, of first proof, on and after tbe first day of August, eighteen hundred and sixty-two, tbe duty of twenty cents on each and every gallon, which shall be paid by tbe owner, agent, or superintendent of tbe still or other vessel in wbicb the said spirituous liquors shall have been distilled, *which duty shall be paid at the time of rendering the accotmts of spirituous liquors so chargeable with duty required to be rendered by this act.”*

By tbe 45th section of tbe same act, tbe manner of rendering tbe accounts contemplated in tbe 41st section is declared in tbe following language: “And every person who after said day” [August 1,1862] “shall use, or intend to use, any still, boiler, or other vessel, as aforesaid, either as owner, agent, or otherwise, shall from day to day, make true and exact entry, or cause to be entered, in a book to be kept by him for that purpose, tbe number of gallons of spirituous liquors distilled by him, and also tbe number of gallons sold, or removed for consumption.or sale, and tbe proof thereof; wbicb book shall always be open in daytime (Sundays excepted) for tbe inspection of tbe said collector, who may take any minutes, memorandums, or transcripts thereof, and shall render to such collector on tbe first, tenth, and twentieth days of each and every month in each year, or within five days thereafter, a general account in writing, taken from bis books, of tbe number of gallons of spirituous liquors distilled and sold, or removed for consumption or sale, and tbe proof thereof, for tbe period, or fractional part of a month preceding-said day, or for such portion thereof as may have elapsed from tbe date of said entry and report to tbe said day wbicb shall next ensue,” &c.

This section, when construed with tbe 41st section, leaves but ■little doubt as to the time when tbe duty assessed attached and became payable. Tbe act says, (41st section,) “ tbe duty shall be paid at tbe time of rendering tbe account,” wbicb is provided for in tbe 45th section just quoted. (See *Thayer’s Case, ante.)*

*107Tlie duty *having*become due at tbe time tbe accounts were rendered, is there any provision in tbe statutes for allowing tbe plaintiffs, under tbe circumstances of tbis case, tbe leakage claimed? Tbe spirits, as shown in tbe petition, were manufactured between tbe 24th of February, 1863, and tbe 3d of March, 1864; and removed for exportation from and prior to tbe 31st of December, 1863, and the 3d of March, 1864, and consequently tbe whole transaction ended before tbe passage of the act of June 30, 1864. In tbe act of July 1,1862, under which tbe taxes in question were levied, there is no provision for allowing leakage, which occurred while the spirits were being removed for exportation.

By the 47tb section it is provided: “That distilled spirits may be removed from the place of manufacture, for the purpose of being exported or for the purpose of being re-distilled for export; and refined coal oil may be removed for the purpose of being exported, after tbe quantity of spirits or oil so removed shall have been ascertained by inspection according to the provisions of this act, upon and with the written permission of the collector, or deputy collector of the district, without payment of the duties thereon previous to such removal, the ownerthereof having first given bond to the United States, with sufficient sureties, in the manner and form and under regulations prescribed by the Commissioner of Internal Revenue, and in at least double the amount of said duties, to export the said spirits or oil, or pay the duties thereon, within such time as may be prescribed by tbe Commissioner, which time shall be stated in said bond.” But this bond cannot be executed, or the permit given by any collector or deputy collector, until the applicant shall first take an oath “ that he intends to export such liquors or oil, and that he desires to obtain said permit for no other purpose whatever.”

Tbe collector or deputy collector had no power under this section to give the claimants a permit to remove their liquors, except for exportation; and when they failed to export them, there was a breach of the obligation of the bond, which by the terms of the act could only be discharged by the payment of the duties assessed, with interest thereon, at a rate to be fixed by the Commissioner, and all proper charges.

But it is argued that the proviso contained in the' 12th *section of the act of March*3d, 1863, (12th Stat. L., 723,) covers, this *108case, and entitles tbe elamants to a deduction for tbe leakage claimed. Tbe proviso is contained in tbe following language: *u*That tbe Commissioner of Internal Revenue is authorized to make rules providing for deductions, on account of leakage, from tbe quantity of spirituous liquors subject to taxation, under tbe act to which this act is an amendment, not exceeding five per cent, of tbe amount *removed for sale;*and said deduction shall be so adjusted in tbe different parts of tbe United States as' to be proportioned as near as practicable to tbe distance over which tbe manufacturer usually transports said liquors for tbe wholesale thereof; and tbe owner of tbe aforesaid liquors shall be charged with and pay tbe expenses of ascertaining tbe leakage.” . -

Admitting, under tbe authority of tbe case of *The Supervisors*v. *United States,*(4 Wallace, 435,) that tbe fact of tbe Commissioner’s failing to make tbe rules required of him, providing for deductions on account of leakage, can work no prejudice to these claimants, can it be contended that this proviso confers uj)on tbe Commissioner tbe power to make such rules in tbe class of cases now under consideration 1

