Bank v. Adam

• Decision Date: 31 October 1891
• Citation: 28 N.E. 955,138 Ill. 483
• Parties: FIRST NAT. BANK v. ADAM et al.
• Court: Illinois Supreme Court

138 Ill. 483

28 N.E. 955

FIRST NAT. BANK

v.ADAM et al.¹

Supreme Court of Illinois.

Oct. 31, 1891.

Appeal from appellate court, second district.

Bill by Robert Pilcher against Edward C. Hagar, Frederick H. Riebling, the First National Bank of Joliet, and others, to foreclose two trust-deeds, both given by defendant Riebling to defendant Hagar as trustee. The first trust-deed was upon land belonging to George W. Hyde, and by him leased to Riebling. The second was upon land belonging to William Adam, and by him leased to Riebling. The notes secured by said trust-deeds were executed by Riebling to his own order, and by him indorsed in blank. Complainant obtained a decree of foreclosure, under which a sale was had, and an order of distribution entered. This order was reversed by the appellate court. The bank appeals. Reversed. For former opinion, see 25 N. E. Rep. 576.

A. O. Marshall and B. Olive, for appellant.

Geo. S. House, Higgins & Akin, and Garnsey & Knox, for appellees.

MAGRUDER, C. J.

The appellant claims that the decree was erroneous in allowing such portions of the proceeds of the sale under the first trust-deed as belonged to notes numbered 2, 3, 4, 5, and 6 to be applied on Riebling's indebtedness to Pilcher, rather than upon Riebling's indebtedness to the bank. It is contended by appellant that the 15 notes of $1,000 each, secured by the trust-deed of March 5, 1883, were originally delivered to the bank to secure its indebtedness then existing, or thereafter to exist, against Riebling; that the bank permitted Riebling to take 6 of these notes, numbered from 1 to 6, inclusive, in order that he might sell them, if he could, and apply the proceeds of the sale on his indebtedness to the bank, the notes to be returned to the bank in case there was no sale; that Riebling thus obtained the six notes burdened with a trust in favor of the bank, and had no right to pledge them as collateral security to another creditor. It is conclusively shown that note No. 1 was paid and canceled; and we see no reason why appellee Pilcher was not entitled to hold the other notes as collateral security for the payment of Riebling's indebtedness to him. The bank permitted Riebling to take the notes in question from its possession. Pilcher had no notice that Riebling held the notes in trust to make sale of them for the bank. He held judgment notes for nearly $3,000 against Riebling, and threatened to enter up judgments upon them, unless additional security was furnished. Thereupon Riebling delivered to him notes numbered 2, 3, 4, and 5, secured by said trust-deed, as such additional security. The same state of facts exists in regard to the delivery of note No. 6 to Robinson, to secure the claim which he afterwards assigned to Pilcher. The fifteen notes were payable at different times, three of them running as long as five years. The trust-deed provided that they were to stand equally secured, no one to have priority over the others in the application of the security. Riebling denies the statement of the president of the bank that he agreed to return the notes in the event of a failure to sell them, or that the proceeds of their sale were to be applied upon his indebtedness to the bank. He claims that the notes belonged to him, and that he had a right to dispose of them as he did. After note No. 9 was sold to Maria E. Dillman, the proceeds were placed to Riebling's credit in the bank, and by him checked out in due course of business. When he took the notes in question, it would appear that the eight notes left with the bank were regarded as sufficient security for the indebtedness then existing, the makers of the paper indorsed by Riebling not having failed at that time to pay. But we do not deem it necessary to determine whether Riebling did or did not obtain the notes in the manner stated by the officers of the bank. Even if they were so obtained, Pilcher received them from Riebling in good faith, before their maturity, as collateral security for a bona fide in debtedness, without notice of the terms on which the bank parted with them, and, as the holder of them, he is entitled to share in the proceeds of the sale. The correctness of this conclusion is further sustained by the admission of the bank that the six notes executed afterwards, on August 19, 1884, and secured by the trust-deed of that date, were received from Riebling by the bank as security for its indebtedness, in the place and stead of the six notes secured by the trust-deed of March, 1883, which the bank had permitted Riebling to take from its possession. We also think that the amount which was decreed to be paid to the appellee Pilcher was correct as between him and the bank.

