Anglo-American Mill Co. v. Community Mill Co.

On November 5, 1919, the Community Mill Company, hereafter referred to as the mill company, purchased from the respondent the flour-mill, machinery and accessories that are the subject matter of this suit. What is termed a license, title retaining, contract was entered into, by the terms of which it was agreed that the respondent should retain title to the personal property until the same was fully paid for, and also that "no matter in what manner such property shall become attached to real estate, it shall not become a fixture or part of the real estate." Soon thereafter the milling machinery was installed in a mill Wilding erected for the purpose upon lots owned by the mill company. On May 20, 1921, the mill company, being insolvent, for the purpose of securing the Union State Bank of Nez Perce and possibly other creditors, through its president and secretary executed and delivered to P.W. Mitchell a note for $25,000, together with a mortgage securing the payment of same covering lots owned by it, including the lots upon which the mill building with its machinery was located. Some time after the note and mortgage were executed and delivered Mitchell assigned the same without recourse to the Union State Bank, but the assignment was not placed of record until after the bringing of the present action. Neither the note nor the mortgage were carried on the books of the bank as an asset. The Union State Bank later became insolvent, and was taken over by the commissioner of finance, who was permitted to intervene in the original action, the commissioner's answer being adopted by Mitchell.

The action was instituted to establish the priority of the respondent's conditional sale contract against the Mitchell mortgage and other claims, to ascertain the amount due upon the contract, for possession of the milling machinery for purposes of sale to satisfy the amount due, and for judgment for any deficiency. The action was tried to the court without a jury, and resulted in a judgment in favor of the respondent, from which judgment E.W. Porter as Commissioner of Finance appeals.

The character of the contract between respondent and the mill company is not disputed, nor the validity of its execution, nor its binding effect as between the vendor and the vendee.

Appellant contends that the milling machinery was so installed in a building constructed specially to accommodate it that it could not be removed without materially damaging the building; therefore it became part of the realty. Appellant further asserts that even if it be conceded that the milling machinery, though so affixed to the realty as to become a fixture under other circumstances, would still retain the character of personal property as between the mill company and the respondent by virtue of the contract between those parties, nevertheless appellant's predecessor took its mortgage upon the real estate without notice of any title to the machinery retained in the respondent, and therefore appellant has a prior lien upon both the building and machinery.

Respondent claims that the milling machinery was not so affixed to or placed in the building as to become an irremovable fixture, but remained personal property, the title to which was in the respondent by the terms of the contract, and that this contract is valid and enforceable not only as between respondent and the mill company but also as to third persons, and particularly as to Mitchell and his successors in interest, so that no mortgage given by the mill company could affect respondent's contract rights.

When a chattel belonging to one person is annexed to the freehold of another, the question of whether or not it shall be regarded as part of the realty may, as between the parties, be controlled by agreement. It will still retain the character of personal property in those cases, among others, where the purchaser agrees with the vendor that the chattel, though sold for the purpose of being annexed to the realty of the purchaser, shall not by such annexation become a fixture or part of the realty, or the title to the chattel pass to the purchaser until the purchase price is fully paid. This rule is usually stated subject to the limitation that the chattels must be of such a nature that they do not lose their distinctive identity by annexation, or become so essentially a part of the structure that their removal will materially injure or destroy the structure, or destroy or unnecessarily impair the value of the chattels. (26 C. J. 681; 11 R. C. L. 1064.) But, following the equity rule of bona fide purchaser, such an agreement will not prevail as against a subsequent purchaser or mortgagee of the realty without notice and for a valuable consideration. (26 C. J. 681-687, See, also, 11 R. C. L. 1065.)

The trial court found as a fact, among other findings, that it was provided in the conditional sale contract that the machinery and accessories should be installed in the building upon the lots owned by the mill company, but their instalation should not make them fixtures or a part of the real property, and that the title to such machinery and accessories should remain in the respondent until the purchase price was fully paid. The court further found that the mill machinery and accessories were so placed in the building that they could be removed without substantial injury to the building. It is true that there is a conflict in the evidence upon the latter point, but our examination of the record convinces us that there is evidence sufficient, if uncontradicted, to support the finding of the court that the machinery and accessories could be removed without substantial injury to the building, and that, in accordance with our oft-repeated rule, such finding should not be disturbed.

The court further found that the Union State Bank had notice of the contract between the respondent and the mill company, and of the provisions thereof, and was charged with knowledge that the title and ownership of the milling machinery and accessories remained in the respondent. Appellant contends that there is no evidence to support this finding other than the fact that Wienss, the president of the mill company and the owner of practically all its capital stock, was at the same time the cashier and a director of the Union State Bank, and that, while it is true that Wienss had such knowledge, he had such a personal interest to serve in the transactions handled by him for the mill company as its president, with the bank through himself as cashier and the sole officer acting for the bank, that his knowledge of the contract between respondent and the mill company, not communicated to other bank officers, will not be imputed to the bank. The rule would seem to be that when an officer of a bank is dealing with it in his individual interest, the bank is not chargeable with his uncommunicated knowledge of facts derogatory to his title to the property which is the subject of the transaction. (3 R. C. L. 478.) While ordinarily a bank is bound to take notice of facts pertaining to its business within the knowledge of its cashier, there are exceptions to that rule, and it is not bound by the knowledge of its cashier when he is openly acting on his own behalf, or on behalf of another in a transaction with the bank. (Smith v. Wallace Nat. Bank, 27 Idaho 441,150 P. 25.) The facts bring the instant case within the exception to the general rule; therefore the knowledge of Wienss concerning the contract between respondent and the mill company is not imputable to the bank. Nor are we of the opinion that notice should be imputed to the bank by reason of any knowledge of such contract acquired by Mitchell as attorney for the mill company prior to the time the note and mortgage were executed and delivered to him as trustee for the bank, first, because there is no proof that such knowledge extended to the provision by which the title was retained by respondent, and secondly, because such knowledge, even if it were sufficiently definite, is not shown to have been present in Mitchell's mind and memory at the time of execution of the mortgage to himself for the bank.

The bank having taken its mortgage to secure a pre-existing indebtedness is not in the position of an innocent mortgagee for a valuable consideration. (Land v. Hea, 20 Idaho 250,118 Pac. 506; Malm v. Griffith, 109 Wn. 30, 186 P. 647;Connecticut Investment Co. v. Demick, 105 Wn. 265,177 Pac. 676.) For a contrary holding see Smitton v. McCullough,182 Cal. 530, 189 P. 686, and Frey v. Clifford, 44 Cal. 335-342. In our view the evidence does not justify a holding that the note and mortgage were given in consideration of an extension of time for the payment of the debt, and accordingly there was not such a new and additional consideration passing to the mill company as would place the bank in the position of a mortgagee for value.

From what has been said it follows that the judgment of the court below must be affirmed, and it is so ordered. Costs are awarded to the respondent.

William A. Lee, C. J., and Win. E. Lee, Givens and Taylor, JJ., concur.