KJC Development Corp., Appellant v. Land Trust of Jackson County, Missouri, Respondent

This slip opinion is subject to revision and may not reflect the final opinion adopted by the Court. Opinion Missouri Court of Appeals Western District Case Style: KJC Development Corp., Appellant v. Land Trust of Jackson County, Missouri, Respondent Case Number: 55129 Handdown Date: 10/13/1998 Appeal From: Circuit Court of Jackson County, Hon. Jon R. Gray Counsel for Appellant: John R. Campbell Counsel for Respondent: Henry D. Bledsoe Opinion Summary: KJC Development Corporation appeals an order of the trial court granting summary judgment to the Land Trust of Jackson County, Missouri in a quiet title action wherein KJC sought to establish exclusive ownership of a building located at 10th and Grand in Kansas City. AFFIRMED. Division holds: (1) The "necessary and incidental" powers conferred on the Land Trust pursuant to the Land Trust Collection Law require that these powers be used to effectively manage or dispose of property acquired by foreclosure. These powers were not effectively used in this case because separation of building from land at foreclosure sale created difficulties and uncertainty as to legal status of the properties in the hands of their respective owners. (2) Leasehold did not exist at time of sale as former owners of land and building ceased to exist as corporate entities. Neither defunct entity could be considered predecessor in interest to subsequent owners. Therefore, Land Trust did not take title to building subject to lease. (3) Although foreclosure on land and building was an unauthorized administrative action, this court does not have authority to void the sales because the sales have been confirmed by judicial decree. Citation: Opinion Author: James M. Smart, Jr., Judge

Opinion Vote: AFFIRMED. Ulrich, C.J., P.J. and Smith, J., concur. Opinion: KJC Development Corporation ("KJC") appeals an order of the trial court granting summary judgment to the Land Trust of Jackson County, Missouri in a quiet title action filed by KJC to establish KJC's exclusive ownership of land and building at 10th and Grand in downtown Kansas City. KJC contends that the trial court erred in granting summary judgment to Land Trust ("Land Trust"), and denying KJC's claim to exclusive ownership, because the undisputed facts showed that Land Trust took title to a building that is the subject of this dispute under a lease, that Land Trust breached the lease, and that title to the building reverted to KJC. The judgment of the trial court is affirmed. Background In 1925, the land and seventeen-floor office building at the southwest corner of 10th and Grand was owned by members of the Samuel Gates family. The property was described as Lots 71 and 72 in Swope's Addition to the City of Kansas City. The Gates family decided to lease the property to DeVere Dierks pursuant to a ninety-nine year lease. The lease stated that the building had already been severed from the realty and sold to DeVere Dierks; in all other respects, the lease treated the building as though it were part of the leasehold.(FN1) The lessee agreed to pay rent and to be responsible for all taxes and assessments of every kind. The lease also provided that "all covenants, agreements and engagements" in the lease are to be construed as "covenants running with the land." By the mid-1990s, the once proud office building was no longer operating and both the lessee and the owner of the land were defunct. The lessee of the building, 1006 Grand Corporation, forfeited its corporate charter in 1993. The owner of the land, GBA Corporation, forfeited its charter in 1996. No taxes had been paid by either party since early in the decade; subsequently, the property was in tax foreclosure. On September 25, 1996, Jackson County foreclosed its lien for taxes on both the leasehold and the reversionary interest. Interestingly, neither the leasehold nor the reversionary interest were foreclosed -- only the land and the building. (FN2) The land and the building were advertised and offered separately. The minimum bid for the building was advertised as $80,399.52, and the minimum bid for the land was advertised as $19,552.28. KJC elected to bid on the land at the minimum price and was successful in purchasing the land at $19,552.28. No bids were made on the building at the tax sale. Accordingly, pursuant to Section 141.560.2, RSMo 1994, Land Trust became the purported owner of the building by operation of law.

