McGAFFIC v. City of New Castle

973 A.2d 1047, 2009 Pa. Commw. LEXIS 220, 2009 WL 1324102

• Court: Commonwealth Court of Pennsylvania
• Decided: May 14, 2009
• Docket: 407 C.D. 2008
• Status: Published

Opinions

OPINION BY

Judge SIMPSON.

In this interlocutory appeal by permission, the City of New Castle (City) seeks review of a verdict in favor of Robert W. McGaffic, Executor of the Estate of Eleanor L. McGaffic, Deceased, and Robert W. McGaffic, in his own right, and George G. Love (Property Owners), from a non-jury trial conducted in the Court of Common Pleas of Lawrence County (trial court). The bifurcated trial was limited to two questions: 1) whether the Property Owners’ complaint alleging breach of contract was timely filed within the four-year statute of limitations, and 2) whether the City entered into an enforceable contract where the contract was not signed by the City Controller.¹ Following a verdict for the Property Owners on both issues, the City sought an interlocutory appeal, which the trial court certified pursuant to Pa. R.A.P. 1311. Thereafter, this Court granted the City’s petition for permission to appeal. Upon review, we affirm the trial court.

I. Background

A. Redevelopment

The Centennial Building (Property) was a commercial rental property owned by the Property Owners in the downtown section of the City. In 1958, the New Castle City Council (City Council) created the Redevelopment Authority of the City of New Castle (RANC) to conduct urban renewal activities in the City. RANC participated in redevelopment activities with financial assistance from the United States Department of Housing and Urban Development (HUD), the Commonwealth of Pennsylvania, and the City.

In 1968, RANC filed a development plan for the City’s downtown area. Subsequently, RANC informed the Property Owners and their tenants that the Property would be acquired, the tenants relocated, and the building demolished as part of the redevelopment of the City. By 1973, RANC acquired 96% of all properties located within the redevelopment area and had taken and destroyed all but five of the 212 buildings scheduled for demolition. At this time, RANC had neither acquired nor destroyed the Property.

By the end of 1974, HUD funds were no longer available to RANC. In 1977, the City and RANC entered into the Urban Redevelopment Closeout Agreement (Closeout Agreement). The Closeout Agreement, which is the basis for the present controversy, stated, “[a]ny costs or obligations incurred in connection with the said program with respect to claims which are disputed, contingent, unliquidated or unidentified, and for the payment of which insufficient program funds have been reserved ... shall be borne by the [City].” Reproduced Record (R.R.) at 878a. The Closeout Agreement required the City to assume debts and liabilities for RANC and allowed the City to receive HUD funds directly. The City Council approved and the Mayor signed the Closeout Agreement, though the City Controller did not.

B. De Facto Taking Litigation

In 1978, RANC publicly announced it no longer intended to take the Property. Subsequently, the Property Owners filed a Petition of Appointment of Viewers against RANC and the City to determine if a de facto taking of the Property occurred. At the time, the Property Owners failed to raise the existence of the Closeout Agreement, and the City was dismissed from the action. However, the trial court left open the possibility of later review of the City’s liability if it found a de facto taking occurred and RANC could not pay just compensation because the City withheld the funds.

The de facto taking litigation continued against RANC alone. In 1986, the trial court found a de facto taking of the Property occurred.

In 1994, the Board of View issued a report valuing the Property at $184,000 at the time of the taking. After a series of appeals and motions by RANC, the trial court awarded delay compensation resulting in a final damage award of $ 1,254,-007.92.² RANC appealed, and this Court affirmed the trial court with minor adjustments. See McGaffic v. Redev. Auth. of the City of New Castle, 732 A.2d 663 (Pa.Cmwlth.1999).

C. Contract Litigation

RANC lacked funds to pay the defacto taking award, and the City refused to hon- or its obligation under the Closeout Agreement. Property Owners, as third-party beneficiaries of the Closeout Agreement, subsequently filed suit against the City.

Following a non-jury trial, limited to the issues of whether the Property Owners timely filed their complaint and whether the Closeout Agreement was enforceable, the trial court ruled in favor of the Property Owners on both issues. Thereafter, the trial court certified its order for permissive interlocutory appeal. We granted that permission.³

II. Statute of Limitations

The City argues the trial court erred in finding the Property Owners’ suit was timely filed. Citing Wachovia v. Ferretti, 935 A.2d 565 (Pa.Super.2007), the City argues the statute of limitations began running in 1989, before the close of the de facto taking litigation, when the Property Owners’ right to institute and maintain a cause of action for payment of just compensation first accrued. Therefore, the current contract litigation is time-barred. The City contends by 1989 the Property Owners knew the following: (1) a de facto taking was conclusively established, (2) RANC appraised the property in the amount of $160,000, and (3) RANC did not have sufficient funds to pay the appraisal amount. Therefore, the Property Owners should have filed a claim against RANC and the City for payment of just compensation in 1989. Instead, the Property Owners allowed their claim against the City to expire by waiting for a final judgment and determination of de facto taking damages against RANC.

