Request By:
Representative Thomas R. Burch
The Honorable Representative from the 30th District.
Opinion
Opinion By: A. B. Chandler III, Attorney General; Janet M. Graham, Assistant Attorney General Office of the Attorney General 1024 Capital Center Drive Frankfort, Kentucky 40601-8204
Subject: Municipal Contracts for Professional Services
Syllabus: Louisville Ordinance § 37.75 requires that professional service contracts must include a maximum amount to be paid to the professional for services rendered pursuant to the contract.
Statutes Construed: KRS 83.140
Ordinances Construed: City of Louisville Ordinance § 37.75
ConstitutionalProvisions Cited: Kentucky Constitution § 162
OPINION OF THE ATTORNEY GENERAL
The Office of the Attorney General is asked by Representative Burch to render an opinion on an issue relating to the method in which the City of Louisville contracts for professional services. The Attorney General provides this opinion on a public question of law submitted by a member of the Legislature. KRS 15.025(2).
Representative Burch requests our opinion on the following question:
Does the contract between the City of Louisville (the "City") and the law firm of Lynch, Cox, Gilman and Mahan, P.S.C. ("Lynch Cox") violate Louisville City Ordinance § 37.75 by failing to state an ascertainable maximum amount to be paid to the law firm by the City?
Preamble
This query raises an issue of first impression in the Commonwealth of Kentucky. As in any case of first impression, we must predict how a Court of law would rule if faced with these facts and circumstances. Predicting the ruling of a court necessarily involves making a determination based upon probability. This Office cannot predict with absolute certainty how a court would analyze this situation or how it would rule upon this question. Our analysis is based upon an application of the law in light of these facts and circumstances and guided by general tenets of public policy.
In addition to being an issue of first impression, this question involves an arcane area of municipal law. Some of the cases examined are over 100 years old. Although the wisdom of these rulings is not in question, many changes have taken place in the law and in society during this period of time.
Based upon our analysis of the law, we conclude that the legal services contract between the City and Lynch Cox [hereinafter the "Contract"] is illegal and void because it violated § 37.75 of the City's Code of Ordinances. The ordinance specifically requires a maximum amount to be stated in any contract for professional services with the City. The purpose of this ordinance is to allow the Board of Aldermen to supervise the amounts paid to professionals under service contracts. The language in the City's contract with Lynch Cox does not provide a stated maximum. In effect, the City's Contract is a "secret contract," because there is no way for the Board of Aldermen, the media or, most importantly, the public, to determine the amount to be paid to the contractor. Thus, it violates the terms and the spirit of the ordinance.
As previously noted, we believe that a court would declare the contract to be void. Notwithstanding how a court would rule, this method of contracting is plainly against good public policy and should not be encouraged. Government action should be open and subject to review in order to foster confidence and trust as well as to ensure that public funds are properly spent. As a matter of public policy, a municipal contract which veils the amount of payments to contractors is neither sufficient nor palatable. This Office abhors any government practice which effectively prevents public scrutiny of government spending.
The people are entitled to an open government. The use of municipal revenue is a process which necessarily requires oversight by both the public and the municipal officials entrusted with these duties. In order to have sufficient oversight in this process, statutes and ordinances have been enacted to protect the public against inadequate fiscal supervision. As a matter of public policy, municipal contracts should be non-secretive and open to ready inspection and ascertainment, particularly when the expenditure of public funds is involved. 1
LEGAL ANALYSIS
A. The Contract between the City of Louisville and Lynch, Cox, Gilman & Mahan .
Pursuant to § 37.75 of the City's Code of Ordinances, the City is permitted to contract for professional services using a non-competitive method. In addition to other professional services, the City contracts for outside legal assistance under this ordinance.
On or about September 14, 1993, the City contracted with Lynch Cox to provide legal representation. The Contract provides that compensation is as follows: "Total compensation payable to Attorney for services rendered pursuant to this agreement, including out-of-pocket expenses, shall not exceed the sum of THIRTY-FIVE THOUSAND DOLLARS ($ 35,000) and any reimbursements from agency receipts received by the department for services of the attorney."
