Find Legal Information

NO. 5-04-0651

IN THE

                                        APPELLATE COURT OF ILLINOIS

                                                         FIFTH DISTRICT

________________________________________________________________________

SI SECURITIES,                                                  ) Appeal from the

                                                                           ) Circuit Court of

     Plaintiff and Counterdefendant-Appellant,          ) Madison County.

                 )

v.                                                                        ) No. 02-CH-791

                                                                          )

BANK OF EDWARDSVILLE,                                ) Honorable

                                                                          ) Lola P. Maddox,

     Defendant and Counterplaintiff-Appellee.          ) Judge, presiding.

________________________________________________________________________

           JUSTICE CHAPMAN delivered the opinion of the court:

           This appeal concerns a question of statutory interpretation and involves restrictionsgoverning the Stonebridge subdivision, a residential development in Edwardsville, Illinois. The restrictions were recorded in Madison County in 1988 by the legal owner at the time,the defendant, the Bank of Edwardsville, as the trustee of trust No. 8180. The developer ofthe subdivision, William Shaw, was the beneficial owner of the trust. (The bank, the trust,and Shaw are hereinafter collectively referred to as the developer.)

           The restrictions are lengthy and detailed and grant broad discretion and powers to the developer to ensure that the residences complement one another. The primary purpose ofthe restrictions is to effectuate certain rules applicable to all lot owners within thesubdivision for the protection of each owner's property value. They cover an array of issues,including but not limited to land use, building location, plans and specifications, size,materials, maintenance, roads, landscaping, contractor selection, garbage, easements, anddispute resolution. By their express terms, the restrictions are imposed upon the land andbind successive property owners. They also automatically extend to future additions in thesubdivision. Thus, the restrictions are more properly referred to as covenants running withthe land (hereinafter covenants). Black's Law Dictionary 365 (6th ed. 1990).

           The developer did not pay property taxes on lot numbers 22 and 27. Thereafter, theplaintiff, SI Securities, petitioned for a tax deed. When the developer failed to redeem theproperty as provided in the Property Tax Code (Code) (35 ILCS 200/22-5 et seq. (West2002)), SI Securities took title to the lots by a tax deed issued on October 27, 2000.

           Two years later, SI Securities filed a complaint in the Madison County circuit courtalleging that (1) it had taken title to the lots free of the covenants because they had been extinguished by the tax deed and (2) "an entity who has a contract to purchase" the lots"repeatedly submitted plans" to the developer, who unreasonably refused to approve theplans. SI Securities sought an order from the court declaring the covenants void and,alternatively, an order authorizing SI Securities to construct a home in accordance with theplat plan attached to its complaint.

           The developer moved to dismiss the complaint, arguing in part that SI Securities failedto state a cause of action because section 22-70 of the Code (35 ILCS 200/22-70 (West2002)) expressly provides that a tax deed does not extinguish or affect covenants runningwith the land which are created before the tax deed is issued and evidenced by a recordedinstrument. Put another way, the developer argued that SI Securities took title to lots 22 and27 subject to the recorded covenants because section 22-70 of the Code expressly providesthat such covenants survive the issuance of a tax deed.

           Around the same time the developer moved to dismiss the complaint, its counselinformed SI Securities in writing of its intention to exercise rights granted by the covenantsto repurchase the lots on the basis that (1) neither SI Securities nor any agent on its behalfhad submitted plans or selected a contractor for approval, (2) the developer had rejectedbuilding plans submitted by a third party not known to be connected with SI Securities andno new plans for construction had been submitted, and (3) no foundation excavation orconcrete pouring had commenced within 24 months of the date SI Securities took title. Atthe time, the developer was willing to pay SI Securities an amount approximately equivalentto the amount the developer would have paid had it redeemed the property, i.e., the developerwas willing to pay $1,230.28 plus interest, for a total of $1,581.57. The record does notreflect how much SI Securities paid for the tax deed, but it appears that the amount offeredby the developer exceeds the amount that SI Securities paid for the deed.

