
    Board of Education v. Strausser et al.
    
      (No. 37765
    Decided July 29, 1969.)
    Common Pleas Court of Erie County.
    
      
      Mr. Paul E. Work, prosecuting attorney, and Mr. William E. Didelius, for plaintiff.
    
      Messrs. Rhonemus, Dalbey & Bradford and Mr. Christian E. Rhonemus, for defendants Strausser.
    
      Messrs. Tone, Maddrell, Eastman & Grubbe and Mr. Herbert P. Eastman, for defendant Finney.
    
      Mr. John W. Lehrer, city solicitor, for defendant Sandusky City School District.
   WiNter, J.

(of Medina County, by assignment.) The parties, with the exception of defendant Finney, concede that the case at bar presents no issues of fact for the court’s determination. Defendant Finney, however, contends that a question of fact is presented for this court’s determination as to whether or not the option contract between the plaintiff and defendants, Strausser, was properly executed and the consideration therefor properly paid.

As to this question it is the opinion of the court that any defects that may have existed with respect to the option taken on April 8, 1968, were cured by the adoption of plaintiff’s resolution June 2, 1969, wherein plaintiff board of education by unanimous vote of those present ratified, confirmed and approved the action taken by the board and by the clerk thereof on April 8, 1968, in the acquisition of the aforesaid option. Further, in the event such resolution did not cure the previous action of the plaintiff board, the issuance of the option to purchase by defendants Strausser, if not an option, was, in effect, an offer to sell. Accordingly, when the plaintiff board of education on June 29, 1968, by appropriate action, authorized the clerk to advise defendants, Strausser, that said option (or offer of sale) had been exercised (or, in effect, had been accepted) and the clerk, pursuant to such authorization, caused the notice to be delivered to the defendants, together with his certification thereon as to availability of funds, a contract was made and entered into by the parties, either as an exercised option to purchase, or as an offer to sell made by defendants and duly accepted by plaintiff.

Turning now to the issues of law herein presented, namely, the four questions for which declaratory judgment is sought, the court will deal with them in the order above set forth:

First: Did the plaintiff and defendants, Strausser, enter into a valid and binding contract for the purchase of the premises in question?

Section 5705.41, Revised Code, provides that any certificate of the fiscal officer attached to a contract shall be binding as to the facts set forth therein. Thus, when the clerk of a board of education of a local school district certifies, on a purchase order given to defendant sellers of real property pursuant to resolution duly adopted by plaintiff board of education notifying the sellers of its intent to exercise the option of purchase of said property and that the amount of money sufficient to purchase such property is then in the building fund available to meet the obligation of the purchase contract, whereas, substantially all of the monies in said fund were, in fact, as proceeds of a voted bond issue earmarked for other purposes, such certificate, in the absence of fraud, is binding upon the political subdivision and upon the taxpayers therein, though the statements set forth in the certificate are not true.

It is the opinion of this court that no showing of fraud is evidenced in the instant case with respect to the aforesaid certificate, and that, in accordance with the rule of law enunciated by the court in the case of Carmichael v. Board of Education, 32 Ohio App. 520, and as followed by the Attorney General in 1942 O. A. G. No. 5245, page 423, when plaintiff, board of education, by instrument in writing, notified defendants, Strausser, of its exercise of its option to purchase defendants’ real property, and at the same time delivered to defendants a purchase order for the aforesaid premises on which appeared the certificate of the clerk, as required by Section 5705.41, Revised Code, a valid and binding contract was entered into by and between the plaintiff and the defendants.

Second: Did the agreement entered into by and between the parties on July 25, 1968, constitute a valid and binding contract and, if so, to what extent did it modify the agreement of June 29, 1968?

Defendants, Finney and Sandusky City School District Board of Education, contend that the contract of July 25, 1968, is an installment contract within the meaning of Section 3313.37, Revised Code. Further, they contend that the contract between the parties is the sum total of the “option” and the “agreement,” and, considering them together, the contract fails because the installment payments, as provided in the agreement of July 25, 1968, were not authorized by the voters in accordance with Section 5705.21, Revised Code.

The key to the solution of this problem appears to be a clarification as to the type of purchase agreement contemplated in Section 3313.37, Revised Code, wherein reference is made to “installment payments.” The pertinent clause of this section reads:

“ * * * Lands purchased may be purchased for cash, by installment payments, with or without a mortgage, by entering into lease-purchase agreements, or by lease with an option to purchase, provided that if the purchase price is to be paid over a period of time, such payments shall not extend for a period of more than five years, and a special tax levy shall be authorized by the voters of the school district in accordance with Section 5705.21, Revised Code, to provide a special fund to meet the future time payments. * * *”
“To pay in installments * * *” (see 44 Corpus Juris Secundum, 408): “* * * means different portions of the same debt payable in different successive periods as agreed; partial payments on account of a debt due.”

The statute in question in stating that “* * * if the purchase price is to be paid over a period of time, * * *” implies that any such purchase agreement shall be a time-payment-plan, as opposed to a binder payment with payment of the balance of a later date, as a matter of convenience or choice of the parties. If the statute intended a strict literal interpretation of the words, “over a period of time,” then, obviously, boards of education are precluded from making down payments as binders on agreements to build, enlarge, repair and furnish school houses; on agreements to purchase or lease sites therefor, or to acquire rights of way thereto; on agreements to purchase or lease real estate to be used as playgrounds; to rent suitable school rooms within or without the district, or to provide the necessary apparatus; and make all other necessary provisions for the schools under its control. In the opinion of this court no Ohio Legislature ever has, or will, intend such a preposterous situation.

