Watauga County Board of Education v. Town of Boone

JOHNSON, Judge. Plaintiff first contends that the trial court erred in granting defendant’s motion for summary judgment. Plaintiff advances two legal theories in support of its position: (a) the agreement is an enforceable contract and Boone’s withdrawal from the agreement with no prior notice is a breach of contract, and (b) Boone is estopped on equitable principles from discontinuing its payments without prior notice. Summary judgment is proper when there is no genuine issue of material fact and either party is entitled to judgment as a matter of law. Kessing v. Mortgage Corp., 278 N.C. 523, 180 S.E.2d 823 (1971). We find that we need not determine whether the resolution constitutes a contract. Even assuming that there is a contract, it is void and unenforceable because it is outside the power of the town council to appropriate money to the county school board. *273 Towns and cities are creations of the legislature. They have no powers which are not given to them by the General Assembly. N.C. Const., art. VII, § 1. Under the state constitution, [t]he General Assembly may enact laws whereby the State, any county, city or town, and any other public corporation may contract with and appropriate money to any person, association or corporation for the accomplishment of public purposes only. N.C. Const., art. V, § 2(7). A municipality is a creature of the Legislature and it can only exercise (1) the powers granted in express terms; (2) those necessarily or fairly implied in or incident to the powers expressly granted; and (3) those essential to the accomplishment of the declared objects of the corporation — not simply convenient, but those which are indispensable, to the accomplishment of the declared objects of the corporation. Madry v. Scotland Neck, 214 N.C. 461, 462, 199 S.E. 618, 619 (1938) (municipality has no authority to offer reward for capture of police chief’s murderer). See also Moody v. Transylvania County, 271 N.C. 384, 156 S.E.2d 716 (1967) (providing of county-wide ambulance service is neither expressly authorized nor is it a necessary expense, therefore county cannot be held to contract granting franchise); Town of Emerald Isle v. State of N.C., 320 N.C. 640, 360 S.E.2d 756 (1987) (power of municipal corporation to regulate the use of public streets arises in legislature and is subject to authority of legislature to regulate the use and control of public roads); Board of Managers v. Wilmington, 237 N.C. 179, 74 S.E.2d 749 (1953) (city cannot be estopped from terminating payments to hospital it is not statutorily authorized to make). Cities and towns are like counties with respect to their authority to enter into contracts and appropriate and expend public funds. N.C. Const., art. V, § 2(7); Moody, 271 N.C. at 386, 156 S.E.2d at 717. The appropriation of public funds by a town council requires that two conditions be met. First, the appropriation must be for a “public purpose” consistent with article V, § 2(7) of the N.C. Constitution. Hughey v. Cloninger, 297 N.C. 86, 253 S.E.2d 898 (1979). Second, there must be statutory authority for the appropriation. Id. *274 There is no question but that the appropriation of funds for the education of the children of North Carolina satisfies the “public purpose” requirement. Hughey, 297 N.C. at 95, 253 S.E.2d at 904, citing Education Assistance Authority v. Bank, 276 N.C. 576, 174 S.E.2d 551 (1970). We can find, however, no statutory authority for this appropriation to the county school board. Plaintiff admits that Boone has no mandatory governmental responsibility in the realm of education. The question becomes whether a resolution appropriating funds for a public purpose, but one outside the statutorily authorized powers of the town, can be enforced against the town council. In Board of Managers, 237 N.C. 179, 74 S.E.2d 749, defendants City of Wilmington and New Hanover County each made appropriations, pursuant to local acts, for the benefit of the James Walker Memorial Hospital. These payments were made over a period of almost fifty years. In 1951, the City stopped its contributions after concluding that the local acts were in violation of [then] Article II, § 29 of the state constitution. The hospital board sued the City, contending that the City had “given its solemn pledge for its generous support to such hospital” and was therefore estopped from challenging the constitutionality of the local acts under which it had paid or its obligation to continue the appropriations in the future. Id. at 189, 74 S.E.2d at 757. The Supreme Court concluded that the City could not be estopped from challenging the constitutionality of laws affecting it in its governmental capacity. “The doctrine of ultra vires is applied with greater strictness to public than to private corporations, and the rule is that a municipality . . . is not estopped by an act or contract which is beyond the scope of its corporate powers[.]” Id., quoting 21 C.J. Estoppel, at 1194-95. The Court found that the hospital appropriations were not a necessary governmental expense and therefore, absent a vote by a majority of the voters as required by Article VII, § 7 [since repealed], the City could not appropriate city revenues for this purpose. Accord Madry, 214 N.C. 461, 199 S.E. 618 (town may not