On March 31, 1997, after the sale was confirmed by the Circuit Court, the court administrator conveyed the land to KJC by a court administrator's deed. The deed purported to convey the land only "with all the rights and appurtenances thereto belonging, subject to valid recorded covenants running with the land and to valid easements of record." The deed made no specific reference to the 1925 lease. On April 21, 1997, KJC notified Land Trust that it intended to enforce the lease and made a demand upon Land Trust to comply with the terms of the lease. KJC asserted that Land Trust was in default of various terms of the lease, including the failure to make $50,000 per year in rent payments. KJC insisted that Land Trust was responsible for the unpaid taxes prior to Land Trust's ownership of the building and had a duty to pay both rent and real estate taxes pursuant to the terms of the lease. KJC gave Land Trust thirty days to comply with the terms of the lease. KJC informed Land Trust that failure to cure would result in KJC declaring the lease void and taking possession of the property. Land Trust refused KJC's demand, contending that the lease had been terminated and was without effect. On April 30, 1997, KJC filed a three-count petition in the Circuit Court. Count I was a quiet title action seeking a court order terminating any claim of interest GBA Corporation might make as to the land and declaring KJC to be the fee simple owner of the land. Count II was a quiet title action against Land Trust seeking a court order terminating the lease and declaring KJC to be the fee simple owner of the building. Finally, in Count III KJC sought a preliminary injunction against Land Trust from denying KJC access to the building or preventing KJC from taking reasonable steps to repair, maintain and preserve the property. The trial court entered an order for a preliminary injunction on June 17, 1997, enjoining Land Trust from denying KJC access to the building. Both parties were given equal access to the property and both were given the right to "inspect, preserve, protect, maintain, repair, and secure the property." Both sides moved for summary judgment. On October 16, 1997, the court entered its order, finding in favor of KJC on Count I of the petition, but denying relief on Count II. The court refused to declare that the building had reverted to the land and now belonged to KJC and dissolved the preliminary injunction. Citing Spitcaufsky v. Hatten, 182 S.W.2d 86 (Mo. banc 1944), the court found that "[t]he Land Collection Tax Law ha[d] been construed as a separate law unto itself and the remaining provisions of Chapter 141 ha[d] application in other first class counties but not within Jackson County." The court held that "Section 141.202 R.S.Mo. [did] not apply to the foreclosure process affecting the lands in controversy." (FN3) KJC appeals, contending the court erred in denying relief as to Count II. KJC claims that the undisputed facts show that Land Trust took title to the building subject to the terms and conditions of a lease, that Land Trust breached the lease, and that under the terms of the lease, the building reverted to KJC. KJC argues that under the terms of the lease,

the covenants to pay rent, to pay taxes and to keep the building insured are covenants running with the land that bind the successors in interest of the lessee. KJC argues that Land Trust is a successor in interest and therefore, Land Trust is bound by the covenants contained in the lease. KJC argues that the lease was not extinguished by the tax foreclosure sale because Section 141.202 is applicable, and in any event, it is settled law that covenants running with the land survive a tax foreclosure sale. Standard of Review Although the parties moved for summary judgment, this is a case in which the parties submitted the case to the court on agreed facts. Further evidentiary proceedings were unnecessary. Thus, the court's decision was a judgment on the merits, based upon a comprehensive record. Accordingly, we will apply the standards of Murphy v. Carron, 536 S.W.2d 30, 32 (Mo. banc 1976), reviewing the record to determine whether the judgment is supported by substantial evidence, is against the weight of the evidence, or erroneously declares or applies the law. Id. The Authority of the Land Trust The primary objectives of the "Land Tax Collection Law" (Sections 141.210 through 141.810) "are summarily to foreclose long standing tax delinquencies on real estate, and to convey a marketable title by judicial decree, excluding any right of redemption and collateral attack." Spitcaufsky v. Hatten, 182 S.W.2d 86, 94 (Mo. banc 1944). Although Land Trust is given large powers under the Land Tax Collection Law, its powers are not unfettered. Id.; see also State ex rel. Wagner v. St. Louis County Port Auth., 604 S.W.2d 592, 599 (Mo. banc 1980). The Land Tax Collection Law details the powers and the duties of Land Trust, leaving the "administrative delegatee the interpretive power of filling in the details." Spitcaufsky, 182 S.W.2d at 109. Land Trust is established by Section 141.700, RSMo 1994, which provides: There is hereby created a commission for the management, sale and other disposition of tax delinquent lands, which commission shall be known as "The Land Trust of .......... County, Missouri", and the members thereof shall be known as land trustees. Such land trust shall have and exercise all the powers that are conferred by sections 141.210 to 141.810 necessary and incidental to the effective management, sale or other disposition of real estate acquired under and by virtue of the foreclosure of the lien for delinquent real estate taxes, as provided in said sections, and in the exercise of such powers, the land trust shall be deemed to be a public corporation acting in a governmental capacity. The Land Trust created under the Land Tax Collection Law is considered an agency of the State. Collector of Revenue of Jackson County v. Parcels of Land Encumbered with Delinquent Taxes, 247 S.W.2d 83, 93 (Mo. banc 1952) (Hyde, J., concurring). Land Trust is designed to work closely with county government to deal with delinquent land taxes. The county conducts the foreclosure sale. If the property is not otherwise purchased at the foreclosure sale, it becomes the property of Land Trust by operation of law.

