Equitable Guarantee & Trust Co. v. Knowles

8 Del. Ch. 106 | New York Court of Chancery | 1896

•The Chancellor:—■

The bill was filed September 14, 1896, by the Equitable Guarantee and Trust Company, trustee, and Mary C. Smith, complainants, as the present holders respectively of two mortgages executed by one of the respondents’James G. Knowles, January 17, 1880. The first held by the Equitable Guraantee and Trust Company, conditioned for the payment of Eighteen Thousand Dollars on February 1, 1884, and the second, held by the said Mary C. Smith, to secure the payment of Six Thousand Dollars on January 1, 1883; both mortgages being due and payable at the time of the commencement of the suit, with interest on the first from February 1st, 1896, and on the second, from January 1,1896.

The bill alleges that the mortgage held by the Equitable Guarantee and Trust Company was upon a certain lot or parcel of land, with a woolen mill and buildings thereon erected, situate “in the City of New Castle, aforesaid, in said mortgage more fully described, together with all and singular the improvements, hereditaments and appurtenances whatsoever thereunto belonging, or in any wise appertaining, and all the woolen and cotton machinery, looms, shafting and boilers that might then or thereafter be placed or erected on or within the premises, mill or buildings theretofore mentioned, and which between the parties thereto, their heirs, executors, administrators or assigns, it was thereby expressly agreed, should be considered fixtures attached to and a part and parcel of the real estate thereinbefore described.”

The mortgage held by Mary C. Smith is alleged to cover the same property, and both mortgages were duly recorded January 19, 1880, the first at 4 and the second at 4.30 P.M.

Upon certain judgments in the bill fully set forth and described, which were entered or recovered subsequently, to the execution of the said mortgages, threé writs of fieri facias were issued and under and by virtue of those writs the respondent, Paul Gillis, Sheriff of New Castle County, levied upon and now holds “a large quantity of the machinery, fixtures and other property” alleged in the bill to be embraced in and covered by the said two mortgages, and set out in detail in a schedule attached to the bill, marked “Schedule A.”

The bill further alleges that the said Sheriff had advertised the same for public sale at the said mill on September 16, and that: (paragraph 16) “The said machinery, fixtures and other property levied upon, held and threatened to be sold and removed, as aforesaid, in violation of the rights of the said complainants, constitute an important and essential part of the security for said debts of the said complainants, and if the same should be removed from said premises, the value of the remainder of the property covered by the said mortgages will be greatly impaired and diminished and will not be sufficient for the payment of said mortgages or even the first of them.”

The prayers of the bill were for subpoena, answer and further relief, and “that the defendants, respectively, their servants, and agents, and all other persons, may be perpetually restrained by injunction of this Honorable Court from selling or removing from the said mortgaged premises any of the machinery, fixtures or property mentioned and described in the schedule annexed to this bill of complaint, marked ‘A,’ or any other machinery, fixtures or property embraced in or covered by the aforesaid two mortgages, or either of them now in or upon the said premises; and also that a preliminary injunction may be issued restraining the defendants, respectively, their servants and agents, and all other persons in like manner until the further order of the Chancellor.”

A rule was issued directed to the said defendants, returnable Tuesday, September 29, requiring them, the said defendants, “to show cause, if any they have, why a preliminary injunction should not issue, restraining them and each of them, their servants and agents, and all other persons, from selling or removing from the aforesaid premises any of the machinery, fixtures or property mentioned or described in the schedule annexed to the said complainant’s bill of complaint, marked ‘A.’”

A restraining order was also granted pending the hearing and determination of the rule.

At the hearing of the rule for a preliminary injunction answers and affidavits were read, and the law of fixtures, in its relations to the pending cause, discussed with thoroughness and ability. A great number of authorities were cited in the brief of counsel for the respondent, Mitchell, and counsel for the complainants submitted as one of their briefs an opinion written by Honorable W. C. Spruance in 1872, as Referee, in a case which closely resembles the present one.

It may be said of Mr. Spruance’s opinion that, although having no authority as a judicial precedent, yet by reason of its clearness of statement, force of reasoning and masterful review and analysis of a multitude of authorities, it was accepted and acted upon by the Bar of New Castle County generally, with a respect very closely resembling that paid to an authoritative judicial opinion.

