Keil Motor Co. v. Home Owners Loan Corp.
| Decision Date | 08 December 1941 |
| Docket Number | 38 |
| Citation | 43 Del. 322,47 A.2d 164 |
| Court | Delaware Superior Court |
| Parties | KEIL MOTOR COMPANY, a Corporation of the State of Delaware, v. HOME OWNERS LOAN CORPORATION, a Corporation of the United States of America |
Keil and Keil for plaintiff.
W Thomas Knowles for defendant.
OPINION
The pertinent provision of the statute is Section 5957 of the Revised Code of 1935, which, in part, provides:
"* * * If the goods are so affixed to realty at the time of a conditional sale or subsequently as to become part thereof but to be severable without material injury to the freehold, the reservation of property shall be void after the goods are so affixed as against subsequent purchasers of the realty for value and without notice of the conditional seller's title, unless the conditional sales contract, or a copy thereof, together with a statement signed by the seller briefly describing the realty and stating that the goods are or are to be affixed thereto, shall be filed before said purchase in the office where a deed of the realty would be recorded or registered to effect such realty. * * *"
The facts of the case bring into sharp conflict the claims of the mortgagee and of the conditional vendor. A determination of these conflicting claims must include a construction of Section 5957 of the Revised Code of 1935. That section, as we have seen, covers the rights of parties where goods are to be affixed to realty in such a manner as to be severable "without material injury to the freehold."
The facts of the case therefore raise five questions for determination:
1. What is meant by the term "without material injury to the freehold?"
2. What effect is to be given to the fact that the new boiler burner unit replaced an old boiler which was removed from the premises?
3. What effect is to be given to a provision in a mortgage ante-dating a conditional sale of heating apparatus where such prior mortgage purported to cover "all heating * * * fixtures and equipment now or hereafter attached to or used in connection with the real estate herein described"?
4. Whether the record of the conditional sales contract in the present case, or the refinancing of the same, was properly made.
5. Whether the validity of the conditional sales contract in the present case was destroyed by lapse of time.
These questions will be briefly considered in their order.
1. The answer to the first question while interesting and important need not be greatly elaborated. At common law when goods were used in connection with realty the effect of such use was largely determined by the law of fixtures. If the goods were not affixed to the realty they remained personal property and were removable as such; if the goods were closely united or securely attached to the freehold they lost their separate existence and passed with the freehold.
When the Conditional Sales Act was adopted it was intended that some personal property theretofore considered as fixture by reason of its connection with the freehold, should retain its character of personalty. It was therefore provided by Section 7 of the Act (Section 5957 of the Revised Code of 1935) that goods affixed to the realty, but removable "without material injury to the freehold" should be the subject of reservation of title by the vendor of such goods as against the owner of the freehold, and other persons, the varying claims of the owners or other persons (purchasers or otherwise), being affected by the different requirements as to the notice of the conditional sale. In the present case the question arises between the conditional vendor on the one hand and a prior mortgagee which subsequently became the purchaser at the foreclosure of its own mortgage.
We shall confine our consideration to those cases which construe the rights of the parties under the conditional sales contract providing for the removal of chattels where it may be done "without material injury to the freehold." In such cases, assuming the personal property has not become so attached to the freehold as to become an integral part thereof, the authorities generally may be divided into two classes,
(a) Those cases which hold that the words "material injury to the freehold" mean physical injury to the building or structure to which the chattel has been annexed.
(b) Those cases which hold to the institutional theory that a chattel which has been attached or annexed to a freehold and is of such a nature as to be necessary to the completeness of the structure, having regard to its character and functions becomes a part of the freehold, and if the severance will prevent the structure being used for the purposes for which it was adapted, then the article is not severable without material injury to the freehold.
The authorities upon the present subject are of such number that it seems unnecessary to enter into any extended consideration of the individual cases, but merely to indicate where these authorities may be found, and to adopt that rule which in our judgment is more consonant with reason and with policy. Comprehensive annotations listing most of the authorities may be found in 13 A.L.R. 460; 73 A.L.R. 755; 88 A.L.R. 1324; 111 A.L.R. 372.
One of the purposes of the Conditional Sales Act was the protection to be accorded to the parties to the Conditional sales agreement who had complied with its terms. To that extent, at least, the words of the Act "without material injury to the freehold" must be construed with chief reference to the Conditional Sales Act itself, and to advance the obvious purposes of it.
Our views are in accord with what we think is the great current of authority, namely, that the term "material injury to the freehold" means physical injury to the building or structure, and not merely the deprivation of things which may be advantageous or even essential to the usefulness or functioning of a plant or building.
The intention of the Conditional Sales Act was to perpetuate the common law rule that removal of fixtures would not be allowed where the article conditionally sold was so closely incorporated with or into the realty that removal would materially injure the structure (Bogert Commentaries on Conditional Sales, 2a U.L.A. 98-99, Section 66). The converse is also true. A removal was contemplated when such removal could be made without serious or material injury to the freehold. Harvard Financial Corporation v. Greenblatt Const. Co., 261 N. Y. 169, 184 N.E. 748; Peoples Savings & Trust Co. v. Munsert, 212 Wis. 449, 249 N.W. 527, reh'g denied, 212 Wis. 464, 250 N.W. 385, 88 A.L.R. 1306.
Aligned in the minority, and as a supporting so-called institutional theory, are New Jersey, Pennsylvania and California.
In New Jersey the development of the institutional theory has not been altogether consistent. Former decisions were in harmony with the majority rule, or limited the character of the chattel or the nature of the building to which the institutional theory would apply. Bank of American Nat. Ass'n v. LaReine Hotel Corporation (1931) 108 N.J.Eq. 561, 156 A. 28; Reliance Building & Loan Ass'n v. Purifoy, (1932) 111 N. J. Eq. 575, 163 A. 151; Arlotto v. Hauck Realty Co., (1935) 177 A. 691, 13 N. J. Misc. 305; Smyth Sales Corporation v. Norfolk B. & L., (1936) 116 N.J.L. 293, 184 A. 204, 111 A.L.R. 357, however, seems general in its terms. This latter case would seem to make the institutional theory the prevailing rule in New Jersey, in every situation, but the more recent cases in the Court of Chancery seem to again favor the majority rule and do not follow the institutional theory. Provident B. & L. Ass'n v. William Day Sons Realty Co., (1937) 122 N. J. Eq. 326, 194 A. 53, and Sunshine B. & L. v. Meola, (1937) 122 N. J. Eq. 381, 194 A. 251. See also 25 Cornell Law Quarterly 324.
In Pennsylvania the institutional theory has been approved in Central Lithograph Co. v. Eatmor Chocolate Co., 316 Pa. 300, 175 A. 697; Land Title Bank & Trust Co. v. Stout, (1940) 339 Pa. 302, 14 A.2d 282; Medical Tower Corporation v. Otis Elevator Co., (3 Cir., 1939) 104 F.2d 133.
These cases were based upon the statutory law prior to the amendment of 1935. This amendment seems to make physical damage to the freehold the real test of removability, and would seem to amount to a legislative abrogration of the institutional theory. See 90 U. of P. Law Review 77 (Nov. 1941).
We see little to commend...
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