In re Hot Shots Burgers & Fries, Inc., Bankruptcy No. 91-41298M.
| Decision Date | 10 August 1992 |
| Docket Number | Bankruptcy No. 91-41298M. |
| Parties | In re HOT SHOTS BURGERS & FRIES, INC., Debtor. |
| Court | United States Bankruptcy Courts. Eighth Circuit. U.S. Bankruptcy Court — Eastern District of Arkansas |
Ron L. Goodman, Little Rock, Ark., for debtor.
M. Randy Rice, Trustee, Little Rock, Ark.
Charles W. Baker, Rose Law Firm, P.A., Little Rock, Ark., for Trustee.
H. Baker Kurrus, Little Rock, Ark., for University Plaza.
On May 28, 1991, Hot Shots Burgers & Fries, Inc. (debtor) filed a voluntary petition under the provisions of chapter 11 of the United States Bankruptcy Code. By order entered on July 15, 1991, the case was converted to a case under chapter 7, and M. Randy Rice, Esq., was appointed trustee.
On October 7, 1991, the trustee mailed a notice to all parties in interest of his intention to sell personal property of the estate free and clear of liens. University Plaza filed an objection to the trustee's notice to sell, and a hearing was held on October 31, 1991. The Court took the matter under advisement.
The proceeding before the Court is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A) and (N), and the Court has jurisdiction to enter a final judgment in the case.
On September 15, 1986, the debtor entered into a lease agreement with University Plaza for the purpose of leasing property to operate a fast-food restaurant. The leased property was located in a corner of the parking lot of the University Plaza Shopping Center in Little Rock, Arkansas.
After entering into a written lease agreement with University Plaza, the debtor constructed a 570 square foot building on the leased premises to be used as a drive-through fast-food restaurant. The building was constructed from three prefabricated modules that were transported to Little Rock, Arkansas, from Lebanon, Tennessee, on lowboy trailers. The modules were lifted by a crane and placed on a grade beam foundation. The foundation was two feet deep and was designed and constructed specifically to conform to the building's specifications. Weld plates were embedded in the top of the foundation, as well as in the bottom of the modules. After the modules were placed on the foundation, the plates were welded. The outside of the building was covered with a concrete-type material called "Dryvit," and fiberglass was poured on the top of the connected modules to form the roof of the building.
A concrete curb was formed around the outside of the building to meet city building code specifications. A ceramic tile border was affixed around the outside of the building for decorative purposes. The border is approximately three feet high, beginning at the ground and continuing up the sides of the building.
The utilities were provided to the building by pipes and cables that were placed on the premises before the grade beam foundation was built. The pipes and cables extend under the grade beam foundation into a dirt area in the center of the foundation. The utility connections were placed at specific locations pursuant to the schematic drawing of the building. There was a crawl space located on the north end of the building to enable utility connections to be made.
Edward A. Salazar, president of the debtor, testified that the original cost of the building was $57,500.00, which does not include the cost to assemble the building at a particular site. Mr. Salazar further testified that constructing a similar building on the premises without utilizing modular units would have reduced the cost of constructing the building. Another witness testified that a similar building could have been constructed on the premises for approximately $12,000.00.
If the building were removed from the leased premises, a cutting torch would be used to cut the weld plates loose. In addition, it would be necessary to cut the roof in two places and crack the Dryvit wall along the seam lines of the three modules. The inside of the building is constructed so that it can be taken apart without the necessity of cutting the ceiling or walls.
Once the building is removed, the concrete curb and grade beam foundation would remain. To restore the leased property to its original condition, the curb and grade beam foundation would have to be removed by jackhammering. The utilities, although permanent, could be removed from the premises or simply left underground and covered with pavement. A witness for the trustee testified that it would cost approximately $4,000.00 to remove the grade beam foundation and restore the leased premises to its original condition.
The debtor operated five other fast-food restaurants. Four of the five restaurants were operated from buildings similar to the building constructed in this case. At one time the debtor operated a fast-food restaurant in Forrest City, Arkansas, in a modular building similar to the building constructed at University Plaza Shopping Center. The debtor moved the Forrest City building to Bryant, Arkansas, for use as a fast-food restaurant in Bryant.
