Martindale v. Bowers Beach Corp.

• Decision Date: 20 September 1922
• Citation: 118 A. 299,13 Del.Ch. 288
• Court: Court of Chancery of Delaware
• Parties: ERNEST G. MARTINDALE, v. BOWERS BEACH CORPORATION, a corporation of the State of Delaware

118 A. 299

13 Del.Ch. 288

ERNEST G. MARTINDALE, v. BOWERS BEACH CORPORATION, a corporation of the State of Delaware

Court of Chancery of Delaware, Kent

September 20, 1922

A receiver was appointed for the Bowers Beach Corporation under the insolvency statute of this state, and during the administration of its affairs, by order of the Chancellor the receiver sold all of its assets, including a Delco lighting plant housed in a building erected specially for that purpose. The Bay View Amusement Company petitioned the Chancellor that the sale of the Delco lighting plant be not confirmed, to which an answer was filed on behalf of the receiver. The facts pertinent to the issues raised by the petition and answer are set forth in the following opinion of the Chancellor.

James H. Hughes, for the petitioner.

Richard R. Kenney, for the receiver.

OPINION

THE CHANCELLOR

The petition of Bay View Amusement Company prays that a certain building and Delco lighting plant therein located be adjudged to be the property of the petitioner.

The building and lighting plant are located on a certain tract of land situate at Bowers Beach, on the Delaware Bay shore, the site of a pleasure resort. The land formerly belonged to certain individuals, predecessors in title to the petitioner. On it were located certain buildings and structures, the principal ones of which were a hotel building, a dance hall and pool room. The owners of the land entered into a written contract of sale thereof with Wilbur H. Durborough, who entered into possession, tore-down certain buildings and erected and altered others. He altered the dance hall and pool room and made additions thereto. At the same time he erected a small building for the purpose of housing a lighting plant. He purchased a Delco plant and placed it in this small building. The plant consists of a dynamo batteries, etc., and is run by oil fuel.

It is with respect to the small building and lighting plant housed therein, together with its batteries and appliances, that the present controversy relates. The building is placed upon and fastened to posts which are settled in the ground, and the Delco plant is attached and fastened to the floor of the building. The plant is attached by wires and connections with the dance hall and other places about the premises, and supplies light thereto. Though the petition and answer thereto raise an issue of fact concerning the adequacy of the plant to meet the lighting requirements of the premises, yet such is no longer an issue because of the admission, made by solicitors for both sides to the controversy at the hearing, that the plant is of sufficient capacity to do the work for which it was installed.

Having entered into the contract of sale with the owners of the real estate, Durborough transferred all his rights thereunder to Bowers Beach Corporation, a corporation. Durborough and his successor, Bowers Beach Corporation, defaulted in the performance of the conditions which the contract of sale imposed. The holder of the legal title thereupon, acting under the contract, declared the contract terminated, and entered into possession. The petitioning corporation was thereafter organized and conveyance of the title, as well as delivery of possession, duly made to it.

Bowers Beach Corporation was thereafter duly decreed to be insolvent by this court and a receiver therefor appointed. The receiver, in obedience to an order of the court, undertook to sell the assets of the corporation, and included therein the building and lighting plant above described, which he exposed to sale and struck off to the highest bidder, on the theory that the same were personal property belonging to the insolvent corporation. On the return of the sale, the pending petition was presented praying that the sale be not confirmed as to the Delco plant and its housing, on the ground that the same when erected and installed became a part of the real estate, title to which, as well as possession, was now in the petitioner, and never had been in the receiver.

The sole question, therefore, is whether the building and plant installed therein are to be regarded as chattels belonging to Bowers Beach Corporation at the time of the appointment of the receiver, or whether they are to be regarded, under the circumstances, as having lost their character of personal chattels and become merged in the realty as fixtures, title to which passed to the petitioner under the conveyance aforesaid.

