Pacific Metal Co. v. Northwestern Bank

No. 83-27

I N THE SUPREME COU'RT O THE STATE O MONTANA
F F

1983

PACIFIC BETAL COMPANY,

P l a i n t i f f and Appellant,

NORTHWESTERN BANK O HELENA,
F
a corp. ,

Defendant and Respondent.

APPEAL FROM: District Court of t h e F i r s t J u d i c i a l D i s t r i c t ,
I n a n d f o r t h e County o f Lewis & C l a r k ,
The H o n o r a b l e P e t e r G . Meloy, J u d g e p r e s i d i n g .

COULdSEL O %CORD:
F

For Appellant:

P h i l i p W. S t r o p e , H e l e n a , Montana

For Respondent:

P a t r i c k MelSy, E!elena, Montana

S u b m i t t e d on G r i e f s : April 28, 1983

Decided: A u g u s t 5 , 1-953

;\sb 5 '1983
Filed :
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 ~ . 2 d
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 ~ . 2 d

"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. 1 0 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 1 5 - 7 - 1 0 1 , MCA requires
the Department of Revenue to maintain classifications and to
(J) m:
appraise all improvements. Section 1 5 - 1 - 1 0 (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.
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Justic
We concur:

8~44-
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Chief Justice
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