Three years ago, the Lister Co. Ltd. borrowed $200 000 from the Hi-Rise Bank. Lister Co. was in the.

Three years ago, the Lister Co.
Ltd. borrowed $200 000 from the Hi-Rise Bank. Lister Co. was in the textile
business and gave a real estate mortgage on one of its buildings as collateral
security for the bank loan: The mortgage provided security in the land,
building, and fixtures in the building. The company was later adjudged bankrupt
on a petition of its creditors. A question arose about whether a certain piece
of expensive machinery in the mortgaged building was in fact a fixture against
which the bank would retain priority in liquidation. The trustee in bankruptcy,
representing the

Three years ago, the Lister Co.
Ltd. borrowed $200 000 from the Hi-Rise Bank. Lister Co. was in the textile
business and gave a real estate mortgage on one of its buildings as collateral
security for the bank loan: The mortgage provided security in the land,
building, and fixtures in the building. The company was later adjudged bankrupt
on a petition of its creditors. A question arose about whether a certain piece
of expensive machinery in the mortgaged building was in fact a fixture against
which the bank would retain priority in liquidation. The trustee in bankruptcy,
representing the general creditors, claimed it was not a fixture, so that the
proceeds from its sale would be applied to all creditors claims and not solely
to that of the bank as mortgagee. An officer of the bank and the trustee in
bankruptcy went personally to inspect the machine, but were unable to agree
whether it could be described as being permanently affixed. The bank then
started legal action to have its claim as mortgagee of the machine confirmed.
At this point, the trustee offered as a compromise to recognize the banks
priority to the extent of $20 000, a sum much less than the probable resale
value of the machine. The bank accepted the offer and withdrew its action. A
few days later the bank learned that, at the time it took the mortgage on the
building, the machine in question had been affixed to a cement floor in the
plant in a permanent way, but that the building had since been renovated and
the machine had been reattached much less securely to the new floor. Neither
the bank nor the trustee had this information when they contracted to
substitute $20 000 in cash for the mortgage claim. The trustee refused to waive
the agreement, however, and the Hi-Rise Bank brought an action asking the court
for rescission of that contract and an order acknowledging its claim as a
secured creditor with respect to the machine. Discuss the nature of the
argument on which the bank would base its claim and indicate whether its action
should succeed. Give an opinion on the probable outcome of this litigation with
reasons.