School Dist. No. 69 of Maricopa County v. Altherr

• Decision Date: 08 September 1969
• Docket Number: CA-CIV,No. 1,1
• Citation: 458 P.2d 537,10 Ariz.App. 333
• Parties: SCHOOL DISTRICT NO. 69 OF MARICOPA COUNTY, Ernest R. Perry and W. E. Smith, Appellants, v. Robert K. ALTHERR, Appellee. 601.
• Court: Arizona Court of Appeals

Page 537

458 P.2d 537

10 Ariz.App. 333

SCHOOL DISTRICT NO. 69 OF MARICOPA COUNTY, Ernest R. Perry and W. E. Smith, Appellants, v. Robert K. ALTHERR, Appellee.

No. 1 CA-CIV 601.

Court of Appeals of Arizona.

Sept. 8, 1969.

Rehearing Denied Oct. 22, 1969.

Robert K. Corbin, The County Atty., James P. Cunningham, Sp. Deputy County Atty., for School Affairs, Phoenix, for appellants.

Leibsohn & Goldstein, by Philip T. Goldstein, Phoenix, for appellee.

HATHAWAY, Judge.

The appellee, plaintiff below, instituted an action to recover damages from the School District and the individuals constituting its Board of Trustees in 1961. The complaint stated alternative theories of recovery--promissory fraud and promissory estoppel. The trial court directed a verdict in favor of three trustee-defendants and the jury returned a verdict in favor of the plaintiff against the remaining defendants.

The facts of the case, viewed in the light most favorable to the plaintiff, are as follows. In 1959, due to rapid population growth, the School District was faced with a serious shortage of classrooms. The problem was further complicated by the fact that the district was limited by statute ¹ as to the amount of indebtedness it could incur and existing indebtedness was too close to the statutory limit to allow any additional bonding to pay for the construction of a school building at the time. The School Board therefore delegated to School Superintendent Morgan the task of approaching contractors and landowners in the area with a view to developing some kind of interim plan for additional school facilities.

In September, 1959, Morgan contacted the plaintiff, a licensed contractor dba A--1 Construction Company, who was building homes in a subdivision within the School District. A five-acre parcel of the subdivision, described as Tract A, had been set aside by the plaintiff for future construction of commercial buildings. He told Morgan, however, that he would be willing to construct a school building at cost on Tract A, provided a long-term purchase agreement could be arranged. Morgan indicated that the District had $30,000 available to make an initial payment.

After learning of plaintiff's proposal, the Board met with him in November, 1959. It was decided that a ten-room school building would be constructed, the Board to provide the plans for the physical facilities and the plaintiff to design the exterior of the building to harmonize with the subdivision motif. A lease agreement whereby the District would pay to the plaintiff one-twelfth of his total costs of construction each year for a period of twelve years, with an option to purchase the building for the sum of $1 at the end of the period was to be prepared.

The following month, Morgan presented to the plaintiff unsigned copies of the proposed lease, drawn by the Deputy County Attorney for School Affairs, which the plaintiff took to a mortgage company to obtain financing. The lease was not executed at this time because of the uncertainty of the price and of financing. The president of the mortgage company, after looking over the proposed lease, indicated to both Morgan and the plaintiff that his company would be willing to lend $250,000--an amount considerably in excess of the contemplated requirements for the proposed ten-room structure.

Because of the mortgage company's generous offer, the Board decided to enlarge the structure to twenty rooms. The Deputy County Attorney approved the legality of the proposed undertaking on a twelve-year lease-option basis.

During the summer of 1960, the plaintiff, without an executed lease, began construction. He and his subcontractors decided to finance the project themselves in order to eliminate interim financing costs. In October, however, when the building was about 70 per cent completed, their funds were exhausted and construction was halted. The plaintiff met with Morgan and informed him that a loan would be necessary and asked that the lease agreement be executed for presentation to the mortgage company. The County Attorney's office was again contacted concerning execution of the proposed lease. The former Deputy for School Affairs had been replaced and his successor informed the parties that, in his opinion, the contemplated agreement was illegal.