           The trial court ordered SI Securities to amend its complaint to set forth particularcovenants it contended had been extinguished and to identify which parties were to be boundby the proposed extinguishment. SI Securities filed an amended complaint on May 7, 2004. SI Securities alleged that it had entered into a contract for the sale of the lots with SteveGardener. Subsequently, Gardener assigned his interest in the contract to Premier R.E., Inc.,which submitted proposed building plans to the developer. SI Securities further alleged thatthe developer rejected the plans and advised that no house plans would ever be approved. The amended complaint sets forth specific covenants that SI Securities contends give thedeveloper too much discretion to deny the use of the lots for constructing residences. CountI of the amended complaint alleges that the developer prevented the sale from going through,which precludes SI Securities from obtaining merchantable title in violation of the policyunderlying tax deeds set forth in section 22-55 of the Code (35 ILCS 200/22-55 (West2004)). SI Securities also cites the first paragraph of section 22-70 in its amended complaintbut does not make an explicit allegation regarding its effect on this case. Count I seeks anorder declaring that the developer has no authority under the covenants specified therein toprevent SI Securities or any successor purchaser or assignee from building on the lots. CountII seeks an order declaring the proposed plat plan to be acceptable and awarding damages forthe lost sale.

           The developer filed an answer, a motion to dismiss, and a counterclaim. In itscounterclaim, the developer alleges that SI Securities' tax deed did not extinguish thecovenants in this case, and it seeks to enforce certain covenants which authorize it to purchase the lots from SI Securities. The developer requests a mandatory injunctionrequiring SI Securities to accept the price offered by the developer to purchase the lots andto convey the lots by deed to the Bank of Edwardsville trust No. 8180 or, alternatively, toconvey the lots by deed with no consideration if SI Securities refuses the price it offers. Thejudgment appealed from in this case did not dispose of the developer's counterclaim. Thus,it remains pending before the trial court and is not before us on appeal. See 155 Ill. 2d R.304(a).

           In its motion to dismiss SI Securities' amended complaint, the developer again argued, in part, that all covenants running with the land survive the issuance of a tax deed and thatthere was no basis for the court to void the covenants in this case. The trial court agreed andexpressly found that the covenants had not been extinguished by the tax deed pursuant tosection 22-7 of the Code. The trial court also dismissed count II of the complaint withoutprejudice and gave SI Securities 30 days to file an amended complaint. SI Securities appealsthe trial court's judgment dismissing count I of its amended complaint under section 2-615of the Code of Civil Procedure (735 ILCS 5/2-615 (West 2004)).

           A motion to dismiss filed pursuant to section 2-615 of the Code of Civil Procedure,which attacks only the legal sufficiency of a complaint, admits all well-pleaded facts butdoes not admit unsupported legal or factual conclusions. Benge v. State Farm MutualAutomobile Insurance Co., 297 Ill. App. 3d 1062, 1066, 697 N.E.2d 914, 917 (1998). Acomplaint should be dismissed pursuant to section 2-615 only if no set of facts could beproven that would entitle the plaintiff to the relief he seeks. People ex rel. Peters v. Murphy-Knight, 248 Ill. App. 3d 382, 386, 618 N.E.2d 459, 463 (1993). We apply the de novostandard of review to the trial court's interpretation of a statute. Grams v. Autozone, Inc.,319 Ill. App. 3d 567, 569, 745 N.E.2d 687, 689 (2001).

           SI Securities advances two arguments on appeal. First, SI Securities argues thatsection 22-70 protects only utility and public service use covenants from extinguishment andthat since the particular covenants listed in its amended complaint are not utility or publicservice use covenants, they were extinguished when the tax deed issued. SI Securities arguesthat this interpretation promotes the policy in the Code that tax deeds convey merchantabletitle. Second, SI Securities argues alternatively that the statute expressly provides that it doesnot apply to this case because the developer lost title to the lots for its failure to pay "taxes". We disagree with SI Securities' interpretation of the statute, and we find that it waived itsalternative argument.

           Our primary objective in construing a statute is to give effect to the intent of thelegislature, "presuming the legislature did not intend to create absurd, inconvenient[,] orunjust results". In re Madison H., 215 Ill. 2d 364, 372, 830 N.E.2d 498, 503-04 (2005). Wemust first consider the plain language of the statute because it is considered the most reliableindicator of legislative intent. In re Madison H., 215 Ill. 2d at 372, 830 N.E.2d at 504. When the language is clear and unambiguous, we should give it effect without resorting toother aids for construction. Grams, 319 Ill. App. 3d at 570, 745 N.E.2d at 690.

