Schatt-Ajax Industries v. Churchill

• Decision Date: 02 March 1966
• Docket Number: SCHATT-AJAX,No. 1,CA-CIV,1
• Citation: 411 P.2d 457,3 Ariz.App. 34
• Parties: INDUSTRIES, a corporation, Appellant, v. Ed CHURCHILL and Effie M. Churchill, husband and wife, dba Wright's Restaurant, Appellees. 98.
• Court: Arizona Court of Appeals

Page 457

411 P.2d 457

3 Ariz.App. 34

SCHATT-AJAX INDUSTRIES, a corporation, Appellant, v. Ed CHURCHILL and Effie M. Churchill, husband and wife, dba Wright's Restaurant, Appellees.

No. 1 CA-CIV 98.

Court of Appeals of Arizona.

March 2, 1966.

Barry G. Crown, Phoenix, for appellant.

Hughes & Hughes, by Coit I. Hughes, Phoenix, for appellees.

DONOFRIO, Judge.

This is an appeal by Schatt-Ajax Industries, plaintiff below, from a judgment in favor of Ed Churchill and his wife who were defendants. The trial was before the court.

The Churchills, who will also be referred to as defendants, were the owners of a restaurant business at 1438 East McDowell Road in the City of Phoenix. They sold their business, together with the furniture, fixtures and equipment to Gary Wright and his wife on February 10, 1960, retaining the lease on the building and subletting to the buyers. The Wrights executed a chattel mortgage covering all the furniture, fixtures and equipment in favor of the Churchills to secure the unpaid purchase price of $23,250.00. The chattel mortgage did not contain an 'after-acquired property' clause. The mortgage was filed of record February 29, 1960.

The Wrights in undertaking to remodel the premises obtained the services of plaintiff to do what was called a 'redesigning' job. This consisted of reupholstering the booths, stools, benches and furnishing certain equipment. There was evidence that when plaintiff began the work four of the booths had been removed to the yard outside the building. These along with others which were bolted and nailed to the floor were removed by plaintiff to his place of business. Plaintiff later salvaged four of the booths by selling them to another person. The removed booths were replaced with new ones. The evidence was undisputed that two items, a double-deck over priced $740 and stainless steel display case priced $283 furnished by plaintiff, were not attached to the building except for the usual plumbing connections.

On April 9, 1960 the plaintiff as seller and the Wrights as buyers executed a conditional sales contract which was duly filed of record, wherein plaintiff reserved title to all of the items involved in this litigation until the contract price of $4,959.36 was paid. These were items which plaintiff either worked on or furnished as new or replaced items. The contract further provided that the Chattels were not to become fixtures or attach to the premises until the purchase price was paid. The Wrights defaulted on their contract. Plaintiff brought action in three counts against the Wrights and Churchills. One count was in replevin seeking the property or its value, the other two were in conversion seeking a judgment in the amount of the unpaid balance of $3,740.16 as being the value of property converted, together with attorney's fees and costs. The Wrights defaulted on the action brought against them. The Churchills in their answer and counterclaim raised the pertinent issues that they had recovered a judgment in a separate action against the Wrights vesting title to the property in them as the result of a landlord's lien on the property, that the Chattels had become fixed to the premises, and that their chattel mortgage was superior to plaintiff's conditional sales contract. Their counterclaim also alleged that plaintiff had wrongfully and maliciously converted the property and asked for both actual and punitive damages. The court rendered judgment against the plaintiff on its complaint and against the defendants on their counterclaim.

At the outset it becomes necessary to determine certain questions of law.

First, is whether the landlord's lien for rent extends to personal property which is subject to a conditional sales contract. In order to answer this question we must determine to answer this question we must determine brought on the leased premises, the whole of the property or the interest remaining after the conditional seller's interest. Other jurisdictions that have considered the question have ruled that it is the interest remaining after the conditional seller's interest, Stern Co. of Washington, v. Rosenberg, 67 App.D.C. 99, 89 F.2d 843 (1937); Motor Credit Corp. v. Ray Guy's Trailer Court, 6 N.J.Super, 563, 70 A.2d 102 (1949); Haverty Furniture Co., Inc. of Charleston v. Worthy, 241 S.C. 369, 128 S.E.2d 707 (1962), and we believe this to be a sound rule to adopt for Arizona. See also Annotation in 45 A.L.R. 949.

Applying the above principles to the instant case we hold the landlord's lien claimed by defendants is not superior to the conditional sales contract and can therefore be disregarded.

Next, where the owner of personal property, in mortgaging the same, does not include a clause expressly covering personalty after-acquired by him, and thereafter he conditionally purchases other personalty, can the mortgagee claim a superior right to the after-acquired personalty and defeat the conditional seller's reservation of title to said property? The answer is no. 15 Am.Jur.2d Chattel Mortgages, § 101, p. 278 and § 163, p. 332. Kastner v. Fashion Livery Co., 10 Ariz. 23, 85 P. 120 (1906); Babbitt and Cowden Livestock Co. v. Hooker, 28 Ariz. 263, 236 P. 722 (1925). A chattel mortgage cannot attach itself to property subsequently purchased by the mortgagor on a conditional sales contract. Simons v. Lee James Finance Company, 56 Wash.2d 234, 351 P.2d 507, 86 A.L.R.2d 1147 (1960).

However the chattel mortgage would be superior to all items covered by the chattel mortgage remaining on the premises even though upholstered and refinished by plaintiff. The chattel mortgage was of record and the plaintiff should have inquired of the mortgagee before doing the work. A mortgage duly recorded bespeaks notice. When he failed to make inquiry as to title he did so at his peril. We express no opinion as to whether a repairman's lien would exist...