American Iron and Steel Manufacturing Co. v. Seaboard Air Line
In American Iron and Steel Manufacturing Co. v. Seaboard Air Line, 233 U.S. 261, 34 S.Ct. 502, 58 L.Ed. 949 (1914), the Court considered the question whether interest should be paid on a claim for supplies furnished to a railroad which had gone into receivership. By statute, the debt was secured by a lien which had priority over mortgages.
The Court pointed out that the reason for the rule denying interest after insolvency "is not because the claims had lost their interest-bearing quality during that period, but is a necessary and enforced rule of distribution, due to the fact that in case of receiverships the assets are generally insufficient to pay debts in full." (Id. at 266, 34 S.Ct. at 504.)
The Court then stated:
But that rule did not prevent the running of interest during the Receivership; and if as a result of good fortune or good management, the estate proved sufficient to discharge the claims in full, interest as well as principal should be paid. Even in bankruptcy, and in the face of the argument that the debtor's liability on the debt and its incidents terminated at the date of adjudication and as a fixed liability was transferred to the fund, it has been held, in the rare instances where the assets ultimately proved sufficient for the purpose, that creditors were entitled to interest accruing after adjudication. 2 Blackstone's Comm. 488; Cf. Johnson v. Norris, 190 Fed.Rep. 459, 460 (5). (Id. at 266-67, 34 S.Ct. at 504-05.)