Before GOODRICH, McLAUGHLIN and KALODNER, Circuit Judges.
This is an appeal from an Order in bankruptcy in which the District Court affirmed the finding of the Referee that a corporate chattel mortgage was partially invalid in that one of four notes which constituted the underlying obligation for the mortgage was paid and another was given without consideration.
The facts are as follows:
In 1950 Harry W. Kellum and his wife, Mira O. Kellum, formed Devaull's Inc., the bankrupt corporation, with a paid-in capital of $40,000. They continued operation of the business until January 4, 1956, at which time they divested themselves of their stock ownership to William Molineaux. On the same day, in their capacity as officers of Devaull's Inc., the Kellums executed a corporate chattel mortgage to themselves as individuals in the sum of $20,000 payable with interest in weekly installments of $100. The chattel mortgage was recorded on January 10, 1956 in the Register of Deeds Office of Camden County, New Jersey.
Harry W. Kellum served as vice-president and secretary of Devaull's Inc. until August 12, 1957 when he resigned because of his adverse interest to the corporation as one of its mortgagees, and the financial condition of the corporation. Shortly thereafter, on September 26, 1957 a petition in bankruptcy was filed. At the time of the bankruptcy $7,700 had been paid to the Kellums and the filed a claim of $12,300 for the unpaid balance of their chattel mortgage.
The trustee in bankruptcy attacked the validity of the chattel mortgage on several scores - among them failure of consideration.
The testimony adduced before the bankruptcy referee by the Kellums sought to establish that the $20,000 note and accompanying chattel mortgage of January 4, 1956 were executed in consideration of their cancellation of four outstanding notes given to them by Devaull's Inc., as follows:
The Referee, following the taking of extensive testimony at several hearings, found that the note dated October 31, 1950, in the amount of $5,500 had been paid, and, that the note dated June 30, 1955, in the amount of $6,000, had been given without consideration and that its ...