L.A. Warehouse Co. v. Am. Distilling Co.

SCHAUER, J. This is an action by a bailee to recover from the bailor-owner moneys expended by the former in payment of an excise tax on the latter’s property. The judgment in favor of the plaintiff-bailee must be sustained.

The property involved was 2092.5 gallons of gin; exclusive of the tax it was worth 28 cents per gallon. The tax was the United States Internal Revenue excise on distilled [404]spirits; it was imposed at the rate of $2.25 a gallon. Under the law (Int. Rev. Code, § 2800(a) (1) and (e), U.S.C.A., Title 26) such tax attached to the gin “as soon as this substance [came into] . . . existence as such.” Obviously, therefore, the gin, as soon as it came into “existence as such,” represented an invested value of $2.53 a gallon. (The possibility of abatement of the tax upon destruction of the gin under some circumstances need not be considered, as such contingency did not arise here.) Any owner of the gin necessarily had to consider its value as including the $2.25 a gallon tax inasmuch as such tax had to be paid.

Notwithstanding the fact that the tax attached to the gin simultaneously with its coming into existence, the actual payment of the tax could be deferred so long as the gin was kept in an internal revenue bonded warehouse (up to eight years). Defendant was the distiller and owner of the gin here involved; the tax on such gin had not been paid. Defendant was also the proprietor of a government bonded warehouse located in Sausalito, California.

Plaintiff was engaged in the business of conducting a similar government bonded warehouse, situated at Los Angeles, California, and as a part of its business on occasion caused distilled spirits to be transported in bond from bonded warehouses other than its own to its bonded warehouse at Los Angeles. Prior to October 11, 1938, defendant received from one of its customers a verbal purchase order for the gin here involved, together with directions that the gin be delivered to plaintiff’s warehouse at Los Angeles for storage, title to pass after delivery in Los Angeles. On approximately October 11, 1938, defendant notified plaintiff of such order. In order to secure permission from the United States Internal Revenue Department to transport the gin from defendant’s warehouse to that of plaintiff it was necessary for plaintiff to make application to the department, designating the carrier by which the gin was to be transported, and also to file a “Transportation and Warehousing Bond” to insure the payment of the tax on the gin. Plaintiff filed such bond with the department and designated the Evans Freight Lines, Inc., as the carrier. The gin was received by the designated carrier, but while it was in transit from the warehouse of defendant to that of plaintiff it was destroyed by fire, through no fault (so it was stipulated) of either plaintiff or defendant. The parties agree that ownership of the gin remained in de