Bank of Am. Nat. Ass'n v. La Reine Hotel Corp.

• Decision Date: 06 August 1931
• Citation: 156 A. 28
• Parties: BANK OF AMERICA NAT. ASS'N et al. v. LA REINE HOTEL CORPORATION et al.
• Court: New Jersey Court of Chancery

156 A. 28

BANK OF AMERICA NAT. ASS'N et al.

v. LA REINE HOTEL CORPORATION et al.

Court of Chancery of New Jersey.

Aug. 6, 1931.

Syllabus by the Court.

Under the law of fixtures, a chattel conditionally sold and annexed to realty retains its character as personalty or becomes a part of the realty according to the intention of the parties, and the appropriation to use is controlling as evincive of that intention, the degree of annexation being of some, but minor, importance

Syllabus by the Court.

The rights of the parties to a conditional sales agreement, and of third par ties also, since the adoption of the Uniform Conditional Sales Act (P. L. 1919, p. 461 [Comp. St. Supp. § 182—7 et seq.]) are controlled by the law of conditional sales, and not by the law of fixtures, the latter law being important only in determining what is, or is not, "material injury to the freehold."

Syllabus by the Court.

The word "freehold" as used in that act refers to the freehold as of the time as of which the inquiry is made. It may mean before or after annexation according as the identity of the chattel is lost or not.

Syllabus by the Court.

The basic law of fixtures is not changed by the Conditional Sales Act; it is merely restricted in its application.

Syllabus by the Court.

Under our law of conditional sales, neither the intention with which a chattel is annexed to the realty (that question being eliminated by the agreement itself), nor the use to which the chattel is appropriated, is important in determining the efficacy of an agreement by which title is retained in the vendor. Material injury to the freehold by detaching is the test tity generally constitutes waiver of title reserved in conditional sales agreement.

Syllabus by the Court.

A vendor's title reserved in the conditional sales agreement may be waived, either expressly or impliedly. Acquiescence by the vendor to a use of the property by the vendee which destroys the identity of the chattel will generally constitute such a waiver.

Syllabus by the Court.

Although there are limitations to the right of a conditional vendor to retain title in himself, that limitation cannot be defined with such certainty as to permit its universal application. Each case must be governed by its own facts and circumstances.

Syllabus by the Court.

In determining the rights arising out of a conditional sales contract, under our present law, the fact that the chattel has become an integral part of a common plant, and with the building forms a unit for the prosecution of a common purpose, is unimportant, if the chattel is, in fact, detachable without material injury to the freehold.

Syllabus by the Court.

Where a master's findings have been based upon a misconception of the issues involved, and the law applicable to the real issues has been misconstrued, the court, on exceptions, must decide the fact and apply the law thereto.

Suit by the Bank of America National Association, as trustee, and others against the La Reine Hotel Corporation and others to foreclose mortgages. On exceptions to master's report.

Decree in accordance with opinion.

McCarter & English, of Newark, for complainants.

George Furst, of Newark, and James D. Carton, of Asbury Park, for receivers of La Peine Hotel Corporation.

Bilder & Bilder and Samuel Kaufman, all of Newark, for exceptant Credit Utility Co., Inc.

McDermott, Enright & Carpenter, of Jersey City, for exceptant York Ice Mach. Corporation.

Cook & Stout, of Asbury Park, for exceptant Eastern New Jersey Power Co.

Martin Simon, of Newark, for exceptants Jacob & Josef Kohn and Mundis, Inc.

Milberg & Milberg, of Jersey City, for exceptants Standard Weather Strip & Screen Co., Inc.

David Goldstein, of Asbury Park, for defendant B. Altman & Co.

Green & Green, of Newark, for defendant Troy Laundry Mach. Co., Inc.

Durand, Ivins & Carton, of Asbury Park, for exceptant Otis Elevator Co.

BERRY, Vice Chancellor.