The principles of law applicable to the general question of when a chattel ceases to retain its nature of personalty and to acquire the character of realty, have been heretofore considered in this state and are now fairly well settled. The difficulty presented in each case is not so much with the law that is to govern as with its application to the facts.

An opinion written by Hon. W. C. Spruance, acting as referee in an action pending in the Superior Court of this state, though not at the time of its rendition possessed with the force of a judicial precedent, may now, in view of the language of Chancellor Nicholson in Equitable G. & T. Co., et al., v Knowles, et al., 8 Del.Ch. 106, 123, 67 A. 961, be properly regarded as clothed with the sanction of a judicial utterance; for the Chancellor said that he "approved that opinion as a whole."

In that opinion, found published in the appendix of 8 Del.Ch. 539 Mr. Spruance gave expression to the following views which are sound in reason and well sustained by authority:

"The determination of questions as to what passes as real estate, or with real estate, depends largely upon the inquiry as to who are the claimants.

"While it is true as a general rule that he who fixes a chattel to the land of another, is in legal effect presumed to have given it to the owner of the land, yet there has always been a liberal indulgence to tenants for years in this regard, founded:

"First, upon the natural presumption that the tenant intended such annexation for his own profit and convenience, and not for the benefit of the landlord; and

"Second, upon considerations of public policy, the law favoring industry.

"And as the natural result of the further application of the last mentioned reason, a greater indulgence is given to a tenant who has erected trade fixtures, than to one who has erected fixtures for domestic convenience or even for agricultural purposes--it being recognized as sound policy to encourage manufacturers.

"As between the executor of the tenant for life, or in tail, and the remainderman, or reversioner, there has always been some indulgence to the former--but much less than is extended to the tenant for years as against the landlord.

"On the other hand the right of removal of fixtures by the executor of the tenant in fee simple has always been very limited. The law favors the inheritance, and presumes that it is not the intention of the owner of the land that it should go to his heir stripped of that which is necessary to make its use convenient and profitable.

"These are elemental principles to be found in all the text-books, and clearly set forth in the leading case of Elwes v. Mawe, 3 East, 38.

"A mortgage is in fact a conditional conveyance of the property mortgaged, and the same rights and interest pass to the purchaser by judicial sale under the mortgage, as do directly to a grantee under an ordinary conveyance in which the same terms of description are used: and we therefore find that the rule applicable to fixtures is the same in both cases--that is to say, the strict rule, favoring the inheritance, which obtains between the heir and executor of the owner of the fee. 2 Kent, 346."

To these observations I would add that as between a vendee in possession under an executory contract of sale and his vendor in whom the title still reposes, the same rule is applicable as is applied between mortgagor and mortgagee--that is to say, the strict rule is applied which favors the inheritance as between the heir and the executor of the owner in fee. None of the indulgence which the law accords in favor of a tenant for life against the remainderman, nor, a fortiori in favor of the tenant for years or at will against the landlord, is to be applied to one in possession under a contract of sale against his vendor. This is manifestly so from the nature of the relation which the parties bear to each other. A life tenant whose estate is limited cannot in reason be said to entertain the same intention towards the permanency of the improvements he makes, as one who by his contract of purchase has announced his settled purpose to become the owner of the fee. Much more is this so with respect to a tenant for years or at will. Such a person knows, as does his landlord, that his estate is but for a limited time and that the improvements he makes, so far as he is concerned, unless he can remove them, will in a definite time be a total loss to him. Hence it is, the law deals less strictly with him than with others in a different situation. His intentions are presumed to have some reasonable connection with his situation and accordingly, to an extent at least, are colored thereby. Not only so, but considerations having to do with personal convenience and the encouragement of industry, are allowed some weight in appraising the acts of a tenant who makes additions to another man's property.

But where a person is in possession who has engaged to become the absolute owner, and makes additions to the property, there is more reason to assume that his acts in so doing are prompted by a more permanent intent than would be so if the same acts were done by the tenant of a term. The law of course attributes to him a purpose to fulfill his contract and, therefore...