When an administrative action under review includes the exercise of administrative discretion we are limited to determining whether that action (1) violates the Federal or State constitutions; (2) is ultra vires; (3) is not supported by competent and substantial evidence; (4) is not authorized by law; (5) is done without following lawful procedure or a fair trial; (6) is arbitrary or capricious; or (7) is an abuse of discretion. Scheble v. Missouri Clean Water Comm'n, 734 S.W.2d 541, 551 (Mo. App. 1987). By filing an action to quiet title in the Circuit Court and by appealing the Circuit Court's judgment, KJC is in effect, asking this court to examine the administrative action taken by the Land Trust in selling, retaining, and administering the properties in question. One aspect of this case, which the parties do not directly address, is the fact that the Circuit Court has confirmed the title to the building in Land Trust and the title to the land in KJC. The decree confirming the sale is designed to preclude collateral attack on ownership. Sections 141.580 and .590, RSMo. 1994. These decrees present an unusual complication for this court because we believe that otherwise, the obvious solution to the difficulties of this case would be to void the respective separate foreclosure sales. The 'necessary and incidental powers" conferred on Land Trust pursuant to the Land Trust Collection law require that these powers be exercised for the purpose of the "effective management, sale or other disposition of real estate" acquired by foreclosure. Section 141.700, RSMo 1994. In this case, those powers were not exercised effectively. The county is also clearly obligated to take actions which are reasonable and appropriate. Here, the first thing one notices is that the decision to market the building and the land separately was fraught with potential problems. First, it was the leasehold, and not the building itself, which should have been regarded as the separate taxable entity which could have been foreclosed separately. In any event, in this case the separation of the parcels for foreclosure purposes had the effect of creating uncertainty as to the legal status of the properties in the hands of their respective owners. It should have been obvious to the county officers and Land Trust that there are difficulties associated with the sale of an abandoned building which has been severed from the land. By the time of the foreclosure, GBA Corporation, the owner of the reversionary interest in the land, had apparently abandoned any interest in declaring the leasehold terminated (perhaps to avoid responsibility for increased taxes against the property). In any event, the leasehold was extinguished by virtue of the abandonment of lease obligations by both parties, and the cessation of existence of both parties. The lease accrues to the land and becomes subsumed in the fee interest. See Century Elec. Co. v. Terminal R.R. Assn., 426 S.W.2d 58 (Mo. 1968) (lessee under forty year lease had no claim to condemnation proceeds after termination of lease because the improvements became a part of the realty upon termination of lease).

