TROXEL v. TROXEL INS. AGENCY, INC., ET AL, Pa. Super. Ct., Judgment, Law, casemine.com

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Harvey B. Lutz, submitted a brief for appellants. Henry M. Hipple, for appellee.

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Case: Troxel v. Troxel Insurance Agency, Inc., et al., Appellants

Court: Superior Court of Pennsylvania

Argued: November 15, 1944

Decided: January 25, 1945

Panel: Keller, P.J.; Baldrige; Rhodes; Hirt; Reno; James, JJ. (Opinion by Hirt, J.)

Factual and Procedural Background

Claimant (H.C. Troxel) was seriously injured on July 30, 1938 while soliciting business for the defendant corporation, Troxel Insurance Agency, Inc. Prior to incorporation in 1930 he had operated an insurance brokerage as a one-man agency; after incorporation he owned 48 of the 50 shares and served as president. The corporate records show he received a monthly salary of $120 as president for all services rendered. In July 1934, because the corporation became financially involved and owed substantial debts, representatives of four creditor insurance companies and the corporation (by claimant as president and by its secretary) agreed—initially in writing but not executed as written—to appoint a trustee to take exclusive management and control of the corporation's business. Howard C. Adey was named trustee, opened a bank account under his control, reduced claimant's compensation to $100 per month (payable from corporate earnings), and supervised claimant thereafter. Under the trustee claimant functioned as a solicitor of insurance and collector of premiums and had ceased to direct corporate affairs. A referee awarded claimant compensation for the injury; the Workmen's Compensation Board and the court below affirmed. Defendants appealed to the Superior Court. It was stipulated that claimant died before disposition of the appeal in the lower court; judgment was entered in favor of the administrator of his estate under § 410 of the Compensation Act, as amended (77 PS 751).

Legal Issues Presented

Whether, under the Act of June 21, 1939, P.L. 520, § 1 (77 PS 21, 22), a salaried official exercising control of the business of a corporation is a "servant" entitled to compensation as an employee, or whether such an official is excluded from coverage as not having a master-servant relationship with the corporation.
Whether management of the business of a corporation is incident to the office of president, i.e., whether holding the title of president necessarily carries with it management duties that preclude classification as an employee.
Whether the evidence in this case supports the finding that claimant, although president pro forma, was in fact a servant of the corporation at the time of his injury and thus entitled to compensation.

Arguments of the Parties

The opinion does not contain a detailed account of the parties' legal arguments.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Santi v. Amer. Coal Exchange, 91 Pa. Super. 271	Supports the principle that a salaried official exercising control of a corporation's business is not a "servant" and the corporation is not his "master" within the meaning of the compensation law.	The court cited this case to state the general rule excluding executive officers who control corporate affairs from compensation coverage, then contrasted that rule with the facts showing claimant's relation to the corporation had changed.
Nirenstein v. Colang, Inc. et al., 111 Pa. Super. 72, 169 A. 404	Reinforces the same general rule that an executive officer who directs corporate affairs is not an employee for compensation purposes.	Used by the court as part of the authority for the general rule that salaried controlling officers are not servants; the court found the rule inapplicable because of the trustee arrangement and altered duties.
Carville v. Bornot Co., 288 Pa. 104, 135 A. 652	Supports the general rule regarding executive officers and the master-servant relationship under the compensation statute.	Cited as additional authority for the general proposition that a controlling executive officer is not ordinarily an employee covered by the compensation law; the court nonetheless distinguished the case on the facts presented.
Gray v. Gray Printing Co. et al., 87 Pa. Super. 302	Authorizes compensation where the claimant is a servant of the corporation and is paid wages as such.	The court invoked this precedent to support its conclusion that, because claimant had become a servant paid wages under the trustee's supervision, his injury was compensable.
Eagleson v. Harry G. Preston Co., 265 Pa. 397, 109 A. 154	Establishes that where an individual is effectively a servant of the corporation and receives wages, compensation is appropriate.	Applied to the facts to reinforce the determination that claimant was in the status of an employee at the time of the accident and therefore entitled to compensation.