           We turn now to ascertain and give effect to the legislative intent underlying section22-70 of the Code. Section 22-70 states as follows:

"§22-70. Easements and covenants running with the land. A tax deed issuedwith respect to any property sold under this Code shall not extinguish or affect anyconservation right, easement, covenant running with the land[,] or right-of-way forwater, sewer, electricity, gas, telephone[,] or other public service use which wascreated[] on or over that real property before the time that property was sold underthis Code and which is evidenced either by a recorded instrument or by wires, poles,pipes, equipment[,] or other public service facilities. When the property describedin a tax deed issued under this Code is a dominant or a servient tenement with respectto any private easement or easements, created in good faith expressly or by operationof law for the benefit of a dominant tenement or tenements, with respect to theeasement or easements the tax deed shall have the same effect as a deed ofconveyance made by the owner of the property to the tax deed grantee, just prior tothe issuance of the deed.

This Section does not apply to tax deeds issued because the owner of anyeasement, covenant running with the land[,] or right-of-way has failed to pay taxesor special assessments assessed for that easement, covenant running with the land[,]or right-of-way." 35 ILCS 200/22-70 (West 2004).

           We find that the plain language of the first paragraph of section 22-70 provides thattax deeds shall not extinguish covenants running with the land, regardless of their type. Wedo not agree with SI Securities' view that the phrase "water, sewer, electricity, gas,telephone[,] or other public service use" modifies the phrase "covenant running with theland". The statute clearly says that a tax deed shall not extinguish or affect any covenantrunning with the land. The phrase "water, sewer, electricity, gas, telephone[,] or other publicservice use" is set apart from the other property rights and modifies only the term "right-of-way", which follows the word "or", as opposed to "and". The title of section 22-70,"Easements and covenants running with the land", does not impart a restrictive applicationof the statute. Additionally, a covenant or a right-of-way can be a type of an easement, anda conservation right can be an easement or a covenant. See Black's Law Dictionary 1326(6th ed. 1990); G. M. Covington, Conservation Easements: A Win/Win for Preservationistsand Real Estate Owners, 84 Ill. B.J. 628 (1996); 20 Am. Jur. 2d Covenants, Conditions &Restrictions §150 (2004). We find that the redundant language indicates the legislature'sintent to broaden the range of property rights that survive the issuance of a tax deed. Focusing solely on the language of the statute, we agree with the developer that there is norational basis to limit the scope of this statute (which provides for the survival of rather thanthe extinguishment of property rights) as applying only to utility-related real estate interests. The following considerations provide additional support for our view.

           First, our interpretation of the statute does not violate the policy embodied by theCode that tax deeds convey merchantable title. 35 ILCS 200/22-55 (West 2004). The Codedoes not define "merchantable title". Black's Law Dictionary, however, defines a"merchantable title" as "[a] good and marketable title in fee simple, free from litigation,palpable defects, and grave doubts; a title which will enable the owner not only to hold it inpeace but to sell it to a person of reasonable prudence". Black's Law Dictionary 987 (6th ed.1990). Contrary to SI Securities' view, covenants are typically designed to enhance the valueand marketability of property, not to impair its transferability. 20 Am. Jur. 2d Covenants,Conditions & Restrictions §150 (2004). Our view is that the covenants, when read as awhole, seek to protect each owner's property value by ensuring that the residencesconstructed in the Stonebridge subdivision complement one another and that certain aestheticstandards are continually sustained. We believe it likely that a person of "reasonableprudence" buying a lot in a subdivision like Stonebridge would anticipate and appreciate theexistence of these types of covenants. We fail to see how the covenants, in and ofthemselves, render SI Securities' title less merchantable.

           Second, were we to adopt SI Securities' interpretation of the statute, then all recordedeasements and covenants that did not involve water, sewer, electricity, gas, telephone, orother public service uses would be susceptible to extinguishment by the issuance of a taxdeed. This would lead to absurd and chaotic results. Homeowners would not be able to relyon recorded easements and covenants to protect the value of their investment, and theirability and right to use and enjoy their property as bargained for would be severelycompromised. Furthermore, if all covenants were extinguished by a tax deed, then anyproperty owner seeking to avoid restrictions could do so by allowing his property to be soldat a tax sale, purchased by an intermediary, and then conveyed back to the previous ownerafter the expiration of the redemption period. The interpretation advanced by SI Securitieswould have a potentially adverse effect on the adjacent owners' ability to transfer theirproperty and thus their property values, a result we are certain the legislature did not intendby enacting section 22-70.

