Allentown Patriots, Inc., a/k/a Allentown Patriots of Allentown, PA v. City of Allentown and E.J. Pawlowski , 162 A.3d 1187 ( 2017 )

IN THE COMMONWEALTH COURT OF PENNSYLVANIA
Allentown Patriots, Inc., a/k/a :
Allentown Patriots of Allentown, PA :
:
v. : No. 1464 C.D. 2016
: ARGUED: March 7, 2017
City of Allentown and Edward J. :
Pawlowski, in his official capacity :
as the Mayor of the City of Allentown, :
Appellants :
Allentown Patriots, Inc., a/k/a :
Allentown Patriots of Allentown, PA, :
Appellants :
:
v. : No. 1511 C.D. 2016
:
City of Allentown and Edward J. :
Pawlowski, in his official capacity :
as the Mayor of the City of Allentown :
BEFORE: HONORABLE PATRICIA A. McCULLOUGH, Judge
HONORABLE JOSEPH M. COSGROVE, Judge
HONORABLE BONNIE BRIGANCE LEADBETTER, Senior Judge
OPINION BY
SENIOR JUDGE LEADBETTER FILED: May 23, 2017
The City of Allentown and Mayor Pawlowski (collectively, the City)
appeal from an order of the Court of Common Pleas of Lehigh County (common
pleas) denying the City’s motion for post-trial relief and/or new trial in a matter
originating with a December 2014 complaint for declaratory relief against the City
filed by the Allentown Patriots, Inc., a/k/a Allentown Patriots of Allentown, PA,
(the Patriots). The precipitating event for the litigation was Mayor Pawlowski’s
2014 advising of the City’s termination of a 1967 agreement. In that agreement,
the Patriots granted the City an option to purchase certain tracts of land in the
Twelfth Ward (collectively, Patriots Park) that the nonprofit corporation was using
for recreational purposes “only if and when” one of three events occurred: “(a)
Seller shall cease to exist or dissolve, or (b) when Seller shall cease using the
property solely for park or public recreation purposes, or (c) Seller shall convey or
attempt to convey the property to a party other than Purchaser.”1 Advising the
Patriots that the City was formally rejecting what he characterized as an “open
offer option,” the Mayor stated that the City was no longer interested in purchasing
Patriots Park, that it was relinquishing all rights under the agreement, and that,
effective immediately, it was ceasing performance thereunder.
In ruling on the ensuing litigation, common pleas concluded that the
seven-page agreement was a valid and enforceable option contract, which the
Mayor improperly terminated despite having termination authority, and that
damages in the amount of $3948 were warranted due to the City’s breach of the
agreement when it stopped tendering the contemplated consideration. We reverse.
Recorded in the Lehigh County Recorder of Deeds Office, the
agreement is, at least nominally, an option contract2 for the sale of real estate. It
1
December 11, 2014, Complaint for Declaratory Relief, Exhibit B at 5; Reproduced Record
(R.R.) at 52a.
2
As suggested by the City, because of the contingencies precedent to the City’s ability to
purchase the land, this contract is more akin to a right of first refusal, or preemptive right, than a
traditional option. It has been noted that, “[a]n ‘option’ is a continuing offer to sell, irrevocable
until the expiration of the time period fixed by agreement of the parties, which creates in the
option holder the power to form a binding contract by accepting the offer.” 17A Am. Jur. 2d,
Contracts, § 52 at 82 (2016) (footnote omitted). On the other hand, “[a] right of preemption
differs from an option in that a preemption does not give to the [prospective buyer] the power to
compel an unwilling owner to sell, but merely requires the owner, when and if he decides to sell,
to offer the property first to the [prospective buyer] at the stipulated price[.]” Id., § 56 at 86. A
preemptive right may be considered a form of option with contingent limitations on the
(Footnote continued on next page…)
2
first provides that the Patriots are currently using the land for recreational
purposes, that the City wants that land to continue to be used and made available
for such purposes, and that the parties are in agreement with these principles.
