Summary
In Appliance Buyers Credit Corp. v. Crivello, 43 Wis.2d 241, 168 N.W.2d 892 (1969), the court upheld the refusal by the register of deeds to record a lease that on its face did not affect an interest in land.
Summary of this case from OPINION NO. OAG 16-80Opinion
No. 264.
Argued May 6, 1969. —
Decided June 27, 1969.
APPEAL from a judgment of the circuit court for Milwaukee county: MARVIN C. HOLZ, Circuit Judge. Affirmed.
For the appellant there was a brief and oral argument by Henry C. Friend of Milwaukee.
For the respondents First Federal Savings Loan Association of Wisconsin and Schedule Realty, Inc., there was a brief by Werner Goodland of Milwaukee, and oral argument by John S. Goodland.
For the respondents Clyde M. Haberman and Ohio Casualty Insurance Company there was a brief by Robert P. Russell, corporation counsel, and Gerald G. Pagel, assistant corporation counsel, both of Milwaukee, and oral argument by Mr. Pagel.
For the respondents Krueger Enterprises and William A. Krueger there was a brief by Reiske Reiske of Milwaukee, and oral argument by Francis H. Reiske.
For the respondent Daniel W. Howard, receiver, there was a brief by Samuel Goldenberg of Milwaukee.
On June 30, 1959, Pan American Motel, Inc., the owner of the real estate involved, executed and delivered to First Federal Savings Loan Association of Wisconsin, a real estate construction mortgage, securing a note in the amount of $550,000. The mortgage was recorded in the office of the register of deeds of Milwaukee county on July 2, 1959. In addition to conveying the real estate, this instrument mortgaged "all apparatus, equipment, fixtures or articles, whether in single units or centrally controlled, used to supply heat . . . air conditioning . . . ventilation . . . (all of which are declared to be a part of said real estate whether physically attached thereto or not), together with . . . appurtenances and improvements now or hereafter . . . erected thereon. . . ."
The construction specifications called for the installation of heating and cooling "under sill" units comparable to the ones actually installed.
On July 1, 1959, Pan American Motel, Inc., executed and delivered a mortgage note to and made payable to Krueger Enterprises, Inc., in the sum of $200,000, secured by a second mortgage covering the same real estate subject to the mortgage of First Federal Savings Loan Association. This mortgage was recorded on July 1, 1959.
On or about October 26, 1959, J. D. Wilson Company entered into what purported to be a written lease with Pan American Motel, Inc., whereby it leased wall duct packages, room air conditioners, and heat coils to Pan American Motel, Inc. This equipment was installed and on October 26, 1959, the contract was assigned by J. D. Wilson Company to plaintiff-appellant, Appliance Buyers Credit Corporation.
The October 26, 1959, agreement between J. D. Wilson Company and Pan American Motel, Inc., is denominated as a lease for a term of five years, and monthly payments are referred to as rental. It provided that at the end of the term the lessor could enter and remove so much of its property as it desired to remove, and it further provided that such equipment would be considered as personal property despite the degree of annexation to the realty. This instrument was tendered to the register of deeds of Milwaukee county for filing, but was not filed for the reason that the Wisconsin statutes make no provision for the filing of leases for personal property.
On January 16, 1962, Daniel W. Howard was appointed receiver of all of the assets, including all property of any character or description, of the Pan American Motel, Inc., pursuant to a voluntary assignment for the benefit of creditors proceeding entitled VA 3773, circuit court for Milwaukee county, filed on January 15, 1962.
The lease for the heating and air-conditioning equipment called for a total payment of $19,500; $6,218 to be paid upon installation and the balance of $13,282 in sixty monthly payments of $282.24. Twenty-five payments were made leaving a balance due of $9,878.55. The last payment was made on March 30, 1962. On May 21, 1962, the receiver, Daniel W. Howard, wrote to appellant, Appliance Buyers Credit Corporation, stating that if any more payments were made on the lease agreement, the First Federal Savings Loan Association, the holder of the first mortgage, would start foreclosure proceedings. Therefore, the receiver declined to make any more payments.