My examination of all the authorities submitted in this cause, as well as many others, has led me to approve that opinion as a whole, and to apply its conclusions to the determination of this rule.^*

In the present cause, there is no suggestion that the statutes providing for chattel mortgages need be at all considered, as it is admitted that the mortgages in question only cover such portions of the machinery, &c., on the mortgaged premises as may be considered to be a part of the real estate; nor are we concerned with any part of what is commonly called the law of fixtures, except that which relates to questions arising between mortgagor and mortgagee, or the creditors of the former, these being governed by the same rules that govern vendor and vendee or heir and executor, the law concerning fixtures, when the question at issue is between landlord and tenant, for instance, being, of course, radically different.

The affidavits filed and read at the hearing of the rule are necessarily voluminous, inasmuch as they deal with all the articles enumerated in the schedule, but there is no conflict of testimony in matters affecting the determination of the rule, and the experts who have testified agree in everything essential. It is only necessary, therefore, for me to determine the rules to be applied to facts which are practically agreed upon.

It is entirely unnecessary for me to discuss the law of fixtures at length, or “to pass the learning of the subject in review” when it has been so often and so thoroughly sifted in the many leading cases; nor is there any reason for the examination of a great number of cases, most of them merely involving the application of admitted principles to the facts in each particular case, whilst the confusing contradictions resulting from them, arise many times from the endless variety in the way in which different minds regard the details of mechanical appliances and their purposes or mutual relations, or else in the failure on the part of Courts to state with sufficient fullness and precision the principles they apply. The few which I will cite, I consider amply sufficient to sustain my conclusions.

In this State, Chief Justice Comegys expressed briefly and in general terms what is frequently called the prevailing modern rule, in Watertown Steam Engine Co. vs. Davis, 5 Houst. 192, 214. He there says:

“Whatever may have been the law at one period upon that subject, it is not strictly followed now; and in the case of machinery set upon premises by the owner, as in this case, the question rather is, are the things affixed, set or erected or fastened to the freehold for a temporary or permanent purpose? and, if the purpose is shown to be permanent, as to carry on an employment or business, or if it be an improvement to the property enhancing its value, it should be treated, especially if the adaptation of the means to the end is shown to be appropriate and fit, as being indicative of a design to incorporate the machinery with the freehold and make it part of it, and as such you should regard it. When the attachment of the chattels is thus complete, so that they become part and parcel of the freehold, like the buildings, the fences, and other improvements of a permanent character, the owner of the land himself cannot detach or remove them and change their character back into personalty to the prejudice of a creditor who has a mortgage upon the premises; for to do so, if the value of the lien of the mortgage should be seriously impaired thereby, would be an act of waste, to prevent the commission of which the mortgagee could obtain relief in equity by injunction or by writ out of the Superior Court.”

Several years prior to this case, Mr. Spruance, as a referee, chosen by counsel, drew from the cases he reviewed in the opinion above referred to, the following conclusions which he applied to the case he decided.

“It is apparent that the rule as to fixtures, as applied to machinery moved by power of steam or water, has been greatly extended in modern times, both in England and America—but it still remains the settled law, that machinery and implements in a mill of this character, although necessary for its use and enjoyment as such, and although of a character adapted only to the particular business there carried on, if not actually attached in any manner to the building, or to fixed machinery, by belting, or otherwise, do not pass with the freehold.

‘1 In mills of this character all machinery actually affixed to the freehold, although only by screws, or bolts, or connected with it by belts, or bands passes with the realty.

“With the corpus of fixed machinery passes all that properly belongs to and forms an integral part of it, although capable of being detached and used elsewhere.

“In case a given article, from its nature, or use, is párt of a fixture, so are also all duplicates and different patterns of the same, used for the same purpose, although one only may be used in the same machine at a time. This is in analogy to the case of duplicate keys—and is fully justified by the cases of saws in a saw mill—and rolls in a rolling mill.

“In woolen and cotton mills and probably in most other mills there are certain articles which are necessary for, and are used with fixed machinery as above defined, and are moved by and with it, which are of a more perishable character, are not, purchased with such machinery, require more frequent renewal, and are not integral parts of it, but rather belong to the class of findings or supplies, and do not pass with such fixed machinery as part of the freehold.

“Articles whereby admitted fixtures are connected with the freehold, and whereby motion is imparted to the machinery are an essential and integral part of the freehold and pass with it.”

It may be observed that attachment to the freehold, by mere gravitation in the case of ponderous articles or machinery of immense weight is not expressly mentioned by Mr. Spruance, but I think it may be implied.