Tbe act of March tbe 3d, 18.63, is amendatory of the act of July 1,1862, and we have seen that, under tbe 47th section of that act, tbe manufacturer cannot avail himself of its advantages, and remove bis hquors under bond, for exportation, merely to get them into tbe wholesale markets within tbe United States. He is bound under oath to act in good faith, and a failure to do so, forfeits bis bond and exacts from him tbe payment of tbe duties assessed with interest, and all proper charges. Were it otherwise, tbe most egregious frauds might be committed on tbe revenue. For we think it clear, as tbe law stood at tbe date of this transaction, after tbe permit to "remove tbe spirits for exportation was obtained and tbe bond with sureties executed, that tbe spirits went free and under tbe control of tbe exporter. Tbe bond constituted tbe government’s security for its indemnity, in case tbe liquors were not exported, or tbe revenue thereon paid. What then, but tbe personal honesty of tbe owner, or person removing them for exportation, is to prevent frauds *%*Certainly nothing — and tbe amount of fraud is only limited by tbe per cent, allowed by law.

But without pursuing this investigation further, it is enough to rest tbe case on tbe plain terms of tbe proviso to tbe 12th *109section of tbe act of 1863. Its language is limited-to spirituous liquors, subject to taxation under tbe act of tbe 1st of July, 1862, wbicb are *removed for sale;*and tbe deductions are to beso adjusted in tbe different parts of tbe United States as to be proportioned as near as practicable to tbe distances over wbicb tbe manufacturer usually transports said liquors for *loholesale.*No mention is made in tbe proviso tbat leakage maybe allowed, when tbe spirits are removed for any other purpose than for sale, and we tbinb no other just interpretation can be given to it.

It is proper to remark, tbat no question as to tbe jurisdiction of this court over tbe subject matter of this action was raised; and we have given tbat question no consideration. Tbe whole case, in tbe argument, was rested on tbe grounds laid in tbe demurrer, and we regarded them sufficient to dispose of tbe case without an investigation of tbe question of jurisdiction.

Tbe demurrer, we tbinlc, was well taken, and must be sustained, and tbe petition dismissed.

LobiNG, J.,

concurring:

Tbe material facts are, tbat tbe claimants, from. 24th February, 1863, to tbe 3d day of March, 1864, distilled spirits at Peoria, in tbe State of Illinois, wbicb were inspected and marked there, and then, under tbe usual bonds for exportation, transported to different places in other districts and States .specified in tbe petition. While tbe spirits were in transportation portions of them were lost by leakage, and finally they were not exported, but were retained for sale. Tbe spirits thus became subject to duty, and tbe collector exacted tbe duty on tbe whole quantity found at tbe inspection, and refused to make an allowance for tbe leakages shown by tbe claimants, and bis action was affirmed by tbe Commissioner. Tbe petitioners claim here tbe allowance refused to them by tbe officers of tbe revenue.

Tbe *4Hth section of the act of*1862, *c.*119, (12 Stat. L., 432,) authorizes distillers to transport their spirits under bonds for exportation, and then, at them election, to export them or to retain them for sale. And it provides tbat if tbe distillers elect to retain their spirits for sale they shall pay tbe duties assessed upon them at tbe inspection, and also interest on tbe *110duties. It tlius protects tbe government from, loss, and places it and tbe distillers exactly as tbey would' bave stood if tbe duties bad been paid at tbe inspection. In tbis case tbe claimants used tbe privilege tbe statute' proffered them, and tbey paid, and tbe United States received, tbe price tbe statute fixes for tbe privilege.

Tben, by tbe *proviso*of tbe *12th section of the aet of*1863, c. 74, (12 Stat. L., 713,) tbe Commissioner of Internal Uevenue was authorized to make rules providing for deductions on account of leakage from tbe quantity of spirituous liquors subject to taxation under tbe act of 1862, not exceeding five per centum of tbe amount removed for sale. Now, when tbe leakages of these spirits occurred tbey were in transportation, under tbe provisions of tbe 47th section of tbe act of 1862, to be exported or retained for sale as might thereafter be determined. Tbe result shows that tbey were tben, in fact, being removed for sale, and tbey are now to be taken as spirits removed for sale, because tbe United States bave fixed that character upon them by subjecting them to taxation under tbe act of 1862. And'l think that, under tbe *proviso*above cited, it was tbe duty of tbe Commissioner to make rules providing for leakage of spirits transported under bond for exportation and tben retained for sale, as these were. But no such rules were made, and for that reason tbe claim of tbe petitioners for allowance was rejected by tbe collector, and afterwards by tbe Commissioner.

On tbis statement of tbe case tbe petitioners bave suffered loss from tbe official default of tbe Commissioner in omitting to make a revenue regulation required of him by statute, and for this tbe claimants bring this action against tbe United States.

