City of Frankfort v. Silent Workers Circle of the Kings Daughters & Sons (Frankfort, Kentucky) Inc.

GANT, Judge. This action was brought by the City of Frankfort, Kentucky, and an interested taxpayer to set aside a deed dated November 26, 1975, executed by three commissioners of the City of Frankfort, pursuant to a duly enacted resolution, to the Appellee, The Silent Workers Circle of the Kings Daughters and Sons (Frankfort, Kentucky) [179] Inc. The consideration for this deed was $1.00, together with the agreement by Kings Daughters to assume and save the City harmless from any indebtedness which might be incurred because of the failure of Kings Daughters to operate the hospital for the period of time provided for in the agreement under which Hill-Burton funds were received, which funds were used in the construction of the annex in question. There was a further provision surrounding the execution of this deed and that was the agreement of Kings Daughters to convert the premises into apartments for the elderly which would be rented on a cost basis, and the deed contained a reverter clause providing that title to this property would revert to the City in the event the property ever ceased to be used for that purpose or to be operated on a non-profit basis. A history of Kings Daughters Hospital and its relationship with the City of Frankfort is necessary in order to put this case into proper perspective. In 1954, when this hospital had been operated for approximately 50 years, the hospital had become virtually obsolete and it was necessary to construct an annex to the hospital in order to provide modern facilities and equipment for the growing population of Frankfort and the surrounding area. In these pre-revenue-sharing days, the principal source of income for the City of Frankfort was a municipally owned utility operated by the Electric and Water Plant Board of the City of Frankfort. Federal funds, under the Hill-Burton Act, were available only through municipally owned facilities and so a paper transaction was arranged by which the Appellee, Kings Daughters, would transfer the ground upon which the annex was to be constructed to the City of Frankfort. The City of Frankfort would, in turn, issue $350,000 worth of revenue bonds, these bonds to be purchased by the Electric and Water Plant Board, as there was no readily available market for them otherwise. An additional $350,000 of Hill-Burton funds would then be allocated and the annex constructed with this $700,000. The property was then to be leased back to Kings Daughters for the purpose of operating a non-profit hospital on this site. All of this was carried out and some time in 1955 the site was deeded to the City of Frankfort for a nominal consideration. Some 20 years later, these facilities again became inadequate and it was necessary for Kings Daughters to relinquish its license to operate a non-profit hospital and a new hospital was constructed, rendering this property surplus so far as its use as a hospital was concerned. By this time, the Utility Board had paid off the bonds through the use of their own revenue and without the benefit of revenue from the general tax funds of the City of Frankfort. Although all the funds for the amortization of these bonds were paid from the revenues of the utility, they apparently had no objection to this transfer of the property back to Kings Daughters or the operation of the apartments thereon as hereinabove set out. It should be noted that the entire transaction relating to the issuance of the bonds by the City and their purchase by the Board was approved by the Court of Appeals of Kentucky on March 11, 1955, in the case of Perkins v. City of Frankfort et al., Ky., 276 S.W.2d 449 (1955). That action was apparently a taxpayer’s suit, challenging the validity of the ordinances providing for the issuance of these revenue bonds by the City and the purchase of those bonds by the Electric and Water Plant Board for the purpose of building a hospital annex. This action is apparently the second action in the chain, this one seeking to prohibit the transfer of the annex property back to the original grantor under the circumstances which we have heretofore described. It is the opinion of this Court that the transfer by deed of the annex property in question here was a valid transfer by the City of Frankfort under all of the attending circumstances. First, it is doubtful that the City of Frankfort or any taxpayer thereof is the real party in interest to bring this suit. Ky.Rev.Stat. 96.175 provides as follows: “(7) The title to any property, real or personal, which the board may acquire shall vest in the municipality for the use and benefit of the electric and water system.” [180] There can be little doubt that title to this property was acquired by the Board of the Electric and Water Plant of the City of Frankfort. They had agreed to purchase the bonds before they were issued and did purchase them and it was their revenue which was utilized to pay off these bonds. Under this Statute, the City would occupy a quasi-trusteeship of the naked legal title for the use and benefit of the Board and not for the use and benefit of its own taxpayers. The Board is not a party to this action. It seems to this Court that the issue is also settled by the use to which Kings Daughters has agreed to put the property. In addition to the consideration of $1.00 and the further consideration that the Appellee would hold the City harmless from any liability toward the refunding of Federal funds for failure to operate the hospital for the prescribed period of time, there is the agreement of the Appellee to operate housing for the elderly on a cost basis. In the case of Ezelle et al. v. City of Paducah et al., Ky., 441 S.W.2d 162, 164 (1969), we find the following statement: Under the holdings of this court that a governmental body may choose a private institution as an instrumentality for the accomplishment of a public purpose we find no violation of Section 179 . applied in the instant case. [See also] Norman v. Kentucky Bd. of Managers World Columbian Exp., 93 Ky. 537, 20 S.W. 901, 18 L.R.A. 556; Board of Trustees of House of Reform v. City of Lexington, 112 Ky. 171, 65 S.W. 350; Hager v. Kentucky Children’s Home Society, 119 Ky. 235, 83 S.W. 605, 67 L.R.A. 815; Butler v. United Cerebral Palsy of Northern Kentucky, Inc., Ky., 352 S.W.2d 203. Providing housing for the elderly at cost by a charitable corporation is, in fact, serving a specific public purpose. For the reasons above stated, the case is affirmed.