State Ind. Acc. Comm. v. Aebi

• Decision Date: 16 October 1945
• Citation: 162 P.2d 513,177 Or. 361
• Parties: STATE INDUSTRIAL ACCIDENT COMMISSION <I>v.</I> AEBI
• Court: Oregon Supreme Court

177 Or. 361

162 P.2d 513

STATE INDUSTRIAL ACCIDENT COMMISSION

v. AEBI

Supreme Court of Oregon.

Argued September 5, 1945.

Reversed October 16, 1945.

Bankruptcy

1. Employer's contributions under the Workmen's Compensation Act are "taxes" not discharged by the employer's bankruptcy, since the act is an enactment for the general welfare notwithstanding the act, unlike the Unemployment Compensation Act, which is compulsory, is applicable only to certain classes, since, in view of the penalties imposed on noncomplying employers, the contributions cannot be considered as mere gratuities.

Taxation

2. An exaction imposed by statute does not lose its character as a tax because it is applied only to a certain class.

Bankruptcy

3. Employer's contributions under the Workmen's Compensation Act are not deprived of their character as taxes so as not to be dischargeable on the employer's bankruptcy because the same exemption is denied to an insurance carrier claiming unpaid insurance premiums from the bankrupt employer.

Bankruptcy

4. The omission from the Workmen's Compensation Act section referring to preferred claims of the words "shall be given the same priority as taxes", as employed in corresponding section of the Unemployment Compensation Act, does not indicate legislative intent that contributions prescribed in Workmen's Compensation Act are not to be treated as a tax so as not to be dischargeable on employer's bankruptcy.

Bankruptcy

5. The alleged conversion to his own use by employer of employees' earnings retained by employer as employees' contributions under Workmen's Compensation Act would constitute a misappropriation thereof by employer while acting in a fiduciary capacity, thereby creating an obligation not dischargeable in employer's bankruptcy.

Workmen's compensation

6. Evidence failed to disclose that employer converted to his own use earnings deducted from wages of his employees for contributions under the Workmen's Compensation Act, in view of payment by employer of a portion of the contributions due.

                  See 6 Am. Jur. 811
                  8 C.J.S., Bankruptcy, § 572
                

IN BANC.

Appeal from Circuit Court, Polk County.

ARLIE G. WALKER, Judge.

Action by the State Industrial Accident Commission against John H. Aebi to recover overdue unpaid contributions, penalty, and interest under the Workmen's Compensation Act, owed by the defendant as an employer in a hazardous occupation, wherein plaintiff recovered a judgment. From an order discharging the judgment because of defendant's discharge in bankruptcy, plaintiff appeals.

REVERSED.

Ray H. Lafky, of Salem, for appellant.

Submitted on brief by Otto W. Heider, of Sheridan, for respondent.

Proceeding after discharge in bankruptcy, pursuant to section 6-1002, Vol. 1, O.C.L.A., p. 557. On January 27, 1945, an order was made directing that the judgment theretofore entered against defendant and respondent be discharged because defendant had been granted a discharge in bankruptcy. The judgment thus discharged was based upon overdue, unpaid contributions, penalty and interest which accrued under the terms of the Workmen's Compensation Act by reason of defendant being engaged as an employer in a hazardous occupation. Plaintiff, State Industrial Accident Commission, appeals.

KELLY, J.

The question here presented is whether a discharge in bankruptcy has the effect of discharging a judgment theretofore rendered against an employer thereafter adjudicated a bankrupt in favor of the State Industrial Accident Commission for unpaid, overdue exactions required by the Workmen's Compensation Act to be paid by employers engaged in occupations declared to be hazardous, unless notice in writing be given to said commission that such employers elect not to contribute to the Industrial Accident Fund. Sections 102-1712, 102-1713 and 102-1721, Vol. 7, O.C.L.A., pp. 630, 633, and section 102-1742, ibid, p. 660.

The complaint herein filed on August 1, 1941, supplies the following pertinent facts:

"That from May 1, 1940, to December 31, 1940, the defendant engaged within the State of Oregon in the occupations of logging and operation of sawmill, and that while so engaged said defendant employed in said occupations various workmen.

"That said occupations of logging and operation of sawmill are hazardous occupations, as defined by Title 102-Chapter 17, O.C.L.A., as amended, which is hereinafter referred to as the Workmen's Compensation Act.

"That at no time during the period herein mentioned or at any time prior thereto has the defendant filed with the plaintiff a statement in writing declaring his election not to contribute to the Industrial Accident Fund, and that at all times herein mentioned said defendant has been subject to the Workmen's Compensation Act.

