Opinion
No. 27407
Decided March 6, 1940.
Mandamus — Writ not issued unless clear legal right established — Municipal director of public service not required to execute contract, when.
1. Mandamus is an extraordinary writ and will not lie unless the claimant can establish a clear legal right thereto.
2. Where a director of public service of a municipality is authorized and directed by the council thereof to enter into a certain contract which is of doubtful validity and by reason thereof such director refuses to sign and execute same, this court will not require him to do so by the issuance of a writ of mandamus.
IN MANDAMUS.
This case originates in this court and is submitted upon the pleadings, a stipulation of facts and depositions. It appears that relator, the Skinner Engine Company, a Pennsylvania corporation duly qualified to do business in Ohio, is engaged in the business of furnishing electrical equipment for generating plants; that the respondent, city of Nelsonville, owns and operates a municipal light plant which furnishes electric current to the public at rates fixed by the council of the city of Nelsonville, and that the respondent, Francis G. Kouri, is the director of public service of the city of Nelsonville.
The city council, on the 5th day of December, 1938, desiring to increase the facilities of the municipal light plant, enacted an ordinance authorizing and directing the director of public service to advertise for bids for the "leasing" to the city of Nelsonville of additional generating equipment to be used for the Nelsonville light plant, and further authorizing him to enter into a contract with the successful bidder, subject, however, to the approval of the board of control.
In accordance with this ordinance, the director of public service prepared specifications for additional generating equipment and advertised according to law for bids for the "leasing" of this equipment to the city of Nelsonville.
Under date of December 27, 1938, the relator submitted an offer to "lease" certain generating equipment to the city, on certain terms, including the following:
"Terms of Lease: We will agree to lease this equipment to you for a period of thirty-eight (38) months from the date of arrival of the equipment at Nelsonville, Ohio, for the following amounts of monthly rental; the lease contract to be drawn by us and submitted to you for signature within ten days after award of contract to us.
"Monthly Rental: For the use of this equipment you are to pay us in cash the following amounts of rental: Twenty-five hundred dollars ($2500) on arrival of the equipment, at Nelsonville, Ohio, for the first month's rental; twenty-five hundred dollars ($2500) thirty days thereafter for the second month's rental; six hundred and twelve dollars and fifty cents ($612.50) for each of the succeeding thirty-six monthly periods, each of these thirty-six latter monthly payments to be paid in cash in advance, starting sixty days after the arrival of the equipment at Nelsonville."
This bid was the lowest and best bid received, and on the 28th day of December, 1938, the bid was accepted by the city and the award made to the relator by the city through its duly authorized director of public service, Francis G. Kouri, who is a respondent in this action and the award was approved by the board of control of the city of Nelsonville.
After the acceptance the company submitted a contract of lease to the respondent, Francis G. Kouri, for his signature. This lease provided for the payment of the sums as set forth in the relator's bid but contained among other covenants the following:
"(D) That, the rentals herein provided for, shall be paid out of the earnings of the plant and not otherwise. Should the earnings in hand at any time or times during the life of this lease be insufficient to meet the monthly rent and/or rentals herein undertaken to be paid by the city, any deficit shall be carried over from month to month until the same with interest and all remaining rentals shall be paid.
"(E) That, it is further mutually agreed and understood by and between the parties hereto that any and every monthly installment of the rental or part thereof which may become due during the life of this lease, and any extension thereto, which is not paid when due, shall bear interest from due date at the rate of six per cent (6%) per annum.
"(F) That, it is further mutually agreed and understood by and between the parties hereto that should the city pay to the company any monthly installment/installments or part thereof, of rental one (1) calendar month or more prior to the time such payment is due under the terms of this lease, then the city shall be allowed a discount upon such payment or payments at the rate of six per cent (6%) per annum figured for such time. * * *
"(H) That, the city shall operate said leased equipment in a careful and prudent manner and the city shall keep said leased equipment in good working order and repair during the terms of this lease and of any renewal thereof, and upon the termination of this lease in any manner, the city shall upon demand turn the leased property over to the company at the city electric light plant, in good condition, the natural wear and tear incident to its reasonable use excepted, and shall permit the company upon demand to remove the same unless the parties otherwise agree."
There having been protests made to the respondent Kouri that this lease was unlawful, he refused to sign it.
