In re Lexington Motors Co. of New York

MANTON, Circuit Judge. The Lexington Motors Company of New York, Inc., in July, 1921, took possession of a showroom owned by the petitioner at 1767 Broadway, New York City, under a lease for a term of years. It installed heavy oak paneling covering the wall space, columns, and piers in said premises. In thus installing the oak paneling, holes several inches deep were first drilled through the plaster and tile of the wall, several feet apart, and wooden plugs were inserted into these holes. There were several hundred of these plugs inserted in the walls and columns, and they penetrated through the plaster and tile to the brick construction. The oak panels were about eight feet high and from three-quarters of an inch to an inch and a quarter in thickness, and were attached to the walls and columns bjr means of nails hammered into the wooden plugs. Some sections of the paneling were fastened to the floors, instead of to the walls, by means of wooden plugs. similarly inserted into the holes bored into the tile floor. The paneling covered the entire wall space and every column and pier to the height of about eight feet. Thus the paneling wás very firmly affixed to the walls, and, if removed, would necessitate the extraction of 'hundreds of nails and plugs, resulting in the cracking 'of the plaster in hundreds of places and dam-i aging the tile in many spots. It was estimated that, if such work was undertaken, the repairing and painting of the walls and columns, after such removal, would cost approximately $2,000. The lease in question contained the following paragraph: “Fourth. The lessee will not mate or suffbr, to he made any alterations, changes, or additions upon the premises without the consent of the lessor in writing, and if any such alterations, changes, or additions are made they shall be and become a part of said premises and the property of the lessor.” Thereafter a petition in bankruptcy was filed against the Lexington Motors Company of New York, Inc., and on the 4th of April, 1923, a receiver was appointed. The receiver advertised for sale, on the 30th of April, 1923, the assets and property belonging to the alleged bankrupt, including the oak paneling in question. Thereupon the petitioner moved for an injunction permanently enjoining the receiver from removing, selling, or in any wise disposing of the oak paneling, and asking for a temporary restraining order until the return day for the hearing óf the motion. Prior to the hearing of the motion, the sale took place. The petitioner purchased at public auction all the right, title, and interest of the receiver to the oak paneling in question. The temporary restraining order granted merely enjoined and restrained the receiver from “removing the oak paneling affixed to the walls of the premises.” After a hearing on May 4, 1923, the District Judge denied the prayer of the petitioner to enjoin the [235] receiver from removing, selling, or in any wise disposing of the oak; paneling. The purchase by the petitioner at the auction sale was stated to be “without prejudice and merely to protect itself against the removal of the paneling by irresponsible third persons.” The District Judge, in denying the motion restraining the receiver from selling, removing, or otherwise disposing of the oak paneling, placed it specifically upon the ground that the bankrupt retained an interest in the paneling which could be sold, and stated: “That inasmuch as the landlord itself purchased such interest the questions of removal of the paneling and the injury that might be caused to the premises by such removal and the question of fulfillment on the part of the hank-runt lessee of its covenant to leave the promises in good condition did not arise.” We think the application for the injunction should have been granted. A chattel affixed to the realty retains its character as personal property or becomes a fixture, according to the method of annexation to the realty and its adaptability to the use of the premises. One of the determining factors is. 'whether or not it may be removed from the freehold without injuring or substantially destroying its own quality and value. This rule prevails in the decisions in New York state. McRea v. Central Nat. Bank, 66 N. Y. 489; Voorhees v. McGinnis, 48 N. Y. 278; Ford v. Cobb, 20 N. Y. 344. There is no dispute that the panels installed by the bankrupt covered the entire wall space, including the columns and piers in the leased premises, to the height of about eight feet. The method, manner, and substantiality of affixing them to the freehold meant very substantial destruction when the nails were drawn and the plugs were removed in order to remove the paneling. An estimate of the repairs after such removal indicates that substantial damage would result. Undoubtedly the tenant intended a real structural change to the premises as an improvement to the space it occupied. The paneling had none of the attributes of a trade fixture. Its installation was not a necessary adjunct to the business of the tenant, and the premises with the added paneling could be utilized with profit in another trade or business. The parties, in making the lease in question, by the terms of the fourth paragraph referred to herein, clearly indicated that they desired, when the lease ended, that the paneling pass to the landlord. “Alteration, change, or addition,” within the meaning of that clause, embraces the paneling. It passed to the landlord upon its installation, subject to the use of the tenant. Similar clauses in leases, where additions or alterations have been made of a less permanent character than that involved in the case at bar, have been held to pass to the landlord at the termination of the lease. Reber v. Conway, 203 Fed. 12, 121 C. C. A. 364; Levin v. Improved Property Holding Co., 141 App. Div. 106, 125 N. Y. Supp. 963; Excelsior Brewing Co. v. Smith, 125 App. Div. 668, 110 N. Y. Supp. 8. Trade fixtures used by a tenant, in the absence of some intention by the parties that they become the property of the landlord at the expiration of the lease, of course, are the property of the tenant, as in cases like Wiggins Ferry Co. v. O. & M. Ry. Co., [236] 142 U. S. 396, 12 Sup. Ct. 188, 35 L. Ed. 1055, and In re Howard Laundry, 203 Fed. 445, 121 C. C. A. 555. In the Howard Laundry Co. Case, the determining factor was said to depend upon whether the various machines could be removed without substantial injury to'the building, and that a clause similar to the one involved in the instant case was intended to apply to permanent additions to the building, and not to personal property which, for business purposes, was temporarily and detachably fastened to the floor or ceiling of the building. The question thus becomes in each case largely one of fact. The trade fixtures of a tenant remain personal property in the eye of the law so far as the right of removal is concerned. Matter of City of New York, 192 N. Y. 295, 84 N. E. 1105, 18 L. R. A. (N. S.) 423, 127 Am. St. Rep. 903. The fact that the appellant purchased -the paneling to prevent its removal by irresponsible third parties, in the event that the motion was decided adversely to it, does not in any way estop it from asserting its right to title and ownership on this application. Indeed, it announced at the sale that it purchased without prejudice. We think the paneling in question, under the terms of the lease, was the property of the landlord, and that it in no way was an asset of the bankrupt estate. Order' reversed.