Opinion
02-02-1934
WHITEHEAD v. WHITEHEAD POTTERY CO.
Ewald J. J. Smith and Homan, Buchanan & Smith, all of Trenton, for receiver. Louis Rudner and Katzenhach, Gildea & Rudner, all of Trenton, for landlord.
Syllabus by the Court.
In the distribution of assets of an insolvent corporation by a statutory receiver, wage claims are entitled to priority over claims for rent, even though distraint for rent has been made prior to the receivership.
Suit by Fred Whitehead against the Whitehead Pottery Company. On motion to confirm the receiver's report and account.
Order in accordance with opinion.
Ewald J. J. Smith and Homan, Buchanan & Smith, all of Trenton, for receiver.
Louis Rudner and Katzenhach, Gildea & Rudner, all of Trenton, for landlord.
BUCHANAN, Vice Chancellor.
The receiver's report and account shows a balance of approximately $1,400 on hand. The account appears to be correct; no objection is made; and it will be approved and allowed.
The report shows claims for priority by: (1) Wage claimants, totaling $1,982.27; (2) personalty taxes and water rents, $482.39; (3) landlord, under distress, $477.40, and also $3,200, for which no distress was issued; (4) judgments at law, about $400. The receiver has allowed these claims, and accorded them priority in the order above stated. The landlord appeals from the receiver's determination, contending that it (the landlord) is entitled to preference in payment ahead of the wage claims.
The landlord relies on the determination by the United States District Court in this district, in Re Wilton's Pharmacy, 1 F. Supp. 717. Liens are creatures of statute, and the respective priorities of various classes of creditors in the distribution of the assets of insolvent corporations are also determined by statute. The federal decision is in a case under the Federal Bankruptcy Act (11 USCA). The case now sub judice is under our State Corporation Act, and the other statutes of our state amending or affecting the provisions thereof. The present determination must be controlled by the pertinent decisions of the state courts.
It was determined by the Court of Errors and Appeals in Franz Realty Co. v. Welsh, 86 N. J. Eq. 228, 98 A. 387, that in cases of this kind the landlord has no lien on the assets, if he has issued no distraint prior to the insolvent receivership; that he has nevertheless a preferential right or claim, ahead of the claims of general creditors, against the assets in the hands of the receiver; but that such preferred claim is subordinate to the claims of employees for wages under sections 83 and 84 of the Corporation Act (2 Comp. St. 1910, pp. 1650, 1651, §§ 83, 84).
So far as concerns the landlord's claim for the $3,200 in the instant case, therefore, the receiver was correct in determining that the wage claims are entitled to payment ahead thereof. The question as between this rent claim and the claim for taxes was correctly decided by the receiver. Chase Brass & Copper Co. v. Bart Reflector Co., Ill N. J. Eq. 59, 161 A. 54. See, also, what is said by the appellate court in Glaser v. Achtel-Stetter's Restaurant, 106 N. J. Eq. 150, at the bottom of page 156, 149 A. 44. This question, however, is probably only academic in the present case, for the assets are insufficient to pay the wage claims in full, and the wage claims come ahead of the claim for taxes, Gleason v. Chemical & Dye Corp., 112 N. J. Eq. 383, 164 A. 588; Spark v. La Reine Hotel Corp., 112 N. I. Eq. 398, 164 A. 589, except such current taxes as are an expense of administration, Geran v. New Jersey Sand & Gravel Co., 114 N. J. Eq. 414, 168 A. 817.
There is still the question as to priority between the wage claims and the landlord's claim of $477.40 for rent for which distress was levied four days before the receivership. For this amount, the landlord did have a lien, Glaser v. Achtel-Stetter's Restaurant, supra, at page 155 of 106 N. J. Eq., 149 A. 44; Bryson v. Miller Realty Co., 108 N. J. Law, 434, at page 438, 158 A. 823; and hence the precise question was not adjudicated in the Franz Realty Co. Case, supra. Consideration of the reasoning of the court in that case, however, leaves no doubt but that a claim for rent under distress levied prior to the receivership is also subordinate to the wage claims.
The statute (Corporation Act, §§ 83, 84 [2 Comp. St. 1910, pp. 1650, 1651, §§ 83, 84]) gives a lien to the wage claimants, and expressly provides that it shall be "prior to all other liens that can or may be acquired," except three specified liens of chattel mortgages and real estate mortgages. In the Franz Realty Case, the court points out that these sections are legislation subsequent to, inconsistent with, and therefore modify or repeal, the provisions of the earlier landlord and tenant statutes.
Upon similar reasoning Vice Chancellor Backes determined in the Chase Brass & Copper Co. Case, supra, that tax claims come ahead of rent, and later that the wage liens are ahead of mechanics' liens. J. W. Pierson Co. v. West Orange-Verona Building Co., 112 N. J. Eq. 426, 164 A. 567. He therein says (page 428 of 112 N. J. Eq., 164 A. 567, 568): "When property, subject to mechanics' liens, becomes an asset in the hands of a receiver, the legislative preference for the wage claims is expressed in no uncertain terms, that they shall have priority to the exclusion of all others, except three types of recorded liens."
Finally, in the Gleason Case, supra, the forceful and explicit language of the wage lien sections is interpreted and determined as giving wage claims superiority over tax liens arising under legislation which, though subsequent to, was not necessarily inconsistent with, the wage lien legislation.
By the force and effect of the terms of the statute, in the distribution by a statutory receiver of the assets of an insolvent corporation, wage claims are preferred ahead of all other claimants, except the specified chattel and real estate mortgage holders. Those statutory provisions have not been modified in favor of the claims of landlords or liens under distress for rent, by any subsequent legislation. The wage claims are entitled to priority; and the receiver's determination in this behalf will be sustained.
It may be also that the lien or preference claimed under the distress might be determined adversely to the landlord, in the present case, for an additional reason. Section 47-86k of the Corporation Act provides (1 Cum. Supp. Comp. Stat. 1911-19124, p. 680) that all liens obtained, through legal proceedings against a coiporation later adjudged insolvent, within four months prior to the insolvency proceedings, shall be null and void if the corporation was insolvent at the time the lien was obtained. In the present case, the distress was levied only four days before the adjudication and appointment of receiver, and it clearly appears that the corporation was insolvent at that time. Quaere: Was the distress a "legal proceeding"?
The allowances asked by the receiver and his counsel, $400 to each, are not apposed, and will be granted. They are very low for the work done, which included the operation of the plant and the completion of goods in process of manufacture. Allowance to complainant's solicitor is based on the benefit to creditors from the filing of the bill and obtaining appointment of the receiver. In the present case, there was a benefit to the wage claim creditors (they would have received nothing, if the bill had not been filed and the landlord's distraint thus avoided), but to be commensurate with that benefit the allowance can only be small, and will be fixed at $75. These allowances and the taxed costs are administration expenses and are, of course, first payable before the net estate for distribution is ascertained.
Distribution will be made to the wage claimants, pro rata, since there will not be enough to pay them in full.