The relator then filed its petition in mandamus asking this court to require Kouri, director of public service, to sign the lease contract, alleging that it is in all respects proper and in accordance with the specifications, the relator's bid and the city's acceptance, and that it has a lawful right to have the lease contract executed. The prayer of the petition also asks that the city of Nelsonville be required to carry out the terms of the lease contract after it is signed.
The respondent Kouri filed his answer, admitting fully all the allegations in the relator's petition but stated that, having been advised such contract was unlawful, he had refused to sign it. The answer filed by the city of Nelsonville admitted the facts in relator's petition and joined in the prayer thereof.
A motion was filed by the Columbus Southern Ohio Electric Company to be made a party respondent to this action. It was at first overruled but later this court sua sponte vacated its entry and allowed the motion. Thereupon that company filed two answers, one to the petition of the relator and one to the answer of the respondent Kouri as director of public service. The answer to the petition is too voluminous for reference in detail but briefly, after certain admissions and denials, its material averments are to the effect that Ordinance No. 900, attempting to create a light improvement fund, and Ordinance No. 901 and the contract thereby authorized, are all invalid; that the proposed contract was in reality one for purchase and not for rental of the generating equipment; and that "the things proposed thereby to be done are unlawful in that in the aggregate, twenty-seven thousand fifty dollars ($27,050) of the gross revenue of said municipal light system are or will be pledged, encumbered or appropriated for the payment of rental for, or the purchase price of, said additional electrical generating equipment, notwithstanding the city has no authority except as provided in Section 12 of Article XVIII of the Constitution of Ohio, to pledge, encumber or appropriate the revenue of said system or any part thereof for such purposes."
To the answer of intervenor, relator filed a reply denying certain averments thereof and reaffirming the allegations and prayer of the petition. Extensive briefs were filed on behalf of relator and respondents. A brief amici curie was also filed on behalf of a number of other cities in Ohio.
Messrs. Freiberg Simmonds, for relator.
Mr. Harry A. Mettler, for respondent, the city of Nelsonville.
Mr. Francis G. Kouri, in propria persona. Messrs. Henderson, Burr, Randall Porter, for Columbus Southern Ohio Electric Company.
The question is whether this court will compel the director of public service to sign the proposed contract on behalf of the city of Nelsonville.
The answer of the director of public service admits that provisions of the law governing certain contracts were not complied with in this case. The answer specifically avers that "there is not attached to, nor is there intended to be attached to said contract, any certificate of the auditor of said city of Nelsonville, that the amount required to meet the payments under said contract has been lawfully appropriated for such purposes and in the treasury or in process of collection to the credit of an appropriate fund free from any previous incumbrances.
"This answering defendant further says that the said city of Nelsonville has not obtained the approval of the Bureau of Inspection and Supervision of Public Offices of the state of Ohio to the establishment of the light improvement fund provided for in the aforesaid Ordinance No. 900."
The director of public service refused to sign the contract for the reason that he had been advised that it would be unlawful for the city of Nelsonville to enter into or perform the contract. Under the statutes the director of public service has certain discretion in making purchases for the municipality. Section 4328, General Code, gives him absolute discretion to make any contract or purchase supplies or material or provide labor for any work under the supervision of that department not involving more than $500. Where the amount exceeds $500 such expenditure shall first be authorized and directed by ordinance of council. In the instant case the city council authorized the director of public service to enter into the contract. The issue here is not whether the director of public service was authorized to make the contract. Neither are we called upon to construe the rights of parties to a contract already executed. The issue here is whether in a mandamus action the court will require Kouri, as director of public service, to sign the contract if there be reasonable doubt about its legality.
In order to answer the foregoing question it is necessary to examine the nature and character of the proposed contract. While there are other claims of invalidity, the two principal contentions may be stated as follows: The first claim is that the contract though drawn in the form of a lease and denominated a lease is in reality a contract for purchase of the generating machinery in question. The second claim is that under the contract there would be a loan by the city of its financial credit to and in aid of the relator in violation of Section 6 of Article VIII of the Constitution of Ohio.