Most breach of contract actions are governed by a four-year statute of limitations. Section 5525 of the Judicial Code, 42 Pa. C.S. § 5525.⁴ Generally speaking, the statute of limitations begins to run as soon as the right to institute and maintain the suit arises. Sevast v. Kakouras, 591 Pa. 44, 915 A.2d 1147 (2007). In an action for breach of contract, the statute begins to run on the date the action accrues — the date of the breach. Packer Soc. Hill Travel Agency, Inc. v. Presbyterian Univ. of Pa. Med. Ctr., 430 Pa.Super. 625, 635 A.2d 649 (1993). The breach occurs when payment under the contract is demanded and not made. Id. The City argues that because the Property Owners knew of the Closeout Agreement and were aware of the likelihood RANC would be unable to satisfy the judgment, their claim against the City accrued when the defacto taking judgment was finalized.

The City argues the Superior Court’s holding in Wachovia stands for the proposition that the Property Owners’ claim accrued on the date they had notice of the fact of harm, not the specific damage amount. In Wachovia, the Superior Court held a legal malpractice claim accrues at the occurrence of an attorney’s breach of duty, not when damages were finalized resulting in actual loss. There, the Superior Court reasoned,

[I]n Pennsylvania, the occurrence rule (i.e., the occurrence of the breach of a duty) governs when the statute of limitations begins to run in a legal malpractice action, and the statute of limitations is tolled only until the injured party should reasonably have learned of this breach. Accordingly, we reject[] the plaintiffs argument that the pendency or potential pendency of an appeal in the underlying case would toll the statute of limitations in the legal malpractice action.

Id. at 574 (citations and internal quotation marks omitted). Based on this holding, the City argues, the Property Owners allowed the statute of limitations to expire by waiting for a final determination of damages against RANC before seeking payment from the City. We disagree.

The current breach of contract action deals with payment of money by the City for liabilities under the former Eminent Domain Code incurred by another entity, RANC. Thus, unlike the situation in Wa-chovia, the predicate liability does not arise from a common law cause of action; rather, the predicate liability is statutory and is based on a constitutional limitation of government,⁵ the procedures are strictly governed by statute, and statutory damages are the measure of loss. In the case of a de facto taking, those damages include attorney’s fees and reimbursement for costs and expenses of litigation through trial.⁶ Also, delay compensation up to the date of payment of the award is recoverable.⁷ These damages can only be ascertained at the end of the eminent domain proceedings, here not earlier than September, 1997. Under these circumstances, the common law principles of Wachovia are inapplicable. Further, no error is evident in a determination that a 1998 breach of contract suit initiated to compel payment of statutory damages fixed no earlier than 1997 is timely.

Moreover, under the terms of the Closeout Agreement, the City was required to pay eminent domain liabilities of RANC. A breach occurs when the City refuses to honor that contractual obligation. This is the initial point at which Property Owners could maintain an action against the City under the Closeout Agreement. Here, the party asserting the affirmative defense of the statute of limitations, the City, failed to prove that its refusal to honor a demand for payment under the Closeout Agreement occurred more than four years before the 1998 commencement of suit. For this additional reason we discern no legal or factual basis to afford the City relief from the verdict against it on the statute of limitations issue.

III. Enforceability of Closeout Agreement

The City next maintains that Property Owners could not pursue a breach of contract action because the Closeout Agreement lacks the City Controller’s signature as required by law. Section 413(c) of the Optional Third Class City Charter Law⁸ provides, “[a]ll bonds, notes, contracts and written obligations of the [C]ity shall be executed on its behalf by the mayor and the controller.” Here, the Closeout Agreement was signed by the Mayor but not by the City Controller. The City argues this defect renders the agreement unenforceable.

The City further asserts our case law demands strict compliance with formal statutory requirements when a municipality enters a contract. If the formal requirements are not followed, the contract is beyond the scope of the municipal power and therefore void. The City further contends theories of quasi-contract, estoppel, ratification and other equitable doctrines are inapplicable when the law prescribes the methods of municipal contract-formation.

The Property Owners acknowledge the absence of the City Controller’s signature but argue, “[t]he City’s performance under the terms of the [Closeout Agreement] and its funding of the agreed upon [r]edevelopment activities demonstrate that the City has ratified the contract.” Appellee’s Br. at 21. Viewing the evidence in a light most favorable to the verdict winner, we conclude the City ratified the Closeout Agreement through nonaction and the acceptance of direct benefits from the Agreement.