The testimony, uncontroverted of record states that on June 29, 1968, of a total of $187,871.00 in plaintiff’s building fund, $171,948.98 was invested in short-term U. S. Treasury Notes, and that in the event such notes were converted to cash prior to maturity the interest due thereon would be lost to the plaintiff. Additionally, it was pointed out (again uncontroverted of record) that the defendants, Strausser, requested delayed payment of the balance in order that they might take advantage of a tax reduction by way of capital gain in their federal income tax. Clearly, the payment objectives of the instant purchase agreement do not appear to have been designed to effectuate what is generally accepted to be a payment plan for liquidating a debt over a period of time by making payments in different successive periods as agreed.

The evidence also indicates that at the time the agreement in question was entered into the full purchase price was available and such fact was so certified by the clerk. This being the case, no special tax levy was necessary, as required by statute, to provide the funds for payment of the balance of the purchase price when due.

A contract entered into by a board of education of a local school district for the purchase of lands for school purposes wherein provision is made:

(a) For a binder down payment;
(b) for a deposit by each of the parties to said transaction to be subsequently placed in escrow for disbursement by the escrow agent as agreed:
(c) for tbe payment of the balance of said purchase price on (but not prior to) a not unreasonably distant future date certain, rather than over a period of time; and
(d) wherein payment of said balance of the purchase price is delayed by choice or for just cause, other than in accordaonce with an agreed successive periods payment plan;

is not an installment purchase contract as is contemplated by use of the terms “installment payments” and the reference “over a period of time” as they appear in Section 3313.37, Revised Code.

Accordingly, this court finds that the agreement entered into by and between the parties on July 25, 1968, was a supplemental agreement and, together with the agreement effected on June 29, 1968, constitutes a valid and binding contract modifying the provisions of the June 29, 1968, agreement as set forth therein.

Third: Did plaintiff’s payments of $500.00 and $29,-500.00, to apply to the purchase price, both being made from the plaintiff’s building fund, constitute valid and lawful expenditures?

This court having determined that notification of the exercise of a purchase option effected a contract, subsequently modified by supplemental agreement, and that the contract as modified is valid and binding upon the parties, it follows that the contract imposes a legal obligation to make payments of the purchase price at the times and in the manner therein provided.

Accordingly, plaintiff’s purchase option consideration of $500.00 and escrow deposit of $29,500.00, to apply to the purchase price as agreed by the parties, constitute valid and lawful expenditures from the building fund of the Margaretta Local School District, provided, however, that the portion of the funds so used was unencumbered and/or was not derived from the sale of bonds which were issued for a stated purpose other than for the purchase of the land in question.

Fourth: May the plaintiff lawfully pay, and is it obligated to pay, the $70,000.00 balance of the purchase price, together with interest at 6% from the dne date nntil paid, from the aforesaid building fund? If not, then from what source of public funds?

The testimony in the case at bar clearly establishes that at the time the agreement in question was entered into sufficient funds were available in the aforesaid building fund. As previously stated herein, in the absence of fraud, the contract of purchase is binding upon the political subdivision and upon the taxpayers therein, though statements set forth in the certificate by the clerk are not true.

It is conceded that approximately $180,000.00 of the monies then in plaintiff’s building fund constituted a portion of the proceeds from the sale of bonds previously issued for the stated purpose of ‘ ‘ adding to, remodeling and improving school buildings, providing for furniture, furnishings and equipment for school purposes, and landscaping and making other school site improvements.” While it is the opinion of this court that the obvious legislative intent with respect to enabling acts that control the expenditure of public funds for school purposes is to aid rather than impede the best interests and welfare of our educational system, the authority of a board of education to issue bonds is, nevertheless, limited to the purposes enumerated in the statute conferring such power (see 48 Ohio Jurisprudence 2d Part 2, 149). And, as is stated in 1928 O. A. G. No. 3064, page 2915:

“Where the electors of a school district have authorized a board of education to issue bonds for the purpose of erecting and constructing school buildings and furnishing the same, such board may not use a portion of the proceeds of such bond issue for the purpose of acquiring sites for such buildings.”

In the case of Haines v. Board of County Commrs. (1960), 114 Ohio App. 59, the court, in the first paragraph of the syllabus, said:

“The proceeds of a bond issue, approved and sold under the provisions of the Uniform Bond Act, are in the nature of a trust fund which may be used only for the purpose for which the bonds were approved and issued.”

And on pages 64 and 65, when referring to the board of county commissioners the court further stated:

“* * * No question of the wisdom of the proposal is before us. But we reluctantly find that the defendant board is not clothed with authority to use its discretion. The present plan is not in accordance with the contract with and the instructions of the voters.”

Thus, in the instant case this court finds that the plaintiff board is without authority to use such part of the balance in the building fund as was derived from the sale of the aforesaid bonds for the payment of any part of the purchase price of the real property in question.

The evidence in this case indicates that the plaintiff board of education authorized the purchase of defendants, Straussers’, land and that the board intended such lands to be used for school purposes. Accordingly, this court finds that the plaintiff may lawfully pay, and it is obligated to pay, the aforesaid $70,000.00 balance of the purchase price, with interest thereon at the rate of 6% per annum from the due date until paid, for the purchase of the premises in question. And the plaintiff board may use for such purpose any part of its general fund which is unencumbered or may use funds which may be obtained from any other source legally available for such use, excluding however, any portion of the balance in the building fund as was derived from the sale of bonds which were issued for a stated purpose other than for the purchase of the land in question.

Judgment accordingly.  