Clark v. Marjorie Michael, Inc.

SHAW, P. J. The question for decision is, whether the plaintiff has a preferred claim under provisions of section 1204 of the Code of Civil Procedure, reading as follows.: “When any assignment, whether voluntary or involuntary, and whether formal or informal, is made for the benefit of creditors of the assignor, or results from any proceeding in insolvency or receivership commenced against him, or when any property is turned over to the creditors of a person, firm, association or corporation, or to a receiver or trustee for the benefit- of creditors, the wages and salaries of miners, mechanics, salesmen, servants, clerks, laborers, and other persons, for personal services rendered such assignor, person, firm, association or corporation, within ninety days prior to such assignment, or the taking over of such property, or to the commencement of the proceeding when a court action is involved, 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 of the assignor, insolvent, or debtor whose property is so turned over, and must be paid as soon as the money with which to pay same becomes available.” Provisions of the section not quoted impose certain conditions of payment, compliance with which is not questioned here, and they need not be considered. The facts are not in dispute and are practically all stipulated. Defendant Galvan is assignee for the benefit of creditors of defendant Marjorie Michael, Inc., hereinafter — 777 — referred to as the corporation. The plaintiff’s assignor, Nancy Vinci, was employed by the corporation, during the period specified in the statute, to perform skilled services as designer, presser, and sewing and forelady at a salary of $50 per week, and the sum of $150 sued for herein became due to her from the corporation for these services during the period above mentioned and is unpaid. As thus depicted, plaintiff’s claim is undoubtedly within the statute and entitled to preferential payment from the defendant Galvan, an assignee for creditors. The fact that Vinci acted as forelady does not debar her from a preference. Services of a forelady are personal services, within the meaning of this statute, especially where she also works herself, as in this ease. (See Levitt v. Faber, (1937) 20 Cal. App. (2d) (Supp.) 758 [64 Pac. (2d) 498].) Defendant Galvan does not dispute the propositions just stated, but points to the additional facts that plaintiff’s assignor, Vinci, was, at all times in question, the holder of a majority of the capital stock of the corporation, and also its president and manager, which, as he contends, materially alter the picture. However, Vinci and the other officers of the corporation were not being paid anything for their services as officers but were “drawing salary as workers”. She so testified and her testimony was not in any way disputed or impeached. Even without this testimony, it plainly appears from the stipulation that the money she seeks to recover here was due her for her services as “worker” in the capacities above mentioned, and not for any official services. In other words, the services for which a preference is sought were not performed by Vinci, either in whole or in part, in her capacity as president or manager. It does not appear that her employment as worker was made by herself acting as president or manager, and under the general presumption of regularity we must assume that it was not. We do not think these facts defeat her preference. The statute does not so declare and we see no sufficient reason for reading such a provision into it by construction. In support of this conclusion we find several decisions from other states. Construing and applying a similar statute of Washington, giving a preference to claims of “every person performing labor” for “moneys due him . . . for labor performed”, — 778 — in the case of one who was president, director and managing officer of a corporation, the Supreme Court of Washington said: “Before the claim of the director can be allowed against the assets of an insolvent corporation which is in the hands of a receiver, it must be established by a clear preponderance of the evidence: First, that the services were clearly outside of the ordinary duties as director; and, second, that they were performed under circumstances sufficient to show that it was well understood by the corporate officers as well as by himself that the services were to be paid for by the corporation.” Concluding that both these facts were shown, the court held the officer was entitled to a preference for his claim for services outside his official duties. (Brown v. Wilcox Lumber & Logging Co., (1922) 118 Wash. 336 [203 Pac. 949, 950].) This case was approved and followed in Cavanaugh v. Art Hardware etc. Co., (1923) 124 Wash. 243 [214 Pac. 152, 155], where the court said that in the previous case “we held that, where a director and manager of a corporation performs manual services for the corporation clearly outside of his duties as such officer, he has a valid, preferred claim for such services”, and' applied the rule to a trustee, manager and general superintendent of the workshop who also worked on the lathes as an ordinary mechanic, allowing him a preference for his services as mechanic. In Ferrell-Michael etc. Co. v. McCormac, (Tex. Civ. App. 1915) 184 S. W. 1081, 1086, a Texas statute, giving to clerks, bookkeepers and other classes of workers a first lien upon