Estate of the Bank of Pennsylvania

The opinion of the court was delivered, by Thompson, C. J. It is evident, if the learned auditor be accurate in the conclusions arrived at in his report, that the holders of registered notes of the Bank of Pennsylvania are' entitled to interest thereon, notwithstanding the principal has been extinguished by sundry dividends made by the assignees, there is no other practical question for decision, as that will absorb the entire balance of the assets. We will, therefore, turn our attention to this point in the first place, regarding as we do the notes presented and registered by the assignees as precisely on the footing of those presented and endorsed by the bank, and to this we need not again recur. This controversy arises out of an assignment, in which the law creates preferences. By the Act of 26th of April 1844, it is provided in cases of assignment for the benefit of creditors by banks, that the assignees shall pay the debts and liabilities of insolvent and assigning banks in the following order: “ First, note-holders; second, depositors; third, all other creditors, except stockholders, who shall be paid last.” That order has been strictly followed by the assignees so far as the principal of the notes in circulation of the Bank of Pennsylvania is concerned, their assets reaching no farther at the period of the last dividend; the question is now whether the assets on hand are distributable to the interest accrued on said notes after demand and registration, or to the next class of creditors — the depositors. It seems to have been contended before the auditor, that the note-holders, having received the principal of their demands heretofore, they must be regarded as having waived any rights they might have had to interest in favor of the next class. This position was overruled by the learned auditor, and not very distinctly renewed here, although it was remarked on by the learned counsel for the exceptants in argument. It will be remembered that the noteholders were paid, from time to time, by a pro raid distribution among them, of the money in hand. They could not know at any time whether the assets of the bank would hold out to pay their entire claims, or only a portion of them, until new accounts were exhibited by the assignees. Hence their acceptance of [479] partial payments did not waive what remained unpaid. This will, not be pretended; there is no difference in principle between that and the acceptance of the principal in full, leaving the interest, the trustees not being in funds to pay it. That was the case here. If there was a surplus at the last distribution, it was very small, and it was not thought best to be applied to a partial distribution to interest, even if the trustees had thought it allowable. But we need not enlarge on this point. No one is held to have waived a right, unless it appears that he knew his rights and intended a waiver of them. In support of the position that interest is not to be allowed to the note-holders as against the subsequent classes of creditors, the exceptants contended that it cannot be regarded as a substantive and inseparable incident of the contract between the bank and its note-holders, that on its failure to redeem them after demand and endorsement, interest should thenceforth follow. I can hardly realize the necessity of reasoning, to show that it is an incident of the debt immediately falling due on demand made, as in the case of any other ascertained demand overdue when it is settled by positive law. The interest claimed here, either on the principles of contract or by express statute, we think allowable. The Act of 22d March 1817, under which, in the opinion of the auditor, this bank by statute is liable to the rate of interest claimed by the note-holders, provides that in case of non-payment after demand by a note-holder, “ interest shall be recoverable on the same from the time of making such demand.” And by article 18, of section 8 of the Act of 25th March 1824, for the recharter of certain banks therein named, it is provided that in case of the non-payment of its notes by any of the banks so rechartered, the note or bill holders thereof should, after demand, &c., be entitled to recover interest “ until the same (i. e. the notes) be fully paid and satisfied, at the rate of 6 per cent, per annum from the time of such demand.” Pamph. L. 1824, p. 68. This last provision is incorporated almost verbatim into the 25th section of the Act of 16th April, 1850, excepting that the rate of interest to be recovered is 12 per cent. By positive law, therefore, is the recovery of interest allowed in this Commonwealth, in case of the failure of banks to redeem their notes after demand. It is recoverable, says the Act of 1817, and is thus made as much a part of the note-holders’ claim as are the notes themselves. No distinction is made between the claim for principal and interest. They constitute therefore a unit, and must come within the preference, the one as well as the other. It is true the bank-notes of banks of this state do not express a promise to pay interest, presently or contingently; yet it will be seen that by the very law of their creation, interest was to become an [480] incident in a certain contingency. This was one of the terms on which they were issued, and is to be presumed to have been the terms on which they were taken or held. There is no perceptible difference between the law of a contract, whether it results from and is declared by an act of the legislature, or is the result of the agreement of the parties. In either case, it becomes the law of the individual case. There is a close resemblance, if not an absolute identity, between the claim of interest, whether it arises on a contingency expressed, or at a particular point of time. In both cases it is a question of time. We know that the provision, for interest to commence in the future, is a common occurrence, and is not disputable. Why should it be when it is made to arise on the happening of an event, without being either a penalty or damages? This has not been shown in any case of demand claims; in other words, in debts payable on demand, nor can it be, either by the name of interest, as the act expresses it. Whether by positive law or by the contract implied from the transaction between the receiver of the notes of a bank and the bank, we regard the 6 per cent, allowed as interest, as a substantive part of the contract. Murphy’s Appeal, 6 W. & S. 223, sustains these views, and Miller’s Appeal, 11 Casey 481, both cited by the ex-ceptants, in no way militates against them. The exceptants further contend that interest is not allowable, because the assets of the debtor bank have been, since the assignment, in the possession of the law, and in process of distribution, like money arising on sales on execution, or money in the hands of a garnishee, or of an assignee in bankruptcy. The learned' auditor was of opinion that these instances were not analogies to govern in this kind of case, and cited Schultz’s Appeal, 11 S. & R. 183, as more to the point. We fully agree with him that it is so. That was a case of the distribution in the Orphans’ Court, of the assets of an insolvent estate, under the statutory preferences of the Act of 1794. Under that act, debts by bond or specialty had a preference over simple-contract debts, in the order of administration. In Schultz’s Appeal, the latter class contended, as here, that interest was not payable to the specialty creditors up to the time of the distribution of the assets; the court held that they were. The rule in bankruptcy was invoked there as here. In regard to the claim of the simple-contract creditors, Tilghman, C. J., said:— “ The policy of the Bankrupt Laws is different from that of the Act of Assembly under consideration. In cases of bankruptcy, the main object is to make an equal division among all the creditors, and for that purpose the estate of the bankrupt is vested in his assignees by relation from the time when the bankruptcy was committed. * * * * But the object of the Act of Assembly in question was not to distribute the estate of the deceased among [481] all the creditors equally, pro raid, hut to define the order in which debts of different qualities should be paid, and for that purpose the debts were divided into classes, according to their quality. The debts in the first class to be paid first, and so on according to the number of each class. But there was no intention to.make any deduction from the debts of one class in order to let in those of another. Debts by bond and other specialties, which constitute the fifth class, are to be paid before debts by simple contract, included in the sixth class. But what is meant by a debt on bond ? I take it to be the sum which would be recovered by a suit on the bond; that is the principal and interest to the time of payment.” This was the decision in a case of statutory preferences, and is more closely analogous to the case in hand than any other to be imagined. We, therefore, think that in its reasoning, as well as conclusion, it is a safe guide to follow in such a case as this. Consequently, we are of opinion that the auditor and court were right in mainly governing themselves by it. As this conclusion will, according to the auditor’s report, have the effect to absorb all the assets of the bank, present or prospective, in payment of interest to note-holders, it is not necessary to discuss the question of the rights of depositors under the assignment, or what constitutes a deposit. We will, therefore, overrule the exceptions involving these questions, as immaterial, without deciding on their merits ; and we also overrule the exceptions discussed above, and confirm the decree of the court below, at the costs of the appellants.