FIRST NAT. BK. OF MT. CARMEL v. Reichneder , 371 Pa. 463 ( 1952 )

Opinion by

Mr. Justice Horace Stern,

The question is whether the principle which generally governs the coverage of an industrial plant mortgage applies where the mortgaged property is described in the mortgage instrument merely as a certain piece oí land of specified dimensions and boundaries.

George F. Reichneder, in December, 1947, purchased a brewery property from Mount Carmel Brewery, Inc., and on the same day executed and delivered to the First National Bank of Mount Carmel a mortgage securing his bond in the principal sum of $30,-000, the mortgaged property being described therein as “All the surface of all that certain piece or parcel of land, situate in the Township of Mount Carmel, County of Northumberland and State of Pennsylvania, bounded and described as follows, to wit: [here followed a description of the land by metes and bounds] . . . Together with all and singular the hereditaments and appurtenances whatsoever unto the hereby granted premises belonging or in anywise appertaining, . . .”. On these premises were a one-story brick bottling shop and a four-story brick brewery building.

In June, 1950 Reichneder deeded the property to Joseph R. Aimetti, subject to this mortgage. A month later Aimetti borrowed $6000 from the Berwick National Bank and delivered to it a chattel mortgage in that sum covering the machinery, equipment and chattels contained in and about the brewery; this chattel mortgage was subsequently assigned by Berwick National Bank to Dale C. Andres. In March, 1951 Aimetti executed and delivered to Andres, as security for the repayment of money borrowed from him, a chattel mortgage in the sum of $25,300 encumbering the same machinery, equipment and chattels as were covered by the chattel mortgage to Berwick National Bank. The real estate mortgage to the First National Bank of Mount Carmel and the two chattel mortgages were all duly recorded.

In April, 1951, the First National Bank of Mount Carmel caused a judgment to be entered in the Court of Common Pleas of Northumberland County on the mortgage bond of Reichneder, with notice to Aimetti as terre-tenant; the real debt due thereon was at that time $21,000 together with interest and attorney’s commission. The Bank caused a writ of fieri facias to be issued on this judgment under which the sheriff levied upon and sold the brewery and all the equipment, machinery and chattels used in connection therewith; the Bank became the purchaser on its high bid of $2400. Andres, having, at the time of the sale, filed an objection to the sale of the machinery, equipment and chattels and having given notice of his claim to a lien thereon by virtue of the two chattel mortgages held by him, filed a petition to have the sale set aside; the Bank filed an answer, testimony was taken, and the court below dismissed the petition and discharged the rule to show cause which had been granted thereon. From the order thus made Andres now appeals.

The integrated industrial plant doctrine was apparently first proclaimed in Pennsylvania in Voorhis v. Freeman, 2 W. & S. 116, where Chief Justice Gibson said (pp. 118, 119) : “. . . nothing but a passive regard for old notions could have led them [the courts] to treat machinery as personal property when it was palpably an integrant part of a manufactory or a mill, merely because it might be unscrewed or unstrapped, taken to pieces, and removed without injury to the building. . . . Whether fast or loose ... all the machinery of a manufactory which is necessary to constitute it, and without which it would not be a manufactory at all, must pass for a part of the freehold.” The principle thus enunciated has been followed, in various applications, by a multitude of subsequent cases, among which may be noted Christian v. Dripps, 28 Pa. 271, where it was said (pp. 278, 279) : “. . . the question is not whether these lathes were bolted and strapped to the floor and ceiling; for if they were a necessary part of the machinery for carrying on the business of the machine shop, they belonged to the manufactory, whether bolted to the floor or not.”; Ege v. Kille, 84 Pa. 333, where it was said (p. 340) : “The criterion of a fixture depends on the business for which the premises are used. A fixture in a manufactory, mill or colliery may have no adaptation to many other kinds of business. Although not attached, yet, if it be designed for the convenience of trade on the premises, and be so used, or subject to be called into use at any time, it becomes a fixture. If the article is indispensable in carrying on the specific business, it becomes a part of the realty.”; Morris’s Appeal, 88 Pa. 368, 383; Titus v. Poland Coal Co., 275 431, 119 A. 540, where it was said (pp. 436, 437, A. p. 542) : “The Pennsylvania rule is that a chattel placed in an industrial establishment for permanent use, and necessary to the operation of the plant, becomes a fixture and as such a part of the real estate, although not physically attached thereto; .. . Whatever is a necessary part of the machinery for carrying on the business is a fixture irrespective of the manner of its attachment.”; Commonwealth Trust Company of Pittsburgh v. Harkins, 312 Pa. 402, 167 A. 278, where it was said (p. 407, A. p. 280) : “Appellants concede that, if a mortgage is placed on an industrial plant, the personal property, such as machinery which is necessary to carry on the business of the plant will be subject to the lien of the mortgage, but they argue that, to have this effect, the machinery must be specifically mortgaged. We think such a principle cannot be deduced from our decisions.”; Pennsylvania Chocolate Company, for use, v. Hershey Brothers, (No. 1), 316 Pa. 292, 175 A. 694, where it was said (p. 299, A. p. 698) : “. . . if the machinery and appliances are necessary to the functioning of a compíete plant, they are fixtures and bound by the lien of the mortgage.”; Central Lithograph Co. v. Eatmor Chocolate Co., (No. 1), 316 Pa. 300, 175 A. 697; Roos v. Fairy Silk Mills, 334 Pa. 305, 5 A. 2d 569, where it was said (pp. 308, 309, A. p. 571) : “Due to the demands and requirements of our changing economic order, we early developed in this State the principle of an ‘industrial mortgage’ which included, as part of the freehold, personal property in and about a manufactory. This principle became more important as our industrial life expanded, so that the necessary credits to sustain and finance manufactories and other like industries could be obtained with some degree of certainty that the security offered would be continued. Therefore, it was held that where premises were used in manufacturing or a similar industry, the real estate and personal property necessary to the plant as a going concern were subject to the lien of an industrial mortgage. This opened the way for persons interested in such industries to assure investors in a manufactory not only of a stable security for money loaned on the plant, but one that could not be broken down and destroyed by selling it piecemeal.”; McClure v. Atlantic Rock Co., Inc., 339 Pa. 296, 14 A. 2d 124, where it was said (p. 301, A. p. 126) : “The question here is not whether any of the machinery can be removed from the mortgaged premises without physical injury to the realty, but whether it forms an integral part of a ‘complete going concern.’ The court below found that it was the intention of the mortgagor and those claiming under it that when the machinery and equipment in question were placed in the plant encumbered by the mortgage it was for permanent use and necessary for the operation of the plant. This finding, which is supported by the evidence, is conclusive of the fact that the equipment and machinery became part of the freehold

