J.K.S.P. Restaurant, Inc. v. Nassau County

• Citation: 127 A.D.2d 121,513 N.Y.S.2d 716
• Parties: , 3 UCC Rep.Serv.2d 825 J.K.S.P. RESTAURANT, INC., Respondent-Appellant, v. The COUNTY OF NASSAU, et al., Appellant-Respondents.
• Decision Date: 30 March 1987
• Court: New York Supreme Court — Appellate Division

Page 716

513 N.Y.S.2d 716

127 A.D.2d 121, 3 UCC Rep.Serv.2d 825

J.K.S.P. RESTAURANT, INC., Respondent-Appellant, v. The COUNTY OF NASSAU, et al., Appellant-Respondents.

Supreme Court, Appellate Division,

Second Department.

March 30, 1987.

Edward G. McCabe, Co. Atty., Mineola (Robert O. Boyhan, of counsel), for appellant-respondent County of Nassau.

Kaufman & Serota, P.C., New York City (Bernard Meyerson, of counsel), for appellant-respondent Hempstead Equities Corp.

Lawrence, Ciovacco & Walsh, P.C., Hempstead (Lawrence S. Lawrence and Jeannine A. Broomhall, of counsel), for respondent-appellant.

Before MANGANO, J.P., and BRACKEN, KOOPER and SPATT, JJ.

SPATT, Justice.

This case involves a dispute over the validity of the plaintiff's interest in a prefabricated Kullman dining car ("diner") which was assembled onsite at 75 North Franklin Street in the Village of Hempstead, New York, and was formerly operated as The Hempstead Town House. The overriding issue raised on appeal is whether the Hempstead Town House diner is to be treated as realty or personalty. Under the circumstances of this case, we hold that the diner is a trade fixture and thus is personalty, subject to a factual determination as to whether it can be removed without material damage to the freehold.

THE FACTS

The land on which the diner is located was separately owned by the landlord-owner ("landlord") who was responsible for the payment of real estate taxes on the property. The landlord leased the premises to two individual tenants (two of the three shareholders of the plaintiff corporation) on October 27, 1965, by a written lease which was ultimately assigned to the plaintiff corporation. The lease contained the following paragraph with regard to the status of the diner:

"Notwithstanding the provisions of paragraphs 43 and 45 of this agreement it is distinctly understood and agreed that the diner, kitchen and dining room placed or erected upon the demised premises shall be and at all times remain the personal property of the tenant, its assigns or its conditional vendor and may be removed by said tenant, its assigns or conditional vendor at any time and further that said diner, dining room and kitchen shall not be deemed to be attached to the realty as to become part thereof but shall at all times be deemed severable from the realty The plaintiff had purchased the Kullman diner from the manufacturer in 1965. The diner was prefabricated in New Jersey and then transported in three sections on flatbed trailers to the site in Hempstead where it was unloaded, assembled on site and installed upon the foundation which had been built in the ground. The three sections of the diner were bolted in place. According to the plaintiff's president, the purpose of designing diners in this manner was to retain their character as personalty and allow for easy removal and placement elsewhere.

without material injury to itself or to the freehold."

On November 16, 1979, the plaintiff sold the restaurant business, including the diner and its fixtures, furniture and equipment, to Hellas Restaurant Corp. ("Hellas") for $215,000. To secure payment of the unpaid portion of the purchase price, the plaintiff and Hellas entered into a security agreement which set forth a schedule of assets to be collateral securing the debt, including "One Kullman Dining Car # 59166 presently located on the premises". The plaintiff filed a form "UCC-1" financing statement with the Office of the County Clerk of Nassau County on November 19, 1979, covering the "[d]ining car and all fixtures, equipment, furniture, furnishings and chattels". A similar filing was made on November 26, 1979, with the Secretary of State of New York.

In or about January 1983 Hellas defaulted in the payment of the installments due the plaintiff under the security agreement and abandoned the lease and the property. The plaintiff elected to accelerate the total balance due in accordance with the terms of the security agreement. It subsequently entered upon the premises and attempted to secure the diner in order to sell it to a third party who would then remove it to another location. However, in April or May, 1984, as the plaintiff's successor in interest was about to remove the diner, it was discovered that a tax lien on the property had been sold to the County of Nassau by the Treasurer of Nassau County on February 17, 1981, as a result of several years' accumulation of delinquent real estate taxes. The county foreclosed on its tax lien against the owner of the property and a deed dated March 16, 1984, was issued by the Treasurer of Nassau County to the county. Thereafter, by deed dated December 18, 1984, the county conveyed its interest in the subject property to defendant Hempstead Equities Corp. ("Hempstead Equities"), the present owner of the real property upon which the diner is located.

