FALLS CREEK, INCORPORATED VS. LOUISA BOARD OF WATER AND SEWER COMMISSION , ET AL.Annotate this Case
RENDERED: AUGUST 29, 2008; 2:00 P.M.
NOT TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
FALLS CREEK, INC.
APPEAL FROM LAWRENCE CIRCUIT COURT
HONORABLE JOHN DAVID PRESTON, JUDGE
ACTION NO. 07-CI-00059
LOUISA BOARD OF WATER AND
SEWER COMMISSION; AND
LOUISA CITY COUNCIL
** ** ** ** **
BEFORE: KELLER AND TAYLOR, JUDGES; GUIDUGLI,1 SENIOR JUDGE.
KELLER, JUDGE: Falls Creek, Inc., has appealed from the Lawrence Circuit
Court’s August 1, 2007, summary judgment dismissing its action for breach of
Senior Judge Daniel T. Guidugli sitting as Special Judge by assignment of the Chief Justice
pursuant to Section 110(5)(b) of the Kentucky constitution and KRS 21.580.
contract against the Louisa Board of Water and Sewage Commission (“the
Commission”) and the Louisa City Council (“the City Council”). We affirm.
This case concerns whether a contract or agreement exists between
Falls Creek and the Commission and the City Council regarding the responsibility
for maintenance costs for a sewer pumping station on Falls Creek’s property in
Louisa, Kentucky. In 1989, Falls Creek was developing property in Louisa, a
municipal corporation. Because the City of Louisa could not afford to pay to
construct a sewer line and pumping station to serve the property, Falls Creek
alleges that it agreed to construct both the sewer line and station in exchange for
the Commission and the City Council agreeing to pay for the station’s maintenance
costs and monthly electric bills. Falls Creek then expended $240,000 to construct
the sewer line and pumping station. From 1989 to 1995, the City provided for
maintenance and paid the monthly electric bills. In 1996, however, the City
stopped providing any maintenance to the station, although it continued to pay the
monthly electric bills and to collect sewer subscription fees. Over the course of the
next ten years, Falls Creek hired contractors to provide this maintenance,
expending more than $46,000 to do so. Despite demands for repayment, Falls
Creek was never reimbursed for this amount.
On February 19, 2007, Falls Creek filed this action against the
Commission and the City Council, alleging breach of contract in their failure to
pay for maintenance of the pumping station. In support of its claim that a contract
or agreement existed between them, Falls Creek relied on the minutes from the
Commission’s June 6, 1996, meeting:
The Commission discussed maintaining the sewer
pumping station that services the Fallscreek
developement [sic]. The City Council had brought up
questions as to who was responsible for maintenance[,]
the property owner or the city. There was nothing in the
previous minutes to verify who would accept
responsibility. Joe Compton stated his recollection was
that the Fallscreek [sic] developers would pay for
installing the line and pumping station and the city would
accept responsibility for maintenance on the pumping
station and pay the electricity bill which averages $35.00
monthly. Joe said he had talked to the previous
Commissioners[;] two of them could not recall any
particulars on the agreement. Two Commissioners and
Joe Compton did recall the City would accept
responsibility for maintenance.
In its prayer for relief, Falls Creek requested a judgment for damages in the amount
of $46,300 and a declaratory judgment that the Commission and the City Council
would be responsible for future maintenance costs.
In their joint answer, the Commission and the City Council argued
that they were not legal entities with the legal capacity to sue and be sued; that the
complaint failed to state a claim upon which relief could be granted; that Falls
Creek had notice that the City could not legally maintain private sewer pumping
stations; and that the June 6, 1996, minutes were not sufficient to establish that a
contract legally existed.
A few months later, the Commission and the City Council filed a
motion for summary judgment, in which they argued four grounds in support of the
dismissal of Falls Creek’s action. First, they argued that they (the City Council
and the Commission) are not legal entities. Second, they argued that the City
could not legally maintain a private sewer pumping station. In support of this
argument, they relied upon the May 14, 1996, minutes of the Louisa City Council:
It was agreed by the Council that the Water and
Sewer Co. should not be working on pumping stations
they do not own. Attorney Adams stated that if the
employees work on private sewer lines, then the Water
and Sewer Co. should bill the owners accordingly. Joe
Compton stated that he would not allow the employees to
work at no charge.
They pointed out that those minutes predate the June 6th Commission meeting and
are controlling over any action by the Commission. Third, they argued that the
June 6, 1996, Commission meeting minutes are insufficient as a matter of law to
establish the existence of the putative agreement. In addition, they asserted the
minutes cannot be amended nunc pro tunc to establish the existence of an
agreement. Finally, they argued that even if a contract existed, it would be
terminable at will by either party as it was not for a definite period of time.
