Summary
holding that corporate officer was not entitled to wage priority
Summary of this case from Gyalpo v. Holbrook Dev. Corp.Opinion
No. 355.
June 17, 1929.
Appeal from the District Court of the United States for the Southern District of New York.
In the matter of the Progressive Luggage Corporation, bankrupt. The trustee in bankruptcy appeals from order of the District Court giving priority of distribution to a certain claim for salary. Reversed.
This is an appeal by the trustee in bankruptcy from an order of the District Court for the Southern District of New York, giving priority of distribution to a claim under section 64 of the Bankruptcy Act (11 USCA § 104). The claimant was the secretary of the bankrupt corporation, owned one-third of its capital stock, and with two others, who owned a like amount of stock, controlled the corporation. One of these three men traveled for the concern, while the claimant and the other worked upon the goods manufactured. They voted to themselves salaries of $100 per week. The salary of the claimant for the week just preceding the filing of the petition in bankruptcy is involved in this appeal.
The evidence showed that the claimant was accustomed to work cutting leather and pasteboard, and in doing whatever else needed to be done in producing the goods manufactured. He had no superior and no contract of employment to do any particular work at any particular time, and when asked who employed him testified that he was the boss.
H. J.J. Lesser, of New York City (Henry Yarm, of New York City, of counsel), for claimant.
Archibald Palmer, of New York City (Maxwell Green, of New York City, of counsel), for trustee petitioner.
Before MANTON, L. HAND, and CHASE, Circuit Judges.
It is perfectly plain that the three men who owned all of the stock in this corporation conducted the business as though it were a partnership. The claimant and the others performed work which, to borrow the words of the statute, is often done by "workmen, clerks, traveling or city salesmen, or servants." The kind of work done, however, is not the sole or real test of priority, but rather is simply one of the things which help to determine whether the claimant bore to the bankrupt the relation of workman, clerk, traveling or city salesman, or servant, when earning the money for which priority is claimed. This relationship is the true test, and to entitle the claim to priority should be one where there not only is a real status of employee and employer between the claimant and the bankrupt, but, looking farther than just at the work done, the employment must in substance bring the employee within the ordinary meaning of the words used in the statute. This claimant and the two others simply voted themselves salaries and did what work each saw fit and was fit to do. Their salaries were in fact, though not in name, drawing accounts, and they were of course entitled in equal shares to any profits the corporation made. It was to their interest as stockholders to have the business profitable, and they devoted their time and energy to this end by working directly for the corporation, to be sure, but to all intents and purposes for themselves. The claimant in his testimony repudiated any idea that he was anything but a vice principal. It is clear that, if he was bound to the bankrupt at all, it was not by any contract of employment, as a workman or servant in the ordinary meaning of those terms, for he had none, but by his interest as a stockholder and officer.
His relationship to the bankrupt was that of a one-third owner, who contributed his services under no definite arrangement, except that he should be paid each week an amount equal to that paid each of the two others, who had an interest equal to his. His claimed right to be paid this agreed amount in full as wages entitled to priority, and to have creditors share what is left, would subordinate substance to form, and give exaggerated importance to a mere corporate shell. We do not think section 64 of the Bankruptcy Act (11 USCA § 104) was ever intended to bring about such a result. See In re Crown Point Brush Co. (D.C.) 200 F. 882; In re Boston French Range Co. (D.C.) 235 F. 916; In re Metropolitan Jewelry Co. (D.C.) 216 F. 384.
Judgment reversed.