First Wisconsin Nat. Bank of Milwaukee v. Federal Land Bank of St. Paul, 87-1166

• Citation: 849 F.2d 284
• Decision Date: 09 December 1988
• Docket Number: No. 87-1166,87-1166
• Parties: 6 UCC Rep.Serv.2d 975 In re FIRST WISCONSIN NATIONAL BANK OF MILWAUKEE, Plaintiff-Appellant, v. The FEDERAL LAND BANK OF ST. PAUL, Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

Page 284

849 F.2d 284

6 UCC Rep.Serv.2d 975

In re FIRST WISCONSIN NATIONAL BANK OF MILWAUKEE, Plaintiff-Appellant, v. The FEDERAL LAND BANK OF ST. PAUL, Defendant-Appellee.

No. 87-1166.

United States Court of Appeals,

Seventh Circuit.

Argued Nov. 4, 1987.

Decided June 15, 1988.

Rehearing and Rehearing En Banc Denied Dec. 9, 1988.

William R. Steinmetz, Reinhart, Boerner, Van Deuren, Norris & Rieselbach, S.C., Milwaukee, Wis., for plaintiff-appellant.

John W. Kelley, Kelley, Weber, Pietz & Slater, S.C., Wausau, Wis., for defendant-appellee.

Before CUDAHY and COFFEY, Circuit Judges, and NOLAND, Senior District Judge. ^*

NOLAND, Senior District Judge.

First Wisconsin National Bank of Milwaukee ("First Wisconsin") appeals from the district court's memorandum order affirming the decision of the bankruptcy court which awarded ownership of cranberry vines growing on certain real estate of the debtor Bear Bluff Farms to the Federal Land Bank of St. Paul ("Land Bank"). During the pendency of the bankruptcy court proceedings, the real property and the cranberry vines were sold pursuant to 11 U.S.C. Sec. 363. Consequently, the parties' dispute is now over that portion of the proceeds from the sale which is allocable to the sale of the cranberry vines. We affirm the district court.

I.

On April 26, 1982 the debtor Bear Bluff Farms executed a promissory note in the amount of $1,991,000 as consideration for a loan from the Land Bank and gave the Land Bank a mortgage on 5,026 acres of real property purchased with the money to secure the note. The Land Bank then recorded the mortgage with the Register of Deeds for Jackson County, Wisconsin on May 4, 1982.

Bear Bluff Farms then borrowed an additional $500,000 from First Wisconsin and purchased cranberry vines for 50 acres of the new property. The First Wisconsin loan was evidenced by a Mortgage Note dated May 12, 1982 and secured by: (1) a real estate mortgage on the entire 5,026 acres, and (2) a Farm Security Agreement including inter alia "all cranberry vines, growing vines and cranberry produce and proceeds from the sale of said cranberry produce grown on and located on [the property]." First Wisconsin recorded its mortgage on May 26, 1982 and filed financing statements naming First Wisconsin and describing the collateral identified in the Farm Security Agreement on May 25, 1982 with the Wisconsin Secretary of State, and on May 26, 1982 with the Register of Deeds.

The Land Bank brought an action in the Jackson County Wisconsin Circuit Court to foreclose its mortgage against Bear Bluff Farms on August 30, 1983. The Land Bank named First Wisconsin as a defendant in the action and set forth in the "schedule of non-mortgagor defendants" attached to the complaint all interests claimed by First Wisconsin and the documents under which each interest was claimed. In particular, the schedule listed First Wisconsin's mortgage dated May 12, 1982 and recorded May 26, 1982 and the financing statement executed by Bear Bluff Farms filed May 26, 1982.

First Wisconsin filed an amended cross-claim and third-party complaint against all those parties whom it believed had rights junior to it. First Wisconsin did not answer the Land Bank's complaint nor did it attempt to claim any rights against the Land Bank by its third-party complaint. The Jackson Circuit Court entered a judgment of foreclosure in favor of the Land Bank on January 24, 1984 and a separate judgment of foreclosure in favor of First Wisconsin, subject to the Land Bank's judgment of foreclosure, on February 29, 1984.

Bear Bluff Farms filed a chapter 11 bankruptcy petition on February 19, 1985. The Land Bank filed an application for relief from the 11 U.S.C. Sec. 362 automatic stay on September 25, 1985 for the purpose of finalizing its foreclosure proceedings pursuant to its January 24, 1984 judgment of foreclosure. First Wisconsin objected, asserting that it had a superior perfected purchase money security interest in the cranberry vines pursuant to Wis.Stat. Sec. 409.313(4)(a). ¹ The parties stipulated that the priority issue could be decided by the bankruptcy court on briefs submitted by the parties.

