In re Boden Min. Corp.
| Decision Date | 03 March 1981 |
| Docket Number | Bankruptcy No. 79-20285,Adv. No. 80-0100. |
| Citation | 11 BR 562 |
| Court | U.S. Bankruptcy Court — Southern District of West Virginia |
| Parties | In re BODEN MINING CORPORATION, Debtor. Raymond G. DODSON, Trustee, Plaintiff, v. WESSEX MINING CORPORATION, Carbonex of Kentucky, Inc., and Credit Alliance Corporation, Defendants. |
Raymond G. Dodson, Charleston, W. Va., bankruptcy trustee.
Joseph W. Caldwell, Charleston, W. Va., for Credit Alliance Corp.
William S. Howard, Lexington, Ky., and Michael A. Braun, Charleston, W. Va., for Carbonex of Kentucky, Inc.
Raymond G. Dodson, Trustee of the bankruptcy estate of Boden Mining Corporation, the Debtor, seeks a determination of his rights among competing lien claimants to a coal washing plant. One of those claimants, Carbonex of Kentucky, contends that as the assignee of the seller's security interest the perfection of its liens against the washing plant on August 15, 1978, in Randolph County, West Virginia, and with the West Virginia Secretary of State on October 15, 1979, are sufficient to give it a valid first lien. Another claimant, Credit Alliance Corporation, contends that its lien under an "omnibus clause" in a conditional sale contract, perfected in the interval between the Carbonex county and state filings, gives it priority over both Carbonex and the Trustee. Carbonex answers that Credit Alliance should not be accorded lien status at all regardless of perfection dates since the "omnibus clause" contained in the conditional sale contract did not give Credit Alliance a security interest in the coal washing plant.
In earlier proceedings, the Debtor's chapter 11 case was converted to a liquidation case under chapter 7. Shortly thereafter the Trustee initiated this proceeding. The Trustee regained ownership of the coal washing plant and leasehold rights in land on which it is located by joinder and entry of a default judgment against Wessex Mining Corporation, which was indebted to the Debtor. The parties are not disputing the Trustee's claim to the land. Initially, the Trustee acknowledged the lien of Carbonex and sought to sell the coal washing plant with the lien attaching to the sale proceeds. When L.B. Smith, Inc., the assignor of Credit Alliance, intervened claiming its lien priority, the Trustee sought approval of a compromise with L.B. Smith which excluded recognition of the secured position of Carbonex. Carbonex objected to the compromise and urged a determination of the rights of the parties prior to any sale. Finally, Credit Alliance Corporation was substituted as successor to the interest of L.B. Smith and the matter came for trial on the respective rights of the Trustee, Carbonex and Credit Alliance in the coal washing plant.
In determining the priority of the respective liens, the threshold question is whether the coal washing plant is a fixture. It is agreed that if the plant is a fixture, neither Credit Alliance nor Carbonex perfected a lien by filing in the manner prescribed by the Uniform Commercial Code. W.Va.Code § 46-9-313(1)(b) (1980 Cum.Supp.). As a result, under the avoiding powers of the Bankruptcy Code the Trustee will have a paramount claim to the plant. 11 U.S.C. § 544.
The coal washing plant is an assemblage of screens or sieves, conveyors, and pumps which improve the grade of raw coal to meet market standards for a low sulfur, high BTU product. The plant is factory assembled in units which can be transported to the job site on three highway-type tractor trailers. Suppliers advertise the modular construction of the units and their portability to remote areas near the source of the coal. Plaintiff's Exhibit 3. In this case the plant was erected on land leased by the Debtor under an instrument which gave it the right "to remove all structures, buildings, etc., except railroad siding or sidings." Plaintiff's Exhibit No. 2 at 11, par. (6). The term of the lease is ten years with the option to renew it for two successive ten-year terms. The machinery and equipment constituting the washing plant is largely contained in a two or three-story building. Plaintiff's Exhibit No. 3.
A series of West Virginia cases, beginning with Snuffer v. Spangler, 79 W.Va. 628, 92 S.E. 106 (1917), have developed the tests to be used to determine when personal property becomes a fixture.
Personal property used in connection with real estate is fixtures and part of the realty, when the following conditions concur: First, it must be attached to the real estate, and by this we do not mean that it has to become so attached as to do serious damage to the realty, or to the property itself in order to remove it, but that it must be so attached as that the two, the real estate and the fixtures, work together to one end; Second. It must be reasonably necessary and adapted to the purposes for which the real estate is being used; and Third. It must be the intention of the party placing such property upon the real estate to make it a part thereof. If the first two of these elements concur, that is, its attachment to the real estate and its adaptability to the purposes for which the real estate is being used, it will be presumed that the party attaching it intended that it should be a part of the real estate, unless a contrary intention appears from the conduct of the parties in relation to it. Snuffer v. Spangler, 79 W.Va. 628, 637-38, 92 S.E. 106 (1917).
Unquestionably, the coal washing plant is attached to the real estate and is reasonably necessary and adapted to the purpose for which the real estate is being used, namely, to process coal for shipment. Inquiry must be made, therefore, to determine whether the parties did not intend that the plant become a fixture. "In determining the intention of the parties as to whether articles attached to the freehold becomes fixtures, consideration should be given to the circumstances and purposes of the annexation." Pocahontas Coal & Coke Co. v. Bi-Products Pocahontas Co., 112 W.Va. 390, 395, 164 S.E. 504 (1932). More recently, the court noted that:
Our decisions emphasize the intention of the lessee in attaching property to the real estate of the lessor, that is as to whether it was for the purpose of increasing the value of the land, or whether the attachment was for the sole benefit of the lessee in conducting his trade or business. In each case then it becomes a question of fact whether fixtures placed upon the land of a lessor by a lessee are permanent or removable. Milburn By-Products Coal Co. v. Eagle Land Co., 141 W.Va. 866, 93 S.E.2d 231, 237 (1956).
These rules remain unaltered. Blair v. Freeburn Coal Corp., W.Va., 253 S.E.2d 547 (1979).
In our case, the lease differentiated between property which could be removed from the land and property which had to remain on the land. Railroad sidings had to remain while structures and buildings could be removed. The modular nature of the coal washing plant, which enhanced its portability both to the present site and for later relocation, supports a conclusion that removal was contemplated. Advertising material of the plant's manufacturer stresses this feature. Plaintiff's Exhibit No. 3. The relatively short, ten-year term of the initial tenancy similarly suggests the temporary character of the installation. The plant was not placed on the land to increase the value of the land, but was for the sole benefit of the lessee in conducting its business. The plant does not lose its identity as personal property. Thus, it is not a fixture as defined by the law of this state. Inasmuch as the plant is not a fixture, the failure of Carbonex and Credit Alliance to observe the fixture filing requirements of the Uniform Commercial Code is irrelevant.
The second issue is whether Credit Alliance acquired and perfected a security interest in the plant through an "omnibus clause" in a conditional sale contract for coal and earth-moving equipment executed between the Debtor and L.B. Smith, the predecessor in interest of Credit Alliance. In addition to reserving a security interest in the equipment being sold to the Debtor, the conditional sale contract contained the following provision:
In any jurisdiction where the Uniform Commercial Code is in effect, the Buyer grants to Holder a security interest in the property and any and all inventory, goods, equipment, machinery, fixtures and assets of any kind and every kind, wherever located now or hereafter belonging to buyer or in which Buyer has any interest. . . .
This Court recently examined whether such a general description of assets could create a security interest in then-existing or after-acquired property sufficient to prevail over subsequent lien claimants. In re Eastern Equipment, 11 B.R. 732 (S.D. W.Va.1981), held that...
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