Case Name: ADDICOTT v. UPTON
Court: Michigan Court of Appeals
Jurisdiction: Michigan
Decision Date: 1970-09-29
Citations: 26 Mich. App. 523
Docket Number: Docket No. 6,807
Parties: ADDICOTT v. UPTON
Judges: Before: Holbrook, P. J., and Danhof and Rood, JJ.
Reporter: Michigan appeals reports; cases decided in the Michigan Court of Appeals.
Volume: 26
Pages: 523–534

Head Matter:
ADDICOTT v. UPTON
1. Corporations — Liability op Stockholders — Labor Debts.
Statutory liability is imposed on the stockholders of a corporation for the unpaid debts to those who provided labor to the corporation, not to all its employees, and such liability, since it did not exist at common law and is in the nature of a suretyship, will be strictly limited as provided by statute.
2. Corporations — Liability op Stockholders — Labor Debts — Laborers — Change op Positions.
The liability of the stockholders of a corporation to unpaid laborers is to be determined by the work the employees were originally hired to do where the employees, all skilled workmen, agreed to continue working for the corporation, performing whatever work was available, including manual labor, until the corporation solved its financial difficulties, because the new type of work was only temporary and the employees were at all times ready and willing to perform their customary duties (MCLA § 600.2908).
References- por Points in Headnotes
[1-7] 19 Am Jur 2d, Corporations §§ 783, 784.
Who’s an employee, laborer, or servant, etc. of corporation within statute relating to liability of stockholders to that class of persons. 104ALR765.
3. Corporations — Liability op Stockholders — Labor Debts — Computation.
The plaintiffs, who were hired as skilled workmen and agreed to do whatever work was available, including manual labor, when their employer-corporation was unable to pay salaries, are to be paid by the stockholders of the corporation, according to their original salaries and not to the pay scale of a laborer (MCLA § 600.2908).
4. Corporations — Liability op Stockholders — Labor Debts.
Proceedings by the creditors of a corporation to enforce secondary liability against the stockholders have traditionally been divided into labor and nonlabor claims (MCLA § 600.2908).
5. Corporations — Liability op Stockholders — Laborers.
A junior draftsman, draftsmen at monthly salaries, a jig-designer, a pattern and jig-cutter and maintenance man, and a welder and foreman were entitled to payment from the stockholders of a corporation for unpaid wages for manual labor performed after executions against the corporation had been returned unsatisfied, even though the plaintiffs were hired as skilled workers (MCLA § 600.2908).
6. Corporations — Liability op Stockholders — Laborers—Skilled Laborers.
A worker, even though he is a skilled workman who has performed labor for a corporation is entitled, by statute, to payment for unpaid wages for his manual labor from the shareholders of the corporation when an execution has been returned unsatisfied against the corporation (MCLA § 600.2908).
Concurring Opinion
Holbrook, P. J.
7. CORPORATIONS' — LIABILITY OP STOCKHOLDERS-LABOR DEBTS.
Plaintiffs, hired as skilled workmen, who, after their employer-corporation was unable to pay wages, agreed to perform whatever work was available, including manual labor, have a right to payment of wages from the stockholders of the corporation where the execution against the corporation is unsatisfied, because there was no claim presented for the work done in their skilled capacity but only for their unskilled labor (MCLA §600.2908).
Appeal from Ottawa, Raymond L. Smith, J.
Submitted Division 3 February 3, 1970, at Grand Rapids.
(Docket No. 6,807.)
Decided September 29, 1970.
Complaint by John'Addicott, Carl Cooper, Marvin Schmidt, Elmer A. Steinke, Terence Blacklock, and others against Robert C. Upton, Wayne J. Cooper, G. Harold Baker, Helen C. Baker, Malcolm S. Ross, and other stockholders for unpaid labor debts. Judgment for plaintiffs. Stacia B. Jolman and John Yonkers. Judgment for defendants as to the other plaintiffs. Plaintiffs appeal and defendants cross-appeal as to plaintiffs Jolman and Yonkers. Complaint by Lawrence W. Marceau against Robert C. Upton and other stockholders for unpaid labor claims. Judgment for defendants. Plaintiff appeals. Motion to consolidate actions granted.
Reversed.
Robert Bunker Rogoski, for plaintiffs Addicott, Cooper, Schmidt, Steinke, and Blacklock.
Alexis J. Rogoski, for plaintiff Lawrence W. Mar-eeau.
Hartwig, Grow & Jones, for defendants.
Before: Holbrook, P. J., and Danhof and Rood, JJ.
Circuit judge, sitting on the Court of Appeals by assignment.

Opinion:
Danhof, J.
Plaintiffs are former employees and defendants are stockholders of Knoppel, Inc. a now defunct corporation. Prior to this action, plaintiffs had recovered judgments against Knoppel for unpaid wages.