Agency receipts are defined as revenues which have been generated by a City or County agency which are not specifically classified and are not considered miscellaneous revenues. Examples given of the types of revenue which constitute agency receipts are recreation receipts, concession receipts and golf course receipts. Agencies may also obtain agency receipts when they receive funds from other City/County agencies. Significant to our analysis, the Department of Law generates agency receipts by charging other agencies for the use of contract attorneys.
The Department of Law is the central coordinator for all legal services contracts. Instead of contracting with each municipal agency directly, the City, by and through the Department of Law, enters into one contract for legal services and charges the other agencies for the amount of legal work performed on behalf of each specific agency. If a contract attorney has been requested to perform work for a specific City agency, the Department of Law bills the appropriate agency for the work performed for that particular agency.
In this case, the Contract states that the amount to be paid to the attorney will be $ 35,000.00 plus agency receipts. The $ 35,000.00 cap represents the amount that the Department of Law may expend out of its own budget. It is not a cap on how much the attorney may receive as compensation for legal services performed for the City as a whole . In other words, the Department of Law will not pay the attorney in excess of $ 35,000 from its own budget. Other departments of the City, however, may pay the attorney in excess of this amount by paying the Department of Law for the use of the attorney. The payment for work for the other municipal agencies will come from their appropriations. These funds will be sent to the Department of Law which then pays the invoice of the attorney. It appears that the City paid approximately $ 1,090,000 to Lynch Cox for a period of five years, an average of approximately $ 218,000 per year.
We now move to the question presented by Representative Burch.
QUESTION: Does the Contract between the City and Lynch Cox violate City Ordinance § 37.75 by failing to state an ascertainable maximum amount to be paid to the law firm by the City?
By failing to state an ascertainable maximum amount for payment in this Contract, the Department of Law has violated City Ordinance § 37.75, rendering the contract void. The ordinance has been violated because the phrasing of the Contract subverts the primary purpose of the ordinance. The ordinance has been enacted to ensure that the Board of Aldermen has supervisory authority over public funds spent on professional service contracts, and that the amount of these contracts is open to public scrutiny. Because of the open-ended language in this Contract, the maximum amount is illusory, and neither the Board of Aldermen nor the public has any way of knowing the amount which will indeed be paid under the Contract. This can fairly be characterized as a "secret" contract.
The discussion of the Contract and its violation of the ordinance will be discussed in two separate parts. The first section will examine the general requirements for municipal contracts. The second phase of the analysis will examine Kentucky law regarding municipal contracts and the actions of municipal authorities. This section will also analyze judicial construction of ordinances.
Municipal contracts-general requirements .
Because of the unique nature of municipalities, municipal contracts are subject to additional requirements which are not necessary in ordinary contractual agreements. The requirements for a valid municipal contract have been set forth as follows:
The validity of municipal contracts is frequently a subject of judicial determination. To be valid and enforceable, as stated in prior sections, the contract must be within the scope of the municipal powers, i.e., it must not be ultra vires, 2 it must be made by officers or bodies duly empowered and authorized to act, and it must be made, in substance at least, as prescribed by the laws applicable . Municipal contracts, like other contracts, must, of course, be based on an offer and acceptance, be mutual, and supported by consideration, be reasonable and provident, be definite and certain, and must be for a legal object and not against public policy . . .
Eugene McQuillan, Municipal Corporations § 29.91 (3rd. Ed. 1990 and Cum. Supp. 1996.)
Among the above-referenced requirements for municipal contracts is the requirement that they must be made according to the applicable laws. It is a well settled principle that municipal contracts must not be in violation of any municipal ordinances. According to 63 C.J.S. Municipal Corporations § 979 (1950): "Contracts made in violation of limitations and restrictions imposed by ordinance are void. " See
Los Angeles Dredging Co. v. City of Long Beach, 291 P. 839, 842 (Cal. 1930) (holding that "the mode of contracting as prescribed by the municipal charter, is the measure of the power to contract, and a contract made in disregard of the prescribed mode is unenforceable");
Town of Holbrook v. Girand, 80 P.2d 695, 697-98 (Ariz. 1938) (holding that "a direct violation of an ordinance in regard to the manner in which a municipal corporation shall enter into a contract is not a mere irregularity, but a substantial defect, and that as a matter of public policy such a contract may not be enforced according to its terms"). Although these cases are from other jurisdictions, they do state the general principle that a municipality cannot contract in a way that is in violation of a city ordinance. 3
Kentucky cases regarding municipal contracts .
