In Morris v. St. John National Bank, 516 F.3d 1207 (10th Cir. 2008), the Tenth Circuit addressed the issue of whether a bankruptcy trustee who successfully avoids a lien and preserves the in rem security interest for the bankruptcy estate under the powers granted to him by the Bankruptcy Code automatically assumes all the rights the original lienholder may have against the debtor. The Court, affirming the decisions of the bankruptcy court and bankruptcy appellate panel, concluded the trustee did not automatically assume all the rights the original lienholder may have against the debtor. Id. at 1212. The Court determined that although the Bankruptcy Code does place the trustee in the shoes of the lienholder in certain respects, it does not include a right to contractual promises for future payments. Id. at 1210–11.
Morris provides important insight into the trustee’s limited preservation powers under the bankruptcy code in light of the distinction between property rights and mere contract rights. First, the following discussion will explore the two Bankruptcy Code provisions that empower the trustee to avoid liens and preserve them for the bankruptcy estate. Second, the following discussion will look at the specific circumstances of the lienholder and debtor in Morris and how the bankruptcy appellate panel and Tenth Circuit analyzed the relevant Bankruptcy Code sections. Finally, the discussion will examine the distinction between property rights and mere contract rights presented in Morris and also in the parallel context of subordination agreements.