Present: All the Justices
KING GEORGE COUNTY SERVICE
AUTHORITY
v. Record No. 030592 OPINION BY JUSTICE CYNTHIA D. KINSER
March 5, 2004
PRESIDENTIAL SERVICE COMPANY
TIER II, INC.
FROM THE CIRCUIT COURT OF KING GEORGE COUNTY
Horace A. Revercomb, III, Judge
The dispositive issue in this appeal is whether
alleged contracts for the purchase of a privately owned
utility system by a county service authority can be
specifically enforced in the absence of a resolution by the
service authority’s board authorizing or ratifying the
contracts. Concluding that such a resolution is necessary,
we will reverse that portion of the circuit court’s final
decree specifically enforcing one of the alleged contracts
and directing the service authority to purchase a certain
portion of the utility system.
MATERIAL FACTS AND PROCEEDINGS
The appellant, King George County Service Authority
(“Service Authority”), was created in 1992 pursuant to the
provisions of the Virginia Water and Waste Authorities Act,
Code § 15.2-5100, et seq. The Service Authority is a
“public body politic and corporate.” Code § 15.2-5102(A);
see also Short Pump Town Ctr. Cmty. Dev. Auth. v. Hahn, 262
Va. 733, 742, 554 S.E.2d 441, 445 (2001). Its initial
purpose was to acquire existing, privately owned water and
sewer systems in King George County.
The appellee, Presidential Service Company Tier II,
Inc. (“Presidential”), owned a small water system that
served some residences located in Section 14 of
Presidential Lakes Subdivision (“Section 14”), which is
situated in King George County. This 354-lot residential
development was designed to have individual septic tanks on
each lot and one drilled well to supply potable water. As
of 1993, only 33 homes had been allowed to connect to the
water supply on account of certain health regulations, and
individual septic tanks had been difficult to permit
because of soil conditions.
Due to a need for affordable housing in King George
County that would be served by a central water and sewer
system, the general manager of the Service Authority wrote
Presidential in June 1993 and advised that
it is the intention of the King George County Service
Authority to take over ownership and operation of all
private utility systems in the County. This policy is
in keeping with the adopted Comprehensive Plan which
calls for a central sewer and water system owned and
operated by the County . . . .
As part of that effort, the systems owned by
Presidential Services Corporation Tier [II] are
intended for acquisition.
2
Accordingly, in July 1993, the Service Authority’s
board authorized the general manager to seek funding for
the purpose of purchasing the existing water system owned
by Presidential, improving and expanding that water system,
and constructing a central sewer system for Section 14.
The Service Authority then prepared a letter agreement,
dated September 2, 1993, in which it offered to purchase
the existing water system owned by Presidential for the sum
of $280,000. The offer provided that the price would be
“held firm until January 31, 1994 and if closing [was]
delayed beyond that date, the price [would] escalate at the
rate of 1/2 of one percent per month.” However, the
Service Authority’s “obligation to purchase the system
[was] subject to [its] ability to obtain financing by not
later than April 1, 1994. The Service Authority’s general
manager signed the letter agreement on behalf of the
Service Authority, and Presidential accepted the offer as
evidenced by the signature of its president on the
document.1
1
The letter agreement also stated that, upon
Presidential’s acceptance of the offer, a more definitive
agreement would be prepared. The parties never executed
such an agreement although the Service Authority prepared
one and sent it to Presidential.
3
On March 15, 1994, the Service Authority’s board
ratified the letter agreement entered into by the Service
Authority and Presidential for the purchase of the existing
water system. The board’s resolution stated that the
agreement would expire on March 31, 1994, because the
Service Authority’s obligation to purchase the existing
water system was subject to its ability to obtain financing
no later than April 1, 1994. In light of that fact, the
Service Authority’s board, in its resolution, ratified and
confirmed the agreement for the purchase of the existing
water system, and authorized the Service Authority’s
general manager to secure short-term financing in order to
proceed with that acquisition.2
During the ensuing weeks, representatives of both
parties discussed an alternative approach for providing a
central water and sewer system for Section 14. A letter
dated April 21, 1994, from Presidential to the general
manager of the Service Authority confirmed that
Presidential would construct an expanded water system, a
sewer collection system, and a treatment plant, and that
the Service Authority would then purchase the completed
system from Presidential instead of the Service Authority
2
The resolution also authorized the general manager to
obtain short-term financing for other acquisitions as well
4
undertaking the construction. The letter also specified
that, if the Service Authority could not obtain financing
through a particular government agency, then it would
complete the acquisition with bond financing.
