In re Factory Homes Corporation, FS-70-B-36.

• Decision Date: 28 October 1971
• Docket Number: No. FS-70-B-36.,FS-70-B-36.
• Citation: 333 F. Supp. 126
• Parties: In re FACTORY HOMES CORPORATION, Bankrupt.
• Court: U.S. District Court — Western District of Arkansas

333 F. Supp. 126

In re FACTORY HOMES CORPORATION, Bankrupt.

No. FS-70-B-36.

United States District Court, W. D. Arkansas, Fort Smith Division.

October 28, 1971.

Larry R. McCord, of Pearce, Robinson & McCord, Fort Smith, Ark., Trustee in Bankruptcy.

Shaw & Ledbetter, Fort Smith, Ark., for petitioner, First Nat. Bank of Ft. Smith.

MEMORANDUM OPINION

JOHN E. MILLER, Senior District Judge.

In this action the First National Bank of Fort Smith, Arkansas, seeks review of an order entered August 16, 1971, by the Referee in Bankruptcy allowing the claim of the First National Bank as a common claim but disallowing the claim as a secured claim.

On December 16, 1970, the petitioner, First National Bank, filed its claim against Factory Homes Corporation in the amount of $29,734.00 as a secured claim. On July 7, 1971, the Trustee for Factory Homes Corporation filed an objection to the aforementioned claim, which had been entitled Claim No. 13, and consented to the allowance of Claim No. 13 as an unsecured common claim but not as a secured claim. A hearing was held on August 12, 1971, before the Referee in Bankruptcy, and on August 16, 1971, the Referee, by written order, sustained the objection to the allowance of Claim No. 13 of the First National Bank as secured, and ordered that the claim be allowed as a common unsecured claim.

On August 18, 1971, the First National Bank filed its petition for review, in which it alleged that the holding of the Referee should be reversed and set aside for the following reasons:

"(a) That the Referee erred in his declaration at the hearing and in the written order as to the law of Arkansas in regard to fixtures.

"(b) That the Referee erred in the application of the law of Arkansas in determining whether or not the collateral covered by the Bank's financing statement constituted fixtures.

"(c) That the facts as found by the Referee in that opinion and order are against the preponderance of the evidence and are not supported by the testimonial evidence adduced at said hearing.

"(d) The Referee's holding and declaration of the law of Arkansas in construing the Uniform Commercial Code, Secured Transactions Chapter, Code Section 85-9-401, in determining what constitutes a fixture under that Section of the Code based upon the law of Arkansas was erroneous.

"(e) That the Referee erroneously held and declared that the law of Arkansas and the Uniform Commercial Code required multiple filings to perfect a security interest in all of the types of collateral covered by the financing statement of The First National Bank in claim No. 13.

"(f) That the conclusions of law and the findings of fact of the Referee in denying the claim of The First National Bank as a secured claim are contrary to both the law and the evidence contained in the record below."

On August 30, 1971, the Referee in Bankruptcy filed a certificate pursuant to Section 39(a) (8) of the Bankruptcy Act, 11 U.S.C.A. § 67, in which he certified that the record included with the petition for review of the First National Bank, in the absence of request for other documents by petitioner, was sufficient for consideration and disposition of the questions raised. On September 16, 1971, an amended certificate was filed at the request of the Trustee, which included the original Claim No. 13 and documents attached thereto.

This court has jurisdiction under Sec. 39, Bankruptcy Act of 1898 as amended, 11 U.S.C.A. § 67(c).

The facts are uncontroverted.

