In re Berkshire Hardware Co.

Decision Date02 July 1941
Docket NumberNo. 63135.,63135.
PartiesIn re BERKSHIRE HARDWARE CO., Inc.
CourtU.S. District Court — District of Massachusetts

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John A. Brennan, of Boston, Mass., Atty. for Division of Unemployment Compensation of Commonwealth of Massachusetts, for claimant.

Albert S. Silverman, of Pittsfield, Mass., for trustee.

BREWSTER, District Judge.

In these proceedings the referee refused to allow a claim presented by the Division of Unemployment Compensation, acting on behalf of the Commonwealth of Massachusetts by virtue of the authority conferred by the Massachusetts Unemployment Compensation Laws. Mass. G.L.(Ter.Ed.) ch. 151 A, as added by St.1937, c. 421, and ch. 23. The claimant has petitioned for a review.

Section 2 of 151 A provides that an employer subject to the Act shall pay to the Commonwealth what is termed "contributions" measured by the percentage of his applicable pay roll, payment to be made at such time and in such manner as the director may prescribe. The director is required to pay over these contributions to the State Treasurer to be credited to a fund established by the Act. The director has prescribed that the contributions shall be paid quarterly within thirty days after the first days of January, April, July and October.

The bankrupt was an employer within the purview of the Act and paid its contributions to April 1, 1939. On March 22, 1939 an involuntary petition in bankruptcy was filed against it upon which it was adjudicated a bankrupt June 19, 1939. On June 21, 1939 a receiver was appointed, with authority to conduct the business of the bankrupt and on July 11, 1939 a trustee was duly appointed who also continued the business for a brief period. All contributions due upon wages paid by the receiver and the trustee were paid to the director.

The claim, as first, presented, was for contributions on wages paid from April 1, 1939 to September, 1939, amounting to $64.55. It is agreed that this amount should be reduced to the extent of the payments made by the receiver and trustee to the sum of $44.51. This sum represents the amount due the Commonwealth of Massachusetts upon wages paid by the bankrupt from April 1, 1939 to June 21, 1939, when the receiver took over.

The form of the proof does not follow any form for proving claims prescribed by the Supreme Court. It is introduced with this statement, "Now comes the Division of Unemployment Compensation, Collector of Contributions for the Commonwealth of Massachusetts, a duly authorized agent for the Commonwealth of Massachusetts in this behalf and says"; then follows the period covered, the amount of contributions due, that it is due and payable to the Division of Unemployment Compensation, and the usual allegations relating to security, set-off and counterclaim. It is also alleged that the claim is entitled to priority, "the priority of the Commonwealth being fully determined by section 7 of chapter 151 A of the General Laws."

The proof is signed "Division of Unemployment Compensation by J. Edward Doyle, Director." The jurat is in the usual form, to the effect that the statement was sworn to and subscribed before a notary public upon the 4th day of January, 1940. The referee assumed, and I think it may well be assumed, that J. Edward Doyle was the individual who signed and made oath to the proof before the notary public.

The referee disallowed the claim for two reasons, — (1) that the claim was for a debt arising after the filing of the petition in bankruptcy, and (2) that if provable it was not properly proved.

There is ample authority for the proposition that debts provable under section 63 of the Bankruptcy Act, 11 U.S.C.A. § 103, include only those existing at the time of the filing of the petition in bankruptcy. Zavelo v. Reeves, 227 U.S. 625, 33 S.Ct. 365, 57 L.Ed. 676, Ann.Cas.1914D, 664; Williams v. United States Fidelity & Guaranty Co., 236 U.S. 549, 35 S.Ct. 289, 59 L.Ed. 713; In re Miller, D.C., 25 F.Supp. 336.

This rule has been modified by the provisions of section 63, sub. b of the Bankruptcy Act of 1938, 11 U.S.C.A. § 103, sub. b, known as the "Chandler Act." This new section permits a claim, arising after the filing of an involuntary petition, to be proved if it arises by reason of property transferred or services rendered by the creditor to the bankrupt for the benefit of the estate. The claim of the Commonwealth of Massachusetts cannot be said to come within the scope of this section. The claim, therefore, is not provable as a debt.