The plaintiff thereupon decided to abandon the project as a school and convert the building into apartments. The Board, however, met with him and defendant Perry proposed that, if the plaintiff would obtain financing and complete the building, the District would purchase it as planned with the exception that the lease arrangement would be on a year-to-year basis rather than a twelve-year lease as originally agreed. Perry also stated that the Board would recommend to the electorate of the District, as soon as the bonding margin was adequate, that the balance be paid by the sale of bonds rather than by continuing lease agreements. The plaintiff was told that the margin would probably be adequate the next year, 1961, but in no event later than 1962.

No written agreement was executed but the plaintiff borrowed money from one Floyd Baldwin, giving certain assets as security for the loan. At the end of 1960, the building was completed and the District took possession.

The District occupied the building during the remainder of the 1960--1961 school year under an oral agreement with the plaintiff. On June 6, 1961, the members of the Board signed the following which in substance reiterated the Board's proposal in November, 1960:

'June 6, 1961

TO WHOM THIS MAY CONCERN:

It is the intent of the Board of Trustees to continue to rent or lease the Paradise Valley Elementary School No. 2 which is located at 9827 North 32nd Street Phoenix 20, Maricopa County, Arizona so long as a fair rate of rental can be agreed upon by the owner of the buildings and the Board of Trustees.

It is also the desire of the Board of Trustees to propose to the voters of the Paradise Valley Elementary School District No. 69 a bond election to purchase the above referred to school building when the bonding margin of the district is sufficient to yield enough to cover the purchase of the building at a fair price.'

A written lease was executed which provided for $12,000 to be paid as rent for the school year 1961--1962.

Following the 1961--1962 term, it appeared that the bonding margin would soon be adequate to provide funds so Morgan urged the Board to submit the matter to the electorate. The Board, however, declined to take such action. On November 26, 1962, a PTA meeting was held during which a 'Citizens Committee,' previously appointed by the Board, presented its report which included a recommendation not to purchase plaintiff's school building but to obtain other facilities. Although defendant Perry denied having made such statement, there was testimony that he stated at this meeting, when questioned about the June, 1961, letter:

'We gave that just so Altherr could get his financing. We never intended to purchase at that time.'

Relations between the plaintiff and the Board became strained. The plaintiff presented his construction cost sheets to the Deputy County Attorney for School Affairs, but no action was taken by the Board. Although no written lease for 1962--1963 had been executed, the School District continued to use the school building. After an unsuccessful demand for possession, the plaintiff instituted a forcible entry and detainer action and a writ of restitution was issued during November, 1962. Because of the hardship that would have resulted to the students of the District, however, the plaintiff did not enforce the writ and entered into a written agreement, dated May 14, 1963, signed by three Board members including defendants Perry and Smith for the School District.

In this agreement, the District, as 'buyer,' agreed to (1) on or before May 14 call a meeting of the Board and adopt a resolution to purchase the building, Tract A, and all equipment, furniture, fixtures and appliances for the sum of $250,000, (2) authorize the sale of bonds therefor and (3) petition the Board of Supervisors of Maricopa County to order a special election by the electorate of School District No. 69 to approve the purchase and sale of bonds. The sale, if approved, was to take place not later than September 1, 1963.

In addition, the agreement called for payment by the School District of the sum of $24,000 as rent for the period July 1, 1962 through June 30, 1963. If the Board of Supervisors failed to order a special election, plaintiff reserved the right to enforce the writ of restitution. Also, if the sale was disapproved at the election, the School District was to vacate the premises within five days following the election.

The agreement recited:

'Buyer warrants and represents that it will conduct the aforesaid election, if held, in a fair and impartial manner, without conducting any campaign adverse to the proposal herein contained; provided Buyer may advise the public of the contents of any appraisal obtained by it to said Tract 'A' and improvements.'

An option was also granted to the School District for the purchase of six lots adjoining Tract A for $25,000 in the event that the purchase was approved at the election.

The proposal was submitted to the electorate but was defeated; primarily, according to the plaintiff, because the Board members violated their covenant not to conduct 'any campaign adverse to the proposal,' in that at least some of the Board members openly campaigned against the proposal.

Following the election, the School District having failed to pay the agreed rental, the plaintiff sued for same and prevailed, recovering the sum of $24,000. He then instituted this lawsuit and the case was tried to a jury which returned a verdict in the plaintiff's favor for $300,041.15. The judgment entered thereon was reduced to $300,000 to conform to the plaintiff's demand. See, Smith v. Tang, 100 Ariz. 196, ...