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In re Ginsburg

decided.: May 7, 1958.

MATTER OF SAMUEL GINSBURG, INDIVIDUALLY AND TRADING AS JEE-JEE FOOD PRODUCTS, BANKRUPT, COMMERCIAL BANKING CORPORATION, APPELLANT.


Author: Kalodner

Before BIGGS, Chief Judge, and GOODRICH and KALODNER, Circuit Judges.

KALODNER, Circuit Judge.

This is an appeal from the affirmance by the District Court of the Order of the Referee in Bankruptcy denying secured status to a creditor seeking to assert its judgment lien against machinery and equipment ("machinery") in a building owned by the bankrupt and used by him for processing and packaging foods for wholesale.

The sole question presented is whether this machinery constituted real estate within the reach of a judgment lien.

The facts briefly stated are as follows:

The Commercial Banking Company ("Commercial") obtained a recorded judgment*fn1 against Samuel Ginsburg and Esther Ginsburg, his wife, in the amount of $5,906.86 on December 8, 1955, more than four months prior to the filing of a petition in bankruptcy. By virtue of this judgment Commercial obtained a lien against the real estate, the premises located at 1224-26-28 Parrish Street, Philadelphia, Pennsylvania, where the bankrupt, Samuel Ginsburg, trading as Jee-Jee Food Products, operated his food processing and packaging plant.

On May 15, 1956, an involuntary petition in bankruptcy was filed against the bankrupt. In the proceedings which followed, Commercial claimed secured status, asserting that its judgment became a fixed lien on the Parrish Street property prior to the initiation of bankruptcy proceedings. After the Trustee in Bankruptcy abandoned title to the property because of numerous encumbrances which exhausted the equity of the bankrupt estate, Commercial took the position that its lien extended to all property attached to and forming part of the real estate, and, more specifically, to four pieces of machinery which the bankrupt installed prior to the entry of judgment and which were in the premises at the time of bankruptcy.

With respect to the above real estate and machinery, the bankrupt testified that he purchased the Parrish Street property in 1953 for the purpose of establishing a permanent plant; that the machinery in question which had been purchased in prior years and used at other locations was thereafter installed; that he intended to permanently affix the machinery to the property at the time of annexation because of the possibility of damage occasioned by frequent moving; and that all the machinery was essential to the operation of the plant.

The testimony further discloses that the heavier machinery - a Curlee spreader and a Govatsos wrapper - was bolted to a specially recessed area in the concrete floor to prevent vibration and that the locations were chosen with a view to the installation of additional machinery. These and the other machines were also attached to the real estate by pipes used to carry electric current and by conventional electric wiring.

The four items in question were sold at public sale and removed without injury to the real estate. Commercial objected to the confirmation of the sale by reason of its claimed lien; as a result the bids made for the purchase of the machinery were withdrawn. Thereafter, by consent of the parties, the machinery was sold for a total consideration of $4,900.00. Commercial accordingly filed an amended proof of secured claim asserting that its lien attached to the entire proceeds of sale.*fn2

The Referee, in his opinion, made this statement with reference to the premise of Commercial's claim:

"Commercial asserts its lien on these pieces of equipment on two theories - first, the equipment constituted permanent fixtures and became a part of the real estate at the time they were installed in the real estate; second, that even if the items of equipment are termed to be personal property, they must be considered as realty under the 'Assembled Industrial Plant Doctrine' in effect in Pennsylvania."

With respect to these two "theories" the Referee made these factual findings: all four pieces of machinery were "trade fixtures"; they were "freely movable"; the "bankrupt intended to move the articles out of the building in the event that he ever moved his business from the building"; the "business of the bankrupt was not that of a manufacturer" and he "did not conduct a mill or industrial plant" and that "all of the said articles are personalty property, and not real estate."

Without specifying the particular "theory" at which they were directed, the Referee stated the following Conclusions of Law:

"1. The bankrupt was not engaged in any manufacturing business within the meaning of the Assembled Plant Doctrine Bill of Pennsylvania.

"2. The four pieces of equipment upon which a lien is claimed are all items of trade fixtures.

"3. None of the foregoing pieces of equipment became a part of the real estate of premises 1224-26-28 Parrish Street, Philadelphia, Pa.

"4. The Commercial Banking Company did not acquire any lien on the four pieces of equipment in question by virtue of the judgment obtained in the State Court."

It is clear from the Referee's opinion that he construed the Pennsylvania law as limiting the applicability of the assembled industrial plant doctrine to manufacturing establishments and that he accordingly refused to apply the doctrine because of his fact-finding*fn3 that the bankrupt was not a manufacturer.

Anent his holding that "The Assembled Industrial Plant Doctrine was not applicable in this case" the Referee stated:

"However, the Industrial Plant Doctrine applies only to manufacturing establishments. * * * In order to constitute a plant as a manufacturing plant, the plant must be engaged in the creation of new articles by the substantial transformation in form, quality and adaptability of original material."

The Referee erred as a matter of law in ruling that the Pennsylvania assembled industrial plant doctrine is limited in its ...


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