Title: State, ex rel. Hecht v. City of Topeka

State: kansas

Issuer: Kansas Supreme Court

Document:

1 
 
 
 
IN THE SUPREME COURT OF THE STATE OF KANSAS 
 
No. 102,731 
 
STATE OF KANSAS, ex rel. ROBERT D. HECHT, DISTRICT ATTORNEY 
THIRD JUDICIAL DISTRICT, 
Appellee, 
 
v. 
 
THE CITY OF TOPEKA, KANSAS; NORTON BONAPARTE, CITY MANAGER OF THE CITY OF 
TOPEKA; MUNICIPAL SERVICES GROUP, INC.; LAWSON SOFTWARE AMERICAS, INC.; 
Appellees, 
 
 
and SCHREIB-AIR, INC.,  
Appellant. 
 
 
SYLLABUS BY THE COURT 
 
1. 
 
In general, the cash-basis law, K.S.A. 10-1101 et seq., prohibits municipalities 
from creating indebtedness in excess of funds actually on hand in the treasury of the 
municipality. Contracts entered into by municipalities in violation of the cash-basis law 
are void. 
 
2. 
 
When a city signs a contract that it is not legally allowed to enter into, the contract 
is ultra vires, void and unenforceable. 
 
3. 
 
If a contract was made in express violation of the law, it is unenforceable and not 
even estoppel may save the agreement. 
 
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4. 
One contracting with a municipal corporation is bound at his or her peril to know 
the authority of the municipal body with which he or she deals. 
 
5. 
One of the few authorized exceptions to the proscription against a municipality 
creating indebtedness in excess of funds actually on hand in its treasury is a lease-
purchase agreement. But in order for a lease-purchase agreement to be valid under the 
cash-basis law, it must be approved by a majority vote of all members of the governing 
body of the municipality. 
 
Appeal from Shawnee District Court; LARRY D. HENDRICKS, judge. Opinion filed February 1, 
2013. Affirmed. 
 
Thomas M. Rhoads, of Glaves, Irby and Rhoads, of Wichita, argued the cause and was on the 
brief for appellant.  
 
Robert J. Perry, special prosecutor, argued the cause, and Chadwick J. Taylor, district attorney, 
was with him on the brief for appellees. 
 
The opinion of the court was delivered by 
 
Per Curiam:  The City of Topeka attempted to purchase a new police helicopter. 
The State filed an action seeking a declaratory judgment that the agreement between the 
City and Schreib-Air, Inc. (Schreib-Air), the helicopter dealer, was "invalid, void ab 
initio, and ultra vires" in violation of the Kansas cash-basis law, K.S.A. 10-1101 et seq. 
The State also requested a writ of quo warranto stating that the City and the city manager 
acted without valid and lawful authority and that any agreements entered into as a result 
were invalid, unlawful, and void. Ultimately, the district court granted summary 
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judgment in favor of the State. Schreib-Air appealed. We transferred the case from the 
Court of Appeals to this court pursuant to K.S.A. 20-3018(c). We now affirm.  
 
FACTS 
 
The facts of this case are largely undisputed. On June 26, 2007, the Topeka City 
Council adopted Resolution No. 7972 authorizing a lease-purchase agreement between 
the City and Municipal Services Group, Inc. (MSG) to finance the purchase of a 
Robinson helicopter. That resolution, however, was vetoed by the mayor on July 2, 2007. 
The council members in favor of the resolution attempted to override the veto on July 24, 
2007, but failed to acquire the necessary six votes to do so.   
 
On December 4, 2007, the council approved by a five-to-three vote a 
"communication" authorizing the city manager to enter into a lease-purchase agreement 
for the purpose of purchasing the Robinson helicopter. The communication authorized 
two contracts:  one with Schreib-Air to purchase the helicopter and one with MSG to 
finance the purchase. The communication identified the purchase price, the interest rate 
for financing the purchase, the total to be paid over 5 years broken down into principal 
and interest ($820,371.90:  $740,000 principal and $80,371.90 interest), the annual 
payment amount ($164,074.38), and the funding source—Topeka Police Department's 
operating budget.  
 