certain property of their employers for the pay due them, was in question as applied to one who was manager but also rendered clerical and bookkeeping services, and the court said: “We think, therefore, that it should be held that in cases like this, where the contract of employment contemplates the performance of services to secure the payment of which the statute was evidently enacted, that the statute should be given effect, even though the clerk, servant or other person named in the statute was also required to perform services more properly perhaps relating to the functions of a superintendent or manager, who, it appears, is not included within the protected classes of the statute.” In Davis v. Nanty Glo Auto Co., (1936) 123 Pa. Super. Ct. 349 [187 Atl. 227], under a statute giving a preferred claim upon an execution sale to money due “for labor and — 779 — services rendered by any miner or mechanic”, the court, while holding that one who was president and general manager of a corporation was not entitled, under the circumstances, to a priority, said: “Obviously, wages or salary due the president and general manager of a business corporation are not entitled to any priority. It may be possible that one employed as a general manager at a fixed salary would have the right to accept inferior employment and render such ‘labor and services’ as are contemplated by the statute, but merely because one holding an executive position voluntarily performs manual labor and services does not bring him within the class of servants entitled to enforce claims for their wages. His status must be determined by the nature and character of his employment. ’ ’ A like question has frequently arisen under the provision of the Bankruptcy Act that, in distributing the assets of a bankrupt, preference shall be given to claims for “wages due to workmen, clerks, traveling or city salesmen or servants”. Construing this provision of the Bankruptcy Act, the court in In re Crown Point Brush Co., (D. C., N. D., N. Y., 1912) 200 Fed. 882, 886, although denying a preference claimed by a president and general manager and by a treasurer and assistant general manager for their claims for services deemed by the court to be official, said: “It is, of course, true that, in the absence of a statute prohibiting a corporation to hire its president, or treasurer, or general manager, or assistant general manager, or a director, to do the work of a mechanic or common laborer, it may do so, and for such labor under such an employment he would be entitled to priority. In other words, these officers are not disqualified from hiring to the corporation to do any kind of work.” In In re H. O. Roberts Co., (D. C. Minn. 1912) 193 Fed. 294, the court, allowing a claim as preferred, said: “The fact that a claimant is a director or officer of a corporation does not disable the corporation from employing him as a clerk also. If the labor performed by him is so performed under his employment as clerk, and is not performed as a part of his duties as an officer, then he is entitled to priority for his wages as a clerk.” In In re Eagle Ice & Coal Co., (D. C., E. D., Penn., 1917) 241 Fed. 393, 394, the court, while disallowing the preference claimed, said: “Had the company desired, it could, notwithstanding the fact that he was its president, have employed him as a workman, — 780 — clerk, traveling or city salesman or servant, and in such case he would have been entitled to prove against the bankruptcy estate the amount of his salary as president as a general creditor and the amount of his wages as a preferred creditor. , . . But in this ease the sole employment was as president.” To the same effect are In re Swain Co., (D. C., N. D., Cal., 1912) 194 Fed. 749; In re Capital Paint Co., (D. C., N. D., Cal., 1916) 239 Fed. 424; In re Pacific Co-op. League Stores, (C. C. A. 9,1923) 291 Fed. 759, 761. In In re Pacific Co-op. League Stores, supra, the court said: “If their principal services were those of a clerk or salesman, their claims are not affected by the fact that the claimants also incidentally and secondarily performed supervisory or even managerial powers. ... In all eases it is the nature of the actual work done by the employee, and not the mere title of the position held by him, which determines his right to a preference.” Concurring with the rules stated in this last quotation are Brady v. McCann, (C. C. A. 6, 1925) 8 Fed. (2d) 928; In re Cost Cut Counterbore Co., (D. C., E. D., Mich., 1922) 283 Fed. 670, 672; Blessing v. Blanchard, (C. C. A. 9, 1915) 223 Fed. 35, [Ann. Cas. 1916B, 341]; In re Roebuck Weather Strip etc. Co., (D. C., E. D., Mich., 1910) 180 Fed. 497. Our statute is of the same character and is framed in pursuance of the same purpose as the provision of the Bankruptcy Act on which the decisions above cited were made. We see no reason for not applying the same rule to it. To our eyes it clearly bases the right of the claimant to a preference upon the nature of the work done by him for which the claim is made—-in pursuance, of course, of an employment to do it—and does not provide that a preference otherwise proper shall be defeated by the holding by a claimant who is within the categories specified of some other position not related to the work done. Defendant would have us reject the claim by reason of such holding. If one who has a voice in directing the affairs of a corporation should not be permitted