No recent cases were found regarding municipal contracts which are violative of ordinances. There is, however, an abundance of seasoned Kentucky case law on this topic. For example, in
Murphy v. City of Louisville, 72 Ky. (9 Bush 189) (1872), the boards of the general council of the City of Louisville passed an ordinance for the improvement of one of the City streets. One of the City's ordinances required that contracts must be approved by both boards of the General Council. The Common Council never approved the contract, and the contractor sued the City to recover the money it had expended in making the improvements.
The court held that the contract was void, stating:
Their [municipal officers'] power to contract is limited and restricted by its [the ordinance's] provisions, and an attempt to make contracts in a different manner cannot be sanctioned or sustained by any law creating or governing this corporation. . .
. . . The contract relied upon in this case was not executed in accordance with the law under which the city officials are required to act in making such contracts, and is therefore null and void .
Id. at 193 (emphasis added). See
Obst v. City of Louisville, 6 Ky. Op. 577 (1872) (holding that the law will not imply an obligation on the part of the city to pay for work procured to be done by the city's officers, unless the contract has been executed and approved as provided by the charter and the general ordinance regulating the manner in which such contracts shall be made.) 4
Another case has also addressed the manner in which a city must contract. In
City of Covington v. Woods, 3 Ky. L. Rptr. 85 (1881), the city failed to refer a proposed contract to the committee on law before entering into it. (The case implies that an ordinance required this referral.) The court held that contracts with a city are void if the council had the power to contract in a particular way, and contracted otherwise. Id. at 86. This case law makes plain that under Kentucky law municipalities are required to abide by their own ordinances in contracting. See also Ky. Const. § 162.
In addition to the cases prohibiting contracts which are in conflict with ordinances, Kentucky courts have also addressed the general requirements for municipal contracts. A more recent Kentucky case has given a general axiom regarding the requirements for a valid municipal contract. Kentucky courts hold that a municipality cannot bind itself by a contract beyond its powers or foreign to the purposes of the municipality or against public policy. See
Womack-Rayburn Co. v. Town of Worthington, Ky., 91 S.W.2d 13 (1936). These general requirements will be addressed more thoroughly below.
Is the Contract in conflict with the ordinance?
A court is the final arbiter of whether a contract is in conflict with an ordinance, and it will construe both the ordinance and the contract in order to make the determination. The primary purpose of judicial construction or interpretation of ordinances is to determine the intent and purpose of the ordinance. In construing statutes and ordinances, courts will examine the purpose which the ordinance is intended to accomplish, the reason and spirit of the ordinance, and the mischief intended to be remedied.
City of Louisville v. Helman, Ky., 253 S.W.2d 598 (1952). If the purpose of the statute or ordinance may be determined from its language, no other rule of construction or interpretation is necessary.
City of Maysville v. Coughlin, Ky., 399 S.W.2d 297 (1966). The courts will look to the ordinance as a whole to ascertain the intention of the lawmaking body and the purpose sought to be accomplished.
City of Covington v. Sohio Petroleum Co., Ky., 279 S.W.2d 746 (1955) overruled on other grounds by
McClellan v. Louisville Water Co., Ky., 351 S.W.2d 197 (1961). Unless the context indicates otherwise, in construing ordinances, words should be given their ordinary meaning.
Kroger Grocery & Baking Co. v. City of Cynthiana, Ky., 42 S.W.2d 904 (1931).
To begin the construction analysis, we must examine both the language of the contract and the language of the ordinance. The ordinance at issue provides as follows:
(A) No contract of the city or any agency, board, commission, or department of the city shall be or continue to be for a longer time than the end of one year from the effective date of the contract, except those contracts containing renewal options in original bid and contract specifications or those contracts which apply to a specific project and which are intended to terminate on the completion of the project. For any contract which extends beyond the end of the fiscal year in which the contract was entered into, payments shall be made only on proper appropriation by the Board of Aldermen. A renewal option shall be exercised only on written request from the department, agency, board, or commission desiring the renewal. Such request shall be approved by the Director of Finance and shall have all other approval required by law for original contracts.
(B) Every contract for licensed professional or non-licensed professional services shall:
(1) State therein the maximum amount which may be paid pursuant to the contract; . . .