December 11, 2014, Complaint for Declaratory Relief, Exhibit B at 1; Reproduced
Record (R.R.) at 48a. To that end, “[i]n consideration of the sum of One ($1.00)
Dollar and other good and valuable consideration to it in hand paid by Purchaser
[the City], the receipt whereof is hereby acknowledged, Seller [the Patriots] hereby
agrees to grant an option to sell and convey to the Purchaser [the land and
buildings described in the agreement].” Id. The agreement further provides that
the City shall pay the Patriots one dollar per year for the option and that, upon
exercise of the option, it “shall use the property only for park or public recreation
purposes and shall not resell the property for any other use.” Id. at 5; R.R. at 52a.
Regarding activation of the option, paragraph 4 provides that it shall
be effective “only if and when” one of the aforementioned three conditions occurs.
Paragraph 5 provides as follows:
Upon the occurrence of any one of the events giving rise
to this option, Purchaser may exercise its option within
sixty (60) days after it shall first learn of the occurrence
of such event. Upon any of the conditions under which
this option is exercisable, the purchase price then payable
by the City . . . to the Seller shall be the sum of One
($1.00) Dollar.
Id. at 5-6; R.R. at 52-53a.
_____________________________
(continued…)
prospective buyer’s power to exercise the option. This distinction does not affect our primary
analysis, however, and we will refer to the contract simply as an option, consistent with the
usage of the parties and common pleas.
3
Regarding the parties’ respective responsibilities during the option
period, paragraph seven provides that the Patriots “shall be responsible for all
applicable insurance coverage on the premises including, but not necessarily
limited to, fire and theft and liability insurance.” Id. at 6; R.R. at 53a. Paragraph
nine provides that “[t]he City for the right granted to it by the Seller in this option,
hereby agrees that it will maintain the grounds and softball fields, said maintenance
to include the cutting of grass, the trimming of hedges, and general cleaning after
major events held by the Seller.” Id.
Paragraph ten refers to a City-owned parcel adjacent to the land
subject to the agreement and being used by the Patriots for recreational purposes.
Pursuant to that paragraph, the City agrees that the Patriots “shall have the right to
use said premises, without charge by the [City] to the [Patriots], as long as the
premises owned by the [Patriots] are used for the purposes herein stated, namely,
recreational activities conducted by the [Patriots].” Id.
Further, the agreement provides that, if the option is exercised and the
City effectuates the purchase, realty transfer taxes are to be divided equally and
federal revenue stamps shall be the Patriots’ responsibility. Id. Finally, it provides
that the parties and their successors are bound by the agreement. Id. at 7; R.R. at
54a. Signatories included then Mayor Bracy and past Patriots President Philip
Schantz.
The circumstances leading to the present litigation involved the
maintenance aspects of the agreement, which evolved over time. As common
pleas observed, although the City “initially performed grass cutting, tree trimming,
and leaf pick-up services at Patriots Park[,]” the Patriots gradually assumed those
duties. October 28, 2016, Common Pleas Opinion at 32. However, “[f]or the last
4
several years prior to the [Mayor’s July 2014, termination], the City . . . collected
trash and recycling items from the park and provided services such as hedge
trimming, cutting bushes, and snow plowing in the parking lots.” Id. In any event,
the Patriots’ attorney sent the City a letter on July 9, 2014, referencing the
agreement and complaining that the City had recently stopped picking up trash
barrels and requesting that it resume trash pickup. December 11, 2014, Complaint
for Declaratory Relief, Exhibit C at 1; R.R. at 57a. In response, the City Manager
sent the Patriots a July 14 letter notifying the entity that the City would no longer
provide trash and recycling collection services and that, pursuant to City Ordinance
12703, nonprofits were required to recycle and to provide trash and recycling
services at their own expense. Id., Exhibit D at 1; R.R. at 58a.
Subsequently, the Mayor in a July 30 letter, referencing the Patriots’
July 9 letter, stated in pertinent part as follows:
After much discussion and review of the Master
Parks Plan, this is to inform you that the City is no longer
interested in the purchase of the real property described
in the Agreement. Therefore, the City formally rejects
the open offer option under the terms of the Agreement
and relinquishes all rights under the Agreement. In view
of the foregoing, the City shall immediately cease
performance under the Agreement.