be held to its tender of reward which it has no authority to offer). We hold that the appropriation of funds for the education of the children of Watauga County is outside the statutory authority of Boone; the appropriation is ultra vires and the resolution purporting to commit the town of Boone to make the appropriation cannot be enforced. Board of Managers, 237 N.C. 179, 74 S.E.2d 749. *275 Plaintiff argues that the operation of an ABC store is a proprietary function, citing Waters v. Beisecker, 60 N.C. App. 253, 298 S.E.2d 746 (1983); therefore, the distribution of ABC store revenues also involves a proprietary function. We disagree. Waters is of no assistance to plaintiff. The Court of Appeals decision in Waters was heard by the Supreme Court on discretionary review. Waters v. Beisecker, 309 N.C. 165, 305 S.E.2d 539 (1983). The Supreme Court affirmed the result reached by the Court of Appeals but stated explicitly that this Court had addressed the wrong issue and that the holding that the operation of an ABC store is a proprietary function was entirely obiter dictum and not approved. The Court expressly refrained from ruling “upon this interesting issue.” Waters, 309 N.C. at 166, 305 S.E.2d at 540. We find that it is irrelevant to our decision whether an ABC store is a proprietary function. Even if it is, pursuant to G.S. § 18B-805 (1989), the gross receipts of a local ABC board are distributed first according to subsections (b) [primary distribution], (c) [other statutory distributions] and (d) [working capital]. After making the distributions provided in subsections (b), (c), and (d), the local board shall pay each quarter the remaining gross receipts to the general fund of the city or county for which the board is established, unless some other distribution or some other schedule is provided for by law. If the governing body of each city and county receiving revenue from an ABC system agrees, and if the Commission approves, those governing bodies may alter at any time the distribution to be made under this subsection. G.S. § 18B-805(e) (1989). The authority of a local government unit to collect taxes and expend revenues is controlled by the Local Governmental Budget and Fiscal Control Act, G.S. § 159-7 et seq. Pursuant to this Act, local governments are required to operate under an annual balanced budget ordinance. G.S. § 159-8(a) (1987). It is the intent of this Article that ... all moneys received and expended by a local government or public authority should be included in the budget ordinance. Therefore, notwithstanding any other provision of law, no local government or public authority may expend any moneys, regardless of their source *276 . . . except in accordance with a budget ordinance or project ordinance adopted under this Article[.] Id. Thus, the gross receipts of an ABC store remaining after the required distributions are paid into the general fund of the city from which any appropriation must be in accordance with a budget ordinance. Although G.S. § 18B-805(e) allows the distribution of ABC revenues to be altered with the approval of the Commission, plaintiff has alleged no such action. We can find no support for plaintiff’s contention that because these proceeds originate from an ABC store they can therefore be appropriated in a way other than pursuant to the statutory mechanisms required by the General Assembly. We conclude that the resolution of 13 April 1987 appropriating the Boone ABC store revenues to the county school board is an act outside the powers of the town council and thus is void and unenforceable as a contract. Furthermore, even assuming that the Boone Town Council resolution is not unenforceable for the reason stated above, it is not enforceable because it does not comply with G.S. § 159-28(a) which provides: No obligation may be incurred in a program, function, or activity accounted for in a fund included in the budget ordinance, unless the budget ordinance includes an appropriation authorizing the obligation .... If an obligation is evidenced by a contract or agreement requiring the payment of money . . ., the contract, agreement or purchase order shall include on its face a certificate stating that the instrument has been pre-audited to assure compliance with this subsection[.] An obligation incurred in violation of this subsection is invalid and may not be enforced. The resolution at issue does not have a pre-audit certification as required by this statute and thus the agreement is not enforceable. See Cincinnati Thermal Spray, Inc. v. Pender County, 101 N.C. App. 405, 399 S.E.2d 758 (1991). Finally, we disagree with plaintiff’s contention that Boone is estopped from discontinuing its payments without prior notice. A municipality cannot be estopped by an act or contract which is beyond the scope of its corporate powers. Board of Managers, *277 237 N.C. at 189, 74 S.E.2d at 757. Since the appropriation of the ABC revenue to the county school board is outside the authority of the town council, the town council cannot be estopped from terminating the unauthorized payments without notice. Because of the resolution of plaintiff’s first Assignment of Error, we need not consider its second. We hold that the trial judge did not err in granting defendant’s motion for summary judgment. Affirmed. Judges EAGLES and ORR concur.