208 F. 813 | N.D. Ohio | 1913
This case is before the court on petitions for review filed by the trustee and two claimants, the Alliance Machine Works and the Rake Frie Nail & Supply Company (which parties will be designated hereafter as the Alliance Works'and the Take Erie Company).
We think that the referee’s conclusion that the transaction in September, through which the attempt was made to substitute the bankrupt for Eurich, affected the status of these two forges is wrong. The facts show" simply a desire on the part of the three parties to the transaction, Eurich, the bankrupt, and the Alliance Works, to continue the status of this property as it was established when first installed, and we see no justification in equity in holding that there was any disturbance of the status through the transactions referred to. A short time thereafter the Alliance Works sold the bankrupt a third drop forge, which was installed in the manner of the first two, and simultaneously a conditional sale contract was made and recorded, attempting to retain the status of this machine as personal property with title in the vendor until paid for. The referee awards this forge to the Alliance Works, and it is his decision that the first two forges are part of the realty, to be administered upon for the benefit of creditors generally, subject to the mechanics’ lien that we are called upon to review.
A mechanics’ lien was perfected by the Variety Iron Works, which the referee finds to he dated December 12, 1911, and which covers all the property in question, in the referee’s opinion, except the last drop
The referee distinguishes between his holding with reference to the last drop forge, which he concedes to be the property of the Alliance Works, as a chattel, and the machines furnished by the Take Erie Company, because of the fact that the conditional sale contract held by the latter was not filed for record immediately.
The Variety Iron Works, mechanics’ lien holder, is not before the court with brief or argument.
The referee bases his opinion upon the authority of Case Mfg. Co. v. Garven, 45 Ohio St. 289, 13 N. E. 493. We join with him in depending upon that case as controlling very largely the determination of the issues involved, but we are of the opinion that the referee fails to properly apply it.
Teaff v. Hewitt, 1 Ohio St. 511, 59 Am. Dec. 634, is conceded to be the leading case in American jurisprudence upon this general subject and its criterion of an irremovable fixture is that accepted by all courts and text-writers. It is that three tests must unite in application: (1) Real or constructive annexation of the article in question to the realty. (2) Appropriation or adaptation to the use or purpose of that part of the realty with which it is connected. (3) The intention of the party making the annexation to make the article a permanent accession to the freehold.
We may assume that the several articles involved in this contention became fixtures on their several installations if the first two tests were all that determined the question. Each one was constructively annexed to the realty; each one was manifestly appropriated and adapted to the •use or purpose of that part of- the realty with which it was connected. But the third test fails. All the circumstances speak to the point that the intention of the vendee in annexing them to the freehold was not to presently make them a permanent accession thereto. Bearing in mind the relation of the trustee as the representative of creditors and thereby having the rights and remedies of a judgment creditor, which we will subsequently consider, whatever the bankrupt could legally do by way of exempting these chattels from the responsibility of 'fixtures through these conditional sale contracts, and which he did do, must be binding upon the trustee. The case of Case Mfg. Co. v. Garven, supra, as it is applied to the facts before us, deals with the question of what a vendee of chattels adapted to become fixtures may legally do by way of contracting that they shall, although affixed to the realty, be treated as personalty.
Whether the distinction made in Case Mfg. Co. v. Garven is artificial or not, it is the law of Ohio and must govern the case before us. It is.that machinery which is driven merely and which may be removed without substantial injury to the building, leaving the latter to remain in a state adapted to manufacturing purposes generally, may be the subject of,a treaty between vendor and vendee whereby, although' affixed, it shall be considered to be personal property subject to the fulfillment of the terms of the contract, but that machinery which fufnishes the motive power and which is general in its applica
. “Tlie difficulty of prescribing a rule that may be applied to cases in general lias been confessed both by courts and writers upon the subject; various tests have been adopted, none of which have been applied with anything like uniformity. It may, however, be admitted that the distinction between the motive power of a factory and the machines driven by it is somewhat arbitrary; still it is one based upon a physical difference, easily perceived, if not dictated by any well-defined principle, and is no more illogical than many distinct ions to be found in other branches of the law. That yvhich divides all property into real and personal is quite as wanting in anything like scientific classification, but, from its general recognition wherever the common law prevails, is found to be very convenient in practice; and it is such considerations that have always more or less influenced the adoption of definite rules of property. * “ *
“Here the question is not whether the character of the property may be changed by the agreement of the parties as between themselves (of this there is no doubt), but, when the property is such that from the maimer of the annexation it would, but for the agreement, ordinarily be regarded as a fixture, whether it can be made by the agreement of the parties to preserve the character of personalty so as to avail against innocent purchasers, without notice. This must, we think, upon principle and authority, be answered in the negative.”
