Opinion
February 7, 1950 —
March 7, 1950.
APPEAL from an order of the circuit court for Milwaukee county: DANIEL W. SULLIVAN, Circuit Judge. Reversed.
Erwin Esser Nemmers of Milwaukee, for the appellants.
For the respondent there was a brief by Kenney Hays, attorneys, and John F. Cook of counsel, all of Milwaukee, and oral argument by Byron J. Hays.
Standard Precision Manufacturing Company made a voluntary assignment of its assets for the benefit of creditors under the provisions of ch. 128, Stats. L. B. Knaak, John G. Mapp, and Russell L. Willis each filed a claim designated as a wage claim and asserted priority thereon under the provisions of sec. 128.17 (1) (e). Claimants appeal from an order entered August 18, 1949, disallowing each of the claims and denying them priority.
L. B. Knaak was one of the incorporators of debtor corporation. He subscribed and paid for $10,000 of its stock (out of a total of $82,000) and was elected a director and vice-president of the company. He received no salary as such officer, nor as director. The record does not show the date of incorporation. Knaak and Mapp, copartners doing business as L. B. Knaak Company, were sales representatives for manufacturers. On December 4, 1947, L. B. Knaak Company was appointed as sales representative for the debtor in Wisconsin and upper Michigan. The letter from the debtor company confirming the appointment contained the following paragraph:
"2. You are to be credited with all business received and accepted by us, direct or indirectly, in said prescribed territory at a general commission of five per cent of the gross sales received from said territory. Net tool charges are not to be included and gross amounts of rejects, if any received, are to be deducted from gross sales. Commissions are to be paid between the 10th and 15th of each following month. We will not carry or maintain any house accounts in said territory in that all business will be credited to you as outlined above."
On April 12, 1948, L. B. Knaak was appointed as sales manager of the debtor "at an agreed compensation of two per cent of the total volume of sales on total invoicing." His position as sales manager required Knaak to do some traveling for the purpose of selecting sales representatives in other states. To maintain and increase Wisconsin sales, if possible, L. B. Knaak Company hired Willis. Knaak testified as to the hiring of Willis as follows:
"We wanted additional help, especially when I had to devote some time to salesmen; so we [L. B. Knaak Company] hired Mr. Willis on a subcontract basis and passed on the full five per cent commission to him. And he worked on a straight commission basis."
No amounts were withheld by the debtor or by L. B. Knaak Company for income taxes or social security.
The statute under which the claimants contend they are entitled to priority reads as follows:
"128.17 Order of distribution. (1) The order of distribution out of the debtor's estate shall be as follows: . . .
"(c) Wages due to workmen, clerks, traveling or city salesmen, or servants, which have been earned within three months before the date of the commencement of the proceedings not to exceed six hundred dollars to each claimant."
Given its ordinary meaning the word "wages" refers to the compensation given or to be paid by an employer to an employee. This relationship must be established by a contract, express or implied. It is apparent, therefore, that the claimant Willis, who was hired by and paid by the L. B. Knaak Company, was not an employee of the debtor corporation. His claim, therefore, was properly denied.
It is also apparent from the record that the partnership consisting of L. B. Knaak and John G. Mapp was an independent contractor and would not, under Wisconsin law, be an employee of the debtor corporation. To determine the amount for which Mapp and Willis would file a claim, the total amount of commissions claimed due the partnership was divided arbitrarily between them. The Mapp claim, too, was properly disallowed.
The claim of L. B. Knaak was for two per cent of total sales for his services as sales manager. This claim was objected to on the ground that L. B. Knaak Company rather than L. B. Knaak as an individual was named as sales manager, and further that L. B. Knaak personally was not entitled to claim priority because he was a stockholder and officer of the corporation. These contentions are not sound. The letter in evidence dated April 12, 1948, was addressed to L. B. Knaak Company, but the salutation was "Dear Larry." It merely confirmed an oral agreement had before that time and contemplated that the work done as sales manager was to be done entirely by L. B. Knaak. The case of Conlee Lumber Co. v. Ripon Lumber Mfg. Co. 66 Wis. 481, 487, 29 N.W. 285, arose out of an assignment for the benefit of creditors, Under the old statute then in force a preference was given in the distribution of assets to "the wages of laborers, servants, and employees earned within six months prior thereto." In that case two officers of the debtor corporation were given preferences for salaries due. The rule was also laid down in that case that a liberal rule has been adopted by this court in such cases.
Under the circumstances in this case the fact that L. B. Knaak was an officer and director of the corporation will not defeat his claim. Account No. 364 of the debtor corporation showed there was due to him under the caption "Commission, two per cent as sales manager," the sum of $716.47. It is apparent, therefore, that he had this amount due in his individual capacity as sales manager at the time the assignment was made for the benefit of creditors. It has long been held in such cases that commissions or compensation based on piecework are wages within the meaning of the statute in question. This claim should have been allowed to the extent that such commissions were earned within three months before the date of the commencement of the proceedings, but in no event at more than $600.
By the Court. — Order reversed and cause remanded for further proceedings in accordance with this opinion.