Court Opinion

ID: 6695275
Source: CourtListenerOpinion
Date Created: 2022-07-20 21:48:32.904062+00
Date Added: 2024-06-11T16:01:12.798830
License: Public Domain

MANNING, J.,
after stating tbe facts: In our opinion, the judgment of his Honor cannot be sustained upon the facts found by him. After a careful consideration of the authorities cited by the learned counsel appearing before us, and the consideration of other authorities our own researches have found, we think a very clear statement of the principle controlling one feature of this case is found in Jones on Chattel Mortgages (5th Ed.), sec. 133a, as follows: “One holding a mortgage of the realty has no equitable claim to chattels subsequently annexed to it. He has parted with nothing on the faith of such chattels.' Therefore the title of a conditional vendor of such chattels, or of a mortgage of them, before or at the time' they were attached to the realty, is just as good against the mortgagee of the realty as it is against the mortgagor.” 19 Cyc., 105; Campbell v. Roddy, 44 N. J. Eq., 244; Waller v. Bowling, 108 N. C., 289; Belvin v. Paper Co., 123 N. C., 138; Binkley v. Forkner, 117 Ind., 176; Bank v. Elmore, 52 Iowa, 541; Lumber Co. v. Rank, 57 Neb., 323; Anderson v. Creamery Co., 8 Idaho, 200; Potter v. Cromwell, 40 N. Y., 287; Eaves v. Estes, 10 Kan., 314; Teaff v. Hewitt, 1 Ohio State Rep., 511.
The mortgagee (Smallwood), however, resists the contention of the Empire Company, the vendor, by conditional-sale contract, upon the grounds (1) that the chattels, so annexed, are by the express terms of his mortgage embraced in it, under the words, “additions to said plant”; (2) that he had no notice of the claim of the Empire Company or that its chattels were being annexed to the plant; (3) that the Empire Company knew that the purposq of the gas company was to annex said chattels.as permanent additions to said plant, and that the annexation could be done only by dismantling a part of the plant in its then condition; (4) that the Empire Company had notice of the Smallwood mortgage by reason of its registration; (5) that the Empire Company was guilty of laches in the registration of its conditional-sale contract'.
Conceding the correctness of his position on his first point of contention, it is not, under the authorities, conclusive of his superior right to claim the annexed chattels. Although embraced within the terms of the mortgage to secure Smallwood, the chattels were also probably so annexed as to become part of-the freehold, though there is no definite finding by his Honor as to the manner of the annexation. If the apparatus sold by the Empire Company were neither additions to the plant nor an-*67bexed thereto as fixtures, Smallwood could not, in any View, Have a lien upon them. It is only because of the express terms used in the mortgage, or because the chattels have been attached as fixtures, that Smallwood can. assert any claim to them. In Jones on Mortgages (4th Ed.), sec. 158, this author says: “The mortgage (speaking of an existent mortgage) attaches to the property in the condition in which it comes into the mortgagor’s hands. If it be at that time already subject to mortgages or other liens, the general mortgage does not displace them, though fhey may be junior to it in point of time. United States v. Railroad, 12 Wall., 362. In Tift v. Horton, 53 N. Y., 377, the Court said: “Another consideration makes it clear, I think, that in this case the absence of a concurrent intention on the part of the prior mortgagees is of no weight. . . . Hence I conclude that the agreement of the owner of the land with the plaintiff, as it did fully express their distinct purpose that the annexation of boiler and engines should not make them a part of the real estate, was sufficient to that effect without any concurring intention of the defendants as prior mortgagees.”
