Metropolitan Sav. & Loan Ass'n v. Zuelke's, Inc.

• Decision Date: 03 April 1970
• Docket Number: No. 178,178
• Citation: 46 Wis.2d 568,175 N.W.2d 634
• Parties: METROPOLITAN SAVINGS & LOAN ASSN., a Wis. corp., Respondent, v. ZUELKE'S, INC., a Wis. corp., Appellant.
• Court: Wisconsin Supreme Court

Page 634

175 N.W.2d 634

46 Wis.2d 568

METROPOLITAN SAVINGS & LOAN ASSN., a Wis. corp., Respondent, v. ZUELKE'S, INC., a Wis. corp., Appellant.

No. 178.

Supreme Court of Wisconsin.

April 3, 1970.

The plaintiff-respondent, Metropolitan Savings and Loan Association (hereinafter Metropolitan), as a real estate mortgagee, brought this action against the defendant-appellant, Zuelke's, Inc. (hereinafter Zuelke's), a home-furnishing company, for damages because of an alleged conversion of carpeting, draperies, drapery rods and assessories retaken by Zuelke's from three houses upon which Metropolitan had real estate mortgages.

Most of the facts were submitted to the court upon a stipulated 'agreed statement of facts.' There was, however, a stipulated addition to the agreed statement and supplemental testimony taken.

A summary of the facts is as follows: Mr. and Mrs. Russell Spitz owned the three lots, lots 8, 9 and 10 of a new subdivision in the city of Mequon, Ozaukee county. The Spitzes arranged to have three model homes built on these lots by a general contractor, Odin, Inc.

On May 24, 1963, Mr. and Mrs. Spitz gave three real estate mortgages on the three lots, respectively, to Metropolitan for what has been described as construction loans. Each mortgage contained the following provision:

'(A)ny other thing now or hereafter therein or thereon the furnishing of which by Lessors to Lessees is customary or appropriate, including screens, window shades, storm doors and windows, floor coverings, screen doors, in-a-door beds, awnings, stoves and water heaters (all of which are declared to be a part of said real estate whether physically attached thereto or not).'

On June 6, 1963, Odin, Inc., the general contractor, purchased draperies, drapery rods and carpeting for the three houses from Zuelke's. The entire purchase price was secured by three conditional sale contracts dated June 6, 1963; the combined contract prices totaled $5,316.66. Each contract provided that payment was to be made in one lump sum in August of 1963. The conditional sale contracts were not filed in the office of the register of deeds as provided by statute until September 26, 1963. (Although the record does not specifically identify Mr. Spitz as an officer of Odin, Inc., copies of the conditional sale contracts are a part of the record as Exhibits 1, 2 and 3, and are signed 'Odin, Inc.' by Russell W. Spitz. The corporate records of the secretary of state reveal that Mr. Spitz was both the secretary-treasurer and registered agent of Odin, Inc.)

The draperies and carpets were installed in the houses on June 14 and 15 and September 7, 1963. On June 17, 1963, cash advances were made by Metropolitan to the Spitzes on construction loans in the amount of $28,734. Mr. James Hanley an officer of Metropolitan testified he had inspected the houses before the advances were made and said some of the cash advance would have been withheld if the carpets and draperies had not been installed.

There was no evidence, specifically, as to how the draperies and carpeting were put into the houses. The stipulated facts set forth they were 'installed.' However, Mr. Hanley testified the floors of all three houses were plyscore which requires some kind of covering and it is usually carpeting.

Odin, Inc., defaulted on the payment required by the conditional sale contracts. In October of 1963, Zuelke's removed and repossesed the carpeting, draperies and drapery rods.

Mr. and Mrs. Spitz defaulted as to the payments required by the real estate mortgages and abandoned the houses. Metropolitan foreclosed. Metropolitan bid and purchased all three houses at the foreclosure sale. The houses were later resold by Metropolitan but the record does not reveal whether it had a financial gain or loss.

The trial court held that the carpeting and draperies had become subject to the real estate mortgages by virtue of our Uniform Conditional Sales Act (ch. 122, Stats., 1961), and that Zuelke's was guilty of conversion when it removed them. The court further found the damages to be the replacement value of the property taken at the time of taking, plus interest. The replacement value was found to be $5,316.66, and judgment was entered for that amount, plus costs.

Post-trial motions were made by Zuelke's and denied. Zuelke's appeals from the judgment.

Prieve, Gerlach & Meyer, Milwaukee, for appellant.

Usow, Teper & Weiss, Milwaukee, for respondent.

