
    The People of the State of New York, Plaintiff, v. The American Loan and Trust Co., Defendant.
    (Supreme Court, New York Special Term,
    November, 1901.)
    Interest —As between preferred and general creditors of a dissolved corporation — When not recoverable after payment of principal — Preference, when refused an attorney.
    Under a charter providing that upon the dissolution of the corporation debts due from it as trustee, guardian, receiver or depository of moneys in court or savings bank funds shall have a preference, the preferred creditors are entitled, as against general, to legal interest on their claims although they received less while the corporation was going, and the rule must be applied even where it exhausts the fund.
    Where, however, preferred creditors have accepted and receipted for the principal of their claims, they are not entitled to interest thereon, as it in such case does not flow from the contract but is merely damages for the nonpayment of a debt.
    An attorney who has rendered general legal services to the corporation, not in an action or proceeding, nor increasing the fund in the hands of the receiver, or a lien on the fund, is not a preferred creditor.
    Motion to confirm referee’s report as to distribution of fund.
    Opdyke, Willcox & Bristow, for receiver.
    Wm. B. Lee, for Monroe County Savings Bank.
    C. L. Stone, for Onondaga County Savings Bank.
    Wm. W. Storrs, for Farmers & Mechanics’ Savings Bank.
    B. E. V. McCarty, for estate of Judge Hawes.
    Ritch, Woodford, Bovee & Wallace, for Union Dime Savings Institution.
   McAdam, J.

The most important question presented by the exceptions to the referee’s report is whether the preferred creditors of the dissolved corporation, who have been paid in full the principal of their claims, amounting to $705,405.01, and who, prior to its insolvency, received interest on their deposits ranging from two to four per cent, per annum, are entitled to legal interest on their respective claims. There is a balance.now in the hands of the receiver of the corporation. If the contention of the preferred creditors be sustained, the amounts payable to them as interest will more than exhaust the balance, and the unpreferred creditors, with demands aggregating $452,541.31, will be deprived of a dividend. The charter of the corporation 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 depository of moneys in court or savings bank funds, shall have a preference.” It must be decided, therefore, not whether the preferred creditors are entitled to legal interest as against the debtor corporation, but whether, as between them and the unpreferred creditors, the preferred creditors can insist upon the appropriation by the receiver of the comparatively small sum in his hands towards the payment of their interest demands, and thus exclude the unpreferred creditors from any participation in the fund. Some of the preferred creditors claimed legal interest from February 18, 1891, when the corporation ceased to do business, to the date when the first dividend was paid to them by the receiver, upon the amounts of their claims as fixed on February 18, 1891, and that so much of the first dividend should first be applied to the payment of such interest'as was necessary to fully discharge it; that the balance should then be applied as a part payment on account of the principal, and that such method should be adopted in the application of the payments at the times the other dividends were made by the receiver. Instead of calculating interest on this theory, the learned referee allowed each of the preferred creditors legal interest on the amount of the principal of their claims from February 18, 1891, down to the time of the first dividend at the rate of six per cent, per annum, and six per cent, per annum upon the balance of principal then remaining due after crediting the amount of the first dividend thereon down to the time of the payment of the second dividend, and so on down to the payment, of the final dividend. This method of awarding interest also wipes out the balance in the receiver’s hands. Neither class of creditors accepts the referee’s disposition of the question. The problem is, indeed, a difficult one to solve. If the trust company, instead of falling by the roadside, had continued to carry on business, the creditors who now claim six per cent, interest would be receiving interest at from two to four per cent., and, presumedly, would be well satisfied with such returns. Is it equitable that, because the corporation has become insolvent, and assets amounting to little more than the preferred debts at the time of insolvency are saved from the wreck, the excess over such preferred debts should be appropriated towards the payment of legal interest on the preferred claims, leaving the just demands of unpreferred creditors totally unprovided for ? It would seem not.' Nevertheless, though a case exactly like this has not been found, the trend of authorities, in this State at least, seems favorable to the preferred creditors. In Upton v. New York & Erie Bank, 13 Hun, 269, which case presented a dispute between general creditors and certain savings banks entitled to preferences, it was held that said banks were entitled to interest on their deposits with the insolvent corporation as against the general creditors. The provision of the Banking Law respecting preferences, under which that case was decided, is not so dissimilar to that part of the charter of the American Loan & Trust Company, herein before quoted, as to warrant a different construction. In Matter of Fay, 6 Misc. Rep. 462, where there was a voluntary assignment for the benefit of creditors, the language of the assignment was to pay and discharge in full the following indebtedness of the assignors,” naming preferred creditors in the order of preference by the assignors, with the amounts due them respectively. The claims of the first four preferred creditors were paid in full, with interest to the day of payment, and that exhausted the fund applicable to preferred debts. The fifth preferred creditor, whose claim would have been paid in full if no interest had been allowed the four prior creditors, received nothing, and objected to the assignee’s account on the ground that the allowance of interest. was unwarranted. The court held that interest was properly paid to the prior creditors. See also Matter of Patterson, 18 Hun, 221; affd., 78 N. Y. 608, and note in 8 Abb. N. Y. Dig. 70. It is contended by the unpreferred creditors, however, that having given receipts for and accepted the principal of their claims, the preferred creditors are, in any event, precluded from recovering interest thereon. The interest claimed by the preferred creditors is not contractual interest, but interest as damages for non-payment of the debts, and the rule is that, where interest is recoverable merely as damages for non-payment of a debt, the creditor cannot maintain an action for its recovery after accepting the principal. Tillotson v. Preston, 3 Johns. 229; Johnston v. Brannan, 5 id. 268; People v. County of New York, 5 Cow. 331; Fake v. Eddy, 15 Wend. 76, 80; Cutter v. Mayor, 92 N. Y. 166; Matter of Hodgman, 140 id. 421; Stewart v. Barnes, 153 U. S. 456, 462; Peck v. Granite State Provident Assn., 21 Misc. Rep. 85. It would seem that, in this controversy, the preferred creditors come within the rule invoked. There appears no valid reason against an appropriation by the receiver, and the preferred creditors, after a lapse of seven years, ought not to be allowed to question it. The case of Nat. Bank of Commonwealth v. Mechanics’ Nat. Bank, 94 U. S. 437, is distinguishable from this one. There the receiver of the insolvent corporation made certain payments from time to time on account of principal until the principal debts were extinguished, and at. each payment interest was demanded and refused, so-that there was a controversy between the parties at the time of the attempted appropriation. Here there was no controversy between the parties, the creditors took what they got and did not question the attempted appropriation. It follows that interest should not have been allowed to the preferred creditors. Another question is presented by the claim of Euphemia A. Hawes, executrix of the late Granville P. Hawes, that debts of the corporation to the testator, amounting to $13,365.81, on account of services rendered by him as attorney and counselbr-at-law, are entitled to a preference, on the theory that the testator acquired a lien. It would seem that the learned referee properly disallowed said claim. The services were not rendered by the testator in any action or proceeding in any court, did not result in the increase of any fund which came into the hands of the receiver, and there was never in existence any fund or securities in the hands of the receiver upon which the testator had an attorney’s lien. Interest must, therefore, be disallowed bn the preferred claims. In other respects, the referee’s-report will be confirmed. Settle order on notice.

Ordered accordingly.  