Massachusetts National Bank v. Shinn

Willard Bartlett, J.:

On April 20, 1892, William P. Shinn executed a chattel mortgage to the Sturtevant- Mill Company of Boston, Mass., to secure the payment of six promissory notes, made by him to the order of that corporation, which notes aggregated the sum of $30,000. All of these notes have been paid except one for $5,000, now held by the Massachusetts National Bank, one of the plaintiffs herein, and. two for $5,000 and $3,000 respectively, now held by the plaintiff Waldemar A. Schmidt.

The chattel mortgage covered two. boilers, two engines, two dryers, one Sturtevant mill, one electric dynamo, one Hoagland crusher, and also all the shafting, pulleys, belting, and all tools and machinery in the factory and upon certain premises at Croton Falls, Westchester county, N. Y., leased by the said. William P. Shinn from the defendant George B. Butler. . The mortgage was duly tiled with the town clerk of the town of Somers, in which the property was situated, on April 23, 1892, and copies thereof were filed annually thereafter until thé commencement of this .action. In addition to the articles already mentioned, the mortgage also embraced a pair of crushing rolls, which were described in the schedule as not yet in place.

All this machinery and these appliances had been purchased from the Sturtevant Mill Company in order to carry on mining operations-upon the Butler farm, in Westchester county, upon which, a deposit of iron ore had been discovered. On October 21,1890, the defendant ' George B. Butler, by an elaborate instrument of lease, granted and conveyed to one Henry E. Collins, for a term of twenty years, all the iron ore in or under a certain portion of his farm therein described,- together with the, exclusive, right to mine the same. The lessee, among other things, covenanted and agreed to mine- at least 10,000 gross tons of ore a year after June.1, 1891, and to erect such buildings, sink such shafts, make such drifts and galleries and provide such machinery as might be necessary to - enable him to mine and ship that quantity. Collins subsequently, with the consent of Butler, assigned a two-thirds' interest in this lease to William P. Shinn, who undertook to perform the covenants, conditions' and obligations contained in the instrument, and who accordingly went on and erected a mill and complete plant, with appropriate machinery for carrying on the business of mining, washing and concentrating-iron ore upon the leased premises and shipping it therefrom. This, plant, comprising everything covered by the chattel mortgage except-the two crushing rolls, was complete and on the groun.d before the chattel mortgage was given, on April 20, 1892.

On May 5, 1892, William P. Shinn died. His representative's,however, continued mining operations under the lease, and paid the minimum royalties therein provided for until December 1, 1892. No further rent was paid, and, between the 10th and 22d of June, 1893, the tenants, Collins and the representatives of "William P. Shinn, were dispossessed by means of summary proceedings instituted in behalf of the landlord Butler.

The chattel mortgage was assigned to the Massachusetts National Bank, which thereupon, on October 18, 1893, brought this suit to foreclose it for its own benefit and that of Waldemar A. Schmidt, who claims to be entitled to share in its proceeds in proportion to his interest in the unpaid notes which it was given to secure. The. defendant Butler resisted the foreclosure upon the ground that the mortgaged property, prior to the giving of the mortgage, had been so annexed to the. freehold as to constitute a part of it, and that it became the absolute property of the landlord when he was put. in possession of the premises in the summary proceeding to dispossess the tenants for the non-payment of rent. This defense was sustained, except as to the two crushing rolls, of which mention has already been made, and judgment was directed accordingly in favor of defendant Butler.

I am unable to agree with the conclusion of the learned referee, that the machinery and fixed articles of every description included in the mining plant were intended by the parties to be permanently and irrevocably attached to the land, and unless at the option of the landlord were to constitute a permanent addition to the freehold.

