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Lewiston Bottled Gas Co. v. Key Bank of Me. - 601 A.2d 91 (Me. 1992)

Rule:

Me. Rev. Stat. Ann. tit. 11, § 9-313(1)(a) (1964 & Supp. 1991) provided that goods are fixtures when they become so related to particular real estate that an interest in them arises under real estate law. That interest arises when the property is (1) physically annexed to the real estate, (2) adapted to the use to which the real estate is put, that is, the personal and real property are united in the carrying out of a common purpose, and (3) annexed with the intent to make it part of the realty.

Facts:

In July 1986, Key Bank loaned $ 2,580,000 to William J. DiBiase, Jr. The loan was secured by a mortgage on the real estate owned by DiBiase located on East Grand Avenue in Old Orchard Beach.  The mortgage, which covered after-acquired fixtures, was properly recorded in the York County Registry of Deeds. On June 15, 1987, Grand Beach contracted to purchase ninety heating and air-conditioning units from plaintiff Lewiston Bottled Gas Company (LBG). The contract provided that the units would remain the personal property of Grand Beach notwithstanding their attachment to the real property. On June 16, Grand Beach granted to LBG a purchase money security interest in the ninety units. On June 29, 1987, Key Bank made a second loan to DiBiase secured by a second mortgage on the same property, also covering after-acquired fixtures and also properly recorded. In May 1989, Key Bank foreclosed on both its mortgages. LBG was not joined as a party-in-interest because Key Bank was unaware of LBG's interest in the units until after the foreclosure was commenced. The parties agreed to allow the foreclosure to proceed and to litigate the issue of title to the heating and air-conditioning units later. Key Bank was the successful bidder at the foreclosure sale. LBG then filed the present complaint against Key Bank seeking a declaratory judgment that its purchase money security interest in the units had priority over the interest of Key Bank. The Superior Court granted summary judgment to Key Bank concluding that the heating and air-conditioning units were fixtures and that Key Bank's properly recorded mortgages had priority over LBG's unperfected security interest.  LBG appealed.

Issue:

Did the trial court err in its decision to rule in favor of Key Bank?

Answer:

No.

Conclusion:

The Supreme Judicial Court of Maine affirmed the trial court's order. The Court held that the units were physically annexed to the real estate as the personal and real property were united in the carrying out of a common enterprise. The Court found that the security interest could not be considered against the bank because the bank was not a party to it and was unaware of it. The Court further found that the units were subject to the mortgages and that the first mortgage took priority over the security interest as it was not properly perfected due to the improper recording.

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