Chief Justice Gibson, one of. the greatest of our American judges, delivered, as far back as 1841, a prophetic opinion, that is a masterpiece, and which I cannot refrain from quoting, at great length, inasmuch as I know of no authority which states with such irresistible force the reasons which have induced, if not compelled, the courts to modify the old rule on the lines he indicates. He says:

“It is true we ruled in an unreported case, (Chaffee vs. Stewart) that the spindles and other unattached machinery in a cotton-mill, were personal property for purpose of execution, on the authority of certain decisions to that effect, because we were indisposed to be wise above what is written; but an examination of their foundation would probably have led us to a different conclusion. It is unnecessary to pass the learning of the subject in review, as a clear bird’s eye view of it has been spread before the profession by Mr. Justice Cowen in Walker vs. Sherman, (20 Wend. 636), from which it is evident that no distinctive principle pervades the cases universally, and that the simple criterion of physical attachment is so limited in its range, and so productive of contradiction even in regard to fixtures in dewllings to which it was adapted before England had become a manufacturing country, that it will answer for nothing else. My objection to the conclusion drawn from it in that case, is that the court adhered to the old distinction when the question related to a woollen factory, instead of following out the principle started by Mr. Justice Weston in Farrar vs. Stackpole, (6 Greenleaf 157), which must, sooner or later, rule every case of the sort. The courts will be drawn to it by its liberality and fitness, while they will be drawn away from the old criterion by its narrowness and want of adaptation to the business and improvements of the age. By the mere force of habit, they have adhered to it in almost all cases after it has ceased to be a guide in any but a few; for nothing but a passive regard for old notions could have led them to treat machinery as personal property when it was palpably an integrant part of a manufactory or a mill, merely because it might be unscrewed or unstrapped, taken to pieces, and removed without injury to the building. It would be difficult to point out any sort of machinery, however complex in its structure, or by what means soever held in its place, which might not with care and trouble be taken to pieces and removed in the same way, and the greater or less facility with which it could be done, would be too vague a thing to serve for a test. It would allow the stones, hoppers, bolts, meal-chests, skreens, scales, weights, elevators, hopper-boys, and running gears of a grist-mill, as well as the hammers and bellows of a forge and parts of many other buildings erected for manufactories, to be put into' the class of personal property, when it would be palpably absurd to consider them such. If physical annexation were the criterion in regard to such things, the slightest tack or ligament ought to constitute it; else if we were to get away from it even ever so little, we should have no criterion at all. There are so many fashions, methods, and means of it, and so many degrees of connection between material substances, that there is nothing about which men would more readily differ than whether a thing held by a band or a cleet were permanently annexed to the freehold, or only for a season; and the proof of this is seen in the results of the decisions professedly regulated by it. To avoid discrepance, it would be necessary to hold the slightest fastening to be sufficient, but to exclude from the character of real property, as well every thing constructively attached to it by the nature of the thing, as every thing held to the ground by the attraction of gravitation. Thus cleared of its exceptions, the rule of physical annexation, though at best a narrow one, might furnish a criterion of universal application, though without them, it would make havoc of the cases already decided, and indeed produce the most absurd consequences by stripping houses of their window-shutters and doors, and farms of the houses themselves. When, therefore, we reflect on the necessary exceptions to the rule, as well as the cases of constructive attachment without the semblance of a tack or ligament, we are not surprised at the confusion and embarassment in which we are left by the decisions. The inherent imperfections of the rule required so many exceptions to it, in order to avoid absurdity and injustice in its application, that it has almost ceased to be a rule at all. Being purely artificial, and having no regard to the purposes for which capital is invested, a rigid application of it would be ruinous to the manufacturer. In Pennsylvania, where a statute directs that real estate shall not be sold on execution before the rents, issues and profits, shall have been found by an inquest insufficient to satisfy the debt in seven years, not only might this conservative provision be evaded, but a cotton-spinner, for instance, whose capital is chiefly invested in loose machinery, might be suddenly broken up in the midst of a thriving business, by suffering a creditor to gut his mill of everything which happened not to be spiked and riveted to the walls, and sell its bowels not only separately but piecemeal. A creditor might as well be allowed to sell the works of a clock, wheel by wheel. His interest, it may be said, would forbid him to do so; but in the case of a manufactory, he would often be compelled to sell a part, or to sell many times the worth of the debt, and none but a person entering into the business would purchase either a part or the whole. The sacrifice that would be induced by either course, is incalculable; but that is not all. The bare walls of the building would be comparatively of little value. They might perhaps answer the purposes of a barn; but so might the walls of a dwelling, when deprived of their doors and windows, and why are these considered a part of the dwelling? Simply because it would be unfit for the purposes of a dwelling without them. What, then, is demanded in the case of a building erected for a manufactory, but an application of the same principle? Whether fast or loose, therefore, all the machinery of a manufactory, which is necessary to constitute it, and without which it would not be a manufactory at all, must pass for a part of the freehold. This is no more than an enlargement of the principle of constructive attachment; and it is the principle of Farrar vs. Stackpole, glanced at by Lord Mansfield in Lawton vs. Lawton, (1 H. B. 259 note,) who seems to have foreseen its day. I speak not here of questions between tenant and landlord or remainder man, but of those between vendor and vendee, heir and executor, debtor and execution creditor; and between cotenants of the inheritance. With this limitation, nothing said or done by this court, except its decision in Chaffee vs. Stewart, already mentioned, and an obiter recognition of an adverse decision, by the judge who delivered the opinion of the court in Gray vs. Holdship, (17 Serg. & Rawle, 415) will be found to conflict with the principle proposed. Certainly nothing else ever said by us gives countenance to the notion that the rolls of an iron-mill may be siezed and sold as personal property.” Voorhis vs. Freeman, 2 Watts & Serg. 116, 117.