Presidential subsequently prepared a “Cost [S]ummary
of Presidential Lakes Section 14 Sewer & Water System,”
detailing the estimated costs of each component of the
central water and sewer system, including acquisition of
the existing water system. The estimated costs, which
included a ten percent administrative fee, totaled
$1,616,146 before debt service. A subsequent memorandum
dated November 29, 1994, also prepared by Presidential,
confirmed the purchase of the existing water system for the
sum of $280,000 plus interest at 6 percent from January 31,
1994. The memorandum further provided that the Service
Authority would reimburse Presidential for “all
engineering, administrative, interest, construction and any
other costs for expansions” of the existing water system.
However, according to the terms of the memorandum, the
sewer system would be constructed by Presidential and sold
as development of a sewer system for Section 14.
5
to the Service Authority “at a cost of reimbursement of
cost to produce.”3
In a letter dated December 1, 1994, the general
manager of the Service Authority advised a financial
institution, which was financing the construction work by
Presidential, that the Service Authority’s application for
funds from a particular government agency had been approved
and that the purchase of both the expanded water system and
the sewer system was included in the Service Authority’s
project list. However, on its December 1997 project list,
the Service Authority showed no funds designated for
acquisition of the Section 14 water and sewer system. The
Service Authority admitted that, in 1999, it advised
Presidential that the Service Authority took the position
that it had no binding obligation to purchase the water and
sewer system in Section 14.4
This litigation then ensued. In an amended bill of
complaint, Presidential sought specific performance of the
alleged agreements for purchase of the existing water
3
Presidential asserted that the November 29, 1994
memorandum memorialized its oral agreement with the Service
Authority regarding expansion of the existing water system
and construction of the sewer system.
4
Presidential received authorization from the
Commonwealth of Virginia Department of Health, in May 1996,
6
system, the expanded water system, and the sewer system for
Section 14. The circuit court referred the matter to a
commissioner in chancery. Based on evidence presented, the
commissioner in chancery found, in an initial report, that
there was “a meeting of the minds” and that “[t]he terms of
the contract were sufficiently certain and complete, and
that negotiations had been concluded such that the
[Service] Authority would purchase both the water and the
sewer systems as finally constructed by [Presidential] per
plans adopted by the [Service] Authority’s engineers at its
costs, including a ten (10) percent administrative fee.”
The commissioner in chancery concluded that specific
performance was warranted and that Presidential’s claim was
not barred by the statute of frauds. The circuit court
overruled both parties’ objections to the commissioner’s
report and referred the matter back to the commissioner in
chancery to determine the amount owed by the Service
Authority to Presidential.
In a supplemental report, the commissioner in chancery
found that the purchase price of the existing water system
was “a flat $280,000.00 with interest at 6% beginning on
February 1, 1994.” The commissioner in chancery concluded
to operate the sewer system in Section 14 and, in February
2000, to place the water system in Section 14 in service.
7
that the purchase price of the expanded water system and
the sewer system was $1,604,380.91, which included a 10
percent administrative fee. Finally, the commissioner in
chancery found that Presidential was entitled to
prejudgment interest on the purchase price of the expanded
water system and the sewer system.