Given that the Agreement is recorded . . . and may
be construed as a cloud on the title to the property, the
City will reasonably cooperate with the . . . Patriots to
execute the necessary documents to clear the title.
The Patriots Organization is in excellent financial
and organizational shape and I wish the best for your
continued success in the future.
Id., Exhibit E at 1; R.R. at 59a.
In response, the Patriots filed the December 2014 complaint for
declaratory relief seeking declarations that the termination was an invalid exercise
5
of the option and that the Mayor’s termination, absent City Council’s
authorization, was ultra vires. In its answer and new matter, the City alleged for
the first time that the agreement was null and void on its face because (1) the
Patriots lacked a corporate existence;3 (2) it violated the Rule Against Perpetuities;4
(3) it was illusory; and (4) the governmental functions doctrine applied such that it
could not be applied to current government officials.5 Additionally, it alleged that
3
Acknowledging a slight discrepancy between whether the designated appellee was “the
Allentown Patriots, Inc.” or “Allentown Patriots, Inc.,” common pleas rejected the City’s
allegation regarding a lack of corporate existence. The court observed that the record indicated
that “Allentown Patriots, Inc.” was an existing corporate entity and that the City had entered into
numerous contracts with it subsequent to the 1967 agreement. October 28, 2016, Common Pleas
Opinion at 11. For example, there were agreements to improve Patriots Park whereby the
Patriots would pay certain expenses and the City would provide labor. This issue is not
presented in this appeal.
4
The former common law rule is now governed by statute, providing that for interests
created before January 1, 2007, “[n]o interest shall be void as a perpetuity” except an interest that
has not vested “[u]pon the expiration of the period allowed by the common law rule against
perpetuities as measured by actual rather than possible events . . . .” Sections 6104(a)-(c) of the
Probate, Estates and Fiduciaries Code, 20 Pa. C.S. § 6104(a)-(c). Common Pleas rejected the
City’s argument, finding that Philip Schantz, the then-President of the Patriots and a signatory to
the contract, was still living. However, under the statutory rule: “The period allowed by the
[Rule] shall be measured from the expiration of any time during which one person while living
has the unrestricted power to transfer to himself the entire legal and beneficial interest in the
property.” 20 Pa. C.S. § 6104(c). There is no suggestion that Mr. Schantz had any such power.
At all events, although discussed at some length by the Patriots, that issue is not raised by the
City in this appeal and we need not address it further.
5
A governmental body in the performance of its governmental functions, as opposed to any
proprietary functions, may not bind its successors. Lobolito, Inc. v. N. Pocono Sch. Dist., 755
A.2d 1287, 1291 (Pa. 2000). In ascertaining whether a local government’s specific action
constitutes a governmental or proprietary function, a court will consider: “(1) whether the
activity is one which the governmental unit is not statutorily required to perform; (2) whether [it]
may also be carried on by private enterprise; and (3) whether [it] is used as a means of raising
revenue.” Boyle v. Mun. Auth. of Westmoreland County., 796 A.2d 389, 393 (Pa. Cmwlth.
2002). The function is proprietary if the answer to any of these inquiries is yes. Again, this issue
is not directly raised here, although it is tangentially related to the question of the reasonableness
of the unlimited term of the agreement.
6
the Mayor had termination authority, that the Patriots’ performance waived and
relieved the City of its obligation to perform under the agreement, and that the City
had no obligation to pick up trash barrels at Patriots Park thereunder.
In their amended complaint, the Patriots averred that the agreement
was subject to the common law public trust doctrine6 or the Donated and Dedicated
Property Act,7 therefore requiring the City to obtain orphans’ court approval prior
to termination. In its answer, the City alleged that neither the doctrine nor the act
applied because the City had not dedicated or accepted Patriots Park for public
use.8,9 The parties’ cross motions for summary judgment followed.
Following argument, common pleas denied the City’s motion for
summary judgment and granted in part and denied in part the Patriots’ cross
motion for summary judgment. The court determined that the Mayor had authority
to terminate the agreement but that the City had breached its terms in doing so in
the absence of any failure by the Patriots to perform thereunder. In that regard, the
court concluded that the Patriots did not waive the City’s obligations thereunder.
