Butner v. United States Case Brief

Facts of the Case

Mortgagor Golden Enterprises, Inc. filed a petition for an arrangement under Chapter XI of the Bankruptcy Act,. In those proceedings, the bankruptcy judge approved a plan consolidating various liens on North Carolina real estate owned by Golden. As a result, Golden acquired a second mortgage securing an indebtedness of $360,000, but Golden did not, however, receive any express security interest in the rents earned by the property. At that time the mortgages were in default. A trustee in bankruptcy was appointed and was ordered to collect and retain all rents from the mortgaged properties to be applied as the bankruptcy court would direct. Golden’s properties were later sold to the mortgagee, the price being paid by reducing the estate’s indebtedness to the mortgagee. The mortgagee then filed a motion claiming a security interest in the rent fund accumulated by the trustee and seeking to have it applied to the balance of the indebtedness. The bankruptcy judge denied the motion, holding that the balance due to the mortgagee should be treated as a general unsecured claim. The United States District Court for the Western District of North Carolina reversed, concluding that the state-law requirement of a change in possession giving the mortgagee an interest in the rents was satisfied by the appointment of an agent to collect rents during the arrangement proceedings. On appeal, the United States Court of Appeals for the Fourth Circuit reversed, holding that the adjudication of bankruptcy terminated the arrangement agent’s relationship, and that because the mortgagee had made no request during the bankruptcy for sequestration of rent or for the appointment of a receiver, the mortgagee had not taken the kind of action North Carolina law required to give the mortgagee a security interest in the rents collected after the bankruptcy adjudication. The United States Supreme Court did not grant certiorari to decide whether the Court of Appeals correctly applied North Carolina law, but rather to resolve a conflict between the Third and Seventh Circuits on the one hand, and the Second, Fourth, Sixth, Eighth, and Ninth Circuits on the other, concerning the proper approach to a dispute of this kind.





Case Information

Citation: 440 US 48 (1979)
Argued: Nov 27, 1978
Decided: Feb 21, 1979
Case Brief: 1979