On January 9, 1963, foreclosure proceedings of the second mortgage upon the premises were commenced by Krueger Enterprises, Inc., by the filing of a lis pendens. On March 7, 1963, judgment of foreclosure was entered in the proceedings, determining, among other things, that the mortgage of First Federal Savings Loan Association constituted a prior and superior lien to the lien of Krueger Enterprises, Inc.
On April 3, 1963, Krueger Enterprises, Inc., purchased from Daniel W. Howard, as receiver of the assets of Pan American Motel, Inc., for the sum of $54,000 "free and clear of all liens" except certain liens not material to this litigation, all of the assets of Pan American Motel, Inc. This purchase was confirmed by the Hon. HARVEY L. NEELEN, Circuit Court Judge, who had supervision and control over the voluntary assignment case. On June 22, 1964, an order was entered in the foreclosure proceedings (Case No. 309-892, circuit court for Milwaukee county), confirming the foreclosure sale of the mortgaged real estate to Krueger Enterprises, Inc. This sale was made for the sum of $100,000, subject to all legal encumbrances.
The trial court, in the instant proceedings, found that this sale was made in good faith but that defendant, Krueger Enterprises, Inc., was without notice of plaintiff-appellant's claim until July 15, 1965.
On June 10, 1965, First Federal Savings Loan Association commenced foreclosure proceedings on its first mortgage in the circuit court for Milwaukee county (Case No. 331-208) by filing notice of lis pendens. Judgment of foreclosure was entered on November 5, 1965.
The instant action was commenced by appellant Appliance Buyers Credit Corporation on March 7, 1966, by filing a notice of lis pendens for the purpose of obtaining delivery of the heating and air-conditioning units or damages in the amount of $9,878.55, alleged to be the value of said property.
On October 25, 1966, an order was entered in the First Federal foreclosure action (Case No. 331-208) confirming the sale of the premises to Schedule Realty, Inc.
In the instant proceedings commenced by plaintiff Appliance Buyers Credit Corporation on March 7, 1966, the plaintiff sued in the alternative:
(1) Its first cause of action was in replevin to repossess or recover the value of 75 room air conditioners and 75 heating coils installed in the Pan American Motel under a written lease, which provided that they were to remain personal property.
(2) In the event the court denied recovery upon the first cause of action, the plaintiff sought statutory relief against Clyde M. Haberman, the register of deeds of Milwaukee county, and the Ohio Casualty Insurance Company, his surety under the provisions of sec. 59.13(1) (g), Stats., by reason of Haberman's refusal to accept its lease for filing.
Krueger Enterprises, Inc., one of the defendants in the replevin action, brought a third-party complaint against Daniel W. Howard as receiver for Pan American Motel, Inc., and Pan American Club., Inc., to recover whatever sum it might be obliged to pay to the plaintiff. Krueger Enterprises, Inc., claimed to have purchased the personal property of the Pan American Motel from the receiver subject to certain enumerated exceptions which did not include the plaintiff's lease.
After these proceedings were commenced, the plaintiff served a supplemental complaint in its replevin action to make Schedule Realty, Inc., a party defendant because Schedule Realty, Inc., had purchased the Pan American Motel property after commencement of its action. Schedule Realty, Inc., brought a third-party complaint against Krueger Enterprises, Inc., and William A. Krueger for whatever sum Schedule might be obliged to pay to the plaintiff. Schedule Realty, Inc., claimed to have purchased the personal property of the Pan American Motel from Krueger Enterprises, Inc., and William A. Krueger.
The register of deeds and his surety demurred both to the plaintiff's complaint and to its amended complaint, and the Hon. MARVIN C. HOLZ, the trial judge, sustained both demurrers and held in favor of the defendants in all of the causes of action. The trial court taxed costs against the plaintiff in its replevin action to include two statutory attorney fees, each in the sum of $100. No costs were taxed in the plaintiff's alternative cause of action.
