No. 83-27 

IN THE SUPREME COU'RT OF THE STATE OF MONTANA 

1983 

PACIFIC BETAL COMPANY, 

Plaintiff and Appellant, 

NORTHWESTERN BANK OF HELENA, 

a corp. , 

Defendant and Respondent. 

APPEAL FROM: District Court of the First Judicial District, 

In and for the County of Lewis & Clark, 

The Honorable Peter G. Meloy, Judge presiding. 

COULdSEL OF %CORD: 

For Appellant: 

Philip W. Strope, Helena, Montana 

For Respondent: 

Patrick MelSy, E!elena, Montana 

Submitted on Griefs: April 28, 1983 

Decided: August 5, 1-953 

;\sb Filed : 

5 '1983 
Mr. Justice Fred J. Weber delivered the Opinion of the Court. 

This is an appeal from a summary judgment in favor of 

respondent, Northwestern Bank of Helena (Northwestern Bank). 

We affirm the holding of the District Court of Lewis and 

Clark County that the Carson Company building is personal 

property to which a judgment lien of appellant, Pacific Metal 

Company (Pacific Metal), does not attach. 

The issue is whether a building that was constructed on 

leased real property, pursuant to a lease which required the 

lessee to remove the building upon termination of the lease, 

is real or personal property. 

Burlington Northern Inc. (Burlington Northern) leased a 

portion of its right-of-way to Carson Heating & Ventilating, 

Inc. (Carson Company) on November 1, 1975. The lease 

authorized Carson Company to construct, maintain and operate 

a warehouse and office on the leased property. The lease 

term was indefinite, but the lease provided that either party 

could terminate the lease at any time upon giving 30 days 

written notice of termination to the other party. 

Paragraph 14 of the lease required Carson Company to 

remove from the leased premises, prior to the date of 

termination of the lease, all structures not belonging to the 

lessor and to restore the premises to substantially their 

former state. 

Pursuant to the stated purpose of the lease, Carson 

Company constructed a 180' by 55' warehouse and office 

building on the leased property. The building was affixed to 

the land by a cement foundation and abutted by cement loading 

docks. 

Commencing in 1971, Northwestern Bank advanced funds to 

Carson Company and secured its loans with a series of five 

security agreements, the last of which was dated December 15, 
1980. Northwestern Bank perfected its security interest in 

the building covered by the security agreements by filing a 

series of financing statements, the last of which was filed 

January 8, 1981. 

As additional security for the bank, on November 1, 

1975, Carson Company, Burlington Northern and Northwestern 

Bank entered into a collateral security agreement by which 

Burlington Northern consented to an assignment of the lease 

to Northwestern Bank. The collateral security agreement 

provided that should title to the chattels and improvements 

upon the leased premises be taken over by Northwestern Bank 

in collection proceedings against Carson Company, 

Northwestern Bank would be bound by all the terms and 

conditions of the lease. 

On June 1, 1981, Pacific Metal obtained a judgment 

against Carson Company in the sum of $16,232.63. The 

judgment became a lien upon all real property owned by Carson 

Company in Lewis and Clark County. Carson Company 

transferred its interest in the building to Northwestern Bank 

by a bill of sale on October 31, 1981. The Carson Company 

building, which is located at 1930 Brady Street, Helena, 

Montana, was carried on the real property assessment list of 

the Lewis and Clark County Appraisal Office both before and 

after it was transferred to Northwestern Bank. 

On June 11, 1982, Pacific Metal initiated a declaratory 

judgment action against Northwestern Bank seeking a district 

court judgment declaring that the Carson Company building was 

real property, that Northwestern Bank did not create a 

security interest in the building, and that Pacific Metal's 

judgment lien took priority over liens or security interests 

recorded after June 1, 1981. 
Upon both parties1 motions for summary judgment, the 

District Court determined that the building was personal 

property and that Pacific Metal had no property interest in 

the building since its judgment lien attached only to real 

property owned by Carson Company. The District Court granted 

summary judgment in favor of Northwestern Bank. We affirm. 

Montana law defines real property as: 

"(1) land; 

(2) that which is affixed to land; 

(3) that which is incidental or appurtenant to land; 

(4) that which is immovable by law." 