Applying Wisconsin law, the bankruptcy court determined that the cranberry vines had become fixtures and therefore, the Land Bank had an interest in the cranberry vines due to its mortgage filed May 4, 1982. The bankruptcy court further found that because First Wisconsin allowed a judgment of foreclosure to be entered in favor of the Land Bank on January 24, 1984 without raising the issue of any interest that First Wisconsin may have had in the cranberry vines, First Wisconsin was now estopped from attempting to assert an interest in the cranberry vines by that judgment of foreclosure. First Wisconsin appealed the bankruptcy court's decision to the district court. The district court affirmed the bankruptcy court, finding that the cranberry vines had become fixtures on the real estate and therefore, the Land Bank had an interest in the vines through its prior real estate mortgage. The district court also agreed that the Land Bank's mortgage foreclosure action which included specific references to First Wisconsin's mortgage and financing statements gave First Wisconsin notice that the Land Bank was claiming an interest in the cranberry vines. First Wisconsin's failure to respond to the Land Bank's complaint and the subsequent judgment of foreclosure entered on behalf of the Land Bank effectively precluded First Wisconsin from asserting any interest in the cranberry vines.

II.

When reviewing the decision of the bankruptcy court, the district court must accept the bankruptcy court's findings of fact unless they are clearly erroneous. Fed.R.Bankr. 8013. ² Review by the court of appeals of the bankruptcy judge's findings of fact is governed by the same clearly erroneous standard. In re Pearson Brothers Co., 787 F.2d 1157 (7th Cir.1986) (citing In re Kimzey, 761 F.2d 421 (7th Cir.1985)).

First Wisconsin asserts that neither the bankruptcy court nor the district court made any findings of fact and urges us to review each issue de novo substituting our conclusions for those of the lower courts. This appeal raises three issues for review: first, whether the bankruptcy court erred in finding that the cranberry vines had become fixtures on the foreclosed real estate; second, if the cranberry vines had become fixtures, whether the Land Bank's mortgage gave rise to a security interest in the cranberry vines; and third, if the Land Bank did have a security interest in the cranberry vines, whether the judgment of foreclosure entered in the Land Bank's favor on January 24, 1984 estops First Wisconsin from asserting the existence of a prior purchase money security interest. The resolution of the first issue required a finding of fact and will be reviewed under the clearly erroneous standard. The second and third issues present questions of law and require de novo review.

First Wisconsin first challenges the bankruptcy court's findings that the cranberry vines had become fixtures, and thus were part of the real estate. Whether personal property is attached to real property as a fixture is a question of fact. See Baringer v. Evenson, 127 Wis. 36, 106 N.W. 801, 804 (1906) (whether furnace placed in building by tenant was intended to become permanent accession to the freehold is a question for the jury); Premonstratensian Fathers v. Badger Mutual Ins. Co., 46 Wis.2d 362, 175 N.W.2d 237 (1970) (trial court's application of three part test to determine whether coolers had become fixtures will not be set aside by reviewing court unless contrary to the great weight and clear preponderance of the evidence); Cascade Car Wash, Inc. v. Laurent Watch Co., Inc., 437 F.2d 122 (9th Cir.1971) (bankruptcy referee's finding that certain buildings and structures were fixtures is a question of fact) (applying California law); In re Factory Homes Corp., 333 F.Supp. 126 (W.D.Ark.1971) (trial court finds as a matter of fact that certain collateral is not a fixture, but rather equipment under U.C.C. 85-9-109(2)). We must accept the bankruptcy court's finding that the cranberry vines had become fixtures unless it is clearly erroneous.

Under the Uniform Commercial Code as adopted in Wisconsin, "[g]oods are 'fixtures' when they become so related to particular real estate that an interest arises in them under real estate law." Wis.Stat. Sec. 409.313(1)(c). The Wisconsin courts have long applied a three part test to determine what constitutes a fixture:

* * * Whether articles of personal property are fixtures, i.e., real estate, is determined in this state, if not generally, by the following rules or tests: (1) Actual physical annexation to the real estate; (2) application or adaptation to the use or purpose to which the realty is devoted; and (3) an intention on the part of the person making the annexation to make a permanent accession to the freehold.

Standard Oil Co. v. LaCrosse Super Auto Service, 217 Wis. 237, 240-41, 258 N.W. 791, 792 (1935); Wisconsin Department of Revenue v. Smith Harvestore Products, 72 Wis.2d 60, 67, 240 N.W.2d 357, 360 (1976); Premonstratensian Fathers v. Badger Mutual Ins. Co., 46 Wis.2d 362, 175 N.W.2d 237, 239 (1970). An application of this test led the bankruptcy court to find that the cranberry vines had become fixtures. The bankruptcy court determined that the roots of the vines are embedded in the soil and thus the vines are affixed to the real estate. The cranberry vines were planted in the cranberry bog on the real estate and such application of the cranberry vines to the bog constitutes a "use or purpose to which the realty is devoted." Finally, the bankruptcy court determined that "it is the presumed intention of a hypothetical ordinary reasonable person that when a cranberry vine is planted in a cranberry bog such vine will remain a permanent accession to the real estate."

A review of the bankruptcy court's finding...