Summary
In Prudential Ins. Co. v. Guild, ___ N.J. Eq. ___, 64 A. 694, electric wiring was held to be a fixture and subject to a mortgage on the real estate.
Summary of this case from Klocke v. TroskeOpinion
10-02-1906
PRUDENTIAL INS. CO. v. GUILD et al.
Samuel W. Beldon, for complainant. Guild and Martin, for defendants.
Suit by the Prudential Insurance Company against Frederick F. Guild, receiver of the E. R. Carhuff & Son Company, and others. Heard on bill, answer, replication, and proofs. Decree rendered in favor of complainant.
Samuel W. Beldon, for complainant. Guild and Martin, for defendants.
EMERY, V. C. On a bill filed by complainant to foreclose a mortgage given by the insolvent corporation, relief against the receiver was also sought, for alleged waste of the premises (by removing machinery, etc.), depreciating the value of the security. Upon the mortgage, which was dated April 21, 1899, and was originally for $31,000, a decree for sale to pay $26,190.98 was made on July 12, 1904, and on the sale made January 24, 1905, a deficiency of $3,389.98 resulted. The cause is now brought on for further hearing on the question of the liability of the receiver, for the removal by him of certain machinery and fixtures, whichis claimed to have been a waste of the premises, depreciating the security. The recent decision of Vice Ch. Pitney in Tate v. Field (1897) 56 N. J. Eq. 35, 40, 37 Atl. 440, affirmed the right of a complainant to recover damages for waste on a bill to foreclose, and a subsequent decree in this same cause for the damages ascertained after a deficiency, was affirmed by the Court of Errors & Appeals (1898) 57 N. J. Eq. 53, 40 Atl. 206; Id. on appeal (1898) 57 N. J. Eq. 632, 42 Atl. 742. These later decisions must be considered as overruling or qualifying the effect of the earlier case of Verner v. Betz (1889) 46 N. J. Eq. 256, 19 Atl. 206, 7 L. R. A. 630, 19 Am. St. Rep. 387, if not inconsistent with Tate v. Field. This was also a bill to foreclose, with an additional prayer for restoration to the mortgaged premises of a building removed therefrom to an adjoining lot and sold to the owner of such lot, which removal was charged to be waste. This restoration was sought against the purchaser of the building, who was made a party defendant with the mortgagor. Vice Chancellor Bird, concluding that the purchase was not bona fide, decreed that unless the purchaser of the building paid the mortgage, the building be restored by him to the mortgaged lot, and the mortgaged premises be then sold to pay the debt. On an appeal by the purchaser of the building, the Court of Appeals reached a different conclusion as to the bona fides of the purchase, and reversed the decree for the restoration of the building, directed a sale of the premises to satisfy the mortgage, remitting the mortgagee to his remedy at law for the injury sustained by the removal. Id., 46 N. J. Eq. 269, 270, 19 Atl. 206, 7 L. R. A. 630, 19 Am. St. Rep. 387. Mr. Justice Scudder in delivering the opinion of the court says (page 268 of 46 N. J. Eq., page 208 of 19 Atl. [7 L. R. A. 630, 19 Am. St. Rep. 387]) "that when fixtures are severed and sold by a mortgagor in possession having the legal title to an innocent purchaser, the lien in equity (to the severed property) is gone, and the remedy of the mortgagee is by an action at law against the mortgagor and those who act with him to impair or defeat the security of the mortgage." In this case the mortgagor (who was claimed to be insolvent) did not appeal, nor did the mortgagee, and as no decree against the mortgagor for damages for waste was either prayed or granted, the attention of the Court of Errors and Appeals does not seem to have been specially directed to the question of the right of a mortgagee to the subsequent ascertainment of damages for waste in the suit for foreclosure. On the point now in question the case is therefore probably to be taken only as an authority for the proposition, that if the ascertainment of damages against the wastedoor is not sought on the foreclosure suit, it must be ascertained by an action at law. The question of liability of the receiver in this suit will therefore be examined on the evidence, following the precedent in Tate v. Field. The property mortgaged was located in the city of Newark, and was described in the mortgage only by the metes and bounds of the tract of land, without special reference to the buildings erected on it But at the time and for several years previously, the lot had been occupied by a factory building or buildings for the manufacture of chemicals. The property removed by the receiver after his appointment and sold by him as personal property consisted of (1) a steam engine and generator or dynamo with switchboard and wiring, all erected for the purpose of supplying the factory with electric light; (2) a steam engine with piping and shafting, erected and used for supplying power; (3) two freight elevators, with operating machinery and appliance, used in moving the products of the factory from one floor to another; (4) three pumps, one a power pump and two steam pumps. The receiver claims that all of these were the personal property of the company, removable by him as such, and were not fixtures subject to the lien of the complainant's mortgage. The question arises between the mortgagor and mortgagee (for the receiver stands in the place of the mortgagor), and it also arises in a case where, at the time of the mortgage, the factory represented the greater portion of the value of the mortgaged property, and all of the fixtures in question (except the pumps) were then used in connection with the purposes for which the factory was used. These circumstances entitle the mortgagee to a strict application of the tests laid down in our latest controlling decision, Knickerbocker Trust Co. v. Penn Cordage Co. (N. J. Err. & App.; June, 1904), 58 Atl. 409, for determining whether the articles are fixtures. These tests are (1) actual annexation to the freehold; (2) application to the uses for which the real estate was appropriated; and (3) erection or annexation with the intention of making a permanent accession to the freehold, by their use for an indefinite period in connection with the building. Except as to the pumps, all of these circumstances appear in the present case. The evidence mainly relied on by the receiver as to the intention with which the annexation was made, is the present statement of Mr. Carhuff as to the dynamo or generator. He now says that at the time of its erection, it was intended, or rather contemplated, that if the firm moved or discontinued the business, this might be removed. This statement tends to support rather than repel the inference, that the annexation was made with the intention of use for an indefinite period in connection with the building, and even if it did not, evidence of this character, given after a dispute has arisen, is not sufficient to overcome the more satisfactory evidence of intention, afforded by the subsequent conduct of the parties inthe use of the building and of the machinery in connection with it, continued for years after giving the mortgage and up to the time when the company ceased its business. These facts and circumstances, in the language of Feder v. Van Winkle (Err. & App.; 1805), 53 N. J. Eq. 370, 373, 33 Atl. 399, 51 Am. St. Rep. 628, repel the inference that the annexation was intended to be temporary.
