Town of Morrison v. Warren County, Tennessee ( 2001 )

IN THE COURT OF APPEALS OF TENNESSEE
WESTERN SECTION AT NASHVILLE
_______________________________________________
TOWN OF MORRISON,
Plaintiff-Appellant,
Vs. Warren Chancery No. 4578
C.A. No. 01A01-9508-CH-00332
WARREN COUNTY, TENNESSEE,
Defendant-Appellee.
_________________________________________________________________________
FROM THE WARREN COUNTY CHANCERY COURT
THE HONORABLE JEFFERY F. STEWART
B. Timony Pirtle of McMinnville
For Plaintiff-Appellant
Larry B. Stanley, Sr., of McMinnville
For Defendant-Appellee
VACATED IN PART, AFFIRMED IN PART AS MODIFIEDB
Opinion filed:
FILED
December 18,
2001
Cecil Crowson, Jr.
Appellate Court Clerk
W. FRANK CRAWFORD,
PRESIDING JUDGE, W.S.
CONCUR:
ALAN E. HIGHERS, JUDGE
DAVID R. FARMER, JUDGE
This appeal involves a dispute between Warren County, Tennessee and
the Town of Morrison, a municipality located within Warren County, regarding
the disposition of the revenue generated by the county local option sales tax.
On March 21, 1988, plaintiff, Town of Morrison (hereinafter Morrison), filed a
complaint for declaratory judgment against defendant, Warren County. The
complaint alleges that under T.C.A. § 67-6-712 (Supp. 1995), a justiciable
controversy exists between the parties concerning their respective rights to
distribution of the county local option sales tax revenue. The complaint avers
that the Warren County local option sales tax was adopted in 1969 and
increased in 1976 and 1985. Morrison alleges that since 1969 the tax revenues
have been collected by the Tennessee Department of Revenue and distributed
to Warren County, but Warren County has refused to pay Morrison its share of
the taxes as required by T.C.A. § 67-6-712 (2)(B). The complaint seeks a
declaration of the rights of the parties to the sales tax revenues, and an
accounting of, and a judgment for, Morrison's share of the local option sales tax.
The facts are virtually undisputed. In 1969, the citizens of Warren County
voted to consolidate the school systems into a single county-wide system, and
a one cent local option sales tax was approved by voter referendum to fund
the consolidation. The distribution of the tax revenue is provided for in T.C.A. §
67-6-712 (Supp. 1995) which states in pertinent part:
67-6-712. Distribution of revenue. - (a) The tax levied
by a county under this part shall be distributed as
follows:
(1) One half (1/2) of this proceeds shall be expended
and distributed in the same manner as the county
property tax for school purposes is expended and
distributed; and
(2) The other one half (1/2) as follows:
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(A) Collections for privileges exercised in
unincorporated areas, to such fund or funds of the
county as the governing body of the county shall
direct;
(B) Collections for privileges exercised in incorporated
cities, and towns, to the city or town in which the
privilege is exercised;
(C) However, a county and city or town may by
contract provide for other distribution of the one half
(1/2) not allocated to school purposes.
* * *
On January 24, 1969, Charles Lawrence, who at the time was the Mayor
of the Town of Morrison, entered into a contract on behalf of the Town with
Warren County. The contract authorized Morrison's share of the local option
sales tax to be paid into the Warren County general fund. The contract was not
attested by Morrison's city recorder, nor was there any ordinance or resolution
from the Board of Aldermen which authorized the mayor to sign the contract on
behalf of Morrison. By letter dated August 24, 1970, the mayor of Morrison
notified Warren County that the January 24, 1969, contract was void, and that
in the future Morrison should be paid its share of the tax revenue. Apparently
Warren County did nothing in response to this letter.
In 1976 and in 1985, increases in the local option sales tax were approved
by referendum of the voters. By letter of March 18, 1986, Morrison, through
counsel, demanded its share of the sales tax revenue. Warren County refused
to give any of the revenue to Morrison, and on March 21, 1988, the present suit
was filed.
The chancellor found that the proof established the existence of either a
contract or "at least an implied contract" between Morrison and Warren County
regarding the 1969 sales tax, and that Morrison was estopped from voiding the
contract. The chancellor also found that there was no contract between
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Morrison and Warren County regarding the 1976 and 1985 sales tax increases.
Finally, the chancellor found that Morrison did not protest the distribution of the
tax until suit was filed; therefore, Morrison is estopped from collecting its share
of the revenue generated by the 1969 sales tax. The final order provides:
1. That the 1969 sales tax increase in Warren County
shall continue to be used for education without regard
to the locale of its collection.
2. That the Trustee for Warren County shall pay to the
Plaintiff the lump sum of $23,158.25 which represents its
distributive share of sales tax collection from the 1976
and 1985 increases beginning March 1, 1990 through
November, 1991.
3. That the Trustee for Warren County shall, beginning
in January, 1992, pay to the Plaintiff its statutory share
of sales tax generated from the 1976 and 1985
increases, each and every month, as determined by
the Department of Revenue, State of Tennessee.