The specific contract between the City of Louisville and Lynch Cox contains the following provision:
Attorney shall perform litigation services and such other duties as may be assigned by the Director of Law.
II. Fees and Compensation
A. Attorney shall be reimbursed for professional services rendered according to the terms of this agreement in an amount equal to ONE HUNDRED DOLLARS ($ 100) per hour. Total compensation payable to Attorney for services rendered pursuant to this agreement, including out of pocket expenses, shall not exceed the sum of THIRTY-FIVE THOUSAND DOLLARS ($ 35,000) and any reimbursements from agency receipts received by the department for services of the attorney.
(emphasis added).
As previously noted, courts will use judicial construction to determine if the ordinance and the Contract are in conflict. The most important function of judicial construction is determining the intent and purpose of the ordinance. Maysville, 399 S.W.2d at 298. The purpose which this ordinance attempts to accomplish is to have the Board of Aldermen control the "power of the purse" with respect to professional service contracts. In other words, the Board of Aldermen is to supervise the amounts paid to professionals by the City. By phrasing the Contract in this way, the Department of Law subverts the purpose of the ordinance because the Board of Aldermen is forced to approve a contract with no determinable maximum amount.
The key term in the ordinance is the word "maximum. " The City ordinance provides that there is to be a maximum amount stated in a professional service contract. In this case, the problem occurs because the purported maximum is an open-ended figure. The maximum is stated as $ 35,000.00 plus agency receipts. Agency receipts are not readily quantifiable because the amount of legal work to be done for other departments of the City is unknown. Thus, the $ 35,000.00 figure is a "red herring" since the true maximum amount paid under the Contract may be significantly higher than $ 35,000.00.
The contractual language is also problematic because the ordinance states that contracts must state the "maximum amount which may be paid pursuant to the contract." The Contract was made between the City as a whole and the law firm. It was not made between the Department of Law and the law firm. As such, it must state an ascertainable maximum to be paid by the City and not by the Department of Law. The $ 35,000.00, although a set numerical amount, is merely the maximum amount that will be paid by the Department of Law, not the maximum amount to be paid under the Contract. Since the ordinance requires that the Contract should contain a maximum amount to be paid by the entire City (and not just for the Department of Law) , the inclusion of the $ 35,000.00 is misleading because it fosters the perception that this is the maximum amount to be paid under the Contract for all of the City's legal work.
As previously noted, in construing ordinances, words are to be given their ordinary meaning. Kroger Grocery & Baking Co., 42 S.W.2d at 906. The most important term in the ordinance is "maximum. " A review of Kentucky law, however, revealed no case law or statutory definition of this term. Black's Law Dictionary defines the word "maximum" as follows: "The highest or greatest amount, quality, value or degree." Using this ordinary definition, "maximum" is intended to be a monetary cap on the amount paid to an attorney under the professional services contract. It is clear, however, that the stated cap in these contracts includes the open-ended provision regarding agency receipts. No "highest or greatest amount" can be ascertained since "agency receipts" can be anything from $ 1.00 to an infinite number.
The inclusion of the phrase "agency receipts" in the Contract makes the monetary maximum illusory. For example, the stated dollar maximum for the Lynch Cox firm was $ 35,000.00. The actual amount paid to the firm, however, was an average of $ 218,000 per year. Using these judicial construction techniques leads to the view that the Contract should include a set monetary maximum for the "greatest amount" to be paid to the attorney by the City as a whole, and it should be a monetary amount that is capable of ascertainment.
In addition, the fact that there is no definition of the phrase "agency receipts" in the Contract also is of concern. 5 It appears that the Department of Law and Lynch Cox understood the contract since the Lynch Cox firm has done work for the city for several years. However, it is not clear whether all of the Board of Aldermen understood this phrase and the implications for professional service contracts.
The Doctrine of Contemporaneous Construction
There is certainly an argument that the agency's own interpretation of the ordinance is entitled to some weight in determining if the Contract is in compliance with the ordinance since the City has been operating in this fashion for quite a few years. The doctrine which provides support for this position is the doctrine of contemporaneous construction which Kentucky courts have recognized. 6 The Supreme Court of Kentucky has defined this doctrine in the case of
GTE v. Revenue Cabinet, Ky., 889 S.W.2d 788 (1994) as follows:
The doctrine of contemporaneous construction means that where an administrative agency has the responsibility of interpreting a statute that is in some manner ambiguous, the agency is restricted to any long-standing construction of the provisions of the statute it has made previously. "Practical construction of an ambiguous law by administrative officers continued without interruption for a very long period is entitled to controlling weight." [citation omitted].
