Action by the United States of America against the United States Fidelity & Guaranty Company, wherein Dr. Arthur J. Kolling was summoned as a third party defendant, to recover penalty named in a specially denatured alcohol permit bond, wherein the third party defendant was principal and the defendant was surety.

         Judgments in accordance with opinion.

         The United States of America, plaintiff herein, was at all times herein mentioned, and now is, a corporation sovereign.

         At all times herein mentioned, the defendant, United States Fidelity & Guaranty Company, was and still is a corporation duly organized and existing under and by virtue of the laws of the State of Maryland, having its principal office at Baltimore, Maryland, and duly authorized to do business in, and doing a general suretyship business in the State of Minnesota.

         One Dr. Arthur J. Killing was at all times herein mentioned a resident of and d/b as Or-Kis Laboratories at 1005 Cedar Lake Road in the City of Minneapolis, Hennepin County, State and District of Minnesota, and was the holder of a Permit SDA-Minn.-400 issued to him by the United States of America under the laws and regulations made pursuant to the sale and use of specially denatured alcohol and by virtue thereof was authorized to withdraw One hundred and eight (108) wine gallons of specially denatured alcohol, Formula No. 39b, without the payment of tax thereon for use in the making of certain specified toilet preparations according to prescribed formulas.

         On or about January 5, 1926, said Dr. Arthur J. Kolling, d/b as Or-Kis Laboratories, as principal, and United States Fidelity & Guaranty Company, as the surety, executed and delivered to the United States their joint and several bond in the sum of One Thousand ($1,000) Dollars, in support of the above alleged Permit for the purpose of guaranteeing full and faithful compliance with the terms of said Permit and all laws and regulations governing the purchase and use of specially denatured alcohol and thereby jointly and severally agreed to pay to the United States the sum of Four ($4) Dollars per wine gallon for all such specially denatured alcohol as should be withdrawn under the Permit and unlawfully diverted or not properly accounted for as required by law and regulations; that the said sum of Four ($4) Dollars per wine gallon was the substantial equivalent of the tax at Two ($2) Dollars per proof gallon which was due and payable to the Government by the said Dr. Arthur J. Killing on any and all alcohol so diverted or sold and unaccounted for.

         Thereafter while the said bond was in full force and effect, said Dr. Kolling, d/b as Or-Kis Laboratories, withdrew under the Permit during the nine months period from February 6, 1937, to November 8, 1937, Seven hundred and two (702) wine gallons of specially denatured alcohol, Formula 39b, which alcohol was 186 proof, and filed monthly reports with the United States as required by law purporting to account for the use of the said alcohol when in truth and in fact the reports were false and fraudulent in that the alcohol to the extent of Six hundred and ninety-four (694) wine gallons was diverted to an unauthorized use and was not used in accordance with the terms of said Permit and bond and was not used for the purposes indicated in said reports but was diverted to an unauthorized use in this that it was sold and delivered by said Dr. Kolling to one Edward C. Danelz in the same state and condition as it was when it was withdrawn by said Dr. Kolling under said Permit.

         The specially denatured alcohol which was so diverted as above set forth, was subject to a tax of Two ($20) Dollars per proof gallon and that by reason of the illegal use and diversion of the said specially denatured alcohol withdrawn under his Permit, the said Dr. Arthur J. Kolling, d/b as Or-Kis Laboratories, became liable to the plaintiff for the tax on distilled spirits at the rate of Two ($2) Dollars per proof gallon in the total sum of Two Thousand Five Hundred Eighty-One and 68/100 ($2,581.68) Dollars and on June 18, 1938, an assessment was place on the books of the Collector of Internal Revenue at St. Paul, Minnesota, at page 426, line 7, in the amount of Two Thousand Five Hundred and Eighty-One and 68/100 ($2,581.68) Dollars against the said Dr. Arthur J. Kolling, representing said tax and on the 24th day of June, 1938, demand was duly made upon him for the immediate payment of said assessment.

         And by reason of the facts hereinbefore found to be true, the said Dr. Arthur J. Kolling, d/b as Or-Kis Laboratories, breached the terms and conditions of said bond and he became liable to the Government for damages at the rate of Four ($4) Dollars per wine gallon on all specially denatured alcohol illegally diverted and falsely accounted for in the amount of Two Thousand Five Hundred Eighty-One and 68/100 ($2,581.68) Dollars, no part of which has been paid.

         On or about the 14th day of April, 1939, demand was duly made upon the defendant, United States Fidelity & Guaranty Company, as surety on said bond, by the plaintiff for the sum of One Thousand ($1,000) Dollars, no part of which has been paid.

         On May 19, 1939, immediately upon being served with summons in said action, the third-party plaintiff, United States Fidelity & Guaranty Company, gave third-party defendant, Dr. Arthur J. Kolling, written notice of the pendency of said action and demanded that he appear and defend the same, and said third-party defendant neglected so to do.

         The said third-party defendant, Dr. Arthur J. Kolling, in inducing the said defendant and third-party plaintiff, the United States Fidelity & Guaranty Company, to execute the aforementioned bond, agreed and covenanted with the said United States Fidelity & Guaranty Company to indemnify it ‘ against all loss, damages, claims, suits, costs and expenses whatever, including court costs and counsel fees at law or in equity, or liability therefor, which the Company may sustain or incur by reason of: executing or procuring said bond, or making any investigation on account of same or procuring its release or evidence thereof from same, or defending, prosecuting or settling any claim, suit or other proceedings which may be brought or threatened by or against any of the undersigned or the Company in connection with the same, or any of the agreements herein contained, and to place the Company in funds before it shall be required to make any payment.’ On account of the foregoing the said defendant and third-party plaintiff, United States Fidelity & Guaranty Company, has incurred expense in the investigation of said allegations, including court costs and counsel fees, in the sum of Three Hundred and Fifty ($350) Dollars.