In response, Falls Creek argued that a contract existed based upon the
Commission and the City Council’s acceptance and performance under the
agreement for six years, and that they had the duty as governmental entities to
fulfill the agreement in good faith. Falls Creek attached the affidavit of Mark
Clevenger in support of its argument. Clevenger is the Vice President of Falls
Creek and was present during the discussions about the construction of the sewer
line and pumping station in 1989. He stated that because the City did not have the
funds to pay for the construction, Falls Creek would pay for the construction of the
sewer line and pumping station. In return the Commission and the City would pay
for maintenance. The Commission and the City Council would continue to benefit
by collecting sewer line subscription fees. The Commission complied with the
agreement for six years from 1989 through 1995, when it ceased maintaining the
pumping station. Falls Creek then had to expend more than $46,000 on contractors
to maintain the pumping station, while the Commission and the City continued to
collect subscription fees as well as real estate taxes from the twelve businesses that
used the pumping station.
The circuit court entertained oral argument on the summary judgment
motion at a status conference on July 27, 2007, which focused primarily on
whether an agreement existed. On August 1, 2007, the circuit court entered a
summary judgment dismissing Falls Creek’s claims based on its finding that no
contract existed. After summarizing the facts, the circuit court stated:
The Plaintiff cites to the Court the case of Carroll
Fiscal Court vs McClorey, 455 S.W.2nd 547 (Ky. 1970).
That case is distinguishable in that [it] involved a clearly
written and executed contract between the parties in that
case. There is no such contract in this case. The
Defendant cites to the Court the case of Brownsboro
Road Restaurant, Inc. vs Jerrico, Inc. 674 S.W.2nd 40
(Ky. App. 1984). The Court stated in that case that when
a contract contains no definite period it may be
terminated by either party at will. The Court cannot find
the existence of any contract in this case. Even if one
were determined to be in existence from the minutes of
the Water and Sewer Commission, since it contains no
definite term, it would have to be construed as terminable
at will. The affidavit of Mark Clevenger reflects that the
city apparently maintained the pump station for about six
years, until 1995. Apparently, the city has not
maintained the pump station since about 1996, which
causes the Court some concern as to why the Plaintiff did
not attempt to enforce its purported contractual rights in
that long period of time.
It is evident to the Court that there is no binding
contractual agreement between the parties. The Court
grants the motion for summary judgment.
This appeal followed.
On appeal, Falls Creek contends that the circuit court erred in granting
summary judgment. It asserts that a binding agreement existed between the
parties, and that as governmental entities, the Commission and the City Council
had the duty to make a good faith effort to honor the terms of the contract. Falls
Creek also argues that the Brownsboro case, relied upon by the Commission and
the City Council and cited by the circuit court, is inapplicable here because of the
status of the defendants as governmental entities. In their response brief, the
Commission and the City Council make essentially the same arguments as they did
in their motion for summary judgment.
In Lewis v. B & R Corp., 56 S.W.3d 432, 436 (Ky. App. 2001), this
Court set forth the applicable standard of review for appeals from summary
The standard of review on appeal when a trial
court grants a motion for summary judgment is “whether
the trial court correctly found that there were no genuine
issues as to any material fact and that the moving party
was entitled to judgment as a matter of law.” The trial
court must view the evidence in the light most favorable
to the nonmoving party, and summary judgment should
be granted only if it appears impossible that the
nonmoving party will be able to produce evidence at trial
warranting a judgment in his favor. The moving party
bears the initial burden of showing that no genuine issue
of material fact exists, and then the burden shifts to the
party opposing summary judgment to present “at least
some affirmative evidence showing that there is a
genuine issue of material fact for trial.” The trial court
“must examine the evidence, not to decide any issue of
fact, but to discover if a real issue exists.” While the
Court in Steelvest [, Inc. v. Scansteel Service Center, Inc.,
807 S.W.2d 476, 480 (Ky. 1991),] used the word
“impossible” in describing the strict standard for
summary judgment, the Supreme Court later stated that
that word was “used in a practical sense, not in an
absolute sense.” Because summary judgment involves
only legal questions and the existence of any disputed
material issues of fact, an appellate court need not defer
to the trial court’s decision and will review the issue de
novo. [Citations in footnotes omitted.]
With this standard in mind, we shall review the matter before us.
It does not appear, and the parties have not argued, that any genuine
issues of material fact remain to be decided. Therefore, the only issue we must
address concerns a question of law; namely, whether a legally binding contract
existed between Falls Creek, and the Commission and the City Council. Falls
Creek maintains that the agreement, as referenced in the June 6, 1996, Commission
meeting minutes, was established by the acceptance and multiple year performance
by the Commission and the City Council. On the other hand, the Commission and
the City Council direct our attention to our opinion of City of Greenup v. Public
Service Commission, 182 S.W.3d 535 (Ky. App. 2005), which states that any
contract must be signed by the mayor and confirms that a municipal corporation
may not enter into a contract by implication.
In our view, the opinion of City of Greenup is determinative here as it
pertains to the formation of contracts. Accordingly, we shall set forth the pertinent
parts of that opinion herein:
Greenup contends that the PSC erroneously
determined that a valid contract existed because the
alleged agreement with South Shore failed to comply
with the statutory procedures for cities to follow in
As there are no facts in dispute, we are faced with
but a question of law. Accordingly, our review is de
novo. Revenue Cabinet v. Comcast Cablevision of the
South, 147 S.W.3d 743, 747 (Ky. App. 2003).