Section 70-15-101, MCA. A fixture is a thing affixed to the 

land when it is: 

" (1) attached to it by roots, as in the case of trees, 

vines, or shrubs; 

(2) imbedded in it, as in the case of walls; 

(3) permanently resting upon it, as in the case of 

buildings; or 

(4) permanently attached to what is thus permanent as 

by means of cement, plaster, nails, bolts, or 

screws. " 

Section 70-15-103, MCA. While these two statutes appear to 

define all buildings resting upon land as fixtures, it is 

possible for parties to agree that a building is personal 

property even though it is attached to and resting upon land. 

Section 70-18-101, MCA provides in pertinent part: 

"When a person affixes - his property to the - - - land of 

another, without an agreement permitting him to 

remove it, the thing affixed . . . belongs to the 

owner of the land unless he chooses to require the 

former to remove it." (emphasis added) 

When additions are affixed to property by a tenant without an 

agreement allowing him to remove those additions or fixtures, 

they may not be removed if their removal will damage the 

premises. Section 70-18-102, MCA; Sanders v. Butte Motor 

Company (1963), 142 Mont. 524, 385 P.2d 263. Here, an 

agreement exists specifically authorizing the tenant to 

construct a warehouse and office building on the premises, 

and requiring removal of "all structures upon termination of 
the lease." The terms of the agreement are clear and 

unambiguous. Unlike in St. Paul Fire & Marine Insurance Co. 

v. Cumiskey (19831, Mont . I P.2d I 40 

St.Rep. 891, here no conflict in the lease provisions exists. 

In Shipler v. Potomac Copper Co. (1923), 69 Mont. 86, 

95, 220 P. 1097, 1100, this Court noted: 

"The presumption declared by the [fixture] statute 

is a disputable one, and may be overcome by 

evidence which discloses that the building was 

constructed in such a manner or under such 

circumstances as to preclude the idea that it was 

intended to become a part of the realty." 

In Shipler, there was a written contract providing that 

permanent improvements, other than machinery, would become 

property of the lessor upon relinquishment of the lease. 

This Court concluded that railroad tracks affixed to the land 

by the lessee were real property. Lessee failed to overcome 

the statutory presumption by proving that the parties 

intended the railroad track improvements should retain their 

character as personalty. 

Unlike the Shipler contract, the Burlington 

Northern-Carson Company lease clearly authorizes the lessee 

to remove all structures. Paragraph 14 provides: 

"Upon the date of termination of this lease by 

notice as aforesaid, or otherwise, Lessee shall 

surrender said premises to Lessor, and, if not in 

default hereunder, shall prior to date of 

termination remove from said premises all 

structures and property not belonging to Lessor and 

restore said premises to substantially their former 

state, and in case of failure so to do, any such 

structures and property shall become the property 

of Lessor, or Lessor may dismantle and remove the 

same and restore said premises to their former 

state at the expense of Lessee without incurring 

any liability therefor." 

Pacific Metal argues that paragraph 14 gave the Carson 

Company only a conditional right of removal, and that the 

character of the structure and the manner in which it was 

affixed to the land require the court to conclude that the 
parties contemplated that the Carson Company warehouse would 

become real property of the lessor. 

The statutory definition of fixtures is "merely a rule 

for general guidance concerning itself more with ultimate 

than with probative facts. " Pritchard Petroleum Co. v. 

Farmers Co-op, Etc. (1945), 117 Mont. 467, 474, 161 ~.2d 526, 

530. This Court has set forth a three-pronged test to 

determine the status of structures such as the Carson Company 

building. The character of the structure and the manner in 

which it is annexed to the realty are factors of lesser 

weight than evidence of the parties' intent. As held in 

Grinde v. Tindall (1977), 172 Mont. 199, 201-02, 562 ~.2d 

"This Court's cases hold the proper test for 

determining whether a particular object has become 

a fixture or not, is said to comprise (1) 

annexation to the realty, (2) an adaption to the 

use to which the realty is devoted and (3) intent 

that the object become a permanent accession to the 

land. Of these three, the intent of the parties 

has the most weight and is the controlling factor." 

In landlord-tenant situations, whether an improvement is 

personal property or part of the realty is to be determined 

by the intention of the parties, as expressed in the lease. 

Rights between a landlord and tenant with respect to fixtures 

may be modified, restricted or extended by agreement. 36A 

C.J.S. Fixtures 515 (a) (1961). 

