Court Opinion

ID: 5653309
Source: CourtListenerOpinion
Date Created: 2022-01-11 23:29:21.329603+00
Date Added: 2024-06-11T08:38:41.633840
License: Public Domain

S CHAUER, J., Dissenting.
I dissent. It is conceivable that cases may arise hereafter in which the legal aspects are entirely similar to those of the instant case but wherein the insolvent corporations do not possess assets enough to pay the preferred claims in full and wherein the officers and directors of such corporations shall file demands constituting the major portion of the claims for priority. If the foregoing ruling by the majority of this court is followed as a precedent in those eases it will operate substantially to impair for bona fide employees the benefits wisely intended to be secured for them by section 1204 of the Code of Civil Procedure. Said section 1204 is designed and intended to protect laborers and subordinate employees generally in the collection of wages due them for services rendered while employed in a business managed by another. Even to the extent of possibly defeating entirely the claims of general creditors, it has been considered necessary, or at least conducive to social welfare, to throw the protective cloak of this legislation about those occupying positions which are subordinate or completely voiceless, in the managerial scale, because it is to the public interest that such persons, who ordinarily have no means of ascertaining or keeping currently informed concerning the financial status of their employer, and who often are dependent for the very necessaries of life upon the receipt of their earnings from week to week, shall receive those earnings without deduction or delay, in preference to the claims of general creditors who *786ordinarily have been under less necessity of dealing with the employer, have been better able to ascertain his financial status and are less dependent for livelihood on the collection of the particular debt due them. The debt to them would ordinarily be one of many outstanding, current accounts while to the employee it might be his only account and perhaps his entire capital. Such legislation, besides being beneficial to the immediate objects of the preference granted, obviously conduces to the general public welfare and should be upheld and protected from insidious abuses as well as from direct attacks; I think it was never intended that by it the managing heads of a corporation, who, by virtue of their offices, are in a position superior to that of general creditors as well as that of subordinate employees, should be given the power deliberately to run the corporation further into debts whereby they establish themselves as creditors with a preference over the less informed general creditors.
Said section 1204 provides that “When any assignment ... is made for the benefit of creditors ... or results from any proceeding in insolvency or receivership . . . the wages and salaries of miners, mechanics, salesmen, servants, clerks, laborers, and other persons, for personal services rendered such assignor ... or corporation, within ninety days prior to such assignment ... or to the commencement of the proceeding . . . and not exceeding two hundred dollars each, constitute preferred claims, and must be paid by the trustee, assignee or receiver before the claim of any other creditor .. . and must be paid as soon as the money with which to pay same becomes available. If there is insufficient money with which to pay all such labor claims in full the money available must be distributed among the claimants in proportion to the amount of their respective claims. . . . This section is binding upon all the courts of this State . . . ” (Italics added.) The drafters of that statute by their use of the words “all such labor claims” inferentially suggest that they thought they were preparing legislation to protect employees rather than employers.
Plaintiff’s assignor, Nancy Vinci, for approximately one year prior to the assignment for the benefit of creditors which was made by defendant corporation, was the president and manager of such defendant corporation and owned a majority of its outstanding stock. As such president and *787manager, in the performance of the duties- of such offices, she xvould naturally have become acquainted with, and currently maintained knoxxdedge of, the financial affairs of her corporation. She was the manager of such affairs on behalf of the corporation and its stockholders. As such manager she caused herself to be employed by the corporation in the performance of skilled labor for a salary or wage of '$50 per week. This salary or wage was paid to the plaintiff’s said assignor for approximately one year; the corporation then seemingly had become financially distressed; nevertheless said assignor, who must as president and manager of the corporation have had full knowledge of the facts, caused herself to remain in the corporation’s employ and caused the corporation to continue hiring her for three weeks during which she and other employees were not paid. Such three weeks’ operation of the business without paying salaries or xvages was doubtless intended to be for the benefit of the corporation and the assignor as the principal stockholder thereof; now, however, such assignor has filed a claim seeking as an employee the preference created by the above-quoted section 1204 of the Code of Civil Procedure.
