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,


                             -6320-
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:



                             -6321-
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



                               -6322-
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.




                               -6323-
 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




                            -6324-