In Lumber Co. v. Lumber Co., 150 N. C., 282, Pou was the holder of the first mortgage, containing an after-acquired property clause, executed by the Gay Lumber Company. His mortgage was recorded. Subsequently thereto the lumber company acquired lands and thereafter executed a mortgage to the Hick-son Lumber Company, which company denied the priority of Pou’s mortgage on these after-acquired lands. On this point Mr. Justice Brown, in his able opinion, said: “It is undoubtedly true'that if the appellant had a lien on these lands at the date they were acquired by the Gay Lumber Company, which it could enforce against that corporation, it could enforce it against Pou, for the after-acquired property clause only attaches to such interest as the mortgagor acquires, and it would be immaterial whether Pou had notice of such lien or not.” In no one of the many cases examined by us has notice to the'prior mortgagee of the realty of the annexation of chattels covered by a chattel mortgage or conditional sale been considered as determinative of his superior right or as important in fixing the rights of the respective mortgagees. Upon the third point of the contention of Smallwood, to-wit, the knowledge of the Empire Company that its apparatus was to be annexed to the gas company’s plant or to become additions thereto or as a substitution for other apparatus then in Use. In the case of Binkley v. Forkner, 117 Ind., 176, the Court, in a well-considered opinion, upon this point said: “Accordingly, the proposition is well"sustained that one who purchases machinery with a view that it shall be an-*68rtexed to or placed in a building, of wbicb be is tbe owner, and wbo executes a chattel mortgage on tbe property so purchased, thereby evinces bis intention that tbe property shall retain its character as personalty, regardless of tbe manner in wbicb it may be annexed to the freehold. Eaves v. Estes, 10 Kan., 314; Ford v. Cobb, 20 N. Y., 344; Sisson v. Hubbard, 75 N. Y., 542; Tift v. Horton, 53 N. Y., 377; Campbell v. Roddy, 44 N. J. Eq., 244.” But it will not be understood that parties may, by their convention and at their will, convert chattels real into chattels personal. If at the time of the agreement the chattels personal have been annexed to and become affixed to the realty; their character as a part of the real estate cannot be subsequently changed by a convention of the owner of the real estate with a stranger, so as to conclude the rights of prior mortgagees or creditors or subsequent purchasers for value. The fourth point of contention has been considered in what has already been said.
The contention of Smallwood that his security will be diminished by permitting the Empire Company to remove its chattels so as to enforce its lien remains to be considered. The proper adjustment of the rights of the respective mortgagees can be secured by the application of sound and just equitable principles. “Whether the chattel mortgage shall be postponed, notwithstanding the agreement between the owner of the land and the mortgagee, must depend upon the inquiry whether or not the preservation of the rights of the holder of the chattel mortgage will impair or diminish the security of the real estate mort-^ gage as it was when he took it. If it will not, then it would be inequitable that the latter should defeat or destroy the security of the former. If it will, then it was the folly or misfortune of the holder of the chattel mortgage that he permitted the property to be annexed to a freehold from which it cannot be removed without diminishing or impairing an existing mortgage thereon.” Binkley v. Forkner, supra; Campbell v. Roddy, supra.
The facts found by his Honor are not sufficient to enable us to adjust the interests of Smallwood and the Empire Company in accordance with the equitable principles announced. While his Honor finds the value of the plant, at the date of the receiver’s report, to be $26,688, including'the value of the apparatus and chattels sold by the Empire Company, which he appraises at $3,000, there is no ascertainment of the value of the plant at the time the annexation of the chattels of the Empire Company took place and the apparatus then used removed. Although his Honor finds that some of the apparatus of the gas company was dismantled, scattered and its valile perhaps totally destroyed by the installation of the apparatus acquired from the Empire Com*69pany, yet it would not necessarily follow that tbe value of tbe gas company’s plant as an entirety was diminished or tbe security of Smallwood lessened. It may be that this substituted apparatus was more economically operated and more efficient in production.
Lastly, Smallwood complains that tbe Empire Company delayed tbe registration of its conditional-sale contract until 9 January, 1908. TJp to that time, and even for some time after-wards,- Smallwood seems to have bad no cause for complaint. There was, up to then, no default by tbe mortgagor, tbe gas company, of which be complains. He parted with nothing of value to tbe gas company upon tbe faith of this security during this delay, and we do not see bow be was prejudiced by it. He lost none of bis rights by it, nor was be delayed in tbe enforcement of any of bis rights under bis mortgage deed, and no other parties are complaining of the delay.
In United States v. Railroad, 12 Wall., 362, tbe Court said: “A mortgage intended to cover after-acquired property can only attach itself to such property in the condition in which it comes into tbe mortgagor’s bands. If that property is already subject to mortgages or other liens, tbe general mortgage does not displace them, though they may be junior to it in point of time. It only attaches to such interest as tbe mortgagor acquires; and if be purchase property and give a mortgage for tbe purchase money, tbe deed which be receives and the mortgage which be gives are regarded as one transaction, and no general lien impending over him, whether in tbe shape of a general mortgage, or judgment, or recognizance, can displace such mortgage for purchase money. And in such cases a failure to register tbe mortgage for purchase money makes no difference. It does not come within tbe reason of tbe registry laws. These laws are intended for tbe protection of subsequent, not prior, purchasers and creditors.” This, it seems to us, accords with our own decisions and rests upon tbe soundest principles of right and equity.
We therefore conclude there was error in his Honor’s judgment, and the same is reversed and .this cause is remanded for further proceedings in accordance with this opinion.
Eeversed and remanded.