Id. at 792.
Kentucky courts have also used this doctrine in the interpretation of ordinances. In
Gates v. Jarvis, Cornette & Payton, Ky., 465 S.W.2d 278 (1971), members of a law firm brought suit to enjoin the use of adjoining property as a trailer park. They alleged that the operation of this trailer park was in violation of the City's zoning ordinance. The law firm argued that the trailer park violated a 1958 ordinance which called for the "amortization" of nonconforming uses. In interpreting the ordinance, the Court held that the amortization provision did not apply to trailer parks. In support of their conclusion, the court cited the fact that since the time that the zoning ordinance was adopted, the city authorities had never questioned the right of the trailer park to operate, "thus making a contemporaneous construction of the ordinance. " Id. at 279.
In this case, it is unlikely that the doctrine of contemporaneous construction can be used to uphold the City's contractual practices. In this situation, the ordinance in question is neither vague nor ambiguous. It clearly states that professional service contracts must contain a maximum payment amount. Because the ordinance is not vague, the doctrine of contemporaneous construction does not apply.
Also, in the Gates case, the court was essentially dealing with a taking of private property under the police power, and the court stated that ordinances involving "takings" questions should be construed narrowly. Id. at 279. In this case, we have an ordinance which appears to be clear and unambiguous on its face, and the purpose of which is the regulation of public spending. Although the interpretation given to the ordinance by municipal authorities should be given some weight, allowing the City's interpretation to control in this situation essentially eviscerates the ordinance and subverts the monitoring of municipal spending. 7
Ratification
Because the Board of Aldermen approved this contract by resolution, there is an argument that they have ratified the Contract, thus rendering this question moot. This discussion implicates the concept of void contracts versus voidable contracts. A voidable contract is capable of ratification whereas a void contract is not. In some cases, contracts which have been executed in a faulty manner may be ratified. According to McQuillan, Municipal Corporations:
It is a general rule that whatever acts public officials may do or authorize to be done in the first instance may subsequently be adopted or ratified by them with the same effect as though properly done under previous authority. Consequently, it is well settled that contracts which are within the scope of the corporate powers but not authorized by proper action of the municipal corporation, that is, contracts not ultra vires, may be ratified by the proper corporate authorities. Or, as the rule is sometimes expressed, a municipal corporation may ratify any contract made on its behalf which is merely voidable, as distinguished from one which is ultra vires, void, or illegal.
McQuillan, Municipal Corporations § 29.104.
It could be argued that the Contract in this case was merely a voidable contract which was ratified. However, the better analysis is that the contract is void ab initio for failure to comply with the ordinance. The ratification doctrine applies to cases where the contract has not been properly signed or some other procedural formality is missing. It is inapplicable in cases where there is a violation of an ordinance which directs the manner of contracting. The weakness in the ratification analysis is that there is an inherent problem in ratifying a void contract. A void contract cannot be ratified. Until the ordinance is repealed, it must be followed, and ratification will not cure a defect created by failure to adhere to the ordinance.
Kentucky cases generally follow the basic premises outlined above. One case has stated that a city may ratify a contract effectively made when it has power to make it properly in the first instance, but a contract entered into without authority of statute, or opposed to the principles of public policy may not be ratified.
Eagle v. City of Corbin, Ky., 122 S.W.2d 798 (1939). See
Cole v. Burton, Ky., 232 S.W.2d 838, 841 (1950) (holding that a municipal body could ratify an act of one of its officials which it could have authorized in the first instance).
In essence, if the City had had the power to make this Contract initially, but had failed in obtaining all necessary signatures or some other formality, it could arguably be ratified. However, since the City violated the ordinance, it could not ratify a contract which is against the law. The Board of Aldermen enacted this ordinance to monitor the amount of municipal funds being paid to professionals. It is against public policy to eviscerate the Board's means of monitoring these expenditures. Finally, since the phrase "agency receipts" was not defined, it is unclear whether the Board of Aldermen could effectively ratify the Contract without knowing the meaning of this phrase.