to work for it in some other capacity, or if, when he does so work, he should not be allowed a preference for such work under section 1204 of the Code of Civil Procedure, that is a matter of public policy for legislative rather than judicial consideration. We find no such policy now embodied in section 1204. But we may suggest, in passing, that application of the present section as we view it is not likely to impede or obstruct the — 781 — efforts of any considerable number of employees who are not officers or of any large number of general creditors to obtain payment of their claims. The corporations whose officers perform for them personal services which are within the terms of section 1204, will not be the large corporations with many workmen needing the protection of this section, but the small concerns, incorporated for the convenience of a few persons engaged in some small business who are as dependent on the proceeds of their own labor for support as are any other workers. Such corporations may have no employees but their own officers, and will usually have few others and not many general creditors. It may be for this reason that the legislature has not written into section 1204 any exception of such eases as we have here. There are some cases construing the Bankruptcy Act or state statutes of similar character, in which language may be found opposed to our conclusion. (See notes, 54 A. L. R 567 et seq. and 111 A. L. R 1453 et seq.) On analysis of the cases suggesting such a contrary view, it will be found that in most of them the services for which preference was sought were official services, rendered by officers in their capacity as such, and remarks made by the several courts must be considered with such a state of facts in mind. A similar question has arisen under the workmen’s compensation acts. Those acts limit the right to receive compensation under them to employees. Some of them expressly deny that right to executive officers and the same effect has been given others by judicial decision. There appears to be a nearly unanimous agreement by the various courts, however, that while an executive officer may not receive compensation for injuries received by him in the course of the performance of his official duties, such an officer may also be employed and act as an ordinary employee and if while so employed and acting he receives a compensable injury he is not to be denied compensation therefor because he is also an officer. See notes in 15 A. L. R 1288 et seq., and 81 A. L. R 644 et seq., where many cases on this subject are cited and reviewed, from which it appears that there is little dissent from this legal proposition but much variation in the states of fact to which its application has been invoked. While it is true the question under the workmen’s compensation acts is not identical with — 782 — that here presented, yet both statutes have as their purpose the protection of workmen. For this reason there is an analogy between the compensation cases and those arising under the preference statutes; and there is also a common factor in the question whether an officer of a corporation who is also its employee or workman in some subordinate capacity may enforce the rights of such an employee or workman, notwithstanding his status as an officer. A few illustrative cases only are here cited. In Skouitchi v. Chic Cloak & Suit Co., (1921) 230 N. T. 296 [130 N. E. 299, 15 A. L. R. 1285], the court referred to a previous decision as holding “that the higher executive officers of a corporation are not, as such, its employees in the ordinary sense of the word”, and further said, “It was fully recognized, however, that there was nothing to prevent a corporation, if it so desired, from hiring one of its officers to be and to perform the work of such an employee as was contemplated by the statute.” Accordingly it was held that one holding ten per cent of the stock of a corporation, who was its president and treasurer but performed no substantial duties in these capacities, and was also employed as general manager, but did not in fact act as such, merely performing services in packing, shipping, selling and delivering goods for the corporation, was entitled to compensation for injuries received by him while performing these services. In Stevens v. Industrial Com., (1931) 346 Ill. 495 [179 N. E. 102, 81 A. L. R. 638], the court reviewed a number of other decisions, including that last above cited, declared that there was a distinction between the executive officers of a corporation and its employees and that the former could not recover compensation under the statute, but held that compensation could be recovered for the death of one who was owner of nearly half the stock of a corporation and, with another half owner, did all its mechanical work, and who was also its secretary and treasurer, where his death resulted from injuries received while he was on a mission for the corporation which was not, the court held, any part of his official duty. In In re Raynes, (1907) 66 Ind. App. 321 [118 N. E. 387, 391], the court said, referring to executive officers of a corporation: “such an official might serve in a dual capacity; that is, as an officer and also as a workman. It is not un — 783 — reasonable to conceive of a case where the discharge of the official duties would constitute but a small portion of the services rendered by him to the corporation. Such an officer