The Town of Morrison has appealed, and the first issue presented for
review, as stated in its brief, is:
Whether the Trial Court erred in applying the doctrine
of implied contract to enforce the unauthorized act of
the former Mayor of plaintiff in executing a contract
permitting defendant to retain the plaintiff's share of
the local option sales tax which was not supported by
resolution or ordinance approved by the Mayor and
Aldermen of plaintiff?
Morrison first asserts that the contract is void as an ultra vires action,
because the power to contract away the town's tax revenue is not authorized
by the town's charter or other legislative acts. Municipalities "may exercise only
those express or necessarily implied powers delegated to them by the
Legislature in their charters or under statutes." City of Lebanon v. Baird, 756
S.W.2d 236, 241 (Tenn. 1988). T.C.A. § 67-6-712 (a)(2)(C) expressly provides that
a city or town "may by contract provide for other distribution" of its share of the
local option sales tax. Therefore, Morrison is specifically authorized to contract
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in this manner by the Legislature.
Warren County does not contest Morrison's assertion that the January,
1969 contract that provides for Morrison's share of the local option sales tax to
be paid to the county general fund was not executed as required by the town's
charter. Our Supreme Court, addressing such a situation in City of Lebanon
stated:
When the city has attempted to enter [sic] a contract
that is ultra vires because it was not entered into in the
authorized manner, the issue is often presented as to
whether the concepts of equitable estoppel or
implied contract are applicable. In addition to the
equities of the case, the application of these concepts
depends on whether the contract is executory or
partially or fully performed. The law of municipal
corporations in Tennessee has long recognized the
difference between executory and performed
contracts with cities. As this court noted in Mayor and
City Council of Nashville v. Hagan, 68 Tenn. 495, 507
(1876); "where the contract is executory the
corporation cannot be bound unless made in
pursuance of provisions of its charter; but where the
contract is executed, and the corporation has
enjoyed benefit of the consideration, an assumpsit will
be implied."
756 S.W.2d at 243.
In City of Lebanon, the Supreme Court, in dealing with the question of
estoppel or implied contract, said:
Ultimately, the application of estoppel or implied
contract must be determined on the facts and
equities of the particular case. The principles of
estoppel are well settled and not every case will
require application of estoppel or of implied contract.
The classic case of estoppel in the present context is
the acceptance of the benefits of a contract and the
subsequent refusal of a city to pay for the benefits
received. See, e.g., Trull v. City of Lobelville, 554
S.W.2d 638, 641-642 (Tenn.App. 1976). For estoppel to
arise, the act must have been done with the
knowledge that it would be relied upon and the other
party has acted in reliance without either knowledge
of the true state of affairs or the means of learning the
true state of affairs. E.g., Early Co. v. Williams, 135
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Tenn. 249, 261, 186 S.W. 102, 105 (1916). "When both
parties have the same means of ascertaining the truth,
there can be no estoppel." Id. (citations omitted). See
also Rambeau v. Farris, 186 Tenn. 503, 508, 212 S.W.2d
359, 361 (1948). Moreover, when entering a contract
with a municipality, "[o]ne dealing with municipal
officers, boards, or committees is bound at his peril to
take notice of the limitation of their authority." Kries &
Co. v. City of Knoxville, 145 Tenn. 297, 305, 237 S.W. 55,
57 91921). The contents of a city charter are public
and readily available to all who deal with a city.
Nashville v. Sutherland & Co., 92 Tenn. 335, 339-340, 21
S.W. 674, 675 (1893).
756 S.W.2d at 244.
Warren County is charged with the knowledge to be obtained from
Morrison's charter. Even if the county is not charged with that knowledge, in
August, 1970, Warren County was notified that the 1969 contract was not
authorized by the city. The contract itself has no time limit, and its purpose is to
annually distribute the sales tax receipts to Warren County. The contract
provides for the receipts to be paid into the county general fund, and obviously
the county relied upon the receipts in planning its budget requirements.
The suit in this case was not filed until March of 1988, some nineteen years
after the execution of the contract and some eighteen years after Morrison's
letter asserting that the contract was void. Warren County argues that equitable
estoppel and the doctrine of laches should prevent Morrison from voiding the
contract. In Hannewald v. Fairfield Communities, Inc., 651 S.W.2d 222 (Tenn.
App. 1983), this Court said:
Laches is based on equitable estoppel. State v.
McPhail, 156 Tenn. 459, 2 S.W.2d 413 (1928); Clark v.
American Nat'l Bank and Trust Co. of Chattanooga,
531 S.W.2d 563 (Tenn.App.1974). Laches is more than
mere delay, and depends on the facts and
circumstances of each individual situation:
Long delay alone in the prosecution of a
claim is insufficient for the application of
the doctrine of laches. The present
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circumstances of the parties must be
considered. There must be actual
acquiescence or that implied from the
circumstances of the case, in the
conduct of the defendant. Whether or
not such exists is dependent upon the
facts. And whether the facts are
sufficient is dependent upon the Court
applying those facts. One Court may
reach a different conclusion than
another.
