Honorable Robert S. Calvert Opinion No. M-1289
Comptroller of Public Accounts
Finance Bulldln Re: Whether certain oil refinery
Austin, Texas 7Qr711 units on 011 company land
when severed by sale and
leased by oil company from
owner, are personal property,
and whether the contract
Involved is lease or flnanc-
Dear Hr. Calvert: ing agreement.
We are in receipt of your request for an official opinion,
quoted as follows:
“Signal Oil & Gas Company has entered into con-
tracts with contractors to build on ite propei‘ty
at Its Houston refinery four refinery units Iso-
Slv’ Unit, Ethyl Benzene Unit, Para-Zylene UnI t,
and Iso-Max Unit) at an approximate cost of
$17,416;000.00. Prior to their accepting the
units and after having made substantial payment
to the contractors, Signal directed the contrac-
tors to transfer such units to Bank of America
National Trust and Savings Association of Los
Angeles, California. The Bank thereafter remitted
the approximate cost of the units to the respective
contractors who in turn remitted such sums to Signal
for the release of any claims Signal had on the
Units.
"At the same time Signal and the Eank entered
into lease contracts, a copy of which is attached
hereto, on the four units. Section VIII of the
contracts concerning return of equipment states
that the Lessee (Signal will return each Unit
to the Lessor (the Bank1 and that the Lessor or
Its assignees shall have the right to remove
each Unit at the termination of the lease. Sec-
tion IX relating to default provides that upon
the occurrence of specified events the Lessor,
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Honorable Robert S. Calvert, Page 2 (M-1289)
at its option, may terminate the lease and take
possession of the Units which can then be leased
or sold by the Lessor. Section XI, ‘Miscellaneous’,
includes the following:
“Nothing herein contained shall be deemed to give
Lessee any right, title or interest In or to any
of the Units leased hereunder except as Lessee
hereunder.
“Each Unit is, and shall at all times be and
remain, personal property notwithstanding that
any Unit or any part thereof may now be, or
hereafter become, in any manner affixed or
attached to, nor lmbedded in, or permanently
resting upon, real property or any building
thereon, or attached in any manner whatso-
ever to what is permanent as by means of
cement, plaster, nails, bolts, screws, gravity
or otherwise. f . . (mphasis Added)
“The Units in question are substantially affixed
and attached to Signal’s realty, see attached
photographs. The lease contract does not pro-
vide that title shall ever vest in Signal or that
Signal shall have the right to purchase such
units. However, by separate agreexent Signal
agreed to purchase the Units from the Bank
should they not enter into the subzect lease
agreement, see attached letter.
“Your official opinion Is consequently requested
as to the following two questions:
“1. Are the above described units tangible per-
sonal property within your Opinion No. M-298?
“2 . Should the answer to the first question be
in the affirmative, does the agreement between
Signal and the Bank constitute a financing agree-
ment as contended by Signal rather than a lease?”
The question as to whether improvements on property are to be
considered personalty or as a fixture and therefore real prop-
erty, has been a subject that has been considered by scholars
and has been before the courts on many occasions. In 25 Tex.
Jur.2d, Fixtures, Sec. 7, at page 339, we find:
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Honorable Robert S. Calvert, Page 3 (M-1289)
“Chattels lose their identity as personal prop-
erty where they are so annexed to the realty
that they cannot be detached without damage to
the freehold, or without destroying the useful-
ness of the property to which they are annexed.
Conversely, the things affixed retain their
character as personal where they can be removed
with slight or no injury to the realty, or to
themselves. ”
The photographs attached to your request clearly show that the
improvements are extensive, and the factual Information con-
tained in Signal’s brief set forth the following information
concerning the same, to-wit:
“The improvements have foundations with an average
depth of approximately fifteen feet placed upon
pilings, 100 to 700 to number beneath each founda-
tion, each piling averaging 35 feet in depth. The
foundations and pilings are made of reinforced con-
crete and steel and are designed to support weights
and pressures comparable to those of many large
office buildings. One unit is actually more than
20 stories tall. The foundations have curbs and
gutters, underground drainage, and many other con-
struction features similar to building foundations.
All structures are connected by piping to other
permanent refinery units and have supply lines for
water and other utilities. The concrete super-
structures themselves extend as high as four
stories. Each structure is permanently affixed
to the foundation.’ To the extent that any com-
ponent part could be removed, considerable damage
would be done and the removed parts could be sold
only for scrap value. It would be a physical.
impossibility to sever the structures from the
ground and move them intact to a new location.”
From the photographs and the description of the facllitles,
It seems clear that the same cannot be removed without damage
to the freehold or without destroying the usefulness of the
property upon which they are situated as well as to the fix-
tures themselves.
Section X of the lease agreement between the Bank of America
National Trust and Savings Association, as lessor and Slgnal
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Honorable Robert S. Calvert, Page 4 (M-1289)
011 k Gas Company as lessee, gives the leSSOr the right of
removal of the leased unit8 at the termination of the lease.
While the right of removal of personalty has been considered
a factor in deciding whether property was personalty or had
become a part of the realty, it would appear that the classi-
cal tripartite approach set forth in Hutchins v. Masterson k
Street, Assignees k C., 46 Tex. 551 [T877) is applicable in
thie instance. The tests set forth n the’liutchins case are
as follows :
“It Is said, the weight of modern authorities
establish the doctrine that the true criterion
for determining whether a chattel has become
an Immovable fixture, consists in the united
application of the following tests:
“1st. Has there been a real or constructive
annexation of the article in question to realty?
“2nd. Was there a fitness or adaptation of such
article to the uses or purposes of the realty
with which it Is connected?
“3rd. Whether or not it was the Intention of
the party making the annexation that the chattel
should become a permanent accession to the free-
hold? - - (a) this Intention bein Inferable
from the nature of the article, (b the relation
and situation of the parties Interested, (c) the
policy of the law in’respect thereto, (d) the
mode of annexation and purpose or use for which
the annexation Is made.
in this State.
297 S.W.2d 195, 197
ervice Company v. Smith,
Due to the character of the Improvements placed on the realty,
and based on the authorities cited above, we believe that the
property covered in your request is real property.
Our answer to your first question being a negative one, we do
not conslder it necessary to answer the second question.
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Honorable Robert S. Calvert, Page 5 (M-1289)
SUMMARY
Refinery units constructed on land owned by
gas company are determined to be real property.
Very truly yours,
Prepared by Gordon C. Cass
Assistant Attorney General
APPROVED:
OPINIOBICOMKITTEZ
SAWUELD. McWNIEL
Staff Legal Assistant
ALFREDWALKER
Executive Assistant
NOLAWHITE ..
First Assistant
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