"That the payrolls of the defendant covering said period from May 1, 1940, to December 31, 1940, have been audited by duly authorized agents of the plaintiff, and that said audits show and plaintiff alleges as a fact that the defendant while engaged in the aforesaid occupations, and during said period, paid or obligated himself to pay to said workmen as wages the sum of $13,241.23, and that the days or parts of days all of said workmen were individually employed as aforesaid, during said period, amount to 4173 days of work.

"That as provided by law the defendant thereby became indebted to the plaintiff in the sum of $974.53 and that the defendant paid to the plaintiff the sum of $185.04, leaving a balance of $789.49 due and owing by the defendant to the plaintiff.

"That on May 21, 1941, the plaintiff made formal demand in writing for the sum due and owing by the defendant to the plaintiff, as hereinbefore alleged, which sum the defendant has refused and now refuses to pay.

"That as provided in Section 102-1742, O.C.L.A., of said Workmen's Compensation Act, the defendant is further indebted to the plaintiff in the sum of $91.61 as interest no part of which has been paid except $14.96, leaving a balance of $76.65 and $78.94 as penalty, which sums are now due and owing by the defendant to the plaintiff."

On May 6, 1942, a default judgment was rendered against defendant in favor of plaintiff in the sum of $945.08 and interest on $789.49 at the rate of 1% per month from September 1, 1941, until paid, together with costs and disbursements taxed at $15.70.

On April 4, 1942, on a petition in bankruptcy filed by defendant in the United States District Court for the District of Oregon, defendant was duly adjudicated a bankrupt.

On June 1, 1942, in said bankruptcy proceedings an order of discharge was duly made by the referee in bankruptcy, which, omitting the title and signature, is as follows:

"At Hillsboro, in said District, on the 1st day of June, 1942.

"It appearing that John Aebi of Oceanlake in the County of Lincoln, State of Oregon, was duly adjudicated a bankrupt on a petition filed by him on the 4th day of April, 1942; and

"It further appearing that after due notice by mail no objections to the discharge of said bankrupt was filed within the time fixed by the Court.

"It is Ordered that the said John Aebi be and he hereby is discharged from all debts and claims which are made provable by said Act against his estate, except such debts as are by said Act excepted from the operation of a discharge in bankruptcy.

"Dated this 1st day of June, 1942."

On January 25, 1945, the trial court made the order from which this appeal is taken discharging and satisfying of record said default judgment of May 6, 1942.

For the purposes of this case the following provisions of section 17 of the bankruptcy act are pertinent, to-wit:

"A discharge in bankruptcy shall release a bankrupt from all of his provable debts, except such as (first) are due as a tax levied by the * * * State, * * * or (fourth) were created by his * * * misappropriation, or defalcation while acting * * * in any fiduciary capacity; * * *." U.S.C.A., Title 11, Bankruptcy § 17.

Plaintiff contends that the judgment in suit, being based upon exactions or contributions prescribed by the Workmen's Compensation Act, was not and is not dischargeable in bankruptcy, because as to the contributions required of defendant as an employer, and interest thereon, said judgment is based upon a tax and penalty for nonpayment thereof; and as to the amount retained by defendant from moneys earned by his workmen (section 102-1737, Vol. 7, O.C.L.A., p 656) and not paid to the plaintiff commission, said judgment is based upon a debt created by defendant's misappropriation and defalcation while acting in a fiduciary capacity. In support of plaintiff's position, as above stated, cases are cited holding that contributions required of employers by unemployment compensation acts are not dischargeable in bankruptcy because such exactions are deemed to be taxes. Carmichael v. Southern Coal & Coke Co. 301 U.S. 495, 57 S.Ct. 868, 81 L.Ed. 1245, 109 A.L.R. 1327; Ernst v. Hingeley, 11 Wash. (2d) 171, 118 P. (2d) 795; In re Independent Automobile Forwarding Corporation, 35 F. Supp. 919; In re Wm. Akers Jr. Co. (3 cases) 121 F. (2d) 846, 135 A.L.R. 1503.

Defendant argues that there are such fundamental differences between the Unemployment Compensation Law and the Workmen's Compensation Law that the cases above cited are not in point. These differences are treated in three paragraphs of defendant's brief to which we are restricted in our effort to consider defendant's contention in that regard because his attorney did not favor us with an oral argument.

First. Defendant asserts that the purpose of Unemployment Compensation legislation is to provide social security for the benefit of our economic system by relieving the economic strain of unemployment. Defendant says that the purpose of Workmen's Compensation legislation is to provide a compulsory system of insurance for the protection of injured persons.

Second. Defendant argues that because of the broad purpose of Unemployment Compensation l...