If a statute provides a method of making municipal contracts, this method is mandatory, and where the method is not followed the resulting contract is unenforceable. Burke v. N. Huntingdon Twp. Municip. Auth., 390 Pa. 588, 136 A.2d 310 (1957). Also, a municipality “cannot be bound by the acts of its agents and employees if those acts are outside the agent’s powers, in violation of positive law, or acts which require legislative or executive action.” Kellams v. Pub. Sch. Employes’ Ret. Bd., 486 Pa. 95, 100, 403 A.2d 1315, 1318 (1979).

However, “[i]t is well settled that contracts which are within the scope of the corporate powers but not authorized by proper action of the municipal corporation ... may be ratified by the proper corporate authorities.” Eckert v. Pierotti, 123 Pa.Cmwlth. 8, 553 A.2d 114, 118 (1989). This ratification “may be made by the affirmative action of the proper officials, or by any action or nonaction which in the circumstances amounts to an approval of the contract.” Id. at 118 (quoting 10 McQuillin, Municipal Corporations § 29.104 (3rd ed. 1982)) (emphasis added). Accord Chainey v. Street, 523 F.3d 200 (3d Cir.2008); Cradle of Liberty Council, Inc. v. City of Phila., No. 08-2429, 2008 WL 4399025 (E.D.Pa. Sept. 25, 2008); Punxsutawney Mun. Airport Auth. v. Lellock, 745 A.2d 666 (Pa.Super.2000); City of Scranton v. Heffler, Radetich & Saitta, LLP, 871 A.2d 875 (Pa.Cmwlth.2005); Pittsburgh Baseball, Inc. v. Stadium Auth. of the City of Pittsburgh, 157 Pa.Cmwlth. 478, 630 A.2d 505 (1993). The question before us is, whether, under the circumstances, the City’s nonaction amounted to a ratification of the Closeout Agreement.

Initially, we note that the Closeout Agreement did not lack the required executive and legislative action. In Moore v. Reed, 126 Pa.Cmwlth. 283, 559 A.2d 602 (1989), this Court found a municipal contract unenforceable when it was entered into by the Mayor alone, with no action by the City Council. We concluded that although the Mayor exercises the city’s executive power, its legislative power rests in the city council that retains “[t]he authority to negotiate a valid and binding contract for a municipality....” Id. at 603. Here, the record shows the Closeout Agreement was considered and endorsed by both the Mayor and City Council. See R.R. at 1006a (resolving to approve the Closeout Agreement). Significantly, City Council expressly accepted the City’s responsibility to satisfy potential shortfalls in RANC’s funds. See R.R. at 1090a (City Council Minutes of September 21, 1977). The only defect in the Closeout Agreement’s execution was the omission of the City Controller’s signature.⁹ Thus, the Closeout Agreement was not illegal and void from the inception, but merely irregularly executed and thereby subject to possible ratification by the City.¹⁰

In Pittsburgh Baseball, we noted the eases supporting ratification by municipal inaction, “appear to have a common denominator; namely, that municipal inaction plus the acceptance of benefits under the contract may constitute ratification.” Id. at 509 (emphasis in original). Likewise, in Punxsutawney Municipal Airport Authority, the Superior Court recognized “that municipal inaction, plus the acceptance of benefits may constitute ratification. ...” Id. at 672. Thus, we must determine whether the City accepted benefits from the Closeout Agreement.

In Pittsburgh Baseball, we concluded the city’s receipt of indirect benefits to be insufficient to support ratification by non-action. There, the plaintiff sought enforcement of an oral promise by the city’s mayor to provide significant financial assistance in exchange for plaintiffs agreement to purchase the Pittsburgh Pirates baseball team. The plaintiff argued the city received benefits from the agreement in the form of taxes on ticket sales and fan •spending on local goods and services. We concluded this did not constitute a direct benefit because, “[cjlearly, it is the Pirates’ fans, and not [the plaintiff], that pay the taxes on ticket sales and make the other expenditures.” Id. at 510. Accordingly, we determined there could be no ratification by nonaction where the city received only an indirect benefit from the disputed agreement.

Here, unlike in Pittsburgh Baseball, the City received a significant, direct benefit from the Closeout Agreement: HUD redirected substantial funding for the Urban Renewal Project to the City. This funding, unlike the revenue collected from third parties in Pittsburgh Baseball, constituted a direct benefit to the City.

Additional significant circumstances support our conclusion that the City ratified the Closeout Agreement. At the time of the Agreement’s execution, it was the City’s and its Controller’s practice to enter into all contractual agreements without the Controller’s signature. See R.R. at 1265a-75a. These contracts included, among others, collective bargaining agreements, lease agreements, and automobile purchases, including a purchase contract valued at $579,456.30. R.R. at 1265a-75a, 1269a. This evidence, viewed in a light most favorable to the verdict winners and affording them all favorable inferences, establish the City Controller consistently endorsed municipal contracts by nonaction.