might be hired in fact to perform manual labor in connection with other employees, and his time in the main be occupied in performing such service and regular wages be paid him accordingly. Such an official in his capacity as workman might measure up in all respects to the conception of an employee within the meaning of the act as we have hereinbefore developed it, and in such capacity we believe that he should be regarded as an employee within the meaning of the compensation acts.” Accordingly the court held that one who was a stockholder, director and secretary-treasurer of a corporation, as well as its buyer, salesman and collector, might be an employee entitled to compensation but remanded the ease for further consideration and a finding of fact on this point. In Southern Surety Co. v. Childers, (1922) 87 Okl. 261 [209 Pac. 927, 25 A. L. R 373], the court held that one who was majority stockholder, and president of a garage corporation, but spent a portion of his time in doing manual or mechanical labor for it, was while so engaged to be regarded as an employee entitled to workmen's compensation. The court said: “It appears to us that the better reason dictates that compensation should not be denied one because he happens to be a stockholder and president or other executive or managing officer of the corporation that employs him, and that that fact alone is not sufficient to eliminate him from those regarded as employees within the meaning of such act. Obviously, where the claimant was the chief executive officer of a large corporation, and his duties did not require that he perform manual or mechanical labor, he could not be regarded as the employee within the meaning of the act or the terms of the policy, and if he sustained injuries while performing manual or mechanical labor, which was no part of his duties, but in which he acted as a mere volunteer, he would not be entitled to compensation. On the other hand, although the claimant was the owner of the majority of the stock and was the chief executive officer of a corporation, yet if he performed manual or mechanical labor as a part of his duties, such an officer in his capacity as a workman might measure up in all respects to the conception of an employee within the meaning of the act. The — 784 — case at bar affords an apt illustration of a case where the official of a corporation served in a dual capacity; that is, as an officer and as a workman. ’ ’ Defendant cites and principally relies on Carpenter v. Policy Holders L. Ins. Assn., (1937) 9 Cal. (2d) 167 [70 Pac. (2d) 487, 111 A. L. E. 1450], and contends that it is determinative here. That case dealt with the same statute now before us, section 1204 of the Code of Civil Procedure, and it held that certain officers of the corporate assignor there, who were, respectively, its president, its vice-president, and its secretary-treasurer, were not entitled to preference under the section. But the salaries which they were claiming were for their services as such officers, and that appears to have been the ground of decision in the case. The court referred to “major officers of an insolvent concern who have claims for unpaid salary”, and said, in part, “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, vice-president and secretary-treasurer, a preferential claim for an unpaid balance of salaries due them when the corporation passes into liquidation. . . . None of the specific designations in the section . . . connote an official capacity. ... It is our conclusion that under section 1204 of the Code of Civil Procedure, the respondent officers, who are president, vice-president, and secretary-treasurer of the corporation in liquidation, are not entitled to priority in payment of any portion of their claims for salary.” We do not believe the court intended by anything it said in this case to hold that an officer who drew no pay for his services as such might not be allowed a preference for other services rendered by him in a capacity which did come within the “specific designations in the section”. Certainly the facts before it called for no such holding. In each of the cases cited by the court in support of its decision the compensation for which the officer sought preference was due to him for official services, at least in part, and in some of them this fact was emphasized as a ground of decision. As a further indication that the court was not intending to decide the question now before us, we note that in support of its ruling the court cited cases in which contradictory views were expressed on our question, to wit, In re Crown Point Brush Co., supra, 200 Fed. 882, in which, as already stated, the court declared — 785 — that officers who were also laborers would be entitled to a preference for labor performed, and England v. Beatty Organ Co., (1866) 41 N. J. Eq. 470 [4 Atl. 307], in which a contrary opinion was expressed. The dissenting opinion in the Carpenter case refers to the case as one involving “the salaries of those rendering services to corporations as officers thereof”. The case merely holds, in effect, that the services of such officers as such are not to be regarded as “personal services” within the meaning of that term as used in section 1204. The judgment is reversed with directions to enter judgment for the plaintiff as prayed for in her complaint, appellant to recover her costs of appeal from respondent Galvan. Bishop, J., concurred.