The Doctrine of Fixtures and the Remaining Uncertainty on the Role of Intention of Annexation

Introduction

The law on fixtures deals with the circumstances in which personal property which is attached or annexed to land becomes part of the land. This is important in wide range of contexts involving immovable property including sale, mortgage, lease, and tax assessments. The rules or tests devised by the common law courts have been accused of being complex, unprincipled and obscure.¹ This is partly due to evolving modern circumstances that make the strict applications of Blackburn J.’s two-tests of “degree/mode of annexation” and “object/purpose of the annexation” in Holland v. Hodgson² quite limited. Nevertheless, the practical importance of this subject-matter has led to continual development and rationalisation of the law on fixtures keeping up with new forms of structures, technology and engineering. As a result, a shift can be in the relatively greater emphasis being placed on the “object and purpose” prong of two-test rule as opposed to physical fact based considerations of the degree/mode of annexation.³ The major ongoing development in this area of the law is related to the role of intention in ascertaining the nature of annexation, and whether such a relevant intention should be objective or subjective while considering the “object or the purpose of annexation” prong. This essay critically places this general development in the context of the law on fixtures.

I. Indian and the English perspective: The tests evolved

Indian courts repeatedly emphasise the departure from the English position.⁴ However, the tests or the rules developed in the English courts on “annexation” provide a starting point of analysis in the Indian courts.⁵ The maxim quicquid plantatur solo, solo (whatever is attached/annexed to the land becomes part of it) is of limited value in the Indian law.⁶ However, even the English law is said to have moved away from these maxims to a considerable extent.⁷ The reason can be found in Blackburn J.’s words in Holland v. Hodgson8⁸. Even though what is annexed becomes part of land, the question still remained of what constituted “sufficient annexation” for that purpose. The “sufficiency” of annexation would depend on two tests of, (1) “degree or mode of annexation”; and (2) “object or purpose of annexation” based on the facts and circumstances of each case. All other additional analytical factors and indicators are said to be ultimately related to these two tests (see Table A). The same principles guide the Indian court on the subject-matter.9⁹

A. Analytical factors and indicators considered by the courts (non-exhaustive)

The exceptions made in Indian law through the statute with regards to tenant fixtures in Sections 108(h)1¹⁴ and 511¹⁵ of the Transfer of Property Act, 1882 and trade fixtures are also given recognition in evolved English case law.1¹⁶ By this, it could be said that the apparent departure between two positions could be said to be overdrawn. However, I argue that the real difference lies in the treatment of intention of annexation. English courts have focused on objective intention of the parties to treat the item as a fixture. The two “tests” is said to provide the basis of ascertaining the objective intention of the annexation. In contrast, subjective intention can be treated as a separate analytical factor. Instead of inferring intention through the objective satisfaction of two tests, independent enquiry of subjective intention would be required to satisfy the two tests. I argue that the Indian law tilts towards the second approach as exemplified in Duncans Industries case1¹⁷, where “intention of the parties” was given an independent analytical weight in whether the annexation of machinery could be considered a fixture and part of the land.

II. The role of intention

As recognised in contemporary case laws on fixtures “great … technical skills of affixing and removing” without causing significant damage to the structure makes the test of mode or degree of annexation obsolete.1¹⁸ The move in the law on fixtures has been by placing greater importance on the purpose of annexation rather than the physical fact of the degree of annexation.1¹⁹

It is now well-settled that mere degree of annexation is not conclusive, the more important question is whether it intended to be annexed to the land or to continue to be a mere chattel. The interesting question is how this intention is determined. House of Lords stated the English position as that “intention of the parties as to the ownership of the chattel fixed to the land is only material so far as such intention can be presumed from the degree and object of the annexation”.2²⁰ Therefore, the terms expressly or implicitly agreed (subjective intention) between the fixer of the personal property and the owner of the land cannot affect the question whether the chattel has, in law, become part of the land.2²¹

This would mean that if an equipment or machinery has objectively improved the use of the land by enhancing its usefulness as a factory, it becomes a fixture regardless of any express intention through an agreement that it should remain a chattel.2²² In landmark case Hobson v. Gorringe2²³, in the context of hire purchase agreement, the question was whether the gas engine fixed to the land by bolts and screws by the hirer (also the mortgagor-owner of the land) to his land passed to the mortgagee of the land on his insolvency. The supplier of the gas engine had an agreement with the hirer (mortgagor) that the title to the engines would remain with the supplier and not the hirer. However, the court held that item was a fixture and passed to the mortgagee as it was affixed to the land, even though the said agreement had not contemplated the mortgagor being the owner of the engine. The court focused exclusively on the degree of annexation and object of annexation (to run the sawmill i.e. better enjoyment of the land), without regard to the subjective intention that the item would remain a chattel as expressed in the agreement.