The appellant further objects to the decree below upon the alleged ground that it allows the appellee Hyde too much rent for the water-power used by the Desplaines River Paper-Mill, situated on lots 2 and 3 in block 37, as described in the trust-deed of March, 1883. Under the lease from Hyde to Riebling of August 1, 1881, all the rent was paid up to February 1, 1887. The court decreed that the receiver should pay Hyde, out of the rents received from the receiver's lessee, the sum of $10 per horse-power for 132 horse-power from February 1, 1887,-that is, at the rate of $1,320 per year. The original lease from Hyde to Riebling provides for the payment of $1,500 per year; but counsel for both sides seem to concede that the amount to be paid should be at the rate of $10 per house-power. The question, then, is, how much power was furnished? The water and water-power were not to exceed 150 horse-power. It seems that before August 1, 1886, a dispute arose between Hyde and Riebling as to the amount of power furnished, and they agreed upon 100 horse-power, or $1,000 per year. By the latter date, however, improvements and changes were made, by which a greater quantity was furnished, and Hyde claimed the full rental of $1,500 per year, and only received less under protest. Riebling admits that after August 1, 1886, more than 100 horse-power was furnished, and Hyde swears that 132 horse-power was furnished after February 1, 1887. The court acted upon this proof in making the allowance to Hyde, and we see no reason for disturbing the decree in this regard.

But the questions of most difficulty in this case arise under the second trustdeed of August 19, 1884, and the leases of 1877 and 1879, from Adam to Riebling. These questions relate to the conflicting claims of the appellant as mortgagee and of Adam as lessor to the property described in the second trust-deed. It is contended on the part of the appellee Adam that he had an equitable mortgage or lien, by virtue of the lease of July 9, 1877, upon the buildings, machinery, and attachments comprising the Joliet Paper-Mill; that appellant was affected with notice of such lien because the lease was recorded as early as October 10, 1878, and because appellant's trust-deed put it upon inquiry by describing Riebling's interest as a leasehold interest; and furthermore, that the appellee Adam was entitled to hold the property levied on under his distress warrant, because he thereby reduced the same to possession before appellant took any action under his trust-deed or his judgments. On the other hand, it is contended on behalf of the appellant that it obtained a first lien upon the leasehold interest of Riebling, and upon the mill and buildings and machinery comprising the Joilet Paper-Mill, by virtue of its trust-deed dated August 19, 1884, and recorded the next day. Leaving out of view, for the present, the portable or movable personalty in the mill and its buildings, or upon the demised premises, which was taken under the distress warrant, the question arises, what was the character of the property mortgaged by the trustdeed, as to its being realty or personalty? When Adam's lease to Riebling was made on July 9, 1877, no paper-mill or buildings had yet been constructed, but the stone foundation of an old mill were on the property, with the race-way, flumes, gates, and appurtenances for water-power ready to be attached. The upper part of the mill was built upon these stone foundations, and the lower part rested partly upon stone foundations built upon the ground, and partly on posts planted in the bed of the river. The upper part was 30 by 40 feet, and had two stories. The lower part was 24 by 90 feet, and had one story. Connected with or joined to the latter, and resting upon the ground, was a building used as a bleach-room. There was also a storehouse built upon posts standing in the ground. The paper-machines, boilers, etc., were all attached to the structure. The mill, with its buildings and machinery, was erected and in operation on August 19, 1884, when the trust-deed was executed. Such buildings and machinery cannot be regarded otherwise than as fixtures. The structures were affixed to the land in such manner as to be a part of the realty, and, although it may have been possible for the tenant to remove them, they constituted part of the freehold until severed therefrom. Wood, Landl. & Ten. § 527. The mill and buildings and machinery all formed a part of the leasehold estate. With the lease, they were chattels real. Griffin v. Marine Co., 52 Ill. 130;Conklin v. Foster, 57 Ill. 104;Dobschuetz v. Holliday, 82 Ill. 371. Therefore they were the proper subject-matter of a real-estate mortgage, and the trustdeed created a valid mortgage lien upon them in favor of appellant as the holder of the notes secured thereby.

Was the lien thus created by the trust-deed subject to any prior lien thereon under the lease of 1877? The record of that lease, although it was not acknowledged, undoubtedly operated as notice to subsequent purchasers and incumbrancers of the existence of the lease, and of the rights of the lessor thereby conferred. Willoughby v. Lawrence, 116 Ill. 11, 4 N. E. Rep. 356. But did the lease itself by its terms give the lessor,...