and subject to the lien of the mortgage.”; United Laundries, Inc., v. Board of Property Assessment, Appeals and Review, 359 Pa. 195, 58 A. 2d 833; In re Taylor & Dean Mfg. Co., 136 F. 2d 370 (3 C. C. A.), where it was said (p. 373) : “What has happened in the development of the doctrine is that an inference originally based on the supposed intention of the parties to a mortgage transaction has crystallized into a rule of law predicated upon the desirability of protecting the safety of investments. Expression of intention by the parties is not necessary. ... If the machinery was such as to be necessary to the operation of the plant as a going concern it was covered by the mortgage.”

Thus it will be seen that by overwhelming authority over the course of more than a century the principle that all the essential parts of an industrial plant are to be regarded as real estate, — that the machinery and equipment indispensable to the functioning of such a plant are deemed fixtures passing to a mortgagee of the realty even though not specifically mentioned in the descriptive clause of the mortgage, — is firmly established in the law of this Commonwealth.

Appellant concedes that if, as in the case of Commonwealth Trust Company of Pittsburgh v. Harkins, 312 Pa. 402, 167 A. 278, the description in the instrument of mortgage had included the buildings on the land, the added term “appurtenances” would then have covered all the machinery and fixtures going to make up the establishment as a complete plant. In our opinion the fact that merely the land is here described and the word “building” is omitted is not sufficient to preclude the application of the doctrine. Of course a mortgage of land carries with it any structure erected thereon and all fixtures attached thereto even though not expressly mentioned (16 Am. Jur. 606, §296), and since, if such structure be in fact a manufactory the machinery, equipment and various chattels used in connection therewith are deemed in law to be fixtures, they also pass under the mortgage conveyance; in other words, since the building is covered by the mortgage with the same legal effect as if specifically described therein, all that the law deems affixed thereto is likewise included as part of the realty thereby conveyed.

It being established, then, that as between the parties to the mortgage, the machinery and equipment were covered thereby with the same force and effect as if it had been expressly so stated therein, was Andres, the subsequent chattel mortgagee, bound to recognize that fact when he accepted the chattel mortgages? Whether the real estate mortgage itself, of which he had both record and actual notice, was sufficient to put him upon investigation as to the nature of the structure erected on the land and the consequent coverage of the mortgage need not here be considered, because admittedly he was fully cognizant of all the pertinent facts and circumstances. He not only had visited the brewery and was fully familiar with its makeup and its operations, but he knew when he accepted the chattel mortgages that they covered the machinery, equipment and chattels which were used in and about the brewery. Having such actual notice, his chattel mortgages thereby became, from every possible point of view, subordinate as liens to that of the real estate mortgage so far as there was any overlapping. The Act of June 1, 1945, P. L. 1358, section 5, provides that “. . . any real estate mortgage covering the realty and chattels attached to realty shall remain a prior lien to a chattel mortgage placed subsequently thereon, . . .

It will be noted from the quotations hereinbefore made from the various cases referred to, that the machinery, equipment and chattels which pass under an industrial mortgage are those only which form essential parts of the plant for the purpose of manufacturing the product there made; in other words, such a mortgage does not include in its coverage everything used in the operation of the business, however important for that purpose, but only such articles as are contained in or about the premises and are essential to the manufacture of the produet. We are constrained to hold, therefore, that of the chattels levied upon and sold by the sheriff under the judgment obtained by the First National Bank of Mount Carmel the following cannot be held to have been covered by the Bank’s mortgage: flat-top desks, typewriters, safe, cheekwriter, chairs, adding machine, filing cabinet, and the five trucks. This is especially true as to the trucks, since not only were they not a component part of the brewery itself nor essential to the manufacture of the beer, but they operated, of course, outside the mortgaged premises for ordinary delivery purposes the same as in the case of any other industrial or commercial establishment.

Either the Bank which became the purchaser at the sheriff’s sale must surrender these enumerated articles, or, in the event of its failure or refusal to do so, the sheriff’s sale must be set aside and another sale had in which these specified chattels will be omitted.

The record is remanded to the court below for further proceedings in accordance with this opinion. Each party to bear his or its own costs.