After considering the parties’ exceptions to the
supplemental report filed by the commissioner in chancery,
the circuit court held, in a final decree, that
Presidential was “entitled to specific performance of the
. . . agreement to convey the central water and sewer
system for Section 14 of Presidential Lakes Subdivision to
the [Service Authority] for the purchase price of
$280,000.00 for the preexisting water system, which price
increases at the rate of 6% per year from February 1, 1994,
until paid, and for the purchase price of $1,604,380.91 for
the expansion of the water system and the construction of
the sewer system.” However, the circuit court agreed with
the Service Authority’s position that Code § 15.2-1244 bars
Presidential’s recovery of any prejudgment interest on the
$1,604,380.91 purchase price. The Service Authority
8
appeals from the circuit court’s final decree, and
Presidential assigns cross-error.5
ANALYSIS
Although the Service Authority raises several issues
on appeal, we need to address only one. The dispositive
question is whether the Service Authority’s board adopted a
resolution authorizing or ratifying either of the alleged
agreements with Presidential, and if not, whether the
agreements can be specifically enforced in the absence of
such a resolution.
In County of York v. King’s Villa, Inc., 226 Va. 447,
449, 309 S.E.2d 332, 333 (1983), this Court addressed
whether a county administrator had contractually “attempted
to lock [a] connection fee in place and by that attempt
[had] intruded into an area exclusively reserved for” a
county board of supervisors. We held that the power to fix
or change such fees rested solely with the board of
supervisors and that the county administrator never had the
authority to fix rates and fees. Id. at 450, 309 S.E.2d at
333-34. Thus, the only way in which the connection fee
could have been locked into place indefinitely was through
some express action by the board of supervisors, such as
5
We also awarded a separate appeal to Presidential.
Presidential Serv. Co. Tier II, Inc. v. King George County
9
adopting a resolution to that effect or ratifying the
portion of the contract concerning the connection fee.
Id., 309 S.E.2d at 333.
King’s Villa, Inc., the other party to the contract
signed by the county administrator purportedly on behalf of
the county, had “dealt in good faith with a public servant
who exceeded the bounds of his authority.” Id., 309 S.E.2d
at 334. We reiterated “that those who deal with public
officials must, at their peril, take cognizance of their
power and its limits.” Id. (citing Richard L. Deal &
Assocs., Inc. v. Commonwealth, 224 Va. 618, 623, 299 S.E.2d
346, 349 (1983); South Hampton Apartments, Inc. v.
Elizabeth City County, 185 Va. 67, 78-79, 37 S.E.2d 841,
846 (1946)). Finally, we explained that “where a contract
executed by an agent of the government is ultra vires it is
void ab initio and of no legal effect; thus no performance
by either party thereto can give the unlawful contract
validity or serve as the basis of any right of action upon
it . . . .” Id. at 452, 309 S.E.2d at 335.
Similarly, in American-LaFrance & Foamite Indus., Inc.
v. Arlington County, 169 Va. 1, 192 S.E. 758 (1937), we
explained that a court will not enforce a contract that is
invalid:
Serv. Auth., Record No. 030593 (August 7, 2003).
10
If the contract is . . . invalid, or is based upon a
transaction involving no moral turpitude, and is
simply contrary to some legal provision relating to
the manner, method, or terms of its performance, with
no penalty provided other than its invalidity, the
court will not require performance of either the
express contract or a contract by implication.
Id. at 9, 192 S.E. at 761.
As we stated earlier, the Service Authority is, by
statute, a “public body politic and corporate.” Code
§ 15.2-5102(A). The powers of the Service Authority are
exercised by a board, Code § 15.2-5113(A), and the vote of
a majority of the board’s members is necessary for any
action taken by the Service Authority, Code § 15.2-5113(B).
Thus, employees of the Service Authority, such as the
general manager, can enter into contracts on behalf of the
Service Authority only when authorized to do so by a
majority vote of its board members. See King’s Villa, 226
Va. at 450, 309 S.E.2d at 333; see also County of Campbell
v. Howard, 133 Va. 19, 59, 112 S.E. 876, 888 (1922)
(holding that a board of supervisors could obligate a
county “only at authorized meetings duly held, and as a
corporate body, by resolution duly adopted; and not by the
action of its members separately and individually”).