The city manager subsequently signed the contract with Schreib-Air on December 
6, 2007. Under the terms of that contract, the City agreed to purchase a helicopter from 
Schreib-Air for the price of $740,000. The contract also stated that the City would pay a 
deposit of $74,000 upon execution of the lease-purchase agreement which could be 
retained by Schreib-Air as liquidated damages should the City fail to fulfill the terms of 
the contract.   
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After the lease-purchase agreement was signed, the mayor vetoed the 
communication on December 11, 2007. Despite the veto, on January 4, 2008, Schreib-Air 
billed the City for the $74,000 deposit, which the city manager authorized MSG to pay. 
Although it is not clear why, in April 2008, the council adopted—by a five-to-four vote—
Resolution No. 8052 authorizing a lease-purchase agreement with MSG to finance the 
lease purchase of the Robinson helicopter. Not surprisingly, that resolution was again 
vetoed by the mayor. 
 
The State filed suit in Shawnee County District Court seeking a declaratory 
judgment that the agreement between the City and Schreib-Air was "invalid, void ab 
initio, and ultra vires" because the lease-purchase agreement failed to comply with the 
cash-basis law. See K.S.A. 10-1101 et seq. The State also requested a writ of quo 
warranto based on its contention that the City and the city manager acted without valid 
and lawful authority and that any agreements entered into as a result were invalid, 
unlawful, and void. 
 
While the City filed a motion to dismiss, claiming that the issues were moot 
because the helicopter was never actually purchased, the district court held that one 
issue—whether the City had any obligation to Schreib-Air or MSG—was still viable. In 
granting summary judgment in favor of the State, the district court held that the 
transactions with Schreib-Air and MSG violated the cash-basis law. Accordingly, the 
court ordered that any money given to MSG or Schreib-Air related to the helicopter 
purchase was to be returned immediately. 
 
Schreib-Air filed a motion to alter or amend the district court's decision, arguing 
that its contract with the City was valid at the time it was signed and that any violations 
of the cash-basis law related to the City's financing agreement with MSG, not the contract 
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for purchase. Additionally, Schreib-Air argued that the payment it received was from 
MSG, not the City; therefore, Schreib-Air had no obligation to the City to return the 
deposit. Instead, it suggested that the City's obligation, if any, was to MSG alone. 
Schreib-Air maintained that the sale of the helicopter was a valid and lawful agreement 
"regardless of any alleged failure by the City and MSG to fund the purchase legally [and] 
[t]he fact that the City was unable to obtain the financing it preferred [did] not render the 
contract invalid." The district court found Schreib-Air's arguments disingenuous. The 
court reasoned that knowledge that the authorization for purchase could be vetoed by the 
mayor based on the mayor's prior veto and the city ordinances regarding the city 
manager's power to contract was imputed to Schreib-Air. 
 
Schreib-Air timely appealed the district court's decision.  
 
ANALYSIS 
 
 
On appeal, Schreib-Air argues that the district court erred in granting summary 
judgment in favor of the State based on its conclusion that Schreib-Air's lease-purchase 
agreement with the City for the sale of the helicopter violated the cash-basis law and was 
thus ultra vires. Schreib-Air contends that its agreement with the City was a distinct and 
valid contract at the time of its execution on December 6, 2007, and that any possible 
violations of the cash-basis law were attributable only to the City's financing contract 
with MSG. Accordingly, Schreib-Air argues that it is entitled to keep the $74,000 deposit 
it received pursuant to the lease-purchase agreement with the City.   
 