           Third, the law guarantees SI Securities a merchantable title, but a merchantable titledoes not mean that SI Securities should obtain the title to more of an interest than that whichthe prior owner of the property held. It is well-settled that covenants running with the landinhere in the land and bind subsequent purchasers. Accordingly, we find that a tax purchasershould obtain no greater title than a prior owner, with one previously recognized exceptionnot at issue in this case, i.e., a claim of adverse possession. See Killion v. Meeks, 333 Ill.App. 3d 1188, 777 N.E.2d 1007 (2002); Crawford v. Love, 243 Ill. App. 3d 977, 614 N.E.2d50 (1993). We do not equate the covenants in this case, which are intended to preserve thevalue and enhance the merchantability of the property, with a claim of ownership by adversepossession. As a result, we hold that by operation of law, the covenants were carriedforward in the chain of title when SI Securities obtained a tax deed to lots 22 and 27. Thisis particularly true in light of the fact that the covenants had been recorded before the taxdeed issued, which provided SI Securities full notice of their existence, nature, and scope. See In re Application of the County Collector for Judgment & Sale Against Lands & LotsReturned Delinquent for the Nonpayment of General Taxes and/or Special Assessments forthe Year 1990 & Prior Years, 285 Ill. App. 3d 518, 674 N.E.2d 123 (1996).

           Our decision is further aided by the absence of any binding precedent supporting SISecurities' argument. The only legal authority cited by SI Securities is an order in abankruptcy case issued by the United States Bankruptcy Court for the Northern District ofIllinois, In re Unitrust Corp., 86 B 5280 (Bankr. N.D. Ill. March 27, 1987). In thatbankruptcy proceeding, the debtor, Unitrust Corp., had obtained tax deeds on six residentiallots in the Lake Holiday subdivision in La Salle County. The lots were bound by recordedcovenants subjecting owners to an annual charge for repairs and maintenance. Thecovenants provided that in the event of a nonpayment, the charges would become liens onthe property. Unitrust Corp. did not pay the charges, and the homeowners' association fileda claim with the court for money owed under the covenants. After a hearing, the bankruptcycourt interpreted the Revenue Act of 1939 (Ill. Rev. Stat. 1987, ch. 120, par. 747b (now see35 ILCS 200/22-70 (West 2004))) and concluded that the law expressly protected only utilityeasements, utility covenants, and utility right-of-ways, but not other property rights. Thecourt reasoned that limiting the protection afforded by the statute to utility easements andutility covenants, as opposed to all easements and covenants, advances the legislativepurposes of encouraging buyers at tax sales and conveying merchantable title. In re UnitrustCorp., order at 6.

           We disagree with this interpretation for the reasons we already discussed. Notwithstanding, the bankruptcy court's order in In re Unitrust Corp., 86 B 5280 (Bankr.N.D. Ill. March 27, 1987), does not control our decision in this case because it is not bindingprecedent. Illinois courts are generally not bound by federal court decisions construingIllinois statutes that do not involve federal questions. Ray Schools-Chicago, Inc. v.Cummins, 12 Ill. 2d 376, 381, 146 N.E.2d 42, 45 (1957); People v. Crawford DistributingCo., 53 Ill. 2d 332, 338-39, 291 N.E.2d 648, 652 (1972). In fact, this maxim was indirectlyreferenced by the United States District Court when it denied the homeowners' association'sappeal; the district court declined to pass on the bankruptcy court's interpretation of section22-70, finding that any such resolution "would be advisory only", a fact SI Securitiescuriously omits from its brief. In re Unitrust Corp., 84 B.R. 517, 519 (Bankr. N.D. Ill.1988). Thus, we find the bankruptcy court's order in In re Unitrust Corp., 86 B 5280 (Bankr.N.D. Ill. March 27, 1987), to be neither binding authority nor persuasive authority in thiscase.