Court's Reasoning and Analysis

The court began by stating the general legal rule: under the Act of June 21, 1939, a salaried official who exercises control over a corporation's business ordinarily is not a "servant" and is not entitled to compensation as an employee. The court cited established Pennsylvania authority to support this principle.

The analysis then turned to the specific facts showing a substantive change in claimant's relationship with the corporation prior to the accident. Because the corporation was financially distressed, claimant (as president) and the secretary, with representatives of four creditor insurance companies, agreed to have a trustee appointed to assume exclusive management and control of the corporate business. Although the written agreement was not executed in form, the agreement's provisions (except one) were orally accepted, the trustee assumed control, and the corporation acquiesced in the arrangement for more than four years. The court treated the president's and secretary's authority to make the agreement as established by the corporation's subsequent acquiescence and unanimous stockholder approval.

After the trustee's appointment, claimant's compensation was reduced to $100 per month, paid from corporate earnings, and he performed only duties assigned by the trustee—soliciting insurance and collecting premiums—under the trustee's supervision. He retained the title of president only pro forma and had ceased to participate in directing corporate affairs. The court emphasized that corporate management is not incident to the office of president per se and that a corporation may select any manager it chooses.

Given these facts, the court concluded that claimant was no longer an executive exercising control but rather was acting as a servant of the corporation, receiving wages for services performed under supervision. The court therefore applied precedents permitting compensation in such circumstances and held the injury compensable.

The court also noted the procedural disposition affecting remedy: claimant had died before disposition in the lower court, and judgment was entered in favor of the administrator of his estate under § 410 of the Compensation Act, as amended (77 PS 751).

Holding and Implications

Holding: Judgment affirmed. The court held that although a salaried executive who controls a corporation's affairs is generally not a "servant" under the compensation law, the evidence established that, at the time of his injury, claimant had become a servant of the corporation—subject to the trustee's control and paid wages as such—and therefore his injury was compensable.

Implications: The direct effect is that the award of compensation was sustained and judgment entered for the administrator of claimant's estate under § 410 of the Compensation Act. The opinion distinguishes the general rule excluding controlling executives from compensation coverage from cases where the executive's relation to the corporation has been altered in fact (here by appointment of a trustee and reduction to wage-paid, supervised work). The opinion does not announce a new legal rule beyond applying existing authorities to the facts.

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Troxel v. Troxel Insurance Agency, Inc., et al., Appellants.

Workmen's compensation — Employees — Corporations — Officers — President — Management — Nature of duties — Insurance agency — Evidence — Act of June 21, 1939, P.L. 520.

1. Under the Act of June 21, 1939, P.L. 520, section 1, a salaried official exercising control of the business of a corporation is not a servant and the corporation is not his master in the sense contemplated by the compensation law, and he is not entitled to compensation as an employee.

2. Management of the business of a corporation is not incident to the office of president.

3. In a workmen's compensation case, in which it appeared that, although claimant was president of the defendant corporation pro forma, he was a servant of the corporation, an insurance brokerage agency, and was paid wages as such and not as a salaried executive officer, his injury was compensable.

Argued November 15, 1944.

OPINION BY HIRT, J., January 25, 1945:

Claimant was seriously injured in an accident on July 30, 1938 while soliciting business for defendant corporation. The referee awarded compensation and both the board and the court affirmed. The question of law here is whether the evidence is sufficient to support the finding that claimant when injured was an employee of the corporation entitled to compensation as such. There is little dispute as to the facts.

