The defendant was a corporation organized under the laws of this state and engaged in the business of a banking and trust company. On or about the 23d day of *Page 296 May, 1905, this action was brought by the attorney-general, in which judgment was demanded that the corporation be dissolved and its assets distributed, upon the ground that it had become insolvent and its capital stock impaired. On that day a temporary receiver was appointed to take possession of the assets of the defendant, and subsequently, and on the 24th day of June, 1905, a final judgment was entered dissolving the corporation and appointing permanent receivers to wind up its affairs. Thereupon the receivers so appointed entered upon the discharge of their duties as such, converted the assets into money and from time to time paid dividends to the creditors under the direction of the court upon the principal of such indebtedness, reserving to such creditors the right to petition the court on or before final accounting of the receivers for such relief as they may consider themselves entitled to concerning the allowance of interest upon their claims. The creditors having been paid in full for the amount of their principal indebtedness and there remaining a surplus of about $175,000, a petition was presented to the court for instructions with reference to the payment of interest upon such indebtedness, and thereupon the Special Term made an order instructing the receivers: 1. "To pay to those depositors having special interest contracts with the defendant, interest at the rate provided for in said contracts respectively, from January 1st, 1905, to and including May 23rd, 1905, and thereafter upon their respective balances up to the date of final payment of principal at the legal rate of interest. 2. To pay to those depositors having no interest contracts with the defendant, interest upon the amount of their respective credit balances from May 23rd, 1905, up to the date of final payment of principal at the legal rate of interest. 3. To pay to holders of certificates of deposit the amount of interest, if any, specified in their respective certificates from the day of the last payment of interest thereon up to and including May 23rd, 1905, at the rate specified in their respective certificates, and thereafter upon the respective credit balances due to them up to the date of final payment of *Page 297 principal, at the legal rate of interest. 4. To pay to holders of certified checks interest upon the amount of their respective credit balances from May 23rd, 1905, up to the date of the final payment of principal, at the legal rate of interest."
It further appears that during the time that the defendant was engaged in conducting its banking business it had contracts with some of its depositors and certificate holders, by which it had agreed to pay interest ranging from two to four per cent.
The final judgment entered in this action dissolving the corporation adjudged that it was insolvent and that its capital stock had been impaired. Such adjudication related back to the date when the temporary receiver was appointed and took possession of the assets of the corporation. (People v. Am.Loan Trust Co., 172 N.Y. 371; People v. Commercial AllianceL. Ins. Co., 154 id. 95, 96; People ex rel. Atty. Genl. v.Life Reserve Assn. of Buffalo, 150 id. 94; Matter ofEquitable Reserve Fund Life Assn., 131 id. 354.) The appointment of the temporary receiver and the taking possession of the assets by him operated to prevent the defendant from paying the claims of the creditors, and thereby obviated the necessity of a formal demand for payment on their part. (Richmond v. Irons,121 U.S. 27, 64; Sickles v. Herold, 149 N.Y. 332.) That interest was chargeable at the contract rate upon the claims of depositors and certificate holders down to the date of the appointment of the receiver and of his taking possession of the assets of the defendant does not appear to be questioned. But it is contended that after that event no interest whatever was chargeable as against the defendant or its stockholders. We think, however, that this court is committed to the doctrine that interest is allowable if the assets are sufficient to pay the same. In the case of People v. American Loan Trust Co. (supra), VANN, J., in delivering the opinion of the court, said: "If the assets are sufficient to pay all, including interest, it must be paid, for, as against the corporation itself, interest should be allowed before the return of any surplus to the stockholders." It may be *Page 298 admitted that these remarks were unnecessary to the disposition of the case then under consideration, but the rule thus asserted appears to us to be so eminently just and so well supported by other authority that we now have no hesitancy in adopting it as the rule that should be adhered to in disposing of questions of this character. It is not only in accord with the views expressed in the case of Sickles v. Herold (supra) but with those expressed in National Bank of Commonwealth v. Mechanics'National Bank (94 U.S. 437); Richmond v. Irons (121 id. 64);Mahoney v. Bernhard (45 App. Div. 499; affd., 169 N.Y. 589), and Wheeler v. Millar (90 N.Y. 353, 363).
The only other question which we are called upon to consider is that pertaining to the rate of interest that should be allowed after the appointment of the receiver. After the receiver had taken possession of the assets of the company under such appointment, as we have seen, the corporation became powerless to carry out its contracts with the depositors to repay their money to them upon demand. The depositors thereby had their right of withdrawal and payment taken from them. The company, owing to its inability to pay, became chargeable with a breach of its contracts, thus terminating its right under the existing contracts and investing its depositors with all the rights given by law to persons whose contracts have been broken. To continue the interest at the contract rate would be manifestly unjust to the creditors, for the rates allowed under the contracts varied, as we have seen, from two to four per cent, and it would, therefore, favor one class at the expense of the other. We think, therefore, that when the contracts with creditors were broken by the defendant becoming insolvent and the appointment of a receiver, so that it was unable to perform its agreements, the legal rate of interest became the rate to which all the creditors were thereafter entitled, and it should be paid by the receivers if the assets are sufficient. It consequently follows that in an action brought by the attorney-general to wind up the affairs of an insolvent bank, that interest at the contract rate should be *Page 299 allowed and credited upon the accounts of its creditors to the date that the receiver took possession of its assets; that thereafter interest is not allowable as between the creditors themselves, but is allowable against the corporation; and if the assets are sufficient after payment of the principal of the indebtedness, as established at the time the receiver took possession, the interest should be paid at the legal rate before the distribution of the surplus to the stockholders.
The order appealed from should, therefore, be affirmed, and the first question certified answered in the affirmative at the legal rate, and the second in the affirmative, with costs to respondents filing briefs in this court, payable out of the fund.
CULLEN, Ch. J., EDWARD T. BARTLETT, VANN, WERNER, WILLARD BARTLETT and HISCOCK, JJ., concur.
Order affirmed.