432 P.3d 678
Kan. Ct. App.2018Background
- Jayhawk Racing agreed to sell its reversionary interest in Heartland Park to the City of Topeka for $2,392,117; the Memorandum of Understanding set price, payment timing, and required cooperation.
- The parties conditioned the purchase on several contingencies, notably City Council approval of an expanded STAR-bond district, approval by the Kansas Secretary of Commerce, and issuance of STAR bonds to fund the acquisition.
- The City Council initially adopted ordinances and resolutions to expand the STAR district and authorize STAR bonds, and the Secretary gave conditional approval, but a citizen petition and ensuing political turnover led the later council to vote against proceeding and no STAR bonds were issued.
- CoreFirst acquired Heartland Park after deeds placed in escrow were recorded following loan default; Jayhawk sued the City for breach of the Memorandum of Understanding.
- The district court treated the City’s motion as for summary judgment and dismissed Jayhawk’s contract and declaratory claims, concluding the City’s promise to issue STAR bonds was ultra vires and unenforceable; the Court of Appeals reversed and remanded.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Memorandum is a proprietary or governmental contract | Contract is proprietary: City agreed to buy real property (racetrack) and thus is enforceable | The agreement depends on issuing STAR bonds (governmental act) so it binds future councils improperly and is unenforceable | Court held contract is primarily proprietary (purchase of property) and enforceable; summary judgment for City reversed |
| Whether the City’s promise to seek/issue STAR bonds is ultra vires | Good-faith efforts to obtain STAR bonds are contractual obligations, not an unlawful surrender of governmental power | Issuing STAR bonds is a governmental function; the City cannot bind successors to perform governmental acts | Court held the financing contingency does not convert the contract into impermissible governmental undertaking; contractual good-faith obligations are permissible here |
| Whether a municipal governing body can bind successors by contracts extending beyond terms | Contracting to protect public property and prevent foreclosure is a valid commitment that can bind successors when reasonable and necessary | Successor councils must retain discretion; contracts cannot bind future councils on matters of public policy or core governmental powers | Court applied established test (protecting public property vs binding successors on core duties) and found this purchase falls within valid commitments that may bind successors |
| Whether the agreement violated Kansas Cash-Basis or Budget Laws | Agreement contemplates payment from STAR bond proceeds, which is an exception to cash-basis/budget prohibitions | The agreement creates indebtedness and impinges on fiscal discretion, violating statutes | Court held the contract fits statutory exceptions because obligations were to be paid with bond proceeds; laws do not bar enforcement here |
Key Cases Cited
- Board of Education v. Phillips, 67 Kan. 549 (1903) (maintenance of public schools is governmental and boards cannot contract away police/policy powers)
- Krantz v. City of Hutchinson, 165 Kan. 449 (1948) (municipalities have dual capacities: governmental and proprietary)
- Brown-Crummer Inv. Co. v. Arkansas City, 125 Kan. 768 (1928) (contract to deliver bonds can be proprietary and separate from governmental project)
- Newman Mem. Hosp. v. Walton Constr. Co., 37 Kan. App. 2d 46 (2007) (construction/lease of medical building is proprietary; factors for proprietary vs governmental functions)
- Verdigris River Drainage Dist. v. State Highway Comm., 155 Kan. 323 (1942) (boards may bind successors for long-term infrastructure contracts as county is continuous entity)
- Edwards County Comm’rs v. Simmons, 159 Kan. 41 (1943) (contracts extending beyond terms valid when reasonably necessary to protect public property/interests)
- State, ex rel. Hawks v. City of Topeka, 176 Kan. 240 (1954) (contract limiting future municipal discretion over operation/repair of public assets can be invalid)