Before incorporating his business in 1930 claimant conducted an agency selling fire insurance as a broker for a number of insurance companies. The agency was continued by the corporation thereafter with claimant in sole charge. He owned 48 of the 50 shares of stock. Claimant was president of the corporation but there were no by-laws defining his duties. The business after incorporation continued to be a one-man affair. Claimant's duties were both those of corporate management and the personal solicitation of business for the agency. According to the records of the corporation he received a monthly salary of $120 as president for all services rendered. As long as that arrangement continued it is at least doubtful that the corporation would have been liable for compensation in the event of his accidental injury. A salaried official exercising control of the business of a corporation and directing its affairs is not a `servant' and the corporation is not his `master' in the sense contemplated by the compensation law. Amendment of June 21, 1939, P.L. 520, § 1, 77 PS 21, 22. Such executive officer in general is not entitled to compensation as an employee. Santi v. Amer. Coal Exchange, 91 Pa. Super. 271; Nirenstein v. Colang, Inc. et al., 111 Pa. Super. 72, 169 A. 404; Carville v. Bornot Co., 288 Pa. 104, 135 A. 652.

But there had been a change in claimant's relation to the corporation before his injury. The business had become financially involved; the corporation owed a substantial sum to a local bank and was heavily indebted to four insurance companies for past-due premiums on policies issued by the corporation as their agent. In July 1934 special representatives of the four companies met with claimant and with the secretary of the corporation. A written agreement had been prepared between the corporation and the four creditor insurance companies providing for the appointment of a trustee to take charge of the affairs of the corporation "for the purpose of continuance of the business of the Agency . . . . . . and preserving the interests of all parties named." The agreement was not executed however because of a provision relating to the sale of the agency in the discretion of the trustee, which was not acceptable to the bank holding the corporation's note. But because of the necessity for immediate action the writing was not redrawn but its provisions (except that relating to the sale of the agency) were orally agreed to by claimant as president and by the secretary of the corporation on its behalf, as well as by the representatives of the four insurance companies. By the agreement Howard C. Adey was named trustee for all parties in interest and he immediately assumed exclusive management and control of the business of the corporation.

Management of the business of a corporation is not incident to the office of president. A corporation may select any one it chooses to direct its affairs. And although retaining his office as president, claimant was free to resign as manager and to undertake routine work under another as an employee. The agreement in this case was made with the creditors of the corporation by claimant as president and by its secretary. Although no formal corporate action was taken, the circumstances indicate that they had authority to make the agreement, orally, in its behalf. The effect of the arrangement was not an assignment of the assets of the corporation for the benefit of creditors; it related merely to the appointment of a new manager of its business affairs. That these two officers had the necessary authority must be assumed from the acquiescence of the corporation in the performance of the agreement for more than four years and until after claimant's injury. Moreover the agreement had the unanimous approval of all three of the stockholders. It was made by the president and secretary who together held 49 of the 50 shares of stock and the testimony of the holder of the remaining share indicates that the arrangement was satisfactory to him.

After the trustee's appointment he opened a new bank account under his control subject to withdrawal only on his order joined in by the secretary. The trustee reduced claimant's compensation to $100 per month (payable not by the insurance companies but from the earnings of the corporation) and thereafter claimant became a mere solicitor of insurance and collector of premiums under the supervision of the trustee; he was so acting at the time of his injury. Although still president of the corporation pro forma, he had ceased to have any voice in the direction of its affairs. Thereafter he performed only such duties as were assigned to him by the trustee in charge, and the services which he performed had no relation to his office as president.

Clearly, at the time of the accident, claimant was a servant of the corporation and was paid wages as such and not as a salaried executive officer. His injury therefore was compensable. Gray v. Gray Printing Co. et al., 87 Pa. Super. 302; Eagleson v. Harry G. Preston Co., 265 Pa. 397, 109 A. 154.

It was stipulated that claimant had died before the appeal was disposed of in the lower court. Judgment was entered in favor of the administrator of his estate under § 410 of the Compensation Act, as amended, 77 PS 751.

Judgment affirmed.

TROXEL v. TROXEL INS. AGENCY, INC., ET AL