Shropshire, Woodliff & Co. v. Bush

Background

A bankrupt company owed wages to workers, and trustees managed the company’s bankruptcy estate. Before the bankruptcy began, some buyers purchased many small wage claims (each under $300) that had been earned within three months before the bankruptcy started. The district court denied priority to those purchased claims because, when presented, they were no longer “due to workmen, clerks or servants.” The circuit court asked the Supreme Court whether an assignee who bought such wage claims before bankruptcy can get the special priority payment the law provides for recent wages.

Reasoning

The Court examined the bankruptcy law’s wording and definitions. The statute describes certain kinds of debts that get priority, including wages earned within three months and under $300, and defines “debt” broadly to include claims provable in bankruptcy. The key question was whether priority belongs to the person who earned the wages or to the debt itself. The Court rejected the idea that priority disappears when the claim is assigned. It held that the character of the debt is fixed when wages are earned and that the statute grants priority to those debts, not to the individual earner, so an assignee of an eligible wage claim keeps the priority.

Real world impact

The ruling lets people who legally bought recent wage claims before bankruptcy collect with priority ahead of general creditors. It settles conflicting lower-court decisions about these assignments and clarifies that assignment does not strip a wage claim of its statutorily protected status.