In its July 24, 2002, order the PSC stated “[w]e
find no merit in Greenup's contention that no contract
could be entered without the actions of Greenup's
mayor.” This conclusion of law, however, diametrically
conflicts with KRS 83A.130(8), which provides as
All . . . contracts and written obligations of
the city shall be made and executed by the
mayor or his agent designated by executive
order. (Emphasis added).
KRS 446.080(4) prescribes that in construing
statutes “[a]ll words and phrases shall be construed
according to the common and approved usage of
language. . . .” (Emphasis added). “In common or
ordinary parlance, and in its ordinary signification, the
term ‘shall’ is a word of command and . . . must be given
a compulsory meaning.” Black's Law Dictionary 1233
(5th ed. 1979). Shall means shall. Vandertoll v.
Commonwealth, 110 S.W.3d 789, 795-796 (Ky. 2003).
We are of the opinion the PSC erred in concluding
that a contract could be entered into without action by the
mayor of Greenup. Pursuant to KRS 83A.130(8), a
contract can only “be made” and must be executed by the
mayor. The PSC's conclusion that a contract may be
formed absent action by the mayor is an erroneous
conclusion of law.
Further, we construe the statute as requiring a
contract entered into by a municipality to be in written
format so that it may be executed by the signature of the
mayor. It is uncontested that a written contract executed
by the mayor does not exist in this case. This being so, it
follows that no valid express contract was formed.
Moreover, KRS 83A.130(8) unambiguously
categorizes the making of a contract as an executive
function. KRS 83A.130(11) provides that “[t]he council
shall not perform any executive functions except those
functions assigned to it by statute.” The making and
execution of contracts is not assigned to the city council
by statute. The PSC erroneously concluded that the vote
in favor of the application at the April 7, 1998, council
meeting was sufficient to bind Greenup to a contract for
the provisioning of wholesale water to South Shore.
The PSC determined, as a conclusion of law that,
“[t]he resolution of Greenup's City Council, duly
recorded, is sufficient action to constitute a binding
acceptance.” This conclusion of law conflicts with KRS
83A.130(8). Under this statute all contracts must be
“made and executed by the mayor.” The PSC's
conclusion is in direct contravention of the statute.
The statutory provisions concerning the formation
of a contract by a municipality must be strictly adhered
to. As stated in City of Princeton v. Princeton Electric
Light & Power Co., 166 Ky. 730, 179 S.W. 1074, 1079
The laws provide how municipalities may
bind themselves, and the contracts to be
obligatory must be made in the manner the
laws prescribe. A different rule prevails in
regard to municipalities to that which
governs private persons and private
corporations. The persons who contract
with municipal corporations must, at their
peril, know the rights and powers of the
officers of such municipalities to make
contracts and the manner in which they must
make them. Any other rule would destroy
all the restrictions which are thrown around
the people of municipalities for their
protection by the statute laws and the
Constitution, and would render abortive all
such provisions. The rule in certain
instances may be harsh, but no other is
The foregoing principle was recognized of late in
Worden v. Louisville and Jefferson County Metropolitan
Sewer District, 847 F.Supp. 75 (W.D.Ky. 1994).
As the statutorily mandated procedure for creating
a contract by a city was not followed, a valid and
enforceable contract for the provisioning of wholesale
water was not formed. The PSC erred in concluding to
the contrary. We accordingly reverse the agency's order
of July 24, 2002.
The PSC's conclusion that a contract had been
formed appears to have been based at least to some
extent upon the conduct of the parties, which we construe
as invoking the principles of contract by implication.
However, it is well established that a municipality may
not enter into a contract by implication. Louisville
Extension Water District v. Sloss, 314 Ky. 500, 236
S.W.2d 265 (1951).
City of Greenup, 182 S.W.3d at 539-41. “It is the rule in this jurisdiction that no
municipal corporation may be bound on the theory of implied contract.” Louisville
Extension Water Dist. v. Sloss, 314 Ky. 500, 502, 236 S.W.2d 265, 266 (1951).
We appreciate Falls Creek’s attempt to distance the circumstances of
this case from City of Greenup, in stating:
[I]t may not [be] advisable for government entities to
haphazardly enter into loosely-defined “contracts by
implication” with private citizens. Regardless, the
Appellants assert that it is more damaging to the fabric of
government confidence for government entities to
conduct themselves in such a dishonorable manner as the
facts demonstrate the Appellees have acted in this instant
case, in effect taking advantage of the trust of private
Obviously, had Falls Creek entered into a properly written contract with the City
Council and the Commission in 1989, this action would not have been necessary.
However, whether or not we agree that the actions of the City Council and the
Commission were less than honorable, we are bound to follow the law on this
issue. Accordingly, we must reluctantly uphold the circuit court’s summary
judgment, as no contract existed.
Because we have affirmed the summary judgment on its merits, we
need not address the other issues raised by Falls Creek or the other grounds for
affirmance argued by the Commission and the City Council.
For the foregoing reasons, the judgment of the Lawrence Circuit
Court is affirmed.
BRIEFS AND ORAL ARGUMENT
BRIEF AND ORAL ARGUMENT
Eldred E. Adams, Jr.