LUMBERMENS MI CO. OF MANSFIELD, OHIO v. Cantex Mfg. Co.

• Decision Date: 19 November 1958
• Docket Number: No. 17276.,17276.
• Parties: The LUMBERMENS MUTUAL INSURANCE COMPANY OF MANSFIELD, OHIO, Appellant & Cross-Appellee, v. CANTEX MANUFACTURING COMPANY, Appellee & Cross-Appellant. CANTEX MANUFACTURING COMPANY, Appellee & Cross-Appellant, v. The LUMBERMENS MUTUAL INSURANCE COMPANY OF MANSFIELD, OHIO, Appellant & Cross-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

262 F.2d 63 (1958)

The LUMBERMENS MUTUAL INSURANCE COMPANY OF MANSFIELD, OHIO, Appellant & Cross-Appellee, v. CANTEX MANUFACTURING COMPANY, Appellee & Cross-Appellant.

CANTEX MANUFACTURING COMPANY, Appellee & Cross-Appellant, v. The LUMBERMENS MUTUAL INSURANCE COMPANY OF MANSFIELD, OHIO, Appellant & Cross-Appellee.

No. 17276.

United States Court of Appeals Fifth Circuit.

November 19, 1958.

Edward L. Savell, Atlanta, Ga., Woodruff, Latimer & Savell, Atlanta, Ga., for appellant.

Hugh M. Dorsey, Jr., Atlanta, Ga., Jones, Williams, Dorsey & Kane, Atlanta, Ga., of counsel, for appellee.

Before RIVES, TUTTLE and JONES, Circuit Judges.

TUTTLE, Circuit Judge.

Defendant insurance company is here appealing from a judgment rendered on a jury verdict awarding plaintiff recovery for certain items destroyed by fire in the destruction of plaintiff's factory. Defendant's defense to the claim, and its theory on appeal, is that these items were not covered by the terms: "the insured's interest in improvements and betterments" on a building in Canton, Georgia, which was leased by plaintiff for use as a corduroy finishing plant. Defendant contends that the items in question, which included boilers, water coolers, and lint removal and ventilation systems, were not "improvements or betterments" because plaintiff had the right, either by virtue of the express terms of its lease, or by the common law relating to trade fixtures, to remove them at the termination of the lease. Defendant raised the issue by timely motions for directed verdict, judgment N.O.V., and new trial, all of which were denied.

Federal jurisdiction in this case is based on diversity of citizenship, and questions of substantive law are controlled by Georgia law. However, the precise issue raised by this defense has not been passed on heretofore by any Georgia court.

That issue is whether installations by a tenant which are of such nature that they would become a permanent part of the realty but for (1) the law permitting the removal of trade fixtures, or (2) the terms of the lease permitting their removal are "improvements and betterments on the building" within the contemplation of the policy. If they are, then this resolves the main question on appeal.

The jury found that items having a value in excess of the coverage of the policy were improvements and betterments. It did so under a charge of the court that in effect said that if the items were removable either because they were trade fixtures or because they came within the terms of the lease,¹ then they were not "improvements and betterments." Appellant complains of certain parts of the charge as not correctly defining trade fixtures. We think it unnecessary to resolve these questions, because we agree with appellee that the test applied by the trial court was more favorable to appellant than was warranted. This is so, because we conclude that whether or not attachments to realty are improvements or betterments is not to be determined by the privilege the tenant has to detach them at the end of his term, but rather by the nature of the attachments and their permanency.

The words of the policy "improvements and betterments on the building" are not words of art. They are not even part of the printed portions of the policy. As is true in the construction of all contracts, these words are to be given their usual and ordinary meaning. If the jury found therefore, as they must have under the charge of the court, that all of the items involved were so affixed as to become part of the realty but for the application of the trade fixture rule or the lease provision, then, in the ordinary meaning of the words, these were improvements to the property. Unless the Georgia courts have held that items that fall within the definition of trade fixtures cannot be improvements, therefore, it seems clear that they would nonetheless be improvements even though they might also be removable as trade fixtures.

Not only are no cases cited to that effect, but Armour & Co. v. Block, 147 Ga. 639, 95 S.E. 228, cited by appellant, seems to imply the contrary. In that case the court used the term "trade fixture" interchangeably with the term "improvement" in speaking of a smokehouse, the construction of which of a permanent nature had all the attributes of an addition to the realty. See also Bronson on Fixtures, Sec. 31, p. 173.

The only case cited by either party in which this precise language has been construed and applied with respect to removable items is Modern Music Shop v. Concordia Fire Ins. Co., 131 Misc. 305, 226 N.Y.S. 630, 633. Although it is a decision of the Municipal Court of New York City, the reasoning of that case warrants our consideration. There the lease required that the betterments and improvements be removed by the tenant. Nevertheless the court held:

"The words `betterments\' and `improvements\' are terms of elasticity, and are really synonyms, being words of the same or like meaning. To `better\' is in fact to improve, and to `improve\' is to make better. As they are used in the policy, I think these words imply and mean a substantial or fairly substantial alteration, addition, or change to the premises used and occupied by the assured, rising above and beyond and amounting to something more than a simple or minor repair. And I hold that the nature of the work done in converting the basement into a display room, in the manner proved, brings it within that category, and that it was of the kind and character contemplated by this language of the policy, and is within the fair intendment of its terms. These terms, I think, mean to insure those alterations, additions, or changes made by the assured to that part of the realty used and occupied by him for and in the conduct of his business."

We conclude that the insured's right to remove property is irrelevant where, as here, the property has been annexed to the realty in a substantial way, even though it may not have been made an integral part of the realty or otherwise lost its identity.

We do not agree with appellant's contention, for which it cites no authority, that in a suit such as this one between the insurer and the lessee-insured, "the insurer necessarily stands in the tenant's shoes," with the result that "the provisions of the lease determine the legal status of the items insured." We agree, rather, with appellee's argument that in this case the insurer is more in the position of a third party to the lease, such as a condemnor, whose obligations to the tenant are determined, not by the rights of the tenant vis-à-vis its landlord, but by an objective fact: the mode of annexation of the property as of the time of the loss.² Therefore, if at the time of the loss, the article is annexed to the realty, it qualifies as an "improvement or betterment," despite the fact that the insured might have had a right to remove it later on if it had not been destroyed.³

Appellant asserts that appellee is foreclosed from arguing this point by its failure to appeal from the pre-trial order which ruled that trade fixtures were not covered by the policy, and by its failure to specify the court's ruling in its motion for new trial or its specification of errors on appeal. The pre-trial order was an interlocutory order, hence non-appealable, 28 U.S.C.A. §§ 1291, 1292; 3 Moore's Federal Practice ¶ 16.21, and therefore did not, as appellant maintains it did, establish the "rule of the case." Nor was appellee, in addition to raising the point below, required to specify it as error on appeal. Rule 24, subd. 3, Rules of the U. S. Court of Appeals for the Fifth Circuit, 28 U.S.C.A.

We have carefully considered the other arguments made by appellant but find that they are without merit.

On cross-appeal, plaintiff assigns three errors, two concerning the allowance of punitive damages and attorneys' fees and one concerning the date from which interest on the judgment should run.

By an amendment to its complaint, plaintiff sought...