Executions were issued pursuant to these judgments and were returned nulla bona. Plaintiffs then instituted this action against the stockholders for the payment of wages authorized by BJA § 2908. The statute authorizes a civil action against any or all the stockholders of a corporation for labor performed where an execution has been returned nulla bona.
James Jolman, a janitor, and John Yonkers, a night watchman, were also plaintiffs below. They prevailed, but the court denied plaintiffs' claims being of the opinion that they were skilled artisans and did not belong to that class of employees which the statute sought to protect. Plaintiffs have appealed and defendants have cross-appealed.
Plaintiff Blacklock was originally hired as a common laborer but was elevated to the position of junior draftsman before the financial difficulties arose. Plaintiffs Marceau and Addicott were hired as draftsmen at monthly salaries. Steinke was hired as a jig designer with most of his work being on the drafting board. Cooper was hired as a pattern and jig cutter and maintenance man; Schmidt was a welder and "foreman." All these men worked at their respective jobs until the corporation became unable to meet its payroll.
The hourly employees were dismissed, but plaintiffs met with the corporation's president to discuss the matter. They were told that new financing was being sought and was more apt to be forthcoming if production were maintained. They agreed to continue working for the corporation, performing whatever work was available, until the company got out of the woods. It never did.
In Michigan, proceedings by creditors of corporations to enforce secondary liability against stockholders have traditionally been divided between labor and nonlabor claims. Const 1908, art 12, § 4 gave constitutional status to such labor claims. The 1963 Constitution does not perpetuate this constitutional status, but it has been perpetuated by EJA § 2908. The Revised Judicature Act became effective in 1963, and considering the traditional preferred and constitutional status of labor claims, it cannot be argued that this provision is repugnant to our present constitution. Const 1963, art 3, § 7.
Defendants argue that since they purchased stock in violation of the Blue Sky Law, they cannot be held secondarily liable to these plaintiffs. Defendants, having been sold securities in violation of the Blue Sky Law, are afforded a remedy by MCLA § 451.810 [Stat Ann 1970 Cum Supp § 19.776(410)]. This section makes it optional with the purchaser of such stock to retain the stock or tender it back and be entitled to recover what has been paid. Moore v. Manufacturers Sales Company (1953), 335 Mich 606 (construing former CL 1948, § 451.120).
This provision of the Blue Sky Law was enacted for the protection of purchasers of securities and to penalize the sellers thereof. Farm Products Co. v. Jordan (1924), 229 Mich 235. It cannot be read to insulate the shareholders from the labor claims of the corporation's employees. In any event, this is not the proper proceeding for such a determination.
The main issue for determination is whether or not plaintiffs were laborers within the contemplation of EJA § 2908. They urge that if the work for which they were originally hired was not of the character protected, the manual labor they subsequently per formed brought them within the statute's protection. We reject that position because the work was temporary in character and plaintiffs were at all times ready and willing to perform their customary duties. For the same reasons, plaintiffs' damages are to be calculated at their original rates of pay and not on a laborer's pay scale. As stated by the court in In re B. H. Gladding Company (D RI, 1903), 120 F 709, 711:
"Wages are 'earned', in the sense that term is used in the Bankruptcy Act, so long as a bona fide contract of hiring exists, and the clerk or servant continues in the master's employment and does all that he is required to do."
The status of plaintiffs' claims, then, must be determined in light of the employment for which they were originally hired.
It is the object and purpose of the statute that the corporation should be primarily liable for labor debts and that the stockholders stand in the position of sureties to insure payment thereof. Jorgensen v. Mickle (1932), 259 Mich 573. By its language, the statute gives this right to those who perform labor for the corporation; it is not all employees who are so protected. Because of our reluctance to increase the liability of a surety and because no such right existed at common law, the statute and its predecessors have been traditionally given a strict construction by our courts.
Plaintiffs are all skilled workers. None of them fall into the "class of men not well qualified to protect themselves," who "labor for small compensation" and are "in the power of their employers."
The above characterization may have been apt for the nineteenth-century laborer whom these acts were designed to protect, but it can hardly be applied literally today. It it were, no one would qualify under the statute. A common laborer of 1970 may not have a great deal of skill, but he also may have a good wage, seniority, pension plan, grievance procedures, unemployment insurance, tax sheltered annuities, etc. Just as the above-depicted laborer is out of date, so are most of the cases interpreting our statute.
The problem remains, however, of where the line should be drawn. Even with a more enlightened construction, clearly all types of employees are not to be afforded the statute's protection. Even in the 19th century, our courts gave the term "laborer" its (then) ordinary meaning in common use. Brockway v. Innes (1878), 39 Mich 47. And even applying a strict construction, the Supreme Court in 1890 was unwilling to exclude from this definition an experienced miller whose work required the exercise of judgment and skill. Nor did the fact that he also received more money than did an unskilled worker exclude him. Black's Appeal (1890), 83 Mich 513.