As conclusions of law, the trial court found:
1. That the J. D. Wilson Company, assignor to the plaintiff, consented to the annexation of said chattels to the real estate involved; and
2. That the equipment in question constituted fixtures and was subject to the real estate mortgage upon the premises held by First Federal Savings Loan Association, and ownership had lawfully passed to the defendant Schedule Realty, Inc., by virtue of the foreclosure judgment and sale conducted pursuant to the foreclosure proceedings in the Circuit Court Case No. 331-208.
The plaintiff appeals from that part of the judgments of the trial court which denies relief upon its first cause of action and upon its alternative cause of action, and which allows two statutory attorney fees as costs in the replevin action.
Was Recording Required?
The first issue presented on this appeal is whether the denominated lease between Wilson and Pan American was required to be recorded. More specifically, the issue can be stated: Is the agreement entered into by J. D. Wilson Company, Inc., and Pan American Motel, Inc., on October 26, 1959, a true lease or is it a conditional sales contract or a chattel mortgage in the form of a lease?
The trial court found that the
". . . instrument is denominated by its own terms as a lease, the parties are referred to as lessee and lessor, its term is five years, monthly payments are referred to as rentals, that it provided that at the end of the term the lessor may enter and remove all or that part as lessor desires to remove, and that it further provided that such equipment shall remain personal property despite the degree of annexation to the realty."
Importantly, the instrument does not contain a provision for the vesting of title in the buyer at any time in the future. Therefore, it cannot be construed as a conditional sales contract.
See United Shoe Repairing Machine Co. v. Asoumanakis (1920), 172 Wis. 202, 178 N.W. 312; 47 Am. Jur., Sales, sec. 828, pp. 6, 8.
In 1959, a conditional sales contract was defined by sec. 122.01, Stats., as follows:
"122.01 Definitions. (1) In this chapter `conditional sale' means (a) Any contract for the sale of goods under which possession is delivered to the buyer and the property in the goods is to vest in the buyer at a subsequent time upon the payment of part or all of the price, or upon the performance of any other condition or the happening of any contingency; or (b) any contract for the bailment or leasing of goods by which the bailee or lessee contracts to pay as compensation a sum substantially equivalent to the value of the goods, and by which it is agreed that the bailee or lessee is bound to become, or has the option of becoming the owner of such goods upon full compliance with the terms of the contract." (Emphasis added.)
Appellant cites Kiefer-Haessler Hardware Co. v. Paulus as a case wherein this court construed a lease of personal property to be a chattel mortgage. However, in that case the last paragraph of the agreement read as follows:
(1912), 149 Wis. 453, 135 N.W. 882.
"`It is also further agreed, that I may at any time within said rental term, purchase said furniture and apparatus, by paying therefor the full valuation above stated and then and in that case only, the rent and guarantee theretofore paid shall be deducted therefrom.'"
Id. at page 454.
In Paulus this court concluded that "[u]nder the circumstances shown by the evidence the intention of the parties is so plain, notwithstanding the formal words appropriate to a lease, that no other construction is permissible."
Id. at page 455.
Thus, under the statutes as they existed in 1959 it is clear that the register of deeds of Milwaukee county had no duty or obligation to record the instrument.
Sec. 59.51, Stats. 1959.
The demurrers to the alternative cause of action were properly sustained.
Mortgagee not Party to Transaction or Given Notice Thereof.
The central issue involved in this appeal grows out of the denial of plaintiff-appellant's first cause of action. It may be stated as follows: Is an agreement between a lessor and lessee of personal property, to the effect that the leased equipment shall remain personal property whether or not annexed to the real estate, binding as against a third party, without notice, having or acquiring an interest in the real estate?
To resolve this issue, we must first examine the law with respect to common law fixtures.
In Standard Oil Co. v. La Crosse Super Auto Service, Inc., this court stated:
(1935), 217 Wis. 237, 258 N.W. 791.