Following a bench trial and an evidentiary hearing concerning the
Patriots’ claim for monetary damages resulting from the City’s alleged breach of
the agreement, the court entered an order awarding the Patriots $3948 in damages.
6
Pursuant to the common law public trust doctrine: “[W]hen land has been dedicated and
accepted for public use, a political subdivision is estopped from interfering with or revoking the
grant at least so long as the land continues to be used, in good faith, for the purpose for which it
was originally dedicated.” In re Estate of Ryerss, 987 A.2d 1231, 1237 n.8 (Pa. Cmwlth. 2009)
(citation omitted).
7
Act of December 15, 1959, P.L. 1772, as amended, 53 P.S. §§ 3381-3386.
8
The City included Patriots Park in a list of city parks. Deposition of Christy Alvord,
Manager of Recreation and Events Bureau for the City, 2006 Allentown Parks and Recreation
Master Plan, Exhibit P-5 at 4-40 and 5-43; Patriots’ Supplemental Reproduced Record at 699a
and 702a. There is no dispute, however, that the title to Patriots Park never passed to the City.
9
Again, neither of these issues is before us here.
7
The court concluded that, because the Patriots “performed certain aspects of
property maintenance after the date the Mayor improperly terminated the Option
Agreement, and because [the Patriots] continued to hold open the offer to sell the
park pursuant to the [agreement] based on its position that the termination was
improper, . . . [the Patriots were] entitled to damages sustained . . . for cutting the
grass, trimming of hedges, and expenses related to ‘general clean-up.’” October
28, 2016, Common Pleas Opinion at 32. Thereafter, the City filed a motion for
post-trial relief and/or a new trial and the Patriots filed a motion for post-trial
relief. In August 2016, the court entered an order denying both parties’ motions.
The City’s appeal and the Patriots’ cross appeal followed.10
There are three interrelated issues before us on appeal: 1) whether
common pleas erred in determining that the agreement was valid and enforceable;
2) whether the court erred in concluding that the City, specifically, the Mayor, had
authority to terminate the agreement; and 3) whether the court erred in determining
that the Mayor’s termination constituted a breach such that damages were
warranted.11 We turn to the first issue.
Common pleas determined that the agreement was valid and
enforceable, concluding that it constituted an option contract supported by valuable
consideration because the parties agreed that the Patriots would hold open an offer
10
Regarding the Patriots’ cross appeal, we note that a prevailing party who disagrees with
the legal reasoning of a court’s determination of a legal issue lacks standing to appeal because
the party is not adversely affected by the order. Maple St. A.M.E. Zion Church v. City of
Williamsport, 7 A.3d 319, 322 (Pa. Cmwlth. 2010). Nonetheless, the argument raised by the
Patriots in its cross appeal, the Mayor’s authority to terminate the contract, is dealt with here
because, if we agreed with the Patriots, it would require affirmance on a different ground than
that relied upon by common pleas. Such an argument is always available to an appellee.
11
Where, as here, questions of law are involved, our review is plenary. Crandell v.
Pennsbury Twp. Bd. of Supervisors, 985 A.2d 288, 293 n.4 (Pa. Cmwlth. 2009).
8
to the City for the purchase of Patriots Park and, in exchange, the City agreed to
tender consideration in the form of $1 and to provide maintenance of the grounds
and softball fields. Observing that the option would not become available until the
occurrence of one of three enumerated conditions, the court cited in support
Warner Brothers Theatres v. Proffitt, 198 A. 56, 57-58 (Pa. 1938), holding that an
option supported by consideration creates a stand-alone contract whereby the
offeror contracts to keep the offer open and the offeree, in exchange for valuable
consideration, receives the benefit to exercise the option. We reject common
pleas’ determination regarding the validity of the agreement.