It is true that a leasehold may be taxed separately from the land and can be sold in a tax foreclosure sale. See Iron County v. State Tax Comm'n, 437 S.W.2d 665, 671 (Mo. banc 1968). Here, as we have noted, it was not the leasehold that was foreclosed separately from the reversionary interest and sold -- it was the building. Also, KJC fails to persuade us that the leasehold still existed at the time of the sale. Both parties to the lease, GBA Corporation, the former owner of the land, and 1006 Grand Corporation, the former owner of the building, no longer retained formal existence as corporate entities. Also, neither the Land Trust nor KJC are successors in interest to 1006 Grand or GBA, respectively. Land Trust was not a successor in interest to 1006 Grand, because 1006 Grand did not exist at the time of the tax sale. Moreover, there were no statutory trustees of the corporation. An initial registration was never filed and no officers or directors were ever named in the articles of incorporation. Similarly, KJC could not be a successor in interest to GBA Corporation, because GBA ceased to exist as a legal entity before KJC had any interest in the land. Consequently, we conclude that the lease was no longer extant at the time the properties were severed and sold; and because the lease was no longer extant, the leasehold had ceased and the leased premises were merged into the reversionary fee interest. Having determined that the foreclosure and sale of the land and building, as opposed to the reversionary interest and the leasehold, was an unauthorized administrative action, we nevertheless doubt that we have authority to void the respective sales on that ground because the sales have been confirmed by judicial decrees. It was intended that the decrees confirming the sales would provide title stability, and would preclude collateral attack. Sections 141.580 and .590, RSMo. 1994. There has been no appeal of the decrees confirming the sales. Consequently, the obvious solution of voiding the sales and directing the county to require that the two properties be sold together is not feasible. Thus, we must directly address the issue of whether Land Trust took title to the building subject to the lease, and was obligated to comply with the terms of the 1925 lease. For reasons discussed above, we have concluded that the lease ceased to be effective prior to the foreclosure sale. The county foreclosed on and sold the building and the land separately. These actions severed the building from the land, and title has been confirmed by judicial decree. KJC owns land occupied by a building which KJC does not own. Land Trust owns a building sitting on land which it does not own. There is no agreement governing rights and liabilities of the respective parties. While such a result is undesirable because it is problematic from a practical and legal standpoint, we cannot say that such circumstance is per se unlawful. While we regret leaving the matter in this posture, and while there may be theories under which a court could apply some structure to the relationship between these two entities, we reluctantly conclude that we are without authority to venture onto that ground because none of that is before us as a part of this appeal. Because the trial court denied KJC's claim of entitlement to exclusive ownership of both land and building, and

because such ruling was not erroneous, we affirm the judgment of the trial court. Footnotes: FN1.The terms of the lease are entirely inconsistent with the proposition that the building had been sold to Dierks. For instance, the lease required the lessee to keep the building in good repair, and granted the lessor the right to enter and inspect the building. The lease also required that any structured changes in the building meet with the lessor's approval, and contained other provisions typical of leases and wholly inappropriate if the building had been sold to the lessee. Article XII provided that upon default by the lessee and termination of the lease, the building and improvements would become the property of lessors free of any claim of lessees. Thus, we can only view the reference to a "sale" of the building to the lessee as some sort of a legal fiction, without legal effect. Accordingly, we analyze the transaction as a long-term lease of real estate, both land and improvements. After the creation of the lease, two estates existed in the real estate: 1) a leasehold; and 2) a fee simple reversionary interest subject to the lease. FN2. It is unclear how the county had divided the property for tax purposes. Normally, one would expect the county to tax the leasehold, and also to tax separately the reversionary interest. It appears that here, however, the county may have divided the property along the physical lines of land and building, which would make no sense unless the county mistakenly regarded the "sale" language of the lease as severing the land from the building. FN3. Section 141.202 does not fall within the group of statutes collectively referred to as the "Land Tax Collection Law" which encompasses Sections 141.210 through 141.810. Section 141.202 states, "Any sale of lands under this chapter shall be subject to valid recorded covenants running with the land and to valid easements of record or in use." Separate Opinion: None This slip opinion is subject to revision and may not reflect the final opinion adopted by the Court.