I think tbe action cannot be maintained, because, by tbe law of agency belonging to governments, tbe United States are not liable for tbe official defaults or unlawful acts of their officers.

Tbis rule is founded on public policy, and therefore admits of no exception, and I think tbe authorities cited for tbe claimants in tbe cases before tbe court suggest no exception to it. In 9 How., 248, an officer authorized to sell lands for taxes assessed sold all tbe lots taxed belonging to one person, although tbe proceeds of tbe first two lots sold were more than sufficient to pay all tbe taxes assessed on all tbe lots; and it was held that tbe sale of tbe lots unnecessarily sold was void, and that tbe owner, therefore, could recover them in ejectment *111against tbe purchaser at the tax sale. The case in 4 Wallace, 435, only decided that where county officers omitted to levy a tax laid for the collection of funds for the payment of a debt of the county, their performance of their duty ■ could be enforced upon them by a *mandamus*at the suit of the creditor.

Neither of these cases refer in any way to the liability of a government for the defaults of its officers, and I think the other cases cited are only apparently apposite. In 3 Hill, 612, 614; 5 Tilden, 193; 5 Johnson, 113; 1 Denio, 595; 5 Sandf., 289, it was held that the municipal corporation of the city of New York was liable for the omission of its officers to repair streets and common-sewers. But a municipal corporation, though it may be clothed with some of the political powers of a government, is a legal entity or person, and as such, when charged with duties merely ministerial, is a ministerial officer, and liable for the non-performance of such duties exactly as an individual ministerial officer would be; and it was on the ground that the repairs of streets and sewers were merely ministerial duties charged on the municipal corporation of the city of New York, that it was held liable in the cases cited. This is distinctly declared in the case of 5 Sanford, which closes the series of cases cited, and gives the reason of their decisions. The court say: “ There is a manifest distinction between the political powers of a municipal corporation, by which it exercises in a subordinate degree the functions of a government, and those private and civil duties of a ministerial character merely which devolve on it either as the tenure by which it holds its property, or in consequence of duties imposed on it by the sovereign authority. The former are partly legislative and partly executive, and sometimes even judicial, in them character; and it is a fundamental principle that officers exercising these high offices cannot be held answerable for the mode in which they execute them, except by impeachment or indict-, ment. But in regard to the latter, there is no difference as to liability between a municipal corporation and an individual.” (5 Samdford, 303.)

On this exposition of the cases cited, they only adjudge the liability of a ministerial officer for his own defaults; and their doctrine is, that a municipal corporation is liable for the nonperformance of ministerial duties charged upon it exactly as any other ministerial officer would be, but that so far as it *112exercises tbe functions of a government in tbe use of political powers, it bas tbe immunities of a g’overnment. Now, tbe United States are a government only, and exercise only tbe functions of a government; and I tbink there is nothing in tbe doctrine declared, or in tbe language of tbe court, which suggests or countenances tbe idea that such a government, using-political powers only, is liable for tbe official defaults or unlawful acts of its officers.

Neither can it be claimed that tbe United States have received money which did not belong to them, and which they should refund; for the United States have received only tbe duty which was bylaw due to them from tbe distillers; and tbe allowance for leakage is a distinct thing from tbe duty, and is entirely independent of it. For tbe allowance may be due though no duties are payable, as on spirits exported; and where duties are payable, tbe claim for allowance depends on circumstances which may or may not happen after tbe duty bas attached. The allowance is in fact a mere bounty, by which tbe United States, in the liberality that may encourage manufacturers, assume a risk not belonging to them, but proper to tbe owner of tbe spirits. And the regulation of this bounty, as to its rate, tbe United States have intrusted to the discretion of tbe officer whose official position, knowledge, and experience especially qualify him for tbe duty, and this discretionary power is committed to him and no one else, and be, and no one else, can use it. And tbe officer, in the exercise of bis discretion, has made one rate of allowance for spirits transported under permits, and another for spirits transported under bonds for exportation and actually exported, and might make still another for spirits transported under bonds for exportation and then retained for sale, as these were. And how is this court to know what rate of allowance the Commissioner would make for cases like this *%*Or where does this court get its power to fix tbe rate of allowance, or make any other revenue regulation 1 I think it bas none.

Had the Commissioner made the regulation required by the statute for such cases as this, and then tbe claim for allowance in this case, under such regulation, been rejected, a different case would have been presented here, as to which I express no opinion. But in this case I tbink, for the reasons I have stated, that tbe demurrer should be sustained.

*113Caset, Oh. J.,

dissenting-:

I have already expresed my views of the rights of the claimants in the case of *Sylvester Thayer.*In this case, the very condition of the bond given was to “ *export the spiritsn*or pay the duties chargeable upon them. That tax was assessable upon the amount sold after the legal allowance for leakage, &c. I therefore think the demurrer should be overruled.