As between landlord and tenant, the placing of machinery or other .appliances by the tenant upon the leased premises, for the purpose of trade or manufacture to be carried on by the tenant, does not make the property so affixed a part of the freehold, but it still remains personalty, to such an extent at least that the tenant retains the right to remove it. (Ombony v. Jones, 19 N. Y. 234; Tifft v. Horton, 53 id. 377, 382; Lewis v. Ocean Navigation & Pier Co., 125 id. 341, 346.) The trade fixtures of a tenant, in other words, remain personal property in the eye of the law, so far as the right of removal is concerned. (2 Taylor’s Landl. & Ten. [8th ed.] § 519.) The correctness of this proposition is not disputed, but the referee holds that the presumption to which it would naturally give rise “in favor of the removal of these buildings and machinery erected for the pmrposes of trade is absolutely precluded by the terms of the lease and the subsequent. transactions, all of which taken together show the object of the annexation and express the intention of the parties.” He concludes that this intention- was to affix the entire mining plant to the land, as - it' should be placed thereon, absolutely and once for all. I do not so construe the lease. At least three of its provisions seem to meto be inconsistent with this view. In the 9th article the lessee covenants to timber the shafts, main drifts and galleries in accordance with the practice of modern mining as it exists in the United States, “ which timbering shall, at the termination of this lease or any renewal thereof be regarded by the parties as fixtures.” Why specify this timber construction as tó be classed among fixtures, if. the entire plant was intended to be comprised in the same category ? .In the 10th article. it is provided, that in the event of a surrender of the lease the lessee will permit a re-entry twenty days before the actual • surrender, for the purpose of enabling the lessor to install pumping machinery to keep the mines from filling with water, and make such other arrangements as may' be necessary to prevent damage to the premises or the destruction of any part thereof. This provision Avould hardly have been inserted if the lessor had. supposed, or the lessee had intended, that the mining yfiant Avas to become the property of the landlord as fast as it was put in place, as is now contended. Finally, the 19th article furnishes the' clearest evidence to my mind that there Aras no intention to take these trade fixtures out of the ordinary' rule tliat they' are to be deemed tó retain their character as chattels, as between landlord and tenant.

The language of - this article' is - as follows: “ The lessee further covenants and agrees to and Avith the lessor that he will, if tire lessor so desires, at the expiration of this lease, or of the renerval -lease, if the same shall be accepted, sell to the lessor all the mining machinery, buildings and other erections, erected Upon or under the said premises during the Avhole time that he shall have occupied the same, allowing therefor to the lessee the full valuation at which such machinery, buildings and other erections shall be then estimated in the buildings,, and not for the purposes of removal. And in case the parties hereto shall not agree upon a valuation, then the same shall be made by three disinterested persons selected as hereinafter provided.

• “In case the lessor, at.the expiration of this lease, or' of the renewal lease, if the' same shall -be accepted, shall fail to purchase the mining machinery, buildings, and other erections referred to above, the lessee shall be at liberty to remove the same within sixty days from and after the actual termination of this lease or the extension of the renewal lease.”

It is difficult to believe that the lessee and lessor would have thus ■carefully specified what should he their respective rights as vendor and purchaser of the mining machinery and buildings at the termination of the original or renewal lease, if it had been their understanding that the lessor was to acquire title thereto simply by virtue of the erection of the buildings and the operation of the plant on the leased premises. Why should provision be made for the purchase by the lessor at the end of twenty years of property which became his, according to the claim now put forward, at or near the beginning of that period ? It certainly is unusual for a party to enter-in to a covenant to buy that which he already owns.

In the 3d article of the lease a renewal is provided for, upon at least one year’s notice from the lessee to the lessor, and in this article, upon receiving such notice, “ the lessor covenants and agrees that he will let and lease to the lessee all the premises, machinery ■and appurtenances'” thereinbefore described, for a further term of twenty years. The mention of the machinery in the clause quoted is regarded by the referee as indicating that it was intended to become the property of the lessor when placed upon the land, and it is suggested that Butler would not thus agree to lease the machinery to Collins and Shinn in the event of a renewal, unless Butler was understood to be the owner. When we refer to the 19th article, however, and read its provisions in connection with these of the 3d article concerning a renewal, it becomes plain, I think, that the agreement on the part of Butler to lease the machinery to Collins and Shinn, if the lease of the mine should be renewed, was predicated on the assumption that Butler might purchase the plant at the expiration of the original lease, as he was privileged to do by virtue of the 19th article, in which event the lessees would have to acquire from him the right to continue to use it in operating the mine.