We shall first inquire into the nature of the contract itself. In the instant case we are not required to determine all the respective rights of the parties under the contract for the reason that it is not an executed agreement. Burke v. Gormley, 79 N.J.L. 259, 80 A. 483; Day v. Ryan, 245 Pa. 154, 91 A. 633. It is unnecessary for the court to go further than to determine whether the contract is clearly and manifestly of the character claimed by the relator, that is, a lease. If there be reasonable doubt as to whether it is a lease this court will not require the director of public service to affix his signature thereto. Loosely drawn instruments furnish enough litigation without any encouragement from this court by way of compelling and forcing a public official to sign a contract of dubious construction. In State, ex rel. Fisher, v. Sherman et al., Bd. of Elections, 135 Ohio St. 458, 21 N.E.2d 467, this court had under consideration a similar contract. In that case the board of elections of Trumbull county entered into a so-called contract to rent 100 voting machines for a period of 15 years for practically the same total sum for which it could have purchased the machines outright on an installment basis covering the same period of time. That contract further provided that if and when the county shall have paid the total rental "no further rental need be paid and the company will at the option of the county give it a bill of sale for said machines." This court held in that case that the contract in question in reality was one for purchase and not for rental. This court there stated that where there is doubt about the character of an instrument the substance rather than the form will prevail. See, also, Steele v. State, 159 Ala. 9, 48 So. 673; Ducker v. Latonia Deposit Bank, 242 Ky. 374, 46 S.W.2d 493; Drovers Deposit National Bank v. Tichenor, 156 Wis. 251, 145 N.W. 777.
The contract here is similar to that in the Fisher case. Although denominated a lease, it has certain definite earmarks of a contract of purchase. The total amount of rental to be paid for the generating machinery over a period of 38 months is $27,050 to be paid as follows: $2,500 on arrival of the equipment at Nelsonville for the first month's rental; $2,500 thirty days thereafter for the second month's rental; $612.50 for each of the succeeding 36 monthly periods. It will be observed that within the comparatively short period of three years and two months the city under the contract would be required to pay the sum of $27,050 in so-called rental for the same generating machinery which Mr. Snodgrass, the relator's representative, testified the city could have purchased outright for an approximate cash price of $23,000. In 1936, two years before, the relator had offered to sell to the city practically the same equipment for a still lower sum, $19,476.
We now call attention to paragraph "H" of the contract wherein it is stated that "upon the termination of this lease in any manner, the city shall upon demand turn the leased property over to the company at the city electric light plant." (Italics ours.) The two words "upon demand" are rather significant when it is remembered that the testimony of various witnesses, including Mr. Kouri, the director of public service, was to the effect that when this electrical generating machinery would be installed it would to all intents and purposes become an integral part of the municipal light plant.
The evidence is convincing that the useful life of such equipment is from fifteen to twenty years. Mr. Snodgrass, who had charge of sales activities for relator, testified that "if properly maintained the life should be a minimum of fifteen years, which can be very considerably increased with proper care and attention." Here then was the sales representative with twenty years experience with relator, the Skinner Engine Company, the man who conducted the negotiations with the city of Nelsonville, testifying that the minimum useful life of such equipment should be fifteen years and with proper care considerably more. This, coupled with the testimony of Kouri, the director of public service, that discussion was had with relator about the possibility of acquiring the equipment after the thirty-eight month period, leaves the impression that after the total payment of the $27,050 over a thirty-eight month period the equipment in all probability would remain in the plant. Here was machinery that would and could usefully serve the city for more than fifteen years. It could have been purchased outright for $23,000. Is it reasonable to presume that responsible city officials would agree to pay $27,050 for a little more than three years use of the machinery and then at the end of thirty-eight months not have anything left?
The proposed contract is of such a nature as to render the entire transaction doubtful in character. The director of public service had ample reason to doubt the legality of the document which he was requested to sign. Where a public official, clothed with certain discretion, has reasonable grounds to doubt the validity of a contract and refuses to sign it, this court will not by mandamus compel him to do so, unless the right of the relator thereto is manifestly clear. The contract being of doubtful validity, a writ of mandamus will not issue to compel its being signed and executed by the director of public service of the city of Nelsonville. 25 Ohio Jurisprudence, 997, Section 23.
Determination of the foregoing question being dispositive of the entire case it becomes unnecessary to decide whether the contract contravenes Section 6 of Article VIII of the Constitution.
Writ denied.
WEYGANDT, C.J., DAY, MATTHIAS and HART, JJ., concur.
WILLIAMS, J., concurs in paragraph one of the syllabus and in the judgment.