People v. American Loan & Trust Co. (In Re Simmons)

• Decision Date: 11 November 1902
• Citation: 172 N.Y. 371,65 N.E. 200
• Court: New York Court of Appeals Court of Appeals
• Parties: PEOPLE v. AMERICAN LOAN & TRUST CO. In re SIMMONS.

172 N.Y. 371

65 N.E. 200

PEOPLE

v. AMERICAN LOAN & TRUST CO.In re SIMMONS.

Court of Appeals of New York.

Nov. 11, 1902.

Appeal from supreme court, appellate division, First department.

Action by the people of the state of New York against the American Loan & Trust Company. In the matter of the accounting of J. Edward Simmons, receiver. From an order of the appellate division (75 N. Y. Supp. 563) modifying, and affirming as modified, an order of the special term entered on a report of the referee on a final accounting, the Union Dime Savings Institution and others appeal. Affirmed.

C. N. Bovee, Jr., C. L. Stone, William B. Lee, and William W. Storrs, for appellants.

Union Dime Sav. Bank and others.

Vincent P. Donihee and Edward S. Hatch, for appellant Thomas P. wickes.

James Dunne, for respondents Louis Bauer and others.

William S. Opdyke, for respondent Simmons.

Barclay E. V. McCarty and James Anderson Hawes, for respondent Euphemia A. Hawes.

VANN, J.

By the charter of the American Loan & Trust Company, it was provided that ‘in case of the dissolution of the said company by the legislature, the supreme court or otherwise, the debts due from the company as trustee, guardian, receiver or depositary of money in court or of savings banks' funds shall have a preference.’ Laws 1872, c. 868 (Laws 1884, c. 260, § 3). Said company carried on business pursuant to its charter until the 18th of February, 1891, when the appellant savings banks demanded payment of their deposits, which was refused; and thereupon it at once closed its doors, and the superintendent of banks took possession. On the 7th of March following, J. Edward Simmons was appointed temporary receiver; and on May 1, 1891, the corporation was dissolved, and he was appointed permanent receiver. The savings banks and some others presented claims to the receiver as preferred creditors, which were allowed by him as such, with interest at the contractual rate to the date of suspension. Subsequently, by four successive dividends, declared pursuant to orders of the supreme court, he paid the principal of said claims, including interest at the rate provided for by the contract of deposit to the date of suspension, and the second and third payments were receipted for as dividends ‘on the principal of the claim.’ While said orders were made without notice to the preferred creditors, they knew of the making and entry of the same when they accepted and retained the money without complaint or question. The receipts for the fourth and last dividend stated that it completed ‘the payment of the principal of the claim.’ On the final accounting taken before a referee, the appellant savings banks and Thomas P. Wickes, as receiver of Cotton & Stanton, who were preferred creditors, claimed that they were entitled to interest at 6 per cent. upon the amount of their respective claims from the date when the insolvent corporation suspended business; and this claim was allowed by the referee, but disallowed by order of the special term, which denied all interest upon the preferred claims either at the legal or the contractual rate. The order was affirmed in this respect by the appellate division, one of the justices dissenting upon the ground that interest should be allowed at the rate provided by the contract. The claim of the preferred creditors, if sustained, would not only exhaust the funds in the hands of the receiver, and leave nothing for the unpreferred creditors, but would give them more interest than they had contracted for, or could have received if the company had not failed.

Subsequently leave was given to the Onondaga County Savings Bank, the Monroe County Savings Bank, the Union Dime Savings Institution, and the Farmers' & Mechanics' Savings Bank to appeal to this court, and the following questions were certified for decision: ‘Are the appellant savings banks, or any of them, entitled to receive, before payment of any dividends of the unpreferred creditors, any interest upon their deposits, demands, or claims against the American Loan & Trust Company? If so, which of the said appellants are so entitled, for what time or times, at what rate or rates per cent. per annum, and upon what basis of computation, respectively?’ Leave was also given to Thomas P. Wickes, as receiver of Cotton & Stanton, to appeal to the court of appeals, and the following questions were certified for decision upon his appeal: ‘Is the appellant Thomas P. Wickes, as receiver of Cotton & Stanton, entitled to receive, before payment of any dividend of the unpreferred creditors, any interest upon his claim against the American Loan & Trust Company? If so, for what time or times, at what rate or rates per cent. per annum, and upon what basis of computation?’

As questions relating to interest are liable to arise so frequently in the settlement of the affairs of insolvent corporations, we adopt the broad, simple, and just rule laid down in substance by the appellate division, that while interest is allowed as against the corporation itself, or its stockholders, if the assets are sufficient for the purpose, as between preferred and unpreferred creditors no interest is allowed after the law takes charge through the appointment of a receiver. A corporation is created by the edict of the legislature, and dies at its command. Knowledge is imputed to all who deal with it that when it suspends business the law takes charge of its affairs, liquidates its debts, converts its assets, and distributes the proceeds among its creditors. Those who contract with it do so ‘with knowledge of the statutory conditions, and these must be deemed to have permeated the agreement and constituted elements of the obligation.’ People v. Globe Mut. Life Ins. Co., 91 N. Y. 174, 179;People v. Security Life Ins. & Annuity Co., 78 N. Y. 115, 34 Am. Rep. 522. The process of administration provided by law is through a receiver, as the executive arm of the court. He is appointed for the benefit of all the creditors, both preferred and unpreferred, and holds the assets, under the direction of the court, in trust primarily for them, and finally for the corporation or its stockholders. Thereupon, by operation of law, the creditors become the equitable owners of the assets, and the administration of affairs is for their benefit as such. The claims of creditors against the defunct corporation differ from their claims against its assets in sequestration, for they are not proved against the insolvent and dissolved nonentity, but against the fund in the receiver's hands. In the distribution of that fund the general rule applicable...