". . . Whether articles of personal property are fixtures, i.e., real estate, is determined in this state, if not generally, by the following rules or tests: (1) Actual physical annexation to the real estate; (2) application or adaptation to the use or purpose to which the realty is devoted; and (3) an intention on the part of the person making the annexation to make a permanent accession to the freehold."
Id. at pages 240, 241. See cases therein cited.
The trial court concluded that the preponderance of the evidence and the reasonable inferences to be drawn therefrom required a finding that the air-conditioning and heating equipment in question constituted fixtures annexed to the premises. Such findings cannot be set aside unless contrary to the great weight and clear preponderance of the evidence.
Schroedel Corp. v. State Highway Comm. (1968), 38 Wis.2d 424, 157 N.W.2d 562.
Appellant does not challenge the findings of the trial court, but rather contends that the law of fixtures does not apply to chattels leased by a mortgagor.
There are two presently existing doctrines with respect to common law fixtures. One doctrine is to the effect that:
"[W]here the accession can be severed from the realty without injury to the latter or to the value of the security for the mortgage debt as it stood before the improvement was made, the same character is impressed upon the accession as between the vendor and the mortgagee as between the vendor and mortgagor; in other words, that it does not become real estate, and may be severed from the realty and removed without invading the rights of the mortgagee."
Fuller-Warren Co. v. Harter (1901), 110 Wis. 80, 86, 85 N.W. 698.
The other doctrine, generally known as the "Massachusetts rule," provides, in effect, that the character of the annexed personalty cannot be preserved by contract between the vendor and vendee of personalty "as against the owner of a mortgage of the real estate existing when the annexation is made, who is not a party to such contract. . . ."
Supra, footnote 6, at page 242. See Fuller-Warren Co. v. Harter, supra, footnote 9.
"[A] contract between a vendor and vendee reserving title to personal property which is to be incorporated into the real estate of the latter as a permanent improvement thereof, such realty being incumbered by a mortgage and the mortgagee not being a party to the contract, is invalid as to the mortgagee. . . ."
Standard Oil Co. v. La Crosse Super Auto Service, Inc., supra, footnote 6, at page 242.
Wisconsin has adopted the "Massachusetts rule."
See Fuller-Warren Co. v. Harter, supra, footnote 9, at pages 86, 87, and cases cited therein.
Appellant concedes that this doctrine prevails in Wisconsin, but argues that it does not apply (1) to trade fixtures, (2) to personal property purchased pursuant to a conditional sales contract, or (3) to personal property which is leased by the mortgagor.
Equipment installed by a tenant in furtherance of his business conducted upon the real estate and found to be trade fixtures, is removable by the tenant at the expiration of the lease term — even against third parties having or acquiring an interest in the real estate. In Standard Oil Co. v. La Crosse Super Auto Service; Inc., this court stated that:
Supra, footnote 6.
"While the decision in the Fuller-Warren Case was obviously ruled by the proposition that one could not reserve title to property' permanently annexed to mortgaged realty, by means of a conditional contract, without the consent of the mortgagee . . . and thereby to that extent approved the so-called Massachusetts rule, the law of that case does not rule this controversy which is between the mortgagee and the tenant of the mortgagor, and which involves trade fixtures installed for temporary purposes pursuant to an express agreement permitting their removal at the end of the term. It is our opinion that in a controversy like this the intention of the party or parties making the attachment of the trade fixtures should not be ignored and only `the external indications which show whether or not it belongs to the building as an article designed to become a part of it, and to be used with it to promote the object for which it was erected, or to which it has been adapted and devoted' should be considered, or that the controversy should be determined by `the inferences to be drawn from what is external and visible.' Hopewell Mills v. Taunton Savings Bank, 150 Mass. 519, 23 N.E. 327."
Id. at pages 243, 244.
This court went on to add:
"We have never approved of the Massachusetts rule so broadly applied and do not feel impelled to do so now.
"It is clear that the tanks and pumps were trade fixtures installed upon the premises by the plaintiff for temporary purposes connected with its business. . . . As before stated, this court has adopted a very liberal rule with respect to trade fixtures which permits tenants to remove them, even in the absence of express stipulation."