For these reasons I am satisfied that the defendant George B. Butler had not become the owner of the mortgaged property at the time the chattel mortgage was given. Shinn possessed rights in respect to it which it was competent for him to "transfer *by the mortgage to the Stnrtevant Mill Company, and the question next to-be considered is what was the extent of those rights.

At that time there had been no default on the part of the lessees, and Shinn still had the right to cancel and surrender the lease under the till article thereof, which provided that the lessee might do so at any time within two years from its date if not satisfied that ■ the ore could be mined economically. Hence, it is argued in behalf of the plaintiffs, who have succeeded to the interest of the Sturtevant Mill Company as mortgagees, that the chattel mortgage given by Shinn at this time to secure the balance of the purchase price for' the .machinery was good and valid, and that no subsequent default oh his part, could vitiate the rights of the Stnrtevant Mill Company or its assignees to collect out of the proceeds of said machinery the balance due on account of the purchase price thereof.

But this argument proceeds in' disregard of the proposition that the rights of the mortgagee of the tenant’s trade fixtures are to be measured by the rights of the tenant himself in respect to such fix.tiires. Although the tenant possessed the right of removal, he was bound to exercise it, if at all, before his term expired, or within the period limited by his lease, or at all events before quitting possession of- the real estate. upon which the trade fixtures were situated. (Brooks v. Galster, 51 Barb. 196.) Where the tenant has mortgaged such trade fixtures, after placing them upon the leased land, and fails to.remove them within the term or the period prescribed by his lease, or while he retains possession of the land upon which they are located, his title becomes subordinate to that of the lessor and his right of removal is lost. (Talbot v. Whipple, 14 Allen, 177, 182.) This point was directly involved and expressly decided in the case cited, where the court says: “ It is hardly necessary to add that the plaintiffs can claim no better title to the property in controversy than that which was vested in the tenant under whom they claim as mortgagees. When the mortgage was made, the building and machine were fixtures annexed to the realty of the defendant by his tenant, and which the defendant 'had then the inchoate right to claim, as part of the freehold, if not. seasonably disannexed before the term was ended.” So, in the case at bar, at the time the chattel mortgage was made and ever since, the defendant Butler had and lias had' the inchoate right to claim the mortgaged fixtures as part of the freehold, if not seasonably disannexed. The mortgagee acquired the right to detacli and remove them under the same circumstances as would have warranted their detachment and removal by the mortgagor. But neither the mortgagee nor its assignees ever sought or attempted their removal, until subsequent to a time when all right of removal on the part of the lessee or his representatives had absolutely ceased and determined. The suit to foreclose the mortgage was not commenced until nearly four months after the summary proceedings had put the landlord in possession of the leased premises to which the trade fixtures were attached. At this time, in any view of the case, the tenant’s right to remove them had terminated, and the mortgagee could enforce no other or better right.

There is nothing adverse to this view in Lewis v. Ocean Navigation & Pier Co. (supra), which the appellant cites in support of his proposition that a landlord' cannot destroy the tenant’s right to remove trade fixtures by dispossessing the tenant for non-payment of rent. In that case the tenant, who held over after the expiration of his lease, claimed the right to remove his building"at the time of his ejection by virtue of the summary proceedings, but was not permitted to remove it. His claim was seasonably made, while still in possession of the leased premises upon which the building stood. In this respect the case seems clearly distinguishable in principle from the case at bar, where the term of the tenant ended by reason of his default in the payment of the rent, and where he was also deprived of the possession of the leased premises without any claim being made on his behalf, or that of his mortgagees, that they were entitled to remove the machinery in question or even desired to.do so. As Mr. Taylor says: “The tenant’s right to remove is rather considered a privilege allowed him than an absolute right to the things themselves.. If he does not exercise the privilege before his interest expires, he ■ cannot do it afterwards, because the right to possess the land and the fixtures as part of the realty vests immediately in the landlord.” (2 Taylor’s Landl. & Ten. [8th ed.] § 551.) His mortgagee, as already suggested, must act with equal promptitude.

It seems to me, therefore, that the referee was right hi his conclusion that the mortgage in suit could not be enforced except as against the two crushing rolls which had not become fixtures at the time when the mortgage was given, and, I think, the judgment ■entered upon his report should be affirmed.

All concurred, except Goodrich, P. J., dissenting.