BEILFUSS, Justice.

The issues broadly stated are: Does a real estate mortgagee, based upon subsequent advances, have a superior lien upon property installed by a vendor who neglected to file his conditional sale contract and, if so, what is the measure of damages for wrongful repossession by the conditional sale vendor?

All transactions in this matter took place in 1963, prior to the effective date of the Uniform Commercial Code in Wisconsin, July 1, 1965. There is no dispute between the parties that the case is governed by the law of conditional sale contracts then in effect, not the general law of fixtures. Specifically in point on the present controversy is the second sentence of sec. 122.07, Stats. of 1961:

'Fixtures. If the goods are so affixed to realty, at the time of a conditional sale or subsequently as to become a part thereof and not to be severable wholly or in any portion without material injury to the freehold, the reservation of property as to any portion not so severable shall be void after the goods are so affixed, as against any person who has not expressly assented to the reservation. If the goods are so affixed to realty at the time of a conditional sale or subsequently as to become part thereof but to be severable without material injury to the freehold, the reservation of property shall be void after the goods are so affixed as against subsequent purchasers of the realty for value and without notice of the conditional seller's title, unless the conditional sale contract, or a copy thereof, together with a statement signed by the seller briefly describing the realty and stating that the goods are or are to be affixed thereto, shall be filed before such purchase in the office of the register of deeds of the county where such realty is located, and also entered in the tract index, when kept. At against the owner of realty the reservation of the property in goods by a conditional seller shall be void when such goods are to be so affixed to the realty as to become part thereof but to be severable without material injury to the freehold, unless the conditional sale contract, or a copy thereof, together with a statement signed by the seller briefly describing the realty and stating that the goods are to be affixed thereto, shall be filed before they are affixed, in the office of the register of deeds of the county where such realty is located, and also entered in the tract index, when kept.' (Emphasis supplied.) ¹

The applicability of ch. 122, Stats.1961, to a contest between a prior mortgagee and a conditional sale contract vendor was recognized by this court in People's Savings & Trust Co. v. Sheboygan Machine Co. (1933), 212 Wis. 449, 453, 249 N.W. 527, 529, 250 N.W. 385, where it was said:

'That the machines and equipment were fixtures which would pass to a purchaser of the real estate without notice, or which would be subject to the lien of a subsequent mortgage without notice is, under our decisions, entirely free from doubt; but we are not here dealing with the right of a subsequent purchaser or mortgagee without notice to claim the machines in question. Moreover, in the view we take of this controversy, it is not ruled by the law of fixtures but by the law of conditional sales contracts; and consequently the well-established common law applicable to fixtures has, in our opinion, little to do with this controversy.'

The appellant, Zuelke's, argues that Metropolitan can only claim protection under sec. 122.07, Stats.1961, if it is demonstrated it is a subsequent purchaser for value since the draperies and carpeting could be removed without material injury to the freehold. The plaintiff has not contended that it proved material injury to the freehold; it argues, and rightfully so, that it is a 'subsequent purchaser' under the statute and that its lien was not dependent upon a showing of 'material injury to the freehold.'

The trial court held Metropolitan was a subsequent purchaser for value without notice of Zuelke's claimed reservation of title on the authority of American Laundry Machinery Co. v. Larson (1934), 217 Wis. 208, 257 N.W. 608. In that case this court held the execution of a second mortgage subsequent to the execution of an unperfected conditional sale contract gave rise to a superior security interest in the mortgagee who did not have actual notice of the sale agreement. Even though the parties to the second mortgage were the same as in the first mortgage, the court indicated the execution of the second mortgage made the mortgagee a subsequent purchaser for value within the meaning of sec. 122.07, Stats.1961.

The distinction between the Larson Case and the instant one is the date of execution of the respective mortgages. In Larson only the mortgage executed after the conditional sale contract was deemed a subsequent purchase. Here we have a prior mortgage with advances on it made subsequent to the sale contract. The general rule is to the effect that subsequent advances made on a prior mortgage act to secure the lien as of the prior date. ² Though the so-called 'dragnet' clauses were recently limited in Wisconsin in Capocasa v. First Nat. Bank (1967), 36 Wis.2d 714, 154 N.W.2d 271, the usefulness of construction or building loan mortgages was denoted there, at p. 719, 154 N.W.2d at pp. 273--274:

'There is no doubt that mortgages to secure future advances serve a socially and economically desirable purpose.

'Wisconsin has long recognized that a mortgage can secure future advances and...