American Iron & Steel Co. v. Seaboard Air Line, 233 U.S. 261 (1914)

American Iron & Steel Manufacturing Co.

v. Seaboard Air Line, 233 U.S. 261 (1914)

No. 233

Argued March 6, 1914
Decided April 6, 1914
233 U.S. 261

CERTIFICATE FROM THE CIRCUIT COURT OF APPEALS

FOR THE FOURTH CIRCUIT

Syllabus

Whatever may have been the English and early American rule, the present tendency in this country is to allow interest on contracts to pay money from the date the debt becomes due, and so held as to goods sold in Virginia on a credit of thirty days.

The acceptance of goods sold on a credit of a specified number of days is equivalent to a promise to pay the money on that day, Atlantic Phosphate Co. v. Grafflin, 114 U.S. 492, and interest accrues as an incident of the debt, and not merely as damages.

The general rule that interest is not allowed after property of the insolvent is in custodia legis is not based on loss of interest-bearing quality, but is a necessary and enforced rule incident to equality of distribution between creditors of assets which, in most cases, are insufficient to pay all debts in full.

On the facts certified in this case, held that interest was recoverable on a debt for goods sold on a thirty day credit at the legal rate of interest from the expiration of the credit until payment, including the period that the assets of the debtor were in the hands of a receiver in a suit to foreclose a mortgage.

Under the provisions of § 6 of the Act of March 3, 1891, 26 Stat. 828, c. 517, the Circuit Court of Appeals of the Fourth Circuit certified to this Court a question on which it desired instruction, and in that connection made the following statement of facts:

Upon a bill filed by a railway company alleging its insolvency and consequent inability to maintain itself as a going concern except through the medium of a receivership, receivers were appointed. The bill alleged that a receivership would enable the property of the railway company to be preserved and maintained as a whole, and the sums due and to become due to the bondholders and creditors to be secured and ultimately paid in full.

The trustee in the first mortgage answered the bill, admitting its allegations, and afterwards filed a cross-bill again admitting the allegations of the bill in regard to the insolvency of the company. The suit was not a creditors’ suit. The trustee subsequently filed a bill in the same court to foreclose the mortgage, seeking a sale of the equity of redemption, and the two suits were consolidated. No prior encumbrancers were made parties to either suit. Prior to the receivership, the claimant furnished supplies to the railway company, for which, shortly after the receivers were appointed, a lien was duly perfected under the statute of Virginia known as the labor and supply lien statute, Code of Va. § 2485. The supplies were sold on a credit of "30 days, one percent discount allowed for payment in ten days." Claimant filed its claim before the special master in the receivership proceedings, relying upon a statutory lien under the statute above mentioned. The special master reported against the allowance of interest on the claim, to which report in that particular claimant excepted.

Subsequently, on the petition of the railway company, a decree was entered approving "a plan of adjustment" of the finances of the company, and providing for turning back to the company its property, and for ending the receivership at a certain time. From time to time during the receivership and at the ratification of the plan of adjustment, and as a part thereof, all interest due at the time of the appointment of the receivers and accruing during the receivership on all the funded and many of the floating obligations of the railway company were paid in full. The amount so paid for interest aggregated some millions of dollars.

The decree approving the plan of adjustment provided that the company should pay in due course of business all its obligations, liabilities, and indebtedness, and reserved the right, in the event of default in that regard, to any claimant aggrieved by such default, to present his petition to the court to have his claim enforced "to the same extent as though the receivership had continued."

After the receivership had been thus terminated, claimant filed its petition in the court, praying that its exceptions to the special master’s report should be sustained, and for the enforcement of its claims, including interest thereon during the period of the receivership, and seeking to enforce it not upon the doctrine of an equitable lien, but as a statutory lien. The circuit court refused to allow interest for the period of the receivership, and from that ruling an appeal was taken.

QUESTION

Is interest recoverable on such a claim for the period of the receivership?