In short, we conclude the Closeout Agreement is enforceable against the City despite the lack of the City Controller’s signature because the City ratified the Agreement through nonaction coupled with the acceptance of substantial direct benefits. Because we conclude Property Owners’ suit was timely filed and the Closeout Agreement enforceable, we decline to grant relief from the non-jury verdicts, and we affirm the trial court.

ORDER

AND NOW, this 14th day of May, 2009, the order of the Court of Common Pleas of Lawrence County is AFFIRMED.

1 . The trial was limited to these questions as a verdict in favor of the City on either question would resolve this matter and avoid a lengthy trial on the issue of whether the Property Owners had standing to sue as third-party beneficiaries to the Urban Redevelopment Closeout Agreement. See Reproduced Record (R.R.) at 154a (trial court's order granting the City’s birfucation motion).

2 . The total amount due as of March 31, 2004 was $1,715,621.18. R.R. at 828a.

3 . Permissive interlocutory review of the non-jury verdict prior to judgment is equivalent to consideration of post-trial motions seeking judgment notwithstanding the verdict. Judgment notwithstanding the verdict may be entered on two bases: where the movant is entitled to judgment as a matter of law; or where the evidence is such that no two reasonable persons could disagree the verdict should have been rendered for the movant. Com., Dep’t of Gen. Serv. v. U.S. Mineral Prods. Co., 927 A.2d 717 (Pa.Cmwlth.2007), aff'd, 598 Pa. 331, 956 A.2d 967 (2008). On the first basis, a court reviews the record and concludes that even with all factual inferences decided adverse to the movant, the law nonetheless requires a verdict in movant’s favor. Id. On the second basis, the court reviews the evidentiary record and concludes the evidence is such that a verdict for the movant' is beyond peradventure. Id. Judgment notwithstanding the verdict should not be entered where the evidence is conflicting on a material fact, and a reviewing court is required to consider the evidence, together with all reasonable inferences, in a light most favorable to the verdict winner. Id.

4 . Arguably, the Closeout Agreement is a contract for surety or guarantee, which is governed by a six-year statute of limitations. 42 Pa.C.S. § 5527; Leedom v. Spano, 436 Pa.Super. 18, 647 A.2d 221 (1994). The period for bringing the action begins to run within a reasonable time after material default on the underlying obligation. Id. However, no party raised this issue.

5 . Article I, Section 10 of the Pennsylvania Constitution states in pertinent part: "[N]or shall private property be taken or applied to public use, without authority of law and without just compensation being first made or secured.”

6 . Prior to 2006, damages special to de facto takings were set forth in Section 609 of the former Eminent Domain Code, Act of June 22, 1964, Special Sess., P.L. 84, as amended, formerly 26 P.S. § 1-609, repealed by Section 5 of the Act of May 4, 2006, P.L. 112 (former Eminent Domain Code). That provision is now codified at 26 Pa.C.S. § 709. Other than reformatting, the provision remains identical.

7 . Section 611 of the former Eminent Domain Code, formerly 26 P.S. § 1-611. Similar language is now codified at 26 Pa.C.S. § 713.

8 . Act of July 15, 1957, P.L. 901, as amended, 53 P.S. § 41413(c).

9 . "[C]ity controllers of third class cities have discretion not to sign only where the violation of law is clear and well known, or where there is fraud or bad faith present.” Smithgall v. Campbell, 885 A.2d 669, 672 (Pa.Cmwlth.2005) (emphasis added). Here, the City does not allege the presence of such conditions.

10 . As an alternative rationale supporting the trial court’s action, the Closeout Agreement could be implied in law by the doctrine of quasi-contract. "Quasi-contracts are contracts which are implied in law for reasons of justice." Pittsburgh Baseball, Inc. v. Stadium Auth. of City of Pittsburgh, 157 Pa.Cmwlth. 478, 630 A.2d 505, 510 (1993). To avoid obvious injustice, quasi-contract applies "where a municipality ... has voluntarily accepted and retained the benefits of a contract which it had the power to make but which was defective in the method of its execution and consequently invalid....” Id. (quotations omitted).

The record here demonstrates the applicability of quasi-contract. First, it is clearly within the City's power to enter into contracts and written obligations such as the Closeout Agreement. Second, the City repeatedly accepted HUD funds for its Urban Renewal Project without objection from any City officials, including the City Controller. Third, it is unjust to allow the City, over the course of several years, to enjoy the benefits of the Closeout Agreement, only then to claim the agreement is unenforceable, thereby denying Property Owners a remedy for their loss. Therefore, the Closeout Agreement can be implied in law.