Paragraph 14 of the lease agreement constitutes 

probative evidence that the parties intended the warehouse to 

retain its character as personalty belonging to the lessee, 

subject only to the condition precedent that the structure 

not be removed if lessee were in default under the lease. 

Although this condition restricts lessee's right of removal, 

it does not vitiate the parties' express agreement that, 

absent default, ownership of the structure was to remain in 
the lessee. The removal provision also evidences the 

parties' agreement that the warehouse was not to be 

considered as permanently affixed to the lessor's realty. 

The record includes an affidavit of Russell G. Hyatt, 

Appraisal Supervisor of the Lewis and Clark County Appraisal 

Office of the Montana Department of Revenue. Mr. Hyatt 

stated that all buildings, structures, fixtures and 

improvements erected upon or affixed to land are included on 

the Real Property Assessment List "without regard to 

ownership of the improvements, the contractual relationships 

between the owner of the land and the person placing the 

improvement upon the land, or whether the improvement becomes 

part of the realty or remains personalty under the common 

law." However, Mr. Hyatt explained, when an improvement is 

owned by a person other than the owner of the land upon which 

it is situated, the Appraisal Office does not use the legal 

description of the land, but lists the improvement as it did 

the Carson Company Building: "NO TITLE MILL BLDG. ON N.P.R.R. 

R/W, Sec. 23, T. 10 N., R 4 W." Such a listing indicates 

that the building situated on the Northern Pacific Railroad 

property is owned by another. 

The method by which the property is assessed for 

purposes of taxation has no bearing on whether the structure 

is real or personal property. Section 15-7-101, MCA requires 

the Department of Revenue to maintain classifications and to 

(J) m: 

appraise all improvements. Section 15-1-10 (e), MCA defines h 

"improvements" as including "all buildings, structures, 

fixtures . . . and improvements situated upon, erected upon, 

or affixed to land." Neither the rules of the common law 

governing the relationship between the owner of the land and 

the lessee, nor the intention of the parties as expressed in 

their contract are controlling in the field of taxation. 
Annot., 154 A.L.R. 1309, 1323-24 (1945). This is not a 

taxation case. The law regarding fixtures, rather than tax 

law, applies. 

The District Court properly focused its findings of 

fact, conclusions of law and order on the fixture issue, 

relying on the rule stated in Grinde that the intention of 

the parties is controlling. The Court's finding that the 

intent of the parties was that the building would be removed 

whenever the lease was terminated and that, absent default, 

the building was to retain its character as personalty of the 

lessee is supported by the substantial evidence of the lease 

provisions. 

Appellant argues that section 30-2-107, MCA requires the 

owner of a structure situated upon land of another to use the 

realty recording system so that third parties are not misled. 

His briefs are not specific as to which contract he believes 

this section required to be recorded. 

Section 30-2-107, MCA permits recording of certain 

contracts of sale in the realty records. It provides: 

"(1) A contract for the sale of timber, minerals 

or the like or a structure or its materials to be 

removed from realty is a contract for the sale of 

goods within this chapter if they are to be severed 

by the seller but until severance a purported 

present sale thereof which is not effective as a 

transfer of an interest in land is effective only 

as a contract to sell. 

"(3) The provisions of this section are subject to 

any third-party rights provided by the law relating 

to realty records, and the contract for sale may be 

executed and recorded as a document transferring an 

interest in land and shall then constitute notice 

to third parties of the buyer's rights under the 

contract for sale." 

The recording provision in subsection (3) provides a 

means of preserving the buyer's rights under such a contract 

of sale. Section 30-2-107, MCA does not apply to the 
railroad right-of-way lease because the lease is not a 

contract for sale as defined by section 30-2-106(l), MCA. 

The contract for sale of the building between the Carson 

Company and Northwestern Bank is not a part of the record in 

this case. As a result, this Court will not speculate as to 

whether that agreement falls within the purview of the 

recording statute. 

We hold that the building was intended by the parties to 

be personal property, that the building remained personal 

property, and that the judgment lien did not constitute a 

lien upon that property. We affirm the judgment of the 

District Court. flAQ&W - 

il -- h 

Justic 

We concur: 

8~44- Q& J) 

Chief Justice