Prior to the delivery of the deed to Hempstead Equities and on October 25, 1984, the plaintiff filed a notice of pendency against the premises based upon the instant action which it instituted against the county on the same date. The complaint contains four causes of action seeking the following relief: (1) repossession of the collateral, including the diner; (2) foreclosure on the diner based on its perfected security interest; (3) damages for conversion; and (4) injunctive relief enjoining and restraining the county from disposing of or otherwise impairing the collateral.

The crucial issues in this case, involving the status of the diner and the plaintiff's asserted lien, were raised when the defendant Hempstead Equities moved to cancel the plaintiff's notice of pendency on the ground that it was inconsistent with the plaintiff's position that the diner was personalty, not realty. The plaintiff then cross-moved for summary judgment on its action to repossess the diner, asserting that the diner was personalty by virtue of the lease provisions. The plaintiff also contended that its financing statement filed on November 19, 1979, was a prior lien and that Hempstead Equities took title with full knowledge of and subject to that lien. The defendant county also cross-moved for summary judgment dismissing the complaint on the ground that the diner was part of the real property and not detachable personalty, and that the plaintiff's security interest was, therefore, meaningless. The determination of all three motions is In support of its position that the diner was not personalty, Hempstead Equities asserted that it was a one-story masonry structure with a full basement constructed pursuant to plans filed with the Nassau County Building Department. A building permit and a certificate of occupancy for the diner was issued by the Village of Hempstead to the diner owners. In addition, Hempstead Equities submitted the affidavit of Philip Lindenauer, a licensed architect, who stated that he made an on-site inspection of the premises and, based upon his observations, concluded that the diner was not a temporary or portable structure. Lindenauer further stated that the building was constructed at the site and involved excavation, foundation work, roofers, masonry men, bricklayers, electricians and plumbers, among other tradesmen.

dependent upon the status of the diner as realty or personalty.

Special Term held that a triable issue of fact existed as to whether the diner retained its status as personal property or became real property. The court partially granted the plaintiff's motion for summary judgment to the extent that the plaintiff was held to be entitled to immediate possession of certain other items of collateral which were indisputably personal property, and otherwise denied all three motions. We affirm.

THE STATUS OF THE DINER

In determining whether the diner is to be treated as personalty, in which event the plaintiff has a valid security interest, or realty, in which case Hempstead Equities obtained valid title to the land and the diner from the county, extinguishing the plaintiff's rights in the diner, the law involving trade fixtures is applicable. Trade fixtures are articles of personal property which a tenant places upon or annexes to the leased realty for the purpose of carrying on its trade or business during the term of its lease (East Side Car Wash v. K.R.K. Capitol, 102 A.D.2d 157, 476 N.Y.S.2d 837; Cohen v. Wittemann, 100 App.Div. 338, 91 N.Y.S. 493; Herkimer County L. & P. Co. v. Johnson, 37 App.Div. 257, 55 N.Y.S. 924; Interstate Lien Corp. v. Schmidt, 180 Misc. 910, 44 N.Y.S.2d 709; 23 N.Y.Jur., Fixtures § 29). Generally, they are installed by the tenant at its own expense to further its business purposes (East Side Car Wash v. K.R.K. Capitol, supra, 102 A.D.2d, at p. 162, 476 N.Y.S.2d 837). The trade fixtures of a tenant remain personal property so far as the right of removal is concerned, subject to the limitation that "the removal must be accomplished without substantial injury to the freehold", not "without [any] injury to said property" (Matter of City of New York, 192 N.Y. 295, 302, 84 N.E. 1105). Thus, in order for property to meet the definition of a trade fixture, it must be shown (1) that the property was annexed to the leased realty by the tenant, and (2) for the purposes of the tenant's trade or business. However, a trade fixture may not be remov unless this can be accomplished without substantial or material injury to the freehold.

Contrary to the general rule that fixtures become part of the realty and pass with it, trade fixtures remain the personal property of the tenant and are removable by the tenant at the expiration of the term. This is so even with respect to structures as substantial as entire buildings, which have been held to constitute trade fixtures and, thus, are removable by the tenant (see, Matter of City of New York, supra, at p. 301, 84 N.E. 1105; Lewis v. Ocean Nav. & Pier Co., 125 N.Y. 341, 26 N.E. 301; Debobes v. Butterfly, 210 App.Div. 50, 205 N.Y.S. 104; ...