On August 18, 1969, petitioner made a loan in the amount of $44,604.00 to Factory Homes Corporation, which was secured by the following items:

"1 Happy Company air compressor —Gardner Denver 40 h. p. Scaffolding by Clayco Contractors Supply Co 1 Clary Corporation mobil craft dado-trimmer Duo-Fast Arkansas air tools & 60 sets of controls 1 Star Machinery Company gang rip saw—Ex 1 #208A 13 Boal Industrial Supply Company electric hoists 13 Boal Industrial Supply Company hoist trolleys 18 Boal Industrial Supply Company bridge crane kits 75 Boal Industrial Supply Company cable trolleys 1 Boal Industrial Supply Company pipe threading machine 200' Boal Industrial Supply Company conveyors and casters Boal Industrial Supply Company small power tools 1 Boal Industrial Supply Company 15" floor sander (All replacements thereof and all accessions parts and equipment now or hereafter affixed thereto or used in connection therewith.)"

A financing statement was filed in Crawford County listing this property on August 20, 1969. An involuntary petition in bankruptcy was filed on July 16, 1970, against Factory Homes Corporation. On July 27, 1970, the bank filed the Security Agreement with the Secretary of State in compliance with Ark. Stat.Ann. § 85-9-401(1) (c).

The trustee of the estate of a bankrupt is vested by operation of law with the title of the bankrupt as of the date of the filing of the petition initiating a proceeding under the Bankruptcy Act, except insofar as it is to property which is held to be exempt. Sec. 70(a) of the Bankruptcy Act, 11 U.S.C.A. § 110(a). The trustee also has the benefit of all defenses available to the bankrupt as against third persons. Sec. 70(c), 11 U.S.C.A. § 110(c).

The issue before the Referee was whether or not the security for the loan could be properly classified as "equipment" or "fixtures." If the security was "equipment," then the lien of the bank was not perfected until July 27, 1970, and the rights of the Trustee would be superior to those of the bank. On the other hand, if the security was classified as "fixtures" under the law of Arkansas, then the local filing would be sufficient to perfect the lien of the bank as of August 20, 1969, and the lien of the bank would be superior to that of the Trustee. (See Ark.Stat.Ann. § 85-9-401.)

On August 12, 1971, the Referee in Bankruptcy held a hearing, at which Mr. Allen Gattis, a Vice President of the bank, testified that he thought the security was properly classified as "fixtures." Mr. B. L. Wooley, an auctioneer, testified that he and the Trustee inspected the property; that the Trustee decided the property could be removed easily and without damage to the building. Accordingly the property was sold by the Trustee as personal property free of any lien or claim of the bank.

On October 15, 1971, Petitioner submitted its brief and argument. The petitioner contends that the security consisted of $12,000 worth of I-beams, steel cranes and drills that were erected and attached to the ceiling and affixed to the building, and that the machine listed on the financing statement as a "dadotrimmer" was also affixed to the building. Petitioner does not contend that the Star Machinery Company gang rip saw and Boal Industrial Supply Company small power tools are fixtures, but admits that they are equipment. Petitioner further contends that in deciding whether the collateral should be classified as fixtures or equipment, the Referee ignored the Arkansas law of trade fixtures. It is also contended that the only criteria which the Referee used to establish whether the collateral was a fixture or not was the possibility of removal without damage to the structure.

On October 20, 1971, the memorandum brief of the Trustee was received. The Trustee bases his argument on two theories. First, he states that the Referee was correct in his finding that the collateral was properly classified as equipment. The Referee in his order of August 16, 1971, said:

"The Court finds as a fact that the collateral in question is not properly classified as a fixture, but as equipment, as defined by U.C.C. 85-9-109(2); that it could be removed or replaced for repair by unhooking or unbolting without damage to the structure; and that the part which was bolted was to stabilize the equipment while in use. The building was not owned by the bankrupt, but was leased from S & H, Inc. This lessor-lessee relationship does not manifest an intent on the part of the bankrupt to make this equipment a permanent acquisition to the property owned by the lessor.

"The Court further finds that there was not the slightest damage upon the removal of this equipment from the freehold or building, as was testified to by Mr. Wooley, and as demonstrated by claim #77 by S & H, Inc., which sought no money for damage to the structure, as surely it

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