Danville Holding Corp. v. Clement

• Decision Date: 10 September 1941
• Citation: 16 S.E.2d 345
• Court: Virginia Supreme Court
• Parties: DANVILLE HOLDING CORPORATION et al. v. CLEMENT.

16 S.E.2d 345

DANVILLE HOLDING CORPORATION et al.

v.CLEMENT.

Supreme Court of Appeals of Virginia.

Sept. 10, 1941.

Appeal from Corporation Court of Danville; Henry C. Leigh, Judge.

Action for a declaratory judgment between the Danville Holding Corporation and R. C. Clement, trustee, and James William Clement, trustee in deed of assignment from J. M. Walters, to determine whether certain machinery and equipment, installed for use in a building on premises subject to prior trust deeds, were fixtures annexed to the realty and subject to the trust deed, or personalty free from the lien. From an adverse decree, the Danville Holding Corporation and R. C. Clement, trustee, appeal.

Decree reversed.

Argued before CAMPBELL, C. J., and HOLT, GREGORY, EGGLESTON, and SPRATLEY, JJ.

Crews & Clement, of Danville, for appellants.

Malcolm K. Harris, of Danville, for appellee.

SPRATLEY, Justice.

This is an action for a declaratory judgment under the provisions of chapter 2S4A, Virginia Code 1936, to determine whether, under the circumstances of this case, certain machinery and equipment, installed for use in a building on premises subject to a prior mortgage, are fixtures annexed to the realty and subject to the mortgage, or personalty free from the lien.

About twenty-five years ago there was erected in the city of Danville, Virginia, a brick building for use as a warehouse and auction center for the sale of tobacco. The interior was later remodeled in part and the building was then occupied by the Dan City Silk Mills, Inc., for the manufacture of silk cloth. This silk corporation built an addition to the structure, doubling its size and capacity. Its floors were of wood and concrete, with about 20, 000 square feet of floor space on the main floor and 10, 000 square feet in the basement.

In 1933, the silk mills, being unable to operate profitably, executed a general deed of assignment for its creditors. At that time, the Hughes Memorial School held a first mortgage on the property and certain other bondholders were secured by a second mortgage. The second mortgage bondholders organized the Danville Holding Corporation which purchased the building and premises at a sale under the second mortgage, assuming the payment of the first mortgage.

The Danville Holding Corporation, hereinafter referred to as the appellant, thereupon leased the premises to a new silk manufacturing concern which operated thereon from 1933 until 1936 or 1937. After that, the holding corporation rented the building for use as a skating rink.

On November 16, 1937, the holding Corporation sold and conveyed the land and the building in fee simple to J. M. Walters. On the same date, Walters and wife executed a deed of trust as a first lien upon the property to secure the Hughes Memorial School in the sum of $18,720 and a second deed of trust to secure the Danville Holding Corporation purchase money notes aggregating $9,280. The $18,720 was the amount remaining due on the former mortgage executed by the Dan City Silk Mills. It was provided in the second mortgage that the debt thereby secured should be repayable at the rate of $1,280 in 1943, $4,000 in 1944, and $4,000 in 1945. No interest was to accrue on the debt prior to January 1, 1939; the rate thereafter to be 4% per annum.

Walters, prior to the purchase of this property, had for a long time been operating a bakery business in Danville in rented premises. Within two months after his purchase, he moved his bakery business to this newly acquired property. He brought to it bakery machinery from his former place of business and purchased and installed new machinery and equipment of the value of $18,000. One piece of the new machinery, the oven, hereinafter mentioned, cost $7,250. After altering the interior of the building to suit his machinery and his business, he used the building and equipment therein for manufacturing bakery products until July 23, 1940. On the latter date, because of financial difficulties, he executed a general deed of assignment to J. W. Clement, trustee, for the benefit of his creditors. At the time of this assignment, Walters owed the Hughes Memorial School about $16,000 on the first deed of trust and the Danville Holding Corporation the whole of the principal sum of $9,280, with interest thereon.

J. W. Clement, the trustee in the deed of assignment, claimed certain of the machinery and equipment as personalty belonging to his assignor. The trustees in the two deeds of trust and the beneficiaries therein asserted title to the same machinery and equipment as real fixtures.