On October 7, 1991, the trustee mailed a notice to all creditors of his intention to sell personal property free and clear of liens, including "equipment, appliances, inventories, supplies, portable buildings, fixtures, furnishings, and signs" (emphasis added). On October 10, 1991, University Plaza filed an objection to the trustee's sale of the property located at the University Plaza Shopping Center.
University Plaza argues that the building and all related improvements constructed on the leased premises have become so related to the real property as to become part of the real property. University Plaza basis its argument on the proposition that the building has been permanently attached to the real estate and removal of the building would injure the property.
The trustee argues that the building and all of its contents can be removed and sold without injury to the real property. The trustee also argues that, because the building is removable, the building and all of its contents are trade fixtures.
A building constructed on the land of another with the owner's consent, may remain the property of the person annexing the building if there is an understanding, either expressed or implied, that the building shall remain personalty, or there is an express reservation of a right to remove the building. Hankins v. Luebker, 224 Ark. 425, 274 S.W.2d 356, 358 (1955); Milner v. New Edinburg School Dist., 211 Ark. 337, 200 S.W.2d 319, 321 (1947); Vanhooser v. Gattis, 139 Ark. 390, 214 S.W. 44, 46 (1919). When no understanding exists as to the right of removal of the building, a determination must be made as to whether the building has become a "fixture." A fixture is defined as property annexed to the freehold for use in connection therewith and so arranged that it cannot be removed without injury to the freehold. Atkins Pickle Co. v. Burrough-Uerling-Brasuell Consulting Eng'rs, Inc., 271 Ark. 897, 611 S.W.2d 775, 778 (App.1981); Continental Gin Co. v. Clement, 176 Ark. 864, 4 S.W.2d 901, 902 (1928); Choate v. Kimball, 56 Ark. 55, 19 S.W. 108, 109 (1892).
Arkansas courts have adopted a three-part test to determine whether items are fixtures:
McIlroy Bank & Trust Fayetteville v. Federal Land Bank of St. Louis, 266 Ark. 481, 585 S.W.2d 947, 948 (1979) (citing Choate v. Kimball, 56 Ark. 55, 19 S.W. 108 (1892)). The third part of the test, the intention of the party making the annexation, has been held to be the primary factor to rely on in making the determination. Bank of Mulberry v. Hawkins, 178 Ark. 504, 10 S.W.2d 898, 899 (1928); Continental Gin Co. v. Clement, 176 Ark. 864, 4 S.W.2d 901, 902 (1928); Choate v. Kimball, 19 S.W. at 109. The party's intention can be "inferred from the nature of the chattel, the relation and situation of the party making the annexation, the structure and mode of annexation and the purpose for which the annexation has been made." Corning Bank v. Bank of Rector, 265 Ark. 68, 576 S.W.2d 949, 952-53 (1979) (citing Ozark v. Adams, 73 Ark. 227, 83 S.W. 920 (1904)).
The determination of the party's intention should be made as of the time of the annexation. McIlroy Bank & Trust Fayetteville v. Federal Land Bank of St. Louis, 585 S.W.2d at 949. In McIlroy Bank the Court stated:
Whether or not the owner of the equipment, after attaching it to realty, subsequently decided to remove it is not the controlling factor. One might remove a porch from his residence although it was built for the purpose of serving the residence. . . . There can be no question but that the . . . porch was attached and became part of the realty.
In a landlord/tenant relationship, the question of whether property has become a fixture should be liberally construed in favor of the tenant. Romich v. Kempner Bros. Realty Co., 192 Ark. 454, 92 S.W.2d 215, 216 (1936); Stone v. Suckle, 145 Ark. 387, 224 S.W. 735, 737 (1920). Accord Barnes v. Jeffus, 173 Ark. 100, 291 S.W. 990, 991 (1927). See also Harding v. Concrete Structures, Inc. (In re Concrete Structures, Inc.), 9 B.R. 72 (Bankr.E.D.Va. 1981), in which the Court stated that:
When a landowner consents to the placing of a building on his land by another, without an express agreement as to whether it shall become a part of the realty or remain the property of the person placing it there, in the absence of any other facts and circumstances tending to show a...
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