Mixed question of law and fact

In contrast, the Indian courts treat the question of annexation as a mixed question of law and fact dependent upon the construction of the documents.2²⁴ For example, if the lease agreement contemplates the removal of machinery and instruments, it cannot be considered as having been permanently fixed to become part of the land even though it is annexed to the land.2²⁵ Thereafter, as the Supreme Court opined in Duncans Industries2²⁶, “while ascertaining the intention of the parties, we cannot preclude the contents of the agreement”. Evidently, the judgment in Duncans Industries2²⁷ provide a strong indication towards subjective intention expressed through agreements to be a relevant factor as opposed to irrelevancy accorded to such agreements in English law.2²⁸ However, I submit that the subjective intention has been always enmeshed in the Indian law on fixtures as the following comparative analysis will tend to show.

III. Divergent pathways: Comparative analysis of Elitestone v. Morris (1995) and K.A. Dhairyawan v. J.R. Thakur (1958)

This section shows the difference in treatment of the intention in Indian law to ascertain whether annexation has become part of the land. In Elitestone Ltd. v. Morris2²⁹, the plaintiffs were the freehold owners of a land. The defendant was a purchaser-occupier of a bungalow on the said land, and a paid annual licence fee for the occupation of the land. The question was whether the bungalow was part of the land. The House of Lords held that the bungalow was part and parcel of the land by applying the two tests of “degree” and “object” of annexation. However, what the court ignored is the subjective assumptions and agreements between the landowner and the bungalow. The previous agreements showed that the bungalows were owned separately from the land as the bungalow was purchased independently by the occupier. In addition, the annual licence fee agreements showed that the occupier’s tenure on the land was uncertain and subject to renewal. In these circumstances, the intention and assumptions of the parties would clearly indicate that bungalow had separate ownership was not to be part of the land. The Court held that both express agreements and common assumptions cannot prevent a chattel from becoming part of the land so long as it is fixed to the land and objectively satisfies the “degree” and “object” of annexation tests.

In K.A. Dhairyawan v. J.R. Thakur3³⁰, the question was to how far the superstructure (building) put up by the lessee would get annexed to the land so as to vest title of both in the lessor. The related question was whether what was demised by the lessor included the building along with the land. The Court approached the issue as mainly one of proper construction of the agreement between the parties. As various clauses of the lease made a clear distinction between the demised premises and the building, the agreement consistent with the separate ownership in that the building being with the lessees and the land with the lessor. Therefore, the court held that what was demised by the lease was only the land and not the building.

Contra Elitestone3³¹, the Court in K.A. Dhairyawan3³² did not approach the question as whether building structure satisfied the two tests of “degree” and “object” of annexation (which in most likelihood would be satisfied) to ascertain the objective intention of annexation. Rather, the court considered the subjective intention through agreement between the parties as determining when a structure annexed would become part and parcel of the land. This is direct opposition to English position which considers agreement to the contrary between the party to be irrelevant if the structure/chattel satisfies the two-tests objectively.3³³ Similarly, Madras High Court in Venkatasubbiah Chetty3³⁴ held that the mortgage decree of the building in favour of one party, and sale of the underlying land in favour of another party was valid based on construction of the agreements and knowledge of the parties.

Conclusion

The stated rationale for objective determination of intention of annexation through degree of annexation and object of annexation is that it protects the interests of third parties involved in transfer of the property. The third party having no knowledge of previous agreements would be at the disadvantaged if such agreements determine the entitlement of the third party to the structures/chattels annexed to the property as fixtures. However, the position taken in Australia that consideration of subjective intentions is highly valued when no third parties are involved can offer a guide for Indian law.3³⁵ It has been suggested that the recourse to evidence of subjective intentions provides a firmer basis for determining the status of annexation, thereby helping bring determinacy and predictability in the law on fixtures. Therefore, as argued in this essay, Indian law on fixtures is uniquely positioned to take into considerations subjective intentions of parties through express agreements or implied assumptions in addition to the existing framework of two —“tests”.