Our standard of review for a district court's grant or denial of a motion for 
summary judgment is well established: 
 
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"Summary judgment is appropriate when the pleadings, depositions, answers to 
interrogatories, and admissions on file, together with the affidavits, show that there is no 
genuine issue as to any material fact and that the moving party is entitled to judgment as 
a matter of law. The trial court is required to resolve all facts and inferences which may 
reasonably be drawn from the evidence in favor of the party against whom the ruling is 
sought. When opposing a motion for summary judgment, an adverse party must come 
forward with evidence to establish a dispute as to a material fact. In order to preclude 
summary judgment, the facts subject to the dispute must be material to the conclusive 
issues in the case. On appeal, we apply the same rules and where we find reasonable 
minds could differ as to the conclusions drawn from the evidence, summary judgment 
must be denied." Miller v. Westport Ins. Corp., 288 Kan. 27, Syl. ¶ 1, 200 P.3d 419 
(2009). 
 
Furthermore, "[t]he interpretation and legal effect of a written contract are matters 
of law over which an appellate court has unlimited review. [Citation omitted.] Regardless 
of the district court's construction of a written contract, an appellate court may construe a 
written contract and determine its legal effect. [Citation omitted.]" Shamberg, Johnson & 
Bergman, Chtd. v. Oliver, 289 Kan. 891, 900, 220 P.3d 333 (2009). 
 
In general, the cash-basis law prohibits municipalities from creating indebtedness 
in excess of funds actually on hand in the treasury of the municipality. K.S.A. 10-1112. 
Contracts entered into by municipalities in violation of the cash-basis law are void. 
K.S.A. 10-1119; State ex rel. Tomasic v. Unified Gov't of Wyandotte County/Kansas City, 
265 Kan. 779, 803, 962 P.2d 543 (1998). When a city signs a contract that it is not legally 
allowed to enter into, the contract "is ultra vires in the sense that it is not within the power 
of the municipality to make." Genesis Health Club, Inc. v. City of Wichita, 285 Kan. 
1021, Syl. ¶ 7, 181 P.3d 549 (2008). If a contract was made in express violation of the 
law, the contract is unenforceable and not even estoppel may save the agreement. 
Genesis, 285 Kan. 1021, Syl. ¶ 9; cf. Petty v. City of El Dorado, 270 Kan. 847, 854, 19 
P.3d 167 (2001) (contracts in contravention of public policy are generally void and 
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unenforceable). Finally, "[o]ne contracting with a municipal corporation is bound at his 
or her peril to know the authority of the municipal body with which he or she deals." 
Genesis, 285 Kan. 1021, Syl. ¶ 8.  
 
In December 2007, the City agreed to purchase a helicopter from Schreib-Air for 
$740,000. The City would pay Schreib-Air a deposit of $74,000 at the time of signing 
and pay the remaining $666,000 upon delivery of the helicopter. The contract provided 
that Schreib-Air could keep the $74,000 deposit as liquidated damages should the City 
fail to fulfill the terms of the contract.  
 
Notably, Schreib-Air does not contend, and there is nothing in the record to 
suggest, that the City had more than $740,000 in its treasury on December 6, 2007, for 
the purpose of purchasing the helicopter. Accordingly, unless the City incurred the 
indebtedness contemplated in the Schreib-Air contract pursuant to an exception to the 
cash-basis law, the contract was entered into in violation of the law, rendering it void and 
unenforceable. See K.S.A. 10-1112 ("Unless otherwise provided in this act, it shall be 
unlawful . . . for the governing body of any municipality to create any indebtedness in 
excess of the amount of funds actually on hand in the treasury of such municipality at the 
time for such purpose . . . ."); K.S.A. 10-1119 ("Any contract entered into between the 
governing body of any municipality and any person, which violates the provisions of this 
act, shall be void, and any order, warrant, check or other evidence of indebtedness drawn 
on the treasurer of any municipality in violation of the provisions of this act shall be 
void."). 
 
