Manly v. Hood

• Decision Date: 14 January 1930
• Docket Number: No. 2899.,2899.
• Citation: 37 F.2d 212
• Parties: MANLY v. HOOD.
• Court: U.S. Court of Appeals — Fourth Circuit

37 F.2d 212 (1930)

MANLY v. HOOD.

No. 2899.

Circuit Court of Appeals, Fourth Circuit.

January 14, 1930.

G. W. S. Musgrave, of Baltimore, Md. (J. Purdon Wright and J. Clarke Murphy, both of Baltimore, Md., on the brief), for appellant.

G. C. A. Anderson, of Baltimore, Md. (Keech, Deming & Carman, of Baltimore, Md., on the brief), for appellee.

Before PARKER and NORTHCOTT, Circuit Judges, and McDOWELL, District Judge.

PARKER, Circuit Judge.

The Reliable Furniture Manufacturing Company was placed in the hands of receivers in insolvency by the circuit court of Baltimore City, Md., on the 6th day of February, 1928. Robert Hood and other wage-earners employed by the company filed their claims for wages earned within three months of the receivership; and same were allowed as preferred claims, pursuant to article 47, section 15, of the Public General Laws of Maryland. On May 19, 1928, proceedings in bankruptcy were instituted and the administration of the assets of the insolvent corporation was taken over by the bankruptcy court. The wage claimants filed as preferred claims in bankruptcy their claims for wages earned three months prior to the receivership proceedings, and same were allowed as preferred claims by the court. The trustee in bankruptcy has appealed, bringing up the case of the claimant Hood as a test case.

We agree with the court below that claimant is entitled to a preferred claim under the express provision of section 64, paragraph b, clause 5 of the Bankruptcy Act as amended by the act of May 27, 1926 (11 USCA § 104), which provides: "(b) The debts to have priority, in advance of the payment of dividends to creditors, and to be paid in full out of bankrupt estates, and the order of payment shall be * * * (5) wages due to workmen, clerks, traveling or city salesmen, or servants, which have been earned within three months before the date of the commencement of the proceeding, not to exceed $600 to each claimant."

It is said that this section does not apply to the claim involved here because the wages were not earned within the three months prior to the commencement of the proceedings in bankruptcy, this argument being based upon the fact that the petition in bankruptcy was not filed until May 19th, and that section 1, clause (10), of the Bankruptcy Act (11 USCA § 1(10) provides that "`date of bankruptcy,' or `time of bankruptcy,' or `commencement of proceedings,' or `bankruptcy,' with reference to time, shall mean the date when the petition was filed." We think, however, that this argument ignores the introductory portion of the section in which these words are found and which provides that they shall be given such meaning "unless the same be inconsistent with the context." We think that to construe clause (5) of section 64(b) as requiring that wages, to come within its protection, shall have been earned within three months of the filing of the petition in bankruptcy, as distinguished from the time when the property of the bankrupt is taken from his control, either under bankruptcy proceedings or insolvency proceedings resulting in bankruptcy, is inconsistent with the context of the act and is clearly repugnant to its reason and spirit.

There can be no question that it was the purpose and intent of Congress, by the provision in question, to protect the wages of laborers due them by insolvents whose assets had been taken over by the courts under the act. The laborer is generally dependent upon his wages for livelihood and the support of his family, and he has little means of judging of the solvency of his employer. Every consideration of morality, as well as of public policy, demands, therefore, that his wages be preserved to him and be given priority over ordinary commercial claims. This the act was intended to do, and it is clear that so far as the accomplishment of this purpose is concerned, it could make no possible difference whether the wages were earned immediately prior to the bankruptcy proceeding proper, or immediately prior to a state insolvency proceeding resulting in bankruptcy. It was realized that limitation must be placed upon the priority given, to conform same to the purpose for which it was intended and avoid frauds; and the priority was accordingly limited to $600 and to wages earned within three months prior to "the commencement of the proceeding." But it could not have been intended by this limitation to deny priority to wage claims merely because insolvency under state laws had preceded bankruptcy. There is the same reason for allowing priority in the one case as in the other. Not only has the wage-earner the same equity, but he is prevented from collecting his wages by the same sort of circumstance, viz., the fact that the business of his employer is taken in custody by the law. It is true that it is taken in custody by the state law in case of an insolvency proceeding; but where such proceeding is followed by bankruptcy, the administration in the bankruptcy court, so far at least as the wage claimant is concerned, is but a continuation of that proceeding.

Congress knew that cases would frequently arise where bankruptcy would follow insolvency proceedings; for the appointment of a receiver, while insolvent, was expressly made an act of bankruptcy. Bankruptcy Act, § 3a (4), as amended by Act of 1926, § 3a (5), 11 USCA § 21(a) (5). It knew, also, that considerable time might elapse between the commencement of insolvency proceedings and the filing of the petition in bankruptcy; for the act 11 USCA § 21(b) provided that a petition might be filed at any time within four months of the commission of an act of bankruptcy. It must have been contemplated, therefore, that cases would arise where the three months preceding the filing of the petition would include, as here, only time during which the property of the bankrupt had been in the possession of receivers of the state court. It is unreasonable to think that in such case Congress could have intended to deny priority to wage claimants, who had been delayed in the collection of their claims by the insolvency proceedings. Considering the reason and spirit of the act and the purpose and intent of the provision here under consideration, we think it clear that "the commencement of the proceeding" must be construed as embracing the commencement of proceedings in insolvency resulting in bankruptcy, under which the property of the bankrupt has been surrendered or taken from him by the law and withdrawn from the reach of creditors, as well as the commencement of bankruptcy proceedings proper. It is well settled that provisions of the Bankruptcy Act giving priority to claims for wages due employees are to be liberally construed. Guarantee Title & Trust Co. v. Title Guaranty & Surety Co., 224 U. S. 152, 160, 32 S. Ct. 457, 56 L. Ed. 706; In re McDavid Lumber Company (D. C.) 190 F. 97; In re Caldwell (D. C.) 164 F. 515; In re Erie Lumber Co. (D. C.) 150 F. 817; In re Rouse (D. C.) 91 F. 514; Ex parte Rockett, Fed. Cas. No. 11,977.

But, even if clause 5...