If, however, as the Commonwealth contends, the Massachusetts Unemployment Compensation Law imposes a tax rather than creates a debt, a different situation is presented. The first question to be considered, therefore, is whether the "contributions" required by that law may be regarded as a tax.

The distinction between debts and taxes was noted in early cases, a debt being defined as an obligation for the payment of money founded upon a contract, express or implied, while taxes were defined as imposts levied for the support of the government or for some especial purpose authorized by it. Lane County v. Oregon, 7 Wall. 71, 19 L.Ed. 101; Meriwether v. Garrett, 102 U.S. 472, 26 L.Ed. 197; In re Otto F. Lange Co., D.C., 159 F. 586.

It is apparent that in dealing with the subject the courts are not in accord respecting the nature of the contribution exacted of employers under statutes substantially similar to the Massachusetts law. Thus, a claim for contributions under the Missouri unemployment compensation statute was held to be a debt and not a tax. In re Mosby Coal & Mining Co., D.C., 24 F.Supp. 1022.

The same conclusion was reached respecting a claim for contributions under the Pennsylvania law. In re William Akers Jr., Co., Inc., D.C., 31 F.Supp. 900; In re Fidelity Fuel Co., D.C., 35 F.Supp. 919.

The decisions in these cases seem to have been largely predicated upon the provisions of the statutes giving priority to "contributions" over other claims against the employer except taxes. The view that these provisions, which are found in the Massachusetts law, showed a legislative intent to create debts rather than to impose taxes was definitely rejected in Re Siegelbaum's, Inc., D.C., 38 F.Supp. 1009, 45 A.B.R., N.S., 418, where the court was of the opinion that the contributions were not subordinated to, but were granted an equality with, taxes.

The New Jersey unemployment compensation law was held to create debts, but that statute especially provided that contributions were personal debts of the employer to the state. In re Umans Bleachery, Inc., D. C., 34 F.Supp. 694.

There are provisions found in the Massachusetts law (sec. 5, Chap. 151 A) which indicate a legislative purpose to impose taxes. The director for the collection of payments has all the remedies provided by the Massachusetts laws for collection of taxes on personal property by collectors of taxes in addition to a right of action in contract.

The weight of authority favors the view that the unemployment compensation laws enacted by the states impose a tax. Carmichael v. Southern Coal & Coke Co., 301 U.S. 495, 57 S.Ct. 868, 81 L.Ed. 1245, 109 A.L.R. 1327 (Alabama law); In re Independent Automobile Forwarding Corp., 2 Cir., 118 F.2d 537 (New York law); In re Oshkosh Foundry Co., D.C., 28 F.Supp. 412 (Wisconsin law); In re Mid America Co., D.C., 31 F.Supp. 601 (Illinois law); In re Mytinger, D.C., 31 F.Supp. 977 (Texas law); In re Siegelbaum's, Inc., supra (Connecticut law).

There can be little doubt that the contributions required of employees under these statutes possess all the essential elements of a tax. The payment is compulsory and is compelled for a public purpose. Carmichael v. Southern Coal & Coke Co., supra; Howes Bros. Co. v. Massachusetts Unemployment Compensation Commission, 296 Mass. 275, 5 N.E.2d 720.

In the Carmichael case, 301 U.S. 495, 57 S.Ct. 872, 81 L.Ed. 1245, 109 A.L.R. 1327, the United States Supreme Court said they saw "no reason to doubt that the present statute is an exertion of the taxing power of the state."

In the case of Howes Bros. Co., supra, the Massachusetts Supreme Judicial Court, however, held that the Massachusetts law was enacted in the exercise of the police powers of the state, but whether the attribute of sovereignty brought into play is the taxing or police power of the state, the obligations imposed by these...

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