I think the legislature did not intend by the enactment of said section 1204 to give to any person the chameleon-like quality of wielding the power of management of the corporation employer to continue its business and herself as an employee thereof beyond a time when it met its obligations and then in the guise of an oppressed employee to claim the preferential benefits accorded by the statute to protect bona fide employees.
In the majority opinion an attempt is made to distinguish the case of Carpenter v. Policy Holders Life Ins. Assn., (1937) 9 Cal. (2d) 167 [70 Pac. (2d) 487, 111 A. L. R 1450], from the case at bar. The sole distinction pointed out is that in the case before us it is asserted, despite the justified inference and implied finding to the contrary, that the plaintiff’s assignor and the other officers of the corporation were not being paid anything for their services as officers but were “draxving salary as workers” exclusively, while in the case last cited the claims were made by the corporation’s president, vice-president, and secretary-treasurer, without the nature of the services performed by them, other than as possibly may be inferred from the titles of their offices, appearing. Such asserted distinction in plainer words *788amounts to this: that if the president of a corporation performs services which are ordinarily rendered by a subordinate employee he is entitled to a preference for the salary due him for such work, but if the services he renders arc those ordinarily pertaining to the office of president he has no preference. I do not think our statute can be reasonably so construed and our Supreme Court has not so construed it.
In the case mentioned (Carpenter v. Policy Solders Life Ins. Assn., (1937) 9 Cal. (2d) 167, supra), at page 169, the Supreme Court, speaking through Mr. Justice Seawell, said: “We are of the view that it was not within the purposes and objects of section 1204 of the Code of Civil Procedure, to give officials of a corporation, such as a president . . . a preferential claim for an unpaid balance of salaries due them when the corporation passes into liquidation. While it is true that a literal wording of said section might seem to include such officials, we are of the view that they are in a class apart from others who work for the corporation for wages or salaries, and that in the absence of express mention it was not the legislative intent to include them within the class given priority.” As previously pointed out by the court, on page 168, “the preference given is for the ‘wages and salaries of miners, mechanics, salesmen, servants, clerks, laborers, and other persons, for personal services’ ”. The requirement made by the statute as the condition of its preference is not of a type of service but in the character of the relationship to the employer. The claimants in the case cited were employees and the services rendered by them were personal services and hence within the statute as to that exaction, but because the persons rendering those services bore a managerial relationship to the corporation employer they were held to be “in a class apart from others who work for the corporation for wages or salaries”. It is they—the managerial staff, by reason of their offices—not their services by reason of the character thereof—that “are in a class apart from others who work for the corporation for wages or salaries”. There can be no tenable contention here that plaintiff’s assignor was not actually the president of the involved corporation and performing the duties of that office during the period for which application of the preference is sought.
My learned associates insist that “In each of the cases cited by the court [in the Carpenter ease] in support of its *789decision the compensation for which the officer sought preference was due him for official services, at least in part ...” One of the cases so cited is that of England’s Excrs. v. Beatty Organ etc. Co., (1866) 41 N. J. Eq. 470 [4 Atl. 307], From that case the following quotation shows that the New Jersey court was considering and discussing, and apparently thought that it was concerned with, a question similar to ours. It said: “Is the president of a corporation, when engaged in and about the business of his company, whatever its character may be, a laborer, within the contemplation of the act? Does the act fairly mean to embrace one or all of the members of the company, as well as all or any others who may be employed by it? Can the members of a corporation employ themselves, respectively, and, in case of failure, stand upon the statute for any compensation that may be due? The president of a corporation, under the act, is and must be a director. He is part and parcel of the organization. There must be employer as well as employed; and the question arises, does the act authorize the organization, which is the employer, to employ itself? Does the statute mean to go so far as to empower the directors of a corporation to employ themselves, as the workmen and laborers, to do all the work and labor necessary to be done, and then, in case of insolvency, to give them the statutory lien, and to prefer them to all the general creditors? I cannot so understand the act. I think, under our statute, every court would do nothing more than place every such creditor upon the same footing as the general creditor. I cannot perceive any reason for giving the slightest advantage to those under whose management such a concern is wrecked.” Attention is also called to the following language from In re GrubbsWiley Grocery Co., (D. C., W. D., Mo., 1899) 96 Fed. 183, 184 (likewise cited in the Carpenter case), construing the bankruptcy act: “The board of directors, as is frequently the ease, might have voted a salary to the president for his services. Could it be maintained that he was a workman or servant of the company on a salary, entitling him, on the declaration of bankruptcy of the concern, to have his salary paid as a preferred claim? Indeed, it would present a remarkable feature of the bankrupt act, if the managing officers of a business corporation could vote themselves salaries ad libitum, and after, by their mismanagement, wrecking the company, and inviting an adjudication of bankruptcy, *790they could, to the exclusion of other creditors of the concern, whose money and property they had obtained on credit, come in as preferred creditors, to the exclusion of such general creditors. The act, in my judgment, admits of no such construction.” This language was quoted and followed in In re Carolina Cooperage Co., (D. C., E. D., N. C. 1899) 96 Fed. 950, 953, and the case was cited with apparent approval in In re Boston French Range Co., (D. C., D. Mass. 1916) 235 Fed. 916.