There appears to be even less reason for now holding that only the wage claims of unskilled laborers are protected by RJA § 2908. A more realistic approach would be to exclude those who are corporate officers, exercise a degree of discretion, have the power to delegate some authority, and have some personal stake in the success or failure of the enterprise.
Looking to statutes from other jurisdictions, we find that employees such as these plaintiffs may or may not be included, depending on the language of the statute. Most statutes, however, speak in terms of "laborers and clerks" and could be distinguished in that respect. Section 64(a) (2) of the Bankruptcy Act also speaks in terms of "workmen, servants and clerks," and while its purpose is different from that of RJA § 2908, interpretation of its terms are helpful.
The policy of congress in awarding priority to claims by workmen, servants, etc. was this fundamental consideration; " 'Priority of payment was intended only for the benefit of those who are dependent upon their wages ', those who 'could not be expected to know anything of the credit of their employer, but must accept the job as it comes, to whom the personal factor in employment is not a practicable consideration.' " It has often been stated that " 'The intention of congress was plainly to give special protection to a class of wage earners who generally have no substantial savings to fall back on in case of adversity and therefore cannot afford to lose' ".
The intent of congress was strikingly similar to the intent of our legislature in passing a forerunner to RJA § 2908. That intent was characterized in Peck v. Miller (1878), 39 Mich 594, 597:
"But there can be no doubt, we think, that the main if not the only object of this provision was to secure the claims of laborers whose wages are not usually very large, but whose means are not generally such that they can avoid suffering unless they are secured."
Under the Bankruptcy Act, the words "workmen, servants [and] clerks" are used in their popular sense. They include only those who work, labor, or serve in a more or less subordinate capacity. In Re Gay & Sturgis (D Mass, 1916), 233 F 604. The character of the work performed is an important consideration, as are the economic status of the employment and the degree of discretion permitted to be exercised. 3A Collier, Bankruptcy (14 Ed), § 64.204, p 2128.
These words have been held to include, in some instances, a musician, bookkeeper and shop manager (where his duties were more of the character of services usually performed by workmen, servants or clerks). Collier, supra, pp 2134, 2134.1. Priority has also been accorded a wage claim of a claimant who was the sole shareholder, a director, president and general manager of the bankrupt corporation. Bass v. Shutan (CA9, 1958), 259 F2d 561. Priority will not be denied merely because the employment involves an exercise of discretion. Collier, supra, p 2128, fn 9. In no case has priority been denied because a man's job requires a degree of skill.
It is natural that the language of the Bankruptcy Act is construed more liberally than our statutes imposing suretyship liability on stockholders, as its purpose is to award wage earners' claims priority as against other creditors of an insolvent corporation. However, five of the available Michigan cases defining the term "labor" have done so in the context of construing a statute dealing with preferred labor claim against insolvent corporation. The remaining four Michigan decisions deal with the forerunners of RJA § 2908. Each line of cases refers to, and at least one instance (Peck v. Miller quoted in Black's Appeal) quotes from, the other.
Our courts have not in the past construed the term "labor" differently in the two classes of cases. Certainly we should not now do so, especially in light of the drastically changed economic conditions of our day. We now hold that plaintiffs, skilled workers though they be, have performed "labor" within the meaning of RJA § 2908 and, therefore, are accorded a right of action against the defendant-stockholders for the unsatisfied judgment.
Reversed.
Rood, J., concurred.
MCLA § 600.2908 (Stat Ann 1962 Rev § 27A.2908).
MCLA § 451.501 et seq. (Stat Ann 1970 Cum Supp § 19.776 [101] et seq.).
Quoted in 6 Remington, Bankruptcy, § 2790, p 355.
Ericsson v. Brown (1862), 38 Barb (NY) 390.
13a Fletcher, Cyclopedia Corporations (1961 Rev) ch 58, § 6282, p 168.
11 use § 104(a), 52 Stat 874 § 64(a) (2) (1938), June 22, 1938, c 575. That aet provides as follows: "(2) Wages and commissions, not to exceed $600 for each claimant due to workmen, servants, clerks, or salesmen ."
3A Collier, Bankruptcy (14 Ed), ¶ 64.204, p 2127.
Black's Appeal, supra; Petition of Sayles (1892), 92 Mich 354; Appeal of Clark (1894), 100 Mich 448; Michigan Trust Co. v. Grand Rapids Democrat (1897), 113 Mich 615; Lawton v. Richardson (1898), 118 Mich 669.
These statutes were the forerunners of MCLA § 408.511 [Stat Ann 1968 Rev § 17.308(21)] giving priority to labor debts.
Brockway v. Innes, supra; Peek v. Miller, supra; Jones v. Avery (1883), 50 Mich 326; Jorgensen v. Mickle, supra.