The record in this case is replete with evidence
regarding the negotiations between the general manager of
the Service Authority and Presidential about the terms of
11
the alleged agreements and confirming the provision of
engineering services to the Service Authority not only with
regard to the plans for constructing the expanded water
system and the sewer system but also as to monitoring the
construction by Presidential. However, the record does not
contain a resolution by the Service Authority’s board
authorizing or ratifying either the purchase of the
expanded water system and sewer system or the terms of the
alleged contract between the Service Authority and
Presidential for the purchase of those particular
facilities. Nor is there a resolution authorizing the
general manager to enter into a contract with Presidential
on behalf of the Service Authority to purchase the Section
14 expanded water system and sewer system.6 The provisions
of Code § 15.2-5113(B), however, specifically require that
“the vote of a majority of board members shall be necessary
for any action taken by the authority.” Subsection E of
that statute authorizes the board members to appoint a
chief administrative or executive officer but requires such
6
The general manager of the Service Authority during
the period from 1989 until the end of 1994 testified that
the Service Authority’s board had “to take formal action”
before any contract could be signed and that he never
presented any formal proposal to the board for the purchase
of the “to be constructed . . . Section 14 sewer and water
system.”
12
person to “enforce the orders and resolutions adopted by
the board members and perform such duties as may be
delegated to him by the board members.”
Thus, we conclude that the alleged contract between
the Service Authority and Presidential is unlawful for lack
of a resolution by the Service Authority’s board. King’s
Villa, 226 Va. at 450, 309 S.E.2d at 333. For that reason,
we will not require performance of the alleged oral
contract. See id. at 452, 309 S.E.2d at 335; American-
LaFrance, 169 Va. at 9, 192 S.E. at 761. The general
manager could not bind the Service Authority or enter into
a contract on its behalf in the absence of such a
resolution. Anyone dealing with an officer or employee of
a public body must ascertain the extent and nature of that
person’s authority. South Hampton Apartments, 185 Va. at
78-79, 37 S.E.2d at 846. Therefore, we hold that the
circuit court erred in entering a final decree directing
the Service Authority to purchase the newly constructed
sewer system and expanded water system from Presidential
for the sum of $1,604,380.91.
However, the Service Authority’s board, by resolution
on March 15, 1994, ratified the September 2, 1993, letter
agreement entered into by the Service Authority’s general
manager and Presidential for the purchase of the existing
13
water system located in Section 14. That agreement is not
unlawful for lack of a resolution by the Service
Authority’s board. Thus, we conclude that the circuit
court did not err in specifically enforcing the letter
agreement and directing the Service Authority to purchase
the existing water system from Presidential for the sum of
$280,000, increasing at the rate of 6% per year from
February 1, 1994, until paid.7
CONCLUSION
For these reasons, we will affirm that portion of the
circuit court’s final decree pertaining to the purchase of
the existing water system. We will reverse that portion of
7
We find no merit in the assertion by the Service
Authority that the circuit court’s final decree directing
purchase of the existing water system violated the “law of
the case” doctrine. The Service Authority contends that
the commissioner in chancery, in the initial report, found
that the parties had agreed that the Service Authority
would purchase all the utility systems for costs plus a ten
percent administrative fee. We do not agree with that
interpretation. Nevertheless, even if the Service
Authority is correct, the circuit court was free to modify
its ratification of the initial report upon receiving the
supplemental report in which the commissioner in chancery
set out a separate sum for purchase of the existing water
system. The decree ratifying the initial report was not a
final decree. See Rule 1:1. Thus, any purported
relitigation of the purchase price of the existing water
system was not foreclosed as claimed by the Service
Authority.
14
the circuit court’s final decree concerning the purchase of
the expanded water system and sewer system.8
Affirmed in part,
reversed in part,
and final judgment.
8
Presidential assigns cross-error to the circuit
court’s final decree. In one of the cross-errors,
Presidential challenges the circuit court’s ruling that
Code § 15.2-1244 barred an award of interest on the
purchase price of the expanded water system and sewer
system. That issue is also the subject of the separate
appeal awarded to Presidential, see footnote five supra,
and will not be addressed in this opinion. In its other
assignment of cross-error, Presidential asserts that the
circuit court erred by permitting the Service Authority to
raise defenses that were not disclosed as ordered by the
court. Although Presidential does not clearly identify on
brief what defenses the Service Authority supposedly failed
to disclose, we find no merit in this claim.
15