The bill is to foreclose two mortgages, first, a real estate mortgage in the sum of $250,000, and second, a chattel mortgage in the same amount given as additional security for the mortgage on the realty. The property, consisting of a hotel and its equipment and furnishings, is in the custody of an insolvency receiver appointed by this court in Sparks v. La Reine Hotel Corporation, docket 76, page 135. Numerous conditional vendor defendants filed petitions in that cause for the removal of property, the subject of conditional sales agreements and in the custody of the receiver. The mortgagee in the foreclosure suit also claimed this property to be subject to both the real and chattel mortgages. There was a reference to a master who viewed the premises and took testimony on the various issues referred. It was agreed that the decision in this suit should be dispositive of the issues raised by the petitions in the other. The master reported that the chattel mortgage was invalid for the reasons set forth in conclusions which he filed. No exceptions to that finding have been filed; the court concurs, and it will be confirmed. (Since the foregoing was written, exceptions to that finding have been filed by the complainant but they will be dismissed for the reasons stated by the master in his conclusions which have been filed.)

The master also filed a report fixing the amount due on the real estate mortgage and to the various defendants on their respective incumbrances and conditional sales agreements. With respect to the subject-matter of the conditional sales agreements, there was a stipulation by the parties as to some of it which was removed. As to certain property claimed by Credit Utility Company, Inc., York Ice Machinery Corporation, Eastern New Jersey Power Company, Standard Weather Strip & Screen Company, Inc., Jacob & Josef Kohn and Mundis, Inc., B. Altman & Co., and Otis Elevator Company, the master first reported that the property in controversy could be removed from the premises without material injury to the freehold, and that it was not subject to the lien of the complainant's mortgage. This was immediately before the decision in Future Building & Loan Association v. Mazzocchi, 107 N. J. Eq. 422, 152 A. 776, 778. Upon the filing of the opinion in that cause, the master by leave of court withdrew his report, and later, filed another report in which he found that the property of B. Altman & Co., consisting of furniture, rugs, and hangings, was not attached to the freehold so as to become a part thereof, and was removable without material injury thereto. He also reported that the property claimed by Credit Utility Company, Inc., York Ice Machinery Corporation, Standard Weather Strip & Screen Company, Inc., Jacob & Josef Kohn and Mundis, Inc., and Otis Elevator Company, were "a necessary part of the premises and that the same cannot be removed without material injury to the hotel building and the institution of which they form a part," and that they were subject to the lien of complainants' mortgage.

With respect to the claim of Eastern New Jersey Power Company, the master reported that a portion of the property claimed could be removed without material injury to the premises, and was not subject to the lien of complainants' mortgage; but that other portions of the property, namely, two electric transformers, were necessary to the operation of the defendant's building as a hotel, and that "they could not be removed without material injury to the institution of which they are a part." No exceptions to the master's findings with respect to the property claimed by this defendant, other than the transformers, have been filed, and the report, save as excepted to, will be confirmed.

The complainant has excepted to the master's report as to property claimed by the defendant B. Altman & Co. These furnishings clearly never lost their character of personal property. They are in no way attached to the freehold so as to become a part thereof, and, the chattel mortgage being invalid, the exception with respect to this finding will be overruled.

After the decision in Future Building & Loan Association v. Mazzocchi, supra, the master felt impelled to follow his interpretation of it and bases his present report, with respect to which exceptions have been filed, upon the rule of that case as he conceived it. In this he was correct, but I think he misinterpreted the court's opinion, and that his present findings cannot be wholly sustained.

The variant views of counsel respecting the law applicable to the present controversy, reflecting, as I believe they do, confusion at the bar and some difference of opinion on the bench, have impelled me to trace the history and development of the law of fixtures in this state and the present law of conditional sales, which, in my judgment, is an outgrowth of the law of fixtures. It may be said at the outset that the issues here are controlled by the law of conditional sales and not by the law of fixtures, although some understanding of the latter must be had in order to correctly apply the former.

The ancient English rule was that all things annexed to the realty become a part of it, and annexation was considered the test. The underlying principle of the law of fixtures "being but one application of the theory of accession, as it existed in the civil law" (1 Tiffany, Real Property, § 266; see, also, 1 Thompson On Real Property, § 138; Broom's Legal Maxims [9th Ed.] p. 264), the degree of annexation was unimportant. This rule was greatly relaxed by modern decisions, and the degree of annexation and the resultant injury to the freehold by detachment became of increasing importance. Broom's Legal Maxims, supra. The maxim of the common law is that the principal thing should not be destroyed by taking away the accessory. 1 Thompson On Real Property, § 143. In New Jersey as early as 1854 (Brearley v. Cox, 24 N. J. Law, 287) it was held that "the true criterion of a fixture is the united application of the following...