Appeal from Shawnee District Court; LARRY D. HENDRICKS, judge.
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. 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.
The opinion of the court was delivered by
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 warrantor 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 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.
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.
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 warrantor 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 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 ...