           Our decision in this case does find some support in existing precedent and other legalwork. The court in In re Application of the County Collector for Judgment & Sale AgainstLands & Lots Returned Delinquent for the Nonpayment of General Taxes and/or SpecialAssessments for the Year 1990 & Prior Years, 285 Ill. App. 3d 518, 519, 674 N.E.2d 123,124 (1996), stated in dicta, "[T]he Code explicitly states that the issuance of a tax deed doesnot extinguish existing easements (35 ILCS 200/22-70 (West 1994))." (Emphasis inoriginal.) See also G. M. Covington, Conservation Easements: A Win/Win forPreservationists and Real Estate Owners, 84 Ill. B.J. 628, 633 (1996) (interpreting section22-70 as protecting all recorded easements and covenants running with the land).

           For all these reasons, we find that pursuant to section 22-70 of the Code, the issuanceof the tax deed to SI Securities on lots 22 and 27 did not extinguish the recorded covenantsrunning with the land. Accordingly, we affirm the trial court's judgment dismissing countI of SI Securities' amended complaint.

           SI Securities next argues that the second paragraph of section 22-70 expresslyprovides that the statute does not apply to this case because the developer lost title to the lotsfor its failure to pay "taxes". The developer disagrees with this interpretation of the languagebut also contends that SI Securities waived this argument because it never raised it in itsdefense to the developer's motion to dismiss in the trial court.

           The record reflects that SI Securities is attempting to introduce a new theory tosupport its cause of action for the first time on appeal. SI Securities sets forth the firstparagraph of section 22-70 in its amended complaint but not the second paragraph reliedupon on appeal. Also absent from the amended complaint are any allegations regarding whofailed to pay what kind of taxes or special assessments and what effect this has on SISecurities' claim. In its amended complaint, SI Securities merely lays out the covenants itcontests, sets forth the first paragraph of section 22-70, and alleges that the court should holdthat the developer has no authority under the covenants to deny its reasonable use of the lots. Moreover, SI Securities never raised the issue in the trial court in connection with thedeveloper's motion to dismiss, which forms the basis of the judgment appealed from. Theonly occasion SI Securities raised the issue was in its motion for a summary judgment filedon October 24, 2003. However, this motion was never ruled on by the trial court, and SISecurities did not refile or renew this motion after it filed its amended complaint. Issues notraised in a complaint and points not argued in the trial court are waived on appeal. Parks v.Kownacki, 193 Ill. 2d 164, 180, 737 N.E.2d 287, 296 (2000); A.J. Maggio Co. v. Willis, 316Ill. App. 3d 1043, 1048, 738 N.E.2d. 592, 597 (2000). We agree that SI Securities waivedthis argument on appeal, and we decline to address it on its merits.

           Accordingly, we affirm the trial court's judgment dismissing count I of SI Securities'amended complaint.

           Affirmed.

           HOPKINS and McGLYNN, JJ., concur.

NO. 5-04-0651

IN THE

APPELLATE COURT OF ILLINOIS

FIFTH DISTRICT

___________________________________________________________________________________

SI SECURITIES,                                                 ) Appeal from the

                                                                             ) Circuit Court of

     Plaintiff and Counterdefendant-Appellant,      ) Madison County.

)

v.                                                                          ) No. 02-CH-791

                                                                             )

BANK OF EDWARDSVILLE,                          ) Honorable

                                                                             ) Lola P. Maddox,

     Defendant and Counterplaintiff-Appellee.      ) Judge, presiding.

___________________________________________________________________________________

Opinion Filed:                                           November 4, 2005

___________________________________________________________________________________

Justices:                  Honorable Melissa A. Chapman, J.

                                 Honorable Terrence J. Hopkins, J., and

                                 Honorable Stephen P. McGlynn, J.,

                                 Concur

___________________________________________________________________________________

Attorney                 Lawrence O. Taliana, Taliana, Buckley, ASA & Reames, 216 N. Main Street,

for                            Edwardsville, IL 62025

Appellant 

___________________________________________________________________________________

Attorney                 Tad Armstrong, Armstrong Law Offices, P.O. Box 565, 101 W. Schwarz Street,

for                            Edwardsville, IL 62025

Appellee 

___________________________________________________________________________________