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In re Hilyard Drilling Co. - 840 F.2d 596 (8th Cir. 1988)

Rule:

The appellate court reviews the findings of the bankruptcy court under the clearly erroneous standard, Fed. R. Bankr. P. 8013, under which the appellate court must accept the bankruptcy court's findings unless the appellate court is left with a definite and firm conviction that a mistake has been committed.

Facts:

Hilyard Drilling Co., Inc. (Hilyard) filed a Chapter 11 bankruptcy petition on January 25, 1985. At that time, Hilyard had debts outstanding to the National Bank of Commerce of El Dorado (NBC) and Worthen Bank & Trust Co., N.A. (Worthen), both secured by perfected security interests in Hilyard's accounts receivable. The schedule of assets filed in connection with Hilyard's Chapter 11 bankruptcy indicated that the debts to NBC and Worthen exceeded Hilyard's accounts receivable. Worthen filed a motion with the bankruptcy court for the determination of the priority of the security interests in Hilyard's accounts receivable. The bankruptcy court determined that Worthen's security interest was first in priority. On appeal, the district court affirmed the findings of the bankruptcy court.

Issue:

Did the district court err in affirming the findings of the bankruptcy court, which held that Worthen’s security interest in Hilyard’s accounts receivable was first in priority?

Answer:

No.

Conclusion:

The court first noted that the findings of the bankruptcy court must be reviewed under the clearly erroneous standard, Hanson v. First Bank, 828 F.2d 1310, 1312 (8th Cir. 1987); Bankr. R. 8013, under which the appellate court must accept the bankruptcy court’s findings unless it was left with a “definite and firm conviction that a mistake has been committed.” In this regard, the court affirmed the bankruptcy court’s findings, concluding that Worthen had a first priority perfected security interest in Hilyard’s accounts receivable where NBC’s failure to file a continuation statement caused its financing statement to lapse, which had the effect of rendering its underlying security interest in Hilyard’s assets unperfected and, therefore, subordinate to Worthen’s perfected security interest.

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