One wishing to review the eases of several jurisdictions discussing questions somewhat akin to ours may find annotations in 54 American Law Reports at page 567 and in 111 Amereian Law Reports at page 1453. An exhaustive review and citation of the authorities is also revealed in the scholarly opinion of Judge Jenney rendered in Proceeding in the Matter of Reorganization of Pacific Oil & Meal Co., (1938) D. C., S. D., Cal:, 24 Fed. Supp. 767. I do not here discuss further the cases from other jurisdictions because in my opinion no useful purpose would be served thereby; none of those cases is precisely in point. If reason commends the rule I urge, it may some time be followed; if not, those cases will not help it. Judge Jenney’s opinion, however, while dealing with federal acts (sec. 77B, Bankruptcy Act, 11 U. S. C. A., sec. 207 and Chandler Bankruptcy Act, 11 U. S. C. A.) discusses considerations in interpreting those acts which are equally applicable to our problem of construction. It may be said of our legislature and section 1204 of the Code of Civil Procedure, as Judge Jenney said of Congress and the bankruptcy acts, that it “certainly never intended that wage claims of officers of a corporation—even minor officers—who are in any way responsible for management or who assist in policy forming should be given priority over the claims of general creditors”. (In re Pacific Oil & Meal Co., (1938) 24 Fed. Supp. 767, 770, supra.) We may also, with profit, give consideration to this further quotation from Judge Jenney’s opinion (p. 771): “It is a matter of common knowledge among those who have followed the discussions at the more recent National Bankruptcy Conference, where the framework of the new Chandler Bankruptcy Act was originally constructed, that the growing tendency to enlarge priorities was deplored. ... It is the opinion of this court that anj*- right of priority should be clearly authorized by the Act and established by the evidence.”
*791If the president and general manager of a corporation can do what the plaintiff’s assignor here seeks to accomplish, so also could an entire board of directors. The bona fide employees of a relatively small corporation, who had no voice in its management and no special knowledge of its affairs, might, under such a rule, at the end of a period of employment without receipt of pay, find themselves with a technical preference, half or more empty of benefit because the substance that should have been all theirs was to be divided also among the managing heads, who by reason of their superior position in the structure of the corporation had been able by so continuing the operation of the business and their own employment therein, to secure for themselves such share of the corporation’s assets; and the general creditors, who perhaps had become such while the corporation was solvent and before the debt to the managing heads had been contracted, would make no recovery.
I do not think that the mere ownership of stock in a corporation by an employee should be considered as raising any question as to his right of preference for wages earned as an employee and I can conceive of a case where a bona fide employee might be vested with the naked title of the office of president or manager of a corporation and still remain in fact a subordinate employee and entitled to the preference of said section 1204, but where, as here, the evidence is ample to show that plaintiff’s assignor was actually the functioning president and manager of the employing corporation, then I hold that we may not, as an appellate court, disturb the conclusion and finding of the trial court that plaintiff’s claim arises from services performed by the principal officer of the employer corporation and that such managing head is not entitled to the preference logically given by the statute to those who are truly employees.
The judgment should be affirmed.