The opinion of the court was delivered by: GALSTON
This is a motion for an order directing the entry of judgment in favor of the defendant American Surety Company and dismissing the complaint as against that defendant.
The complaint alleges that the defendants Springer & Lotz were engaged in the business of retail druggists, and that on or about July 3, 1922, a permit was issued to them by the federal Prohibition Commissioner on the filing of a bond by the defendant American Surety Company, and that said bond provided: "Now, therefore, the condition of this obligation is such that if the principal shall comply with the terms of said permit * * * and if the said principal shall further pay all taxes, assessments and penalties payable by the said principal under the National Prohibition Act * * * then this obligation shall be void, otherwise to remain in full force and effect."
The complaint further alleges a violation of the National Prohibition Act by the defendants Springer & Lotz, subsequent to the delivery of the bond, in that they unlawfully disposed of about seventy gallons of whisky on fraudulent prescriptions, and that by reason of such violations the defendants became liable to pay the United States "as taxes, assessments and penalties * * * the sum of $845.56, a detailed statement of said indebtedness being as follows:
For special tax as retail liquor deal-
er, 11 months ending June 30,
1923 doubled under Section 35,
National Prohibition Act $45.83
25% penalty, failure to file returns 5.73
For specific penalty for unlawful
sales, as retail liquor dealer, un-
der Section 35, National Prohibi-
tion Act, incurred August, 1923 500.00
For differential tax under section
600, Revenue Act of 1921, at $4.20
per gallon on 70 gallons distilled
spirits unaccounted for 294.00
It is alleged that on November 10, 1927, due notice of a breach of the conditions of the bond was given to the defendants; but no part of the sum due was paid to the plaintiff.
The complaint was filed in the office of the clerk of the court on October 7, 1932, almost ten years after the violations complained of. The answer set up an affirmative defense in which it is alleged that the action was not commenced within five years from the time when the tax or penalty accrued; and that therefore the action is barred by section 791, title 28, U.S.C. (28 USCA § 791), and section 105, title 26, U.S.C. (26 USCA § 105).
Title 28, U.S.C., § 791, 28 USCA § 791 (R.S. § 1047), provides as follows: "No suit or prosecution for any penalty or forfeiture, prcuniary or otherwise, accruing under the laws of the United States, shall be maintained, except in cases where it is otherwise specially provided, unless the same is commenced within five years from the time when the penalty or forfeiture accrued."
The first matter to be determined is whether from the face of the complaint this suit relates to penalties and forfeitures.
The first item is designated in the complaint as a special tax "doubled under section 35 [tit. 2], National Prohibition Act [27 USCA § 52]." This has all the earmarks of a penalty, and so much seems to be indicated in O'Sullivan v. Felix, 233 U.S. 318, 34 S. Ct. 596, 58 L. Ed. 980.
The next item is designated in the complaint as a 25 per cent. penalty for failure to file returns, and speaks for itself.
The third item likewise is called a specific penalty for unlawful sales.
The fourth item is for a differential tax under section 600 of the Revenue Act of 1921 (26 USCA § 245 note). This is a tax "on all distilled spirits on which tax is paid at the nonbeverage rate of $2.20 per proof gallon and which are diverted to beverage purposes * * * there shall be levied and collected an additional tax of $4.20 on each proof gallon. * * *"
This is a penalty rather than a tax, for it "involves the idea of punishment for infraction of the law." Lipke v. Lederer, 259 U.S. 557, 42 S. Ct. 549, 551, 66 L. Ed. 1061. See, also, United States v. Smith, Kline & French Co. (D.C.) 184 F. 532.
Clearly, then, as against the principals, Springer & Lotz, the action being for penalties and forfeitures, and the action not having been commenced within five years from the date when the penalty or forfeiture accrued, it is barred by the statute.
Is the obligation of the surety greater than that of the principal? In the matter of Cheesman v. Cheeman, 236 N.Y. 47, 139 N.E. 775, 776, it is said: "It is the general rule that a surety is not liable if the original debt is barred by the statute of limitations. In such a case no recovery may be had even where the principal has allowed judgment to be taken against him. The surety may avail itself of the statute in an action brought against it. Dawes v. Shed, 15 Mass. ...