In re Fuller & Bennett

• Citation: 152 F. 538
• Parties: In re FULLER & BENNETT.
• Decision Date: 05 March 1907
• Court: United States Courts of Appeals. United States Court of Appeals (4th Circuit)

152 F. 538

In re FULLER & BENNETT.

United States District Court, S.D. West Virginia.

March 5, 1907

Payne &amp Payne, for Charleston Hardware Co.

C. W Dillon, for W. B. Blake.

DAYTON District Judge (sitting specially).

This cause comes before me upon the petition of the Charleston Hardware Company to review the action of the referee in allowing a claim of W. B. Blake to have preference as an alleged 'labor' one. The facts are substantially as follows: Blake filed before the referee his proof of claim for $1,325.23, and the referee ascertained $1,296.25 to have priority over other debts as a 'labor' one. This $1,296.25 consisted of a note executed by the bankrupt firm to Blake, May 23, 1906, for $700, a duebill executed by the firm, June 5, 1906, to Blake for $357.95, and some 23 other duebills and 'labor scrip checks' issued by the bankrupt firm to various laborers in their employ for wages and by them assigned to said Blake. It is substantially agreed that said note for $700 and the duebill for $357.95 were executed to Blake for these 'labor scrip checks' issued by the firm to its workmen and purchased by him before the institution of the bankruptcy proceeding. These 'checks' were substantially cards, marked 'not transferable,' issued to these laborers for wages, and declaring on their face that they were good for specified amounts at the commissary of Fuller & Bennett. The petitioner, a creditor of said bankrupt firm, insists that the referee erred in allowing preference to Blake for the amount of these notes and assigned duebills and labor checks. The referee based his action upon the ruling in Re Harmon (D.C.) 128 F. 170, a decision by Keller, J., of this district, dated November 21, 1903, confirming the finding of this same referee, wherein it was held under the bankrupt act (Act July 1, 1898, c. 541, Sec. 64b (4), 30 Stat. 563 (U.S Comp. St. 1901, p. 3448)), giving preference to workmen, clerks, and servants for wages earned within three months before commencement of bankruptcy proceedings, not to exceed $300 to each claimant, the fact that a large number of laborers holding claims for labor performed for the bankrupt assigned such claims to two of their number, who were also laborers, and who held claims of their own, in order to save costs in prosecuting suits against the bankrupt to recover such wages, the assignees agreeing to account to their assignors for the amounts due each when collected, did not deprive the claims so assigned of their right to priority.

As to the broad proposition of whether an assignee, before bankruptcy proceeding commenced, of a labor claim, is entitled to the preference provided his assignor as such laborer, decided conflict of authority has arisen. Under a similar provision of the act of 1867, Act March 2, 1867, c. 176, 14 Stat. 517, in Re Harthorn, Fed. Cas. No. 6,162, a father was held entitled to preference for wages due his minor son.

In Re Erie Rolling Mill Company (D.C.) 1 Fed. 585, the company had issued orders to its employes for wages, in form following:

'No. 573.

'Erie, Pa., October 12, 1875.

'Pay to Mr. J. Heffner, or bearer, five dollars in goods and charge to

'$5.00

Erie Rolling Co.'

These orders had been taken by merchants from such laborers, and preference was claimed, but it was held they were not entitled thereto.

In Re Brown, Fed. Cas. No. 1,974, a claim for a balance of laborers' wages in the hands of one who had advanced a part before bankruptcy of the employer, and who had taken an assignment of such claims as security, with the understanding that he was to collect the whole amount and repay himself, was held to have preference.

Under our act of 1898 (section 64b) in Re Westlund (D.C.) 99 F. 399, it is expressly held that an assignee, under assignment made before bankruptcy proceeding commenced, of such labor claim, is not entitled to priority. The language of Lochren, J., in this last case very clearly presents one view of the question. He says:

'No right to priority arises or exists until the proceeding in bankruptcy is instituted, and then the wages assigned are not 'due to workmen, clerks or servants,' but to their assignees, and are outside the language of this clause.'

In Re Campbell (D.C.) 102 F. 686, the laborers' claims were assigned after commencement of bankruptcy proceeding, and the case on this ground is distinguished from In re Westlund, supra, and the priority allowed.

In Re North Carolina Car Co. (D.C.) 127 F. 178, Purnell, J., one of the judges of this circuit, in discussing this question, says:

'To give a claim priority under this section, it must be due the wage-earner. Should such wage-earner prove his claim and establish his priority, he could then assign the claim, and the assignee would be subrogated to this priority. But if assigned before being thus proved, the assignee would acquire no more right to priority than the assignee of any other unsecured debt.'

The only Circuit Court of Appeals case I have found that touches the question is that of Browder & Co. v. Hill, 69 C.C.A. 499, 136 F. 821 (Sixth Circuit), where it was held:

'A bankrupt corporation gave to its employes orders on claimants for goods, and charged the same against the current wages of the men. Claimants filled such orders and charged the amount to the corporation, which paid the same from time to time, either in cash, or by note or credits on its books. Under the statute (of Tennessee) the employes were entitled to laborers' liens on the property of the corporation for wages earned within three months prior to the bankruptcy. Held, that no right of subrogation to such liens arose in favor of claimants from such transactions, nor to the priority given labor claims by the bankruptcy act, and that such subrogation would not be accorded them where it appeared that, if it were, the estate would not be sufficient to pay the preferred claims in full.'

It is to be noted, however, in this case, that the orders were given directly to claimants, as merchants, by the bankrupt in favor of the laborers, and the finding is that they...