As to the pumps, there is more question about their character as fixtures, but in this case I attach much weight to the fact, that these articles, although removable without injury, were used in connection with the manufacture as part of a common plant for the production of a single product, for which the building was especially adapted and continuously used, and they come also within the rule making them fixtures. The receiver having removed these fixtures, Is liable for the damages sustained by the mortgagee. These damages are the diminution in value of the mortgage security by reason of the waste. Turrell v. Jackson (Sup. Ct.; 1877) 39 N. J. Law, 329; Schalk v. Kingsley (Sup. Ct.; 1880) 42 N. J. Law, 32; Tate v. Field (Err. & App.; 1898) 57 N. J. Eq. 634, 42 Atl. 742. The diminution in value of the security is measured in this case by the difference between the value of the premises at the time of the sale under the mortgage after the waste, and their value at that time, had the premises been sold with the fixtures attached. Tate v. Field, supra. The complainant became Itself the purchaser of the premises at the foreclosure sale, and insists that, for the purpose of the present inquiry, the price brought at the sale fixes the value of the premises after the waste. The receiver, on the other hand, claims that the property, as purchased by the complainant, was worth more than the mortgage, and to show this, proves the appraisement or valuation of the land and buildings made by competent and reliable appraisers In February, 1903, on his appointment and for the purpose of his inventory. The land on which the factory was erected was then appraised at $18,920, and the building at $65,700, a total of $84,620, for the premises sold at foreclosure sale for $23,000. These appraisers now swear that they in February, 1903, made this appraisement, but do not now make any statement under oath of their present views as to the valuation at the time of the sale or otherwise. The appraisement is not therefore strictly evidence at all bearing on the vital question of the value of the premises at the time of the sale on foreclosure. But treating the fact of this appraisement in February, 1903, as some evidence of the value in 1905, I do not think this evidence sufficient to overcome the weight that must be given to the price brought on the sale on foreclosure, as establishing the value for the purpose of this subsequent inquiry in the same suit. One of the reasons relied on by Vice Chancellor Pitney in Tate v. Field, 56 N. J. Eq. 40, 37 Atl. 440, for retaining jurisdiction for waste in the suit for foreclosure was that the amount in which the security was diminished by the waste could only be satisfactorily ascertained by the sale under foreclosure, and that one of the matters material to an action at law (the fact that the security was diminished by the waste) would be necessarily determined in the foreclosure suit by a sale. The sale in foreclosure may not be conclusive on the question of value, for the purpose of the subsequent inquiry as to damages in the same suit, but as this sale was made after express notice to the party charged with waste, of the claim for damages in case of deficiency, and the sale has been confirmed, It requires clear evidence that the premises were worth the mortgage, in order to overcome the effect of the sale itself. No such evidence has been offered here, and I must therefore hold that the security was diminished by the waste in question. The evidence offered as to the precise or approximate extent of the diminution, is not satisfactory on either side. The witnesses of complainant on this point testify only as to the amount which would be reasonably required to replace the fixtures in the condition in which they were at the time if their removal, and on this basis, the cost is fixed at amounts covering more than the whole deficiency.
On the other hand, the receiver claims that the extent of the damage to the security is the amount received by him on the sale of the fixtures, being about $1,550. On neither side is satisfactory evidence submitted of what I take to be the real question of extent of damage, viz., for how much more would the mortgaged premises have sold had the fixtures remained than they did bring at the sale? If the price brought at foreclosure sale is the basis for proving a deficiency and ascertaining its amount, then a valuation at the same kind of sale of the premises with the fixtures remaining, would seem to be a fair standard of comparison. Clearly, at such sale, the entire cost of replacement would not be a satisfactory standard, nor, on the other hand, would the price or value of the separated fixtures. This latter standard was expressly disapproved by the Court of Errors and Appeals in Tate v. Field, 57 N. J. Eq. 634, 42 Atl. 742. The cost of replacement, although entitled to weight, should not be the test or limit, for the reason that the value at any time of the entire mortgaged premises with the factory and fixtures, depends or may depend, not only on the special condition of the building, but on the demand for factories of the kind to which the fixtures are specially adapted, at the location in question, and with a lessening demand, the value of the factory with its fixtures decreased. It would be unreasonable, therefore, I think, to base my conclusions as to the extent of the damage, solely on the evidence as to the cost or value of the fixtures, independent of the factory. They were, of course, of value, at least, to theextent of the amount for which they were sold, and, In my judgment, the value of the factory, if the fixtures had remained, would have been increased beyond this sum. To precisely what extent, is a matter of estimate or conjecture on the evidence now submitted, and, perhaps, it might be on any evidence which could be produced. Both parties are, content to have the case disposed of on the evidence now submitted, without further inquiry, and I will therefore fix the damages which, in my judgment, resulted from the removal. I think that if the fixtures had not been removed, the premises would have sold for $2,500 more than they did actually bring.
I therefore advise a decree against the receiver for that sum.