County Attorneys Conference

Chapel Hill

February 2, 2001

Contracts That Bind the Board’s Discretion

David Lawrence

Institute of Government

Introduction

Although the textbooks often assert a governmental-proprietary distinction in the analysis of whether a contract improperly binds the discretion of the governing board, the North Carolina supreme court has rejected a direct carry-over from the tort liability cases. Rather, the “true test is whether the contract itself deprives a governing body, or its successor, of a discretion which public policy demands should be left impaired.”

Plant Food Co. v. City of Charlotte, 214 N.C. 518, 520 (1938)

It is black letter law that contracts that run afoul of this doctrine are ultra vires and void from their inception. McQuillin, § 29.07.

Illustrative Cases

1. In January 2001, six weeks after taking office, the board of commissioners enters into a contract to sell a parcel of county-owned property. Under the contract, the county will sell the property, an old school, to a developer, who agrees to pay the county $ 125,000 for the land and building. In addition to conveying the building, the county agrees to rezone the site to multi-family residential. After the closing, the board has a change of heart and refuses to enact the rezoning. Is the contract enforceable against the county?

2. May the county enter into a five-year contract with a CPA firm, under which the firm agrees to perform the annual audit for the county? (Ignore LGC policies on contract length.)

  1. May the county enter into any of the following utility-related contracts:
  1. The county agrees with a large industrial customer on a schedule of water rates for the next five years.
  1. The county contracts with a company that will remove sewage sludge from the county’s treatment plant’s drying beds, paying the county according to the tonnage removed. The contract extends for 10 years.
  1. The county contract with a developer, whereby the developer is assured a certain percentage of the county’s limited sewer treatment capacity. The developer has five years in which to use his reserved capacity.

4. The county has had a personnel system in place for a number of years under which sheriff’s deputies were allowed to accumulate vacation time; they were compensated for unused vacation time upon separation from county service. The board has decided this system is wasteful and has therefore abolished the system. Employees will henceforth be able to accumulate no more than 30 days’ vacation time; and the accumulated vacation time of existing employees is reduced to the new maximum of 30 days. Is this enforceable against existing employees?

5. May the county enter into the following contracts:

  1. Pursuant to a specific statute, the county contracts with a private economic development organization, for the organization to purchase land and develop an industrial park. The county agrees to levy a 5-cent tax each year to support this effort and turn the proceeds over to the organization. The contract extends for six years.
  1. Pursuant to a specific statute, the county enters into a predevelopment agreement with a residential developer. In return for the developer’s agreement to install utility lines, construct a park, and convey a school site to the board of education, the county agrees to zone the land in a manner that will make the development possible.

6 Assume that a court finds that the following contracts improperly bind the discretion of the county board of commissioners. What liability is likely to be imposed upon the county as a result?

  1. A developer intends to build a large residential subdivision in a county that desires more upper-end housing. (The county does not have a subdivision ordinance.) To encourage the developer, the county agrees to build a large park on a parcel adjacent to the development. The developer agrees to install utility lines that will be deeded to the county. After the development infrastructure is put in place, the county refuses to construct the park. The developer eventually goes into bankruptcy, and the county is sued for breach of contract and for unjust enrichment relating to the utility lines.
  1. A county leases land at a county-owned lake on condition that the lessee construct and operate boat slips on the land. Before that is possible, however, the county must rezone the property. After the lessee has made at least two rental payments to the county, the commissioners refuse to rezone the property. The lessee sues for rescission of the lease and return of rental payments already made.

Citations

Question 1

Lewis v. City of Washington, 63 N.C. App. 552 (1983), aff’d as modified, 309 N.C. 818 (1983).

Plant Food

Question 2

Wilmington v. Bryan, 141 N.C. 666 (1906) (tax attorney); but see Myers v. Town of Plymouth, 135 N.C. App. 707 (1999) (town manager).

Harrison Central School Dist. v. Nyquist, 400 N.Y.S. 2d 218 (N.Y. Sup. Ct., App. Div. 1977) (school board attorney).

City of Riviera Beach v. Witt, 286 So.2d 574 (Fla. Ct. App. 1973) (municipal prosecutor).

Intern. Bank of Commerce v. Union Nat’l Bank, 653 S.W.2d 539 (Tex. Ct. App. 1983) (banking services).

Question 3

Raintree Corp. v. City of Charlotte, 49 N.C. App. 391 (1980).

Plant Food

Morrison Homes Corp. v. City of Pleasanton, 130 Cal. Rptr. 196 (Cal. Ct. App. 1976) (sewer capacity).

Question 4

Pritchard v. Elizabeth City, 81 N.C. App. 543 (1986).

Question 5

Terminal Enterprises, Inc. v. Jersey City, 258 A.2d 361 (N.J. 1969).

Union Nat’l Bank v. Village of Glenwood, 348 N.E.2d 226 (Ill. Ct. App. 1976).

G.S. 115C-271 (School superintendent)

G.S. 157-42 (Housing authority contracts)

G.S. 159-93 (Revenue bond pledge)

G.S. 160A-38(l), -50(m) (Annexation settlements)

Question 6

Rockingham Square Shopping Center, Inc. v. Town of Madison, 45 N.C. App. 249 (1980).

Lewis v. City of Washington