The distinction which serves to determine the power to control by-contract the status as a chattel of what otherwise would be part of the realty as a fixture is clearly expressed by the court in Fortman v. Goepper, 14 Ohio St. 558, on page 567:
“The general principle to bo kept in view, underlying all questions of this kind, is the distinction between the business which is carried on in or upon the premises, and the premises, or locus in quo. The former is personal in its nature, and articles that are merely accessory to the business and have been put on the premises for this purpose and not as accessions to the real estate retain the personal character of the principal to which they appropriately belong and are subservient. But articles which have -been annexed to the premises as accessory to it, whatever business may be carried on upon it, and not peculiarly for the benefit of a present business which may be of a temporary duration, become subservient to the really and acquire and retain its legal character.”
This case is cited by the Supreme Court of Ohio in Case Mfg. Co. v. Garven, and the distinction made evidently lies at the base of the discrimination made in that case between the Case Manufacturing Company and the Mansfield Machine Works; the point being that a contract to maintain the status of personalty might be made with reference to machinery which was peculiar to the special business to be presently carried on upon the premises but could not be made with reference to such machinery affixed to the realty which was not peculiar to the pres
“Tie general rule upon this subject rests largely upon the presumed intention of the party who acquires the chattel and brings it into fixed association with his own real property. What that intention was in the present case seems clear. We think there can be no doubt that the Ohio Steel & Iron Specialty Company intended to affix the machine in question to the real estate as a part of the mill, to remain such permanently. The modern authorities, at least, upon this subject, with hardly any exception, agree that, upon such a state of facts as is presented here, the machine or other thing becomes a fixture, in the absence of any statute leading to a different result.”
It should be noted that the Supreme Court of Ohio in Case Mfg. Co. v. Garven, supra, avoided the effect of the Mansfield Machine Works contract only against “innocent purchasers without notice.” The case is not authority for the proposition that, even with respect to the motive machinery, the equity which the Mansfield Works undertook to preserve would not be effective against claimants who were not of the standing of innocent purchasers without notice. It seems to us that the referee in his opinion has plainly overlooked this very important distinction, and it is profitable now to determine whether the trustee in his representative capacity enjoys the exalted status of an innocent purchaser. There is but one answer to this question and that is in the negative.
“This language aptly refers to sueli rights, remedies, and powers as a creditor bolding such a lien is entitled to under the law rather than to the rights, remedies, and powers of a creditor who had actually fastened a lien on the property of the bankrupt estate.”
In other words, the amendment of 1910 simply puts the trustee in his representative capacity in the position of a creditor who has reduced his claim to judgment. Such a creditor, by the settled law, is subject to all latent or secret prior liens or equities in favor of third
It follows that the referee’s holding as to the last drop forge furnished by the Alliance Works was correct, and the trustee’s petition for review directed against it should be denied. And it also follows that the referee’s holding was wrong as to the first two forges furnished by the Alliance Works, and also wrong as to the trustee and those having liens under his appointment with reference to the several machines furnished by the Lake Erie Company.
In Miller v. Albright, 60 Ohio St. 48, 51, 53 N. E. 490, 491, the court is discussing the inferiority of a judgment lien to an unknown vendor’s lien, saying:
“It is a well-established rule that the lien of a judgment attaches only to such beneficial interest in land as the judgment debtor has at the time of its rendition; and, when the rule is not otherwise affected by statutory regulation, as in cases of mortgages and other instruments which become effectual against third persons only on proper registration, the judgment lien is subject to all equities concerning the land which could be successfully asserted against the debtor. This rule is declared in Tousley v. Tousley, 5 Ohio St. 87, where it is said that, so far as the statute goes in giving a judgment creditor preference over mortgages not perfected by delivery to the recorder, ‘his rights are absolute, but for everything else he is remitted to general principles, and on general principles it is very clear that he acquires a lien only upon the interest of his debtor and is bound to yield to every claim that could be successfully asserted against him.’ Hence the lien of the vendor must be as effectual against the judgment creditor who simply succeeds to the interest of the vendee in the property as it is against the vendee himself. The vendor and the party holding the judgment being equally meritorious creditors, the former has the better equity, because so much of the land as is necessary to pay the amount due him on the purchase price is in equity his property, which ought not to be taken for the payment of another’s debt.”
So here, dealing with property which may be chattels, and hence not subject to a mechanics’ lien of real property, according to the intention of the possessor in apparently affixing it to the real estate, it would seem that, as between conflicting equities, that of the unpaid vendor was superior to that of the mechanics’ lienor.
It follows from the foregoing that the referee erred in refusing to allow the testimony of the manager of the bankrupt that at the time of making the agreements with the Lake Erie Company, and at the time the bankrupt installed the property covered by the said agreement, it was not the intention of the bankrupt to make such property a permanent accession to and part of its freehold estate, and that the referee was right in refusing to exclude the testimony offered by the trustee and the Lorain Street Savings Bank Company tending to show that the plant and manufactory of said bankrupt was built solely and wholly for use as a drop forging plant, and also in refusing to exclude testimony that the machinery involved in the several reviews was an integral part of said plant and manufactory. This testimony was competent, both that refused and admitted, in the application of the second and third tests laid down in the criterion established in the case of Teaff v. Hewitt, supra.
The petitions for review of the Alliance Machine Works and the Lake Erie Nail & Supply Company will each be allowed and their liens protected accordingly.