Clark, supra, at 573.
The delay must materially affect the right of another
for the doctrine of laches to apply. Robertson v. Davis,
169 Tenn. 659, 90 S.W.2d 746 (1936); Hamilton Nat'l
Bank v. Woods, 34 Tenn. App. 360, 238 S.W.2d 109(1951). In fact, this has been held to be the most
important factor:
. . . the determinative test as to laches,
which may be available as a successful
defense, is not the length of time that has
elapsed, but whether, because of such
lapse of time, the party relying on laches
as a defense has been prejudiced by the
delay.
Brister v. Estate of Brubaker, 47 Tenn. App. 150, 162-63,
336 S.W.2d 326, 332 (1960). Finally, "the determination
of all issues on questions of laches and estoppel is the
function of the chancellor, and his decision thereon
will not be reversed on appeal unless it is clearly
shown to be wrong." Freeman v. Martin Robowash,
Inc., 61 Tenn. App. 677, 690-91, 457 S.W.2d 606, 612
(1970).
651 S.W.2d at 228.
The chancellor found that Morrison was estopped from declaring the
contract void. The record indicates that Morrison allowed Warren County to rely
upon the sales tax receipts in planning and carrying out its governmental
responsibilities, and that the county, in reliance on these receipts, refrained from
taking other measures to raise revenues. We agree with the chancellor that the
facts of this case justify imposing the doctrine of equitable estoppel against
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Morrison to bar it from recovering the tax revenue paid to Warren County from
1969, the year the contract was signed, through 1988, the year this action was
filed. Since Warren County relied on the tax receipts in planning its budget and
Morrison only objected to Warren County's retention of the revenue through two
letters and later impliedly acquiesed in the county's actions, Morrison should be
estopped from recovering the tax revenue paid to Warren County prior to the
institution of this action. Morrison should not be estopped, however, from
recovering the tax revenue collected in the years following 1988 (that is, from
1989 forward), because Morrison's institution of this action in 1988 in conjunction
with the fact that Warren County was aware or should have been aware that
the contract was ultra vires under the town's charter, was sufficient to alert
Warren County that it could no longer rely on Morrison's share of the tax receipts
in planning its budget. Moreover, at the time Morrison filed suit, the obligations
of the parties under the contract were executory with respect to disbursement
of the tax revenue collected in the years following 1988. As previously stated,
"The law of municipal corporations in Tennessee has long recognized the
difference between executory and performed contracts with cities." City of
Lebanon v. Baird, 756 S.W.2d 236, 243 (Tenn. 1989). "[W]here the contract is
executory the corporation cannot be bound unless made in pursuance of
provisions of its charter; but where the contract is executed, and the corporation
has enjoyed the benefit of the consideration, an assumpsit will be implied." Id.(quoting Mayor and City Council of Nashville v. Hagan, 68 Tenn. 495, 507 (1876)).
By filing suit in 1988, Morrison sought to void an ultra vires contract under which
its obligations to Warren County were executory; therefore, equitable estoppel
should not be applied to bar Morrison from recovering its lawful share of future
tax revenues. Accordingly, the trial court's order awarding Warren County the
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future revenue generated by the sales tax, is vacated. The Town of Morrison is
entitled to recover its portion of the sales tax paid under the contract from the
date of filing suit.
The second issue for review, as stated in appellant's brief, is:
Whether the trial court erred in applying the doctrine
of equitable estoppel to bar the right of plaintiff to
recover its lawful share of the local option sales tax
from defendant through the day of the trial of this
cause?
Warren County does not contest the chancellor's ruling concerning the
1976 and 1985 sales tax increase. Morrison asserts that the chancellor erred in
finding that it "had not protested the distribution until the filing of this suit." As we
previously noted, Morrison did notify Warren County that it was voiding the
contract; however, Morrison then delayed filing suit for about eighteen years.
We have discussed the equitable estoppel and laches doctrines, and for the
same reasons we have heretofore stated, they should be applicable for the
1976 and 1985 tax increases. The chancellor should have allowed recovery of
the taxes from the date of filing suit, and the order of the trial court is modified
to that extent.
In summary, the order of the trial court concerning the 1969 sales tax
receipts is vacated, and the Town of Morrison is awarded its share of the 1969
local option sales tax revenue from the date of filing suit. The order of the trial
court concerning the 1976 and 1985 sales tax increase is modified to award
judgment to Town of Morrison for its share of those taxes from the date of filing
suit. The case is remanded to the trial court for further proceedings to determine
the amounts due the Town of Morrison. The order of the trial court in all other
respects is affirmed. Costs of the appeal are assessed against Warren County.
____________________________________
W. FRANK CRAWFORD,
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PRESIDING JUDGE, W.S.
CONCUR:
_________________________________
ALAN E. HIGHERS, JUDGE
________________________________
DAVID R. FARMER, JUDGE
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