Id. at page 244.
There appear to be two bases for the above departure from a strict "Massachusetts rule" approach. First is the obvious policy decision that a tenant should, at the termination of his lease, be permitted to remove equipment which he has installed in the furtherance of his business operation. The second is a clear finding by the court that the personalty was installed upon the premises for temporary purposes connected with the business and was not a permanent accession to the freehold.
In the Standard Oil Case it was stated:
". . . We are of the opinion that our liberal rule with respect to trade fixtures is sound and just, is promotive of business, fosters the leasing of premises, and works no injustice to prior or existing mortgagees who are protected in situations where such fixtures may not be removed without material or substantial injury to the freehold. To hold otherwise in this case would amount to holding that our very liberal rule as to trade fixtures has no application to situations where the freehold is in fact mortgaged and no consent of the mortgagee has been obtained permitting the tenant to remove them after they are once physically annexed. If that were declared to be the law, every prospective tenant who intends to install trade fixtures in premises leased by him would have to ascertain whether the premises were mortgaged and, if so, would have to obtain from the mortgagee an agreement permitting the removal of the trade fixtures upon the termination of his lease." (Emphasis added.)
Id. at page 245.
The policy considerations applicable to trade fixtures do not apply to the present situation where chattels are leased by a mortgagor. Even more significantly, there was no finding in the instant case that the air-conditioner and heating units were upon the motel premises for temporary purposes. Rather the trial court found that the parties intended that the units be permanently affixed to the realty.
Thus it appears that the "trade fixture" exception to the strict Massachusetts rule does not support appellant's contention that the law of fixtures does not apply to chattels leased by a mortgagor.
Appellant submits that when a vendor under a conditional sales contract has sold personal property to a purchaser who installed it in his real estate, the vendor can remove the property, provided that he does not materially damage the freehold. This statement is only partially correct. Prior to the Uniform Conditional Sales Act, it was the law that one could reserve title to property permanently annexed to mortgaged realty by means of a conditional sales contract, if consent of the mortgagee was obtained. In Fuller-Warren Co. v. Harter, this court stated:
See Standard Oil Co. v. LaCrosse Super Auto Service, Inc., supra, footnote 6, at page 243.
Supra, footnote 9, at page 90.
"[A] contract between a mortgagor and a third person, preserving the chattel character of property added to real estate as an improvement thereof during the life of the mortgage thereon, is ineffective as against the mortgagee unless he is a party to the transaction; and the question of whether it can or cannot be removed without injury to the realty is immaterial." (Emphasis added.)
Following enactment of the Uniform Conditional Sales Act, which was in effect at the time of the transaction in question (ch. 122, Stats. 1959), the law provided that if a conditional sales contract "is properly filed and the goods are severable without material injury to the freehold," such goods can be removed by the vendor reserving title.
Standard Oil Co. v. La Crosse Super Auto Service, Inc., supra, footnote 6, at page 243, citing People's Savings Trust Co. v. Sheboygan Machine Co. (1933), 212 Wis. 449, 249 N.W. 527, 250 N.W. 385.
People's Savings Trust Co. v. Sheboygan Machine Co., supra, footnote 19.
Thus, for a vendor to recover goods under a conditional sales contract against the claim of the mortgagee, it was necessary under the common-law rule to have obtained the consent of the mortgagee and it was necessary after the statute was enacted to comply with the constructive-notice requirements.
If there is an analogy to be made between the conditional-sales situation and the lease-of-chattels situation, it must be concluded that the lessor of chattels, which chattels are to be annexed to the real estate, must at least have put the mortgagee on notice as to the arrangement.
In view of the fact that the filing statutes do not provide for the filing of leases of chattels, it undoubtedly would have been necessary for appellant to give actual notice to the mortgagee. The trial court specifically found that First Federal Savings Loan Association was without knowledge of plaintiff-appellant's interest in the air-conditioning and heating equipment.