At the present time the overwhelming weight of the authorities which have accumulated since the date of this opinion of Chief Justice Gibson, is in accord with the views expressed by Judge Knowlton in a late Massachusetts case (1890). Hopewell Mills vs. Taunton Savings Bank, 150 Mass. 519, 521.

So much of the opinion of the Court in that case as seems to bear precisely upon the case before us, is as follows:—

“The character of-the property, as real or personal, may be fixed by contract with the owner of the real estate when the article is put in position; but such a contract cannot affect the rights of a mortgagee, or of an innocent purchaser without notice of it. Hunt vs. Bay State Iron Co., 97 Mass. 279; Thompson vs. Vinton, 121 Mass. 139; Southbridge Savings Bank vs. Exeter Machine Works, 127 Mass. 542, 545; Case Manuf. Co. vs. Garven, 45 Ohio St. 289. Except in cases where a contract determines the question, a machine placed in a building is found to be real estate or personal property from the external indications which show whether or not it belongs to the building as an article designed to become a part of it, and to be used with it to promote the object for which it was erected, or to which it has been adapted and devoted,—an article intended not to be taken out or used elsewhere, unless by reason of some unexpected change in the use of the building itself. The tendency of the modern cases is to make this a question of what was the intention with which the machine was put in place. Turner vs. Wentworth, 119 Mass. 459; Southbridge Savings Bank vs. Exeter Machine Works, 127 Mass. 542, 545; Allen vs. Mooney, 130 Mass. 155; Smith Paper Co. vs. Servin, 130 Mass. 511, 513; Hubbell vs. East Cambridge Bank, 132 Mass. 447; Maguire vs. Park, 140 Mass. 21; McRea vs. Central National Bank, 66 N. Y. 489; Hill vs. National Bank, 97 U. S. 450; Ottumwa Woolen Mill vs. Hawley, 44 Iowa 57. These cases seem to recognize the true principle on which the decisions should rest, only it should be noted that the intention to be sought is not the undisclosed purpose of the actor, but the intention implied and manifested by his act. It is an intention which settles, not merely his own rights, but the rights of others who have or who may acquire interests in the property. They cannot know his secret purpose, and their rights depend, not upon that, but upon the inferences to be drawn from what is external and visible. In cases of this kind every fact and circumstance should be considered which tends to show what intention, in reference to the relation of the machine to the real estate, is properly imputable to him who put it in position.

“Whether such an article belongs to the real estate is primarily and usually a question of mixed „law and fact. Turner vs. Wentworth, 119 Mass. 459; Allen vs. Mooney, 130 Mass. 155; Maguire vs. Park, 140 Mass. 21; Carpenter vs. Walker, 140 Mass. 416; Southbridge Savings Bank vs. Mason, 147 Mass. 500. But the principal facts, when stated, are often such as will permit no other presumption than one of law. It is obvious that in most cases there is no single criterion by which we can decide the question. The nature of the article and the object, the effect, and the mode of its annexation, are all to be considered. In this Commonwealth, it has been said that ‘whatever is placed in a building subject to a mortgage, by a mortgagor or those claiming under him, to carry out the purpose for which it was erected, and permanently to increase its value for occupation or use, although it may be removed without injury to itself or the building, becomes part of the realty.’ Southbridge Savings Bank vs. Mason, 147 Mass. 500; Pierce vs. George, 108 Mass. 78. This rule generally prevails also' in other jurisdictions. Parsons vs. Copeland, 38 Me. 537; Holland vs. Hodgson, L. R. 7 C. P. 328; Longbottom vs. Berry, L. R. 5 Q. B. 123; McRea vs. Central National Bank, 66 N. Y. 489; Hill vs. National Bank, 97 U. S. 450; Harlan vs. Harlan, 15 Pa. St. 507; Delaware, Lackawanna & Western Railroad vs. Oxford Iron Co., 9 Stew. 452; Roddy vs. Brick, 15 Stew. 218, 225; Ottumwa Woolen Mill vs. Hawley, 44 Iowa 57.”