Will a court invalidate this Contract or defer to the municipal authorities?
Kentucky courts are very deferential toward the actions of municipal bodies. Generally, Kentucky courts will not interfere with the discretion vested in boards of councilmen in the absence of abuse. See
Wiltshire v. Callis, Ky., 160 S.W.2d 173, 175 (1942)(holding reduction in police force is within the discretion of the board of councilmen and will not be deemed unreasonable or arbitrary if made as a matter of necessity and in the interest of economy);
Glass v. Board of Common Council, Ky., 90 S.W.2d 700 (1936);
Kentucky Utilities Co. v. City of Paris, Ky., 75 S.W.2d 1082, 1085 (1934) (holding that courts will not interfere in management of municipal affairs unless officers have exercised their power in arbitrary, excessive, or capricious manner.)
Generally, courts have no control over city councils as long as they act within the scope of their express or necessary implied powers; if, however, the councils enact ordinances without authority or contrary to the controlling laws in such matters, or the ordinances are unreasonable, arbitrary, or oppressive, courts may declare such ordinances invalid.
City of Bowling Green v. Gasoline Marketers, Inc., 539 S.W.2d 281 (1976). Although these cases involve invalid municipal ordinances, the same logic would apply to any actions of a municipality which are contrary to controlling law.
Although courts are very deferential to municipal authorities, they have not shrunk from invalidating actions which they have found to be abuses of discretion. In
Prestonia Area Neighborhood Ass'n v. Abramson, Ky., 797 S.W.2d 708 (1990), the Supreme Court invalidated an ordinance which it found to be violative of Section 2 of the Kentucky Constitution. In this case, the City had enacted ordinances declaring the neighborhoods of Prestonia, Highland Park and Standiford to be blighted and approved a relocation plan for families and businesses. The court invalidated the ordinances stating that "to by legislative fiat declare an object to be something it is not is such an abuse of discretion as to be arbitrary." Id. at 712.
The Prestonia analysis applies to the Contract in this case. Merely calling something a "maximum" does not make it so. The failure to state the maximum payable under the Contract and/or the inclusion of the misleading $ 35,000 figure is arguably an abuse of discretion. See
Moseley Hospital v. Hall, Ky., 269 S.W. 1004 (1925)(holding that city officers must exercise their power in strict accordance with the manner prescribed in order for their actions to be valid); see generally
Gordon v. Gordon's Adm'r, Ky., 182 S.W. 220, 222 (1916)(holding that a contract is against public policy if it is injurious to an established public interest, contravenes a public statute, is against good morals or tends to interfere with the public welfare or safety.)
Does the Home Rule statute validate this Contract?
Although the City has been given broad powers under the Home Rule statutes, these cannot serve to validate this Contract. In this case, the Contract was well within the statutory powers of the municipality. That is not the issue. No one disputes the fact that the City had the power to enter into this Contract. It is the manner of contracting that is at issue.
KRS 83.140, the Home Rule statute, grants to citizens living in cities of the first class broad powers to govern themselves so long as there is no conflict with the constitution or laws. This provision states:
(1) This chapter is intended by the General Assembly of the Commonwealth of Kentucky to grant to citizens living within a city of the first class the authority to govern themselves to the full extent required by local government and not in conflict with the Constitution or laws of this state or of the United States.
KRS 83.420 goes further to define the power of the cities with respect to specific functions:
The inhabitants of each city of the first class shall constitute a corporation, with power to govern themselves by any ordinance and resolutions for municipal purposes not in conflict with the Constitution or laws of this state or of the United States . In its corporate capacity, the city may contract and be contracted with and may sue and be sued . . .
(Emphasis added). It is clear under Kentucky law that the City had the power to enter into this type of contract. What is not addressed by the Home Rule statute is the manner of contracting. The manner of contracting was prescribed by the City's ordinance. Unless the City abides by the manner of contracting that it has mandated, its contracts are void as more thoroughly explored in the previously referenced cases.
CONCLUSION
Louisville Ordinance § 37.75 requires that professional service contracts contain maximum amounts to be paid under these contracts. The City's Contract with the Lynch Cox firm is void because it is in contravention of this ordinance. By failing to state an ascertainable maximum amount in its Contract, the purpose of the ordinance has been undermined. Additionally, this Contract is void on public policy grounds since it undermines the ability of the public and its municipal officers to adequately oversee municipal expenditures.