We conclude, therefore, that the conditional-sales exception to the Massachusetts rule does not permit a conclusion that that rule does not apply to a lessor of chattels.
Finally, appellant contends that when a bailor permits a bailee to take possession of his personal property, and the bailee installs such property in the real estate, the bailor can remove his property upon the conclusion of the bailment. Again, appellant's assertion is only partially correct.
Appellant cites Walker v. Grand Rapids Flouring Mill Co. However, in that case, which did not involve the interests of a prior mortgagee, the court held that a consignor could recover a machine, which had been annexed to the realty, where the realty had been sold to a party with notice of the consignor's interest. In other words, the court held that the interests of a subsequent purchaser, with notice of the consignor's interest in the goods, cannot prevail against the interests of the consignor.
(1887), 70 Wis. 92, 96, 35 N.W. 332.
Again, this case illustrates the necessity of notice. In American Jurisprudence it is stated:
Am. Jur., Fixtures, sec. 9, p. 722.
"[W]hile a landowner cannot defeat the title of a chattel owner by wrongfully attaching the chattel to the land, if, with the consent of the lender, the property lent is so attached as to become a fixture, it will pass to a third person having a lien or acquiring an interest in the premises without knowledge of the facts. Conversely, the rights of the lender of the chattel are superior to those of a subsequent purchaser or encumbrancer with notice." (Emphasis added.)
The editors of the above publication cite the case of Standard Oil Co. of New York v. Dolgin, which involved the lease of a gasoline storage tank. The lessee of the tank buried it in the earth, and then sold the land to the defendant. The plaintiff brought an action to repossess the tank and the Supreme Court of Vermont held for the plaintiff. However, there are at least three significant aspects distinguishing that case from the one at hand. In Dolgin, the lessor was asserting his interest against a subsequent purchaser rather than a prior mortgagee; the subsequent purchaser had notice of the lessor's interest; and it appears that the Vermont court does not apply the Massachusetts rule. The applicable law in that case is as follows:
(1921), 95 Vt. 414, 115 A. 235, 17 A.L.R. 1218, 1220.
". . . The annexation by a bailee to his own real estate of personal property bailed, with or without the knowledge and consent of the bailor, does not change the character of the property, and the bailor may recover it of the bailee's grantee, even though the latter be an innocent purchaser, unless the annexation is of such a character that the identity of the chattel is thereby lost, and it cannot be removed without substantial injury to itself or the real estate."
Id. at pages 415, 416.
Appellant also relies on Bradley v. Harper, in support of its position. However, as respondent points out, that case involved only the rights of the immediate parties to the transaction and thus is not applicable to this controversy.
(1920), 173 Wis. 103, 108, 180 N.W. 130.
We therefore reject appellant's basic assertion that the law of fixtures does not apply to leases of chattels. Due to the absence of any notice to the mortgagee (First Federal), its interest in this case must prevail over the assignee of the lessor.
Because of our determination on this second issue, it is unnecessary to consider the further issue of whether the removal of the air conditioner and the heating coils in this case would cause substantial injury to the real estate. That issue is moot.
Assessment of Costs.
The final issue which we must reach is whether the trial court erred in assessing separate attorneys' fees for the defendants First Federal Savings Loan Association and Krueger Enterprises, Inc.
We think not. The answers and defenses of these defendants were not the same although, as the trial court observed, "they desired the same outcome upon a key issue." Where several defendants appear with the same or different counsel and they present the same answers and defenses they are entitled to but a single attorney's fee on the entry of judgment for them. But where different defenses and answers are interposed, the court may, as here, allow more than one statutory attorney's fee. By the Court. — Judgment affirmed.
Rheingans v. Hepfler (1943), 243 Wis. 126, 134, 9 N.W.2d 585.
Rosenheimer v. Krenn (1906), 126 Wis. 617, 632, 633, 106 N.W. 20; Loomis v. Besse (1912), 148 Wis. 647, 651, 135 N.W. 123.