Sulmeyer

The Millers sold a business in June, 1954, to the now bankrupt Deleon Corporation. They took back from Deleon a purchase money mortgage on chattels transferred to Deleon. There was a 79 day delay in recording of the chattel mortgage. 1 This failure of the Millers to record was due to the negligence of a “trusted employee” who was apparently too busy with his defalcations of his employers’ cash to attend to routine business.

Eventually in December, 1954, under the terms of the mortgage the Millers repossessed the chattels and resold the property in March, 1955, for $82,500. All agree this was a fair price.

Deleon was insolvent at the time of the repossession, but solvent at the time of execution of the mortgage. The Millers filed a claim with trustee Sul-meyer for $141,742.50. This was mainly the balance due on the original note and mortgage which were in the amount of $189,000. Objections were made to the whole claim by the trustee. He asserted that by superimposing the bankruptcy act on the California state law the trustee had a right first to recover the proceeds of the sale of the chattels after which the claim could be allowed.

At the time of hearing before the referee…