Worden v. United California Bank

BISHOP, J. pro tem.* This action began life in the Los Angeles Municipal Court with its prayer for a declaratory judgment to the effect that the rights of the defendant in dividends paid to it out of an estate in bankruptcy are subordinate to the rights of the plaintiffs and should be held by the [469]defendant in trust for them. In its answer the defendant challenged the jurisdiction of the municipal court to entertain an action for declaratory relief, under section 1060, Code of Civil Procedure, and the action was transferred to the superior court.

There was no evidence taken. An agreed statement of facts was filed April 5, 1966, and an exchange of briefs arranged. These are in the original file, which is in our hands. Upon the submission of the matter the trial judge ordered findings in favor of a judgment that would give plaintiffs nothing. Such a judgment was entered and plaintiffs appealed. We are affirming the judgment.

There can be no dispute as to the facts, with such a record, and there is none. The plaintiffs were conducting, a business under the name of Ajax Wire Co., when, in 1957, they sold out to Ajax Wire Corporation, through an escrow conducted by the defendant bank. Plaintiffs received, as a result of the sale, a promissory note of the corporation (as we shall refer to the Ajax Wire Corp.), for $39,120, payable $525 per month, including interest. This note was secured by a purchase money chattel mortgage dated April 24,1957.

By many avenues the defendant bank was fully aware of, and knew all about, the note and chattel mortgage. The chattel mortgage was never re-recorded (as required by section 2957 of the Civil Code, before its repeal in 1963). On February 8, 1963, the defendant bank made a loan of $12,500 to the corporation, taking no security.

On October 17, 1963, the corporation (Ajax Corp.) was adjudicated a bankrupt in the Los Angeles federal court. The chattel mortgage of the plaintiffs was held to be invalid as to the trustee in bankruptcy because it had not been re-recorded, and both the plaintiffs and the defendant bank were unsecured creditors so far as the bankruptcy proceeding was concerned.

In February of 1964 the trustee in bankruptcy sold the chattels securing the note for $11,000 cash. Thereafter, the trustee in bankruptcy entered into negotiations with the defendant bank on alleged preferences and made a settlement, whereby the defendant paid the trustee $7,000, and was allowed to .file an unsecured creditor’s claim in bankruptcy proceeding pursuant .to the. pro visions, of section 57n" of. thev National Bankruptcy Act.- It is stated,'both in the agreed: statement .of fácts'and in the court’s findings of fact, that the •