Before addressing the nature and requirements of option contracts in
the context of the agreement at issue, we note that, for the first time on appeal, the
Patriots argue that this is not an option contract at all, but rather a mutual
agreement to create a restrictive covenant which would run with the land in
perpetuity. While the parties may have been motivated by a mutual desire to have
the property remain as a park, the plain terms of the agreement set forth an option
contract and do not establish a restrictive covenant. Under these terms, if the
Patriots ceased maintaining the property as a park, ceased to exist, or decided to
sell the property, the City could purchase the property in order to continue its
operation as a park, but it was not obligated to do so. If the City elected not to
exercise its option, nothing would have prevented the land from being used for
other purposes. Accordingly, we reject the Patriots’ belated characterization of the
contract.
An option has been defined as follows: “[A] continuing offer to sell,
irrevocable until the expiration of the time period fixed by agreement of the
parties, which creates in the option holder the power to form a binding contract by
9
accepting the offer.” 17A Am. Jur. 2d, Contracts, § 52 at 82 (2016) (emphasis
added) (footnote omitted). “[A]n option contract generally binds the option giver,
but not the option holder.” Id. at 83 (footnote omitted). It also has been
characterized as a contract to keep an offer open and as an unaccepted offer upon
the conditions set forth in a written agreement. Hanisco v. Twp. of Warminster, 41
A.3d 116, 125 n.15 (Pa. Cmwlth. 2012). Further, it has been noted that, “[a]n
option is a unilateral agreement binding upon the party who executes it from the
date of its execution and becomes a contract inter partes when exercised according
to its terms.” Id. (citation omitted). Moreover:
The primary element, that differentiates it from all other
contracts, is that the Option Holder (optionee) has the
legal power to consummate a second contract for the
contemplated exchange or equivalents and at the same
time the legal privilege of not exercising it. The Option
Giver (optionor), on the other hand, has the correlative
liability to become bound to execute that exchange, and
at the same time a disability to avoid it. . . . The fact that
the one is bound and the other is not does not invalidate
the contract because the holder has paid a price for the
option.
3 Corbin on Contracts, § 11.1 at 363 (rev. ed. 1996) (footnotes omitted). Finally,
option contracts are governed by the customary rules of contract interpretation.
17A Am. Jur. 2d, Contracts, § 52 at 83. See also Delaware River Pres. Co., Inc. v.
Miskin, 923 A.2d 1177, 1181 (Pa. Super. 2007) (holding that cases involving the
right of first refusal are construed under “standard principles of contract
construction”).
Obviously, the City in the present case had no ultimate obligation to
exercise the option, but at issue here was its maintenance obligation under the
contract. While the City promised to perform certain maintenance services, this
promise must be reasonably understood in the context of the entire agreement to be
10
further consideration12 for the grant of the option, and the City had no more
obligation to keep providing maintenance than to keep giving the Patriots $1 every
year. Rather, by ceasing to provide consideration the optionee relieves the
optionor of its duty to keep the option open, and loses its right to exercise the
option. Even if the performance of maintenance were considered to be a duty
imposed on the City by the contract, any such obligation would necessarily be
limited by the duration of the option period.
In the present case, it is highly problematic that the agreement fails to
provide a time period during which one of the conditions precedent would have to
occur before the option would become actionable or expire. An option may not
exist in perpetuity and a court may be called upon to restrict the life of an option to
“within a reasonable time.” Wyeth Pharms., Inc. v. Borough of W. Chester, 126
A.3d 1055, 1064 (Pa. Cmwlth. 2015); Snyder v. Bowen, 518 A.2d 558, 561 (Pa.
Super. 1986). This is consistent with the customary rule of contract law providing:
“Where there is no provision as to the time for performance or completion of a
contract, courts will imply a reasonable time for such performance or completion.”
17A Am. Jur. 2d, Contracts, § 458 at 445-46. Of course, “[w]hat constitutes a
reasonable time depends on the particular circumstances of each individual case.”
Snyder, 518 A.2d at 561.
In determining whether this contract has continuing viability after the
passage of fifty years, we also must consider the nature of the conditions
precedent. In general, conditions precedent are highly disfavored and will be
12
As noted above, the contract provided that the maintenance commitment was given by the
City “for the right granted to it by the Seller in this option.” December 11, 2014, Complaint for
Declaratory Relief, Exhibit B at 6; R.R. at 53a.