The opinion of Mr. Spruance from which' I have quoted, expresses with precision and in detail the same conclusions as does this opinion of the Massachusetts Supreme Court, and leaves nothing more to be said with regard to the principles of law to be applied to this cause; for, although counsel for the respondents, in his elaborate brief, contended earnestly against those conclusions, they appear to me to be'based upon such sound reasons and to be supported by such an' overwhelming weight of authority that I do not deem it necessary to refer specifically to the authorities he cites or analyze his ingenious argument.

In applying these principles to the scheduled articles in the light of the uncontradicted testimony presented at the hearing, I find that the classification of the articles in the schedule and their submission to one or- other of the tests already laid down, involves no difficulty whatever.

There is no item in the schedule with reference to which any of the puzzling questions can arise, which, in the application of the rules of law, so frequently cause the distracting contradiction in the cases.

It is manifest that numbers 17, 20, 35, 49 and 50, being spools and side-drawn bobbins, heddles and reeds, belong to the class of findings or supplies, are not parts of any fixed machinery, and are personal property not covered by the mortgages of the realty.

No. 26, an unattached lathe and tools; No. 41, two burling tables, entirely unattached; No. 44, measuring machine on table, entirely unattached; No. 58, cloth dye tub; No. 59, fourteen warp dye tubs, moveable on wheels and unattached; and No. 61, hose, not attached to the pump. These ma-y all be classed together as articles not being parts of any machinery or-in any way attached to the building and-in like manner are personal property not covered by the mortgage of the freehold.- • No. 25, dynamo, and lamps. It appears that the circumstances under which these articles were placed in the building, and the intention with which the dynamo was installed,, negative, the inference of any intention .that they should form a part of the real estate. They are, also admitted to be personal property and not covered by the mortgages.

With regard to the other articles mentioned in the schedule and described in the affidavits, it is not questioned by counsel for the respondents, nor is it open to question, that provided the principles which I have recognized as controlling in this jurisdiction, be applied in this cause, they must all be classed as real fixtures constituting a part of the real estate and subject to the lien of the mortgages held by the complainants.

Application, therefore, of these principles in detail, to each article or class of articles in the schedule would be a useless repetition of what has been done already in a strictly analogous case, and approved by me for the reasons given above, or else merely a superfluous amplification of what is admitted and obvious.

It follows, therefore, that an injunction must be granted restraining the said respondents from selling or removing from the mortgaged premises any. of the articles contained in the1 schedule annexed to the bill of complaint, marked “A,” except 'the following articles, to wit:

Lower Card Room, No. 17, Spools and side-drawing bobbins; .Upper card room, No. 20, spools and side-drawing bobbins; Engine room, No. 25, dynamo and lamps; Machine shop, No. 26, lathe and tools; Old weave room, No. 35, 100,000 bobbins; Burling room, No. 41, burling tables unattached'; Filling room, No. 44, measuring machine and table; Beaming room, No. 49, 200 sets heddles and, No. 50, 200 reeds; Upper dye room, Nos. 58 and 59, cloth dye tub and 14 warp dye tubs; Upper dye house and fulling room, No. 61, hose.

Let the order be entered accordingly.

The order for a preliminary injunction, in accordance with the opinion of the Chancellor, was entered February 23, 1897, and on the same day the cause was terminated by the entry, with the consent of counsel on both sides, of a final decree making the injunction perpetual; the respondents, William G. Knowles and James E. Mitchell to pay the costs.

* In view of the fact that the Chancellor approved the reasoning and adopted the conclusions of the opinion herein quoted, and the referee having been appointed Associate Justice June 11, 1897, it has been considered appropriate to print the opinion in the Appendix, especially as in manuscript it has been for many years much consulted and referred to by members of the Bar of New Castle County.