The controversy does not relate to the heating plant, electric fixtures, wires, water pipes, boilers, furnaces, stokers, or similar fixtures, attached to the building when originally constructed or subsequently placed therein; nor to the ownership of unattached personal fixtures carried on the premises by Walters, such as his office desk, adding machines and trucks. By stipulation between the parties, the machinery involved was described as follows:

"High-speed mixer, fastened to the concrete floor with bolts, both in the motor and in mixer, with pipe upright supports fastened to the floor with floor flanges and screws supporting a scale, to which the flour is carried from a bin by a conveyor; also attached to this mixer is an automatic water scale, fastened to the concrete floor with floor flange and bolts; all of which is connected to coils and switch box by pipe conduits.

"Two-pocket dough-divider, fastened to the concrete floor by lag screws on both ends.

"Dough rounder, fastened to the concrete floor by lag screws on both sides.

"Proofer, sitting on channel iron frames on the floor.

"Bread moulder, sitting on four cast iron legs.

"Dough break, sitting on legs.

"Low-speed mixer, sitting on the floor and attached to column by pipe conduit to motor.

" 'Champion' proof box, fastened to concrete floor by lag screws in sides and uprights in center of box, on top of which isan automatic moisture control, connected to steam line in building.

"'Peterson' 15-tray oven which is sitting on an angle iron frame. The drive of the oven is bolted to the concrete floor with lag bolts. Attached to the oven is an automatic oil burner, attached to concrete floor with floor flanges and screws, with pipe connections extending through the floor. This oven has a steam connection to main line, connecting tubes in the oven; also has a vent or chimney connected to oil burner, and one connected to the oven itself. On the right side of the oven is a steam trap and pipes extending from oven through concrete floor to return line.

" 'Battlecreek' wrapping machine and slicer, sitting on bolts extended to wooden floor.

"Revolving cake oven sitting on floor, with main shaft of revolving table anchored to floor and various pipe connections to hot water tank and pump extending through the floor.

" 'Reid' three-speed cake mixers, sitting on floor and attached by pipe conduit extending down wall to switch box and through concrete floor.

"Pie machine, sitting on wooden blocks, delivering by conveyor to table."

The deposition of J. M. Walters was offered as that of the sole witness. He testified that the building was in bad shape when he purchased it; that he had to fix the floors, to plug up holes therein, and to cut off bolts that were sticking through where machinery of the silk mills had been formerly placed. He said that there was no bakery machinery in the building when he took it over, although there were certain motors on the main basement floor; and that he put in new stokers for the boilers and installed the necessary machinery and equipment for the purposes of a modern bakery plant. As to the nature of the machinery, his testimony was to the effect that the high-speed mixer weighed 3, 000 pounds and was fastened securely to the floor because of its vibration under operation from electric power; that the oven weighed between 5, 000 and 6, 000 pounds, and that it would have to be dismantled at a cost of at least $700 before it could be removed from the building.

On the question of his intended use of the building, the record shows that Walters, on cross-examination, testified as follows:

"Q. When you negotiated the purchase of the building, you intended to move your bakery plant from your Craghead Street location and enlarge your business, did you not? A. Yes, sir.

"Q. What was it necessary for you to do, in order to make that building suitable for the conduct of a bakery plant? A. Well, I had to put stokers in there on the boiler and run steam lines and water lines and electric wires--change it all the way around."

The learned chancellor of the trial court, after hearing the evidence and personally viewing the premises and machinery, entered a decree on September 5, 1940, holding that the machinery involved was personalty, and that the title thereto was vested in J. W. Clement, trustee. The Danville Holding Corporation and R. C. Clement, trustee in the second deed of trust, obtained this appeal from that decree.

On September 6, 1940, the trustees under the first deed of trust sold the real estate without the equipment described in the stipulation, at public auction, for $17,025, an amount sufficient to satisfy the lien of that deed of trust and the expenses of the sale. The machinery and equipment were then sold by the trustee in the deed of assignment, at public auction, for the sum of $5,450. The disposition of this fund awaits our decision here.

The Hughes Memorial School is no longer interested in this proceeding, its debt having been satisfied from the proceeds of the sale of the building apart from the machinery.

This case presents a mixed question of law and fact. No principle of equity is involved. The sole question of law is that of the law of fixtures as between a mortgagor and a mortgagee of land--the trustee here standing in the position of the mortgagor. It is not necessary, therefore, to enter into a discussion of the general...