11
strictly construed against the one seeking to avail himself of them. 17A Am. Jur.
2d, Contracts, § 452 at 440. The agreement at issue provides that the option was to
become effective “only if and when” the Patriots ceased to exist or dissolved,
ceased using the property solely for park or public recreation purposes, or
conveyed or attempted to convey the property to a party other than the City. As
the record reflects, it appears that there was only a remote possibility that even one
of the conditions would occur and that the Patriots’ intention was for them not to
occur. With regard to the Patriots’ ceasing to exist, its original governing
document indicated that the entity “shall exist perpetually.” January 6, 2015,
Answer and New Matter, City’s Exhibit 1 at 2; R.R. at 81a. Further, the 2004
amendment to the Patriots’ articles of incorporation permits multiple distribution
options upon dissolution such that the Patriots first offering Patriots Park to the
City might be in contravention of those articles. Id. at 7; R.R. at 86a.
Additionally, the testimony of Donald Hunsicker, whose history with the Patriots
pre-dates the agreement,13 indicates that the Patriots’ intention was for the
conditions precedent not to occur. In any event, as evidenced by the half century
that has passed since the parties entered into the agreement, the possibility of even
one of the conditions occurring seems to be remote.
Even more significant, all of the contingencies were in the sole control
of the Patriots, rendering the City’s rights under the agreement illusory, while
allowing the Patriots to hold the City hostage to a perpetual service agreement. See
13
Mr. Hunsicker testified that he is the son of former treasurer Earl Hunsicker. In addition,
he indicated that he has served as athletic director since 1967 and has been a board member since
the mid-1960s. In addition, he also has served as president and treasurer. October 29, 2015,
Deposition of Donald E. Hunsicker, Notes of Testimony at 8-10, 12-13 (Exhibit 3 to Defendant’s
February 18, 2016, Motion for Summary Judgment).
12
Wyeth, 126 A.3d at 1064 (holding that Pennsylvania law disfavors perpetual
contracts and requires that such terms be unequivocally expressed). Accordingly,
upholding the continuing viability of the agreement at this point in time is not only
unreasonable but against public policy, and we conclude that the City had the right
to cease its participation and therefore was not in breach of any binding obligation.
Nonetheless, the Patriots contend that the Mayor lacked the authority
to terminate the agreement on behalf of the City and so it must be construed to
remain in effect in the absence of action by City Council. While City Council
resolution is required for the award of contracts, neither the City’s Home Rule
Charter nor its Administrative Code addresses the termination of contracts.
However, Section 130.16(A)(1) of the Administrative Code provides: “Contract
administration for the City including but not limited to authority as to preparation
of specifications, letting of bids, award of contracts and payment of bills, shall be
vested in the Mayor and the Department of Finance. . . .” Section 130.16(A)(1) of
the Code at 34; R.R. at 748a. For all the reasons set forth above, the City’s
continued participation in this contract, including providing services as
consideration for the option, must be viewed as a voluntary waiver of its right to
walk away. Seen in this light, the Mayor’s decision to cease performing trash
pick-up and grounds keeping services in exchange for an illusory option was well
within his authority for contract administration.
Accordingly, for the foregoing reasons, we reverse.
_____________________________________
BONNIE BRIGANCE LEADBETTER,
Senior Judge
13
IN THE COMMONWEALTH COURT OF PENNSYLVANIA
Allentown Patriots, Inc., a/k/a :
Allentown Patriots of Allentown, PA :
:
v. : No. 1464 C.D. 2016
:
City of Allentown and Edward J. :
Pawlowski, in his official capacity :
as the Mayor of the City of Allentown, :
Appellants :
Allentown Patriots, Inc., a/k/a :
Allentown Patriots of Allentown, PA, :
Appellants :
:
v. : No. 1511 C.D. 2016
:
City of Allentown and Edward J. :
Pawlowski, in his official capacity :
as the Mayor of the City of Allentown :
ORDER
AND NOW, this 23rd day of May, 2017, the order of the Court of
Common Pleas of Lehigh County is hereby REVERSED.
_____________________________________
BONNIE BRIGANCE LEADBETTER,
Senior Judge