There are a few authorized exceptions to the proscription against a municipality 
creating indebtedness in excess of funds actually on hand in its treasury. One of those 
exceptions is a lease-purchase agreement. K.S.A. 10-1116b states: 
 
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"Nothing in the provisions of K.S.A. 10-1101 et seq., and amendments thereto, 
shall prohibit a municipality from entering into . . . (3) a lease-purchase agreement, if any 
of such agreements specifically state that the municipality is obligated only to pay 
periodic payments or monthly installments under the agreement as may lawfully be made 
from (a) funds budgeted and appropriated for that purpose during such municipality's 
current budget year or (b) funds made available from any lawfully operated revenue 
producing source. For the purpose of this act, a lease-purchase agreement shall include a 
lease with an option to buy or an installment-purchase agreement." 
 
The parties agree that the City's contract with MSG to finance the purchase of the 
helicopter was a lease-purchase agreement. But in order for such an agreement to be valid 
under the cash-basis law, it must be approved by "a majority vote of all members of the 
governing body." (Emphasis added.) K.S.A. 10-1116c(a). The compilation of charter 
ordinances appended to the Topeka City Code clearly defines the governing body as a 
"ten (10) member body consisting of nine (9) district Council members and one (1) 
Mayor." Appendix A—Compilation of Charter Ordinances, Sec. A2-21(a). Additionally, 
section A2-30(c) requires there be approval by a majority vote of more than five council 
members if statutorily required. Thus, under the plain language of K.S.A. 10-1116c and 
the City Code six affirmative votes from the governing body were needed to authorize the 
agreement with MSG.  
 
The facts clearly show that the lease-purchase agreement with MSG was never 
approved by six affirmative votes. The city council could only muster five votes in favor 
of the lease-purchase agreement with MSG, and the mayor repeatedly vetoed the 
agreement. Accordingly, the agreement with MSG was never validly authorized under 
the cash-basis law, rendering that agreement void. Consequently, without a valid means 
of financing the purchase of the helicopter, the City's agreement with Schreib-Air was 
ultra vires, void, and unenforceable due to the agreement being entered into in violation 
of the cash-basis law. See K.S.A. 10-1112; K.S.A. 10-1119.  
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We reached a similar conclusion in Genesis. In that case, a health club claimed a 
breach of contract and asserted the doctrine of promissory estoppel against the City of 
Wichita when the city failed to issue certain bonds and tax abatements pursuant to a letter 
of intent issued by the city to the health club. This court determined that the city's failure 
to comply with a statutory notice requirement prevented the city's letter of intent to issue 
the bonds and tax abatements from being considered an enforceable agreement. 
Specifically, the court reasoned that where the notice requirement was unmet, the city 
had no power to issue the bonds and, thus, no power to approve a letter of intent. 
Accordingly, we concluded that the agreement was ultra vires, a failing that could not be 
overcome by promissory estoppel despite the fact that the health club had spent more 
than $1 million in reliance on the letter of intent. Genesis, 285 Kan. at 1029, 1041-43. 
 
Like the letter of intent contemplated in Genesis, Schreib-Air's agreement with the 
City was void when entered into because the City failed to satisfy the statutory conditions 
that would allow it to purchase the helicopter. Specifically, the City was either required to 
have at least $740,000 in its treasury for the purpose of buying the helicopter, see K.S.A. 
10-1112, or it was required to secure financing for the purchase of the helicopter in 
compliance with the cash-basis law. Because neither of these conditions was met prior to 
the City entering into the agreement with Schreib-Air, the contract was made in violation 
of the cash-basis law and, consequently, the contract is unenforceable. See Genesis, 285 
Kan. 1021, Syl. ¶ 6 ("If a municipal corporation enters into a contract it has no power to 
make, it is ultra vires and unenforceable and no further inquiry into the contract's validity 
is necessary."). 
 
Affirmed. 
 
 
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MORITZ, J., not participating. 
 
DANIEL A. DUNCAN, District Judge, assigned.1 
 
1REPORTER'S NOTE: District Judge Duncan was appointed to hear case No. 102,731 
vice Justice Moritz pursuant to the authority vested in the Supreme Court by Art. 3, § 6(f) 
of the Kansas Constitution.