Footnotes
Footnotes
1 Openness in government can hardly be said to be novel. As a public policy matter, the General Assembly has encouraged "open government" by enacting the Open Records Act, KRS 61.871, which states: "The basic policy of KRS 61.870 to 61.884 is that free and open examination of public records is in the public interest and the exceptions provided for by KRS 61.878 or otherwise provided by law shall be strictly construed. . ."
2 There is a distinct difference in an ultra vires contract and a contract that has been executed in contravention of a statute or ordinance. An ultra vires contract is one in which the municipality has attempted to contract in an area in which it has no power. This case involves the second type of contract. The second type of contract is a contract in which a municipality has the power to contract in the area, but it has done so in a manner that is contrary to applicable laws.
In examining this contract, it is not an ultra vires contract because the City can contract for legal services. In fact, Kentucky courts have specifically upheld a city's right to contract with outside counsel in the absence of a specific statutory prohibition. See Conrad v. Lexington-Fayette Urban County Government, Ky., 659 S.W.2d 190 (1983).
3 56 Am. Jur. 2d Municipal Corporations, § 502 (1983) describes this failure as follows:
A municipal corporation, in contracting, must act not only within the limits of the power granted, but must observe the statutory or charter requirements as to the creation of municipal obligations. A contract entered into by a municipal corporation in relation to a subject matter upon which it has authority to act, but without compliance with the conditions which the constitution or the legislature has prescribed as a necessary preliminary to contracts of such a character, is generally held to be invalid .
(Emphasis added).
4 In John L. Humbard Const. Co. v. City of Middlesboro, Ky., 36 S.W.2d 38 (1931), the court noted that an ordinance, until repealed, is as binding upon a city council as a statute or a provision of the state or federal constitution.
5 Another problem which was not addressed by any of the correspondence is the fact that contracts require certainness of their terms. The question here would be whether this contract is sufficiently definite as to amount to form a valid contract between the City of Louisville and the law firm.
The case law in Kentucky on the definiteness of amounts in contracts and how to interpret them does not give much direction on this issue. The court has said that the terms of a contract must be complete and sufficiently definite to enable a court to determine the measure of damages in event of a breach. See Mitts & Pettit, Inc. v. Burger Brewing Co., Ky., 317 S.W.2d 865 (1954). However, the courts have also stated that a contract which leaves an essential term to future negotiations is not a contract and is incapable of enforcement due to want of certainty. See Brooks v. Smith, Ky., 269 S.W.2d 259 (1954). However, courts have also stated that a consideration of the circumstances attending the execution of the contract, the custom and usages of trade, and local standards may make definite what the writing leaves indefinite. See Crossland v. Kentucky-Blue Grass Seed Grower's Co-op Ass'n, 103 F.2d 565 (6th Cir. 1939). The issue of the certainty of the terms of this Contract is beyond the scope of this Opinion, but it is an issue which should be considered by the City in the drafting of these agreements.
Because of the lack of a definition of "agency receipts" in the Contract, an argument could be made that this Contract is ambiguous. Ambiguous contracts are never satisfactory due to the possibilities of disagreement over the meanings of terms and the possible introduction of parol evidence to explain those terms. At the very least, the Contract should contain a definition of this phrase in order to avoid these potential problems.
The doctrine of contemporaneous construction is applicable to ordinances, and may be of aid in determining the meaning and defining the effect of particular words and phrases incorporated therein. Thus, if an ordinance is ambiguous, a practical construction accorded thereto by enforcing officers is given great weight. Such a rule of construction cannot govern, however, where the intention of the ordinance is plain, unambiguous, and not susceptible of different or contrary reasonable constructions, and will not be applied where the court is not satisfied that the ordinance is doubtful or ambiguous.
56 Am. Jur. 2d Municipal Corporations § 405 (1971).
7 See Kapsalis v. Bd. Of Fire & Police Com'rs, 493 N.E.2d 56, 61 (Ill. App. 1 Dist. 1986) (stating "While city administrative agencies are entitled to deference in their interpretation of their own regulations and the ordinances that they are charged with implementing . . ., constructions that would render ordinances meaningless or absurd are to be avoided . . .")