State ex rel. Kitchen v. Christman

• Court: Ohio Supreme Court
• Writing for the Court: C. WILLIAM O'NEILL; BROWN
• Citation: State ex rel. Kitchen v. Christman, 285 N.E.2d 362, 31 Ohio St.2d 64 (Ohio 1972)
• Decision Date: 12 July 1972
• Docket Number: No. 71-474,71-474
• Parties: , 60 O.O.2d 42 The STATE ex rel. KITCHEN, Dir. of Law, City of North Olmsted, Ohio, Appellee, v. CHRISTMAN, Mayor, City of North Olmsted, Ohio, Appellant.

Page 64

31 Ohio St.2d 64

285 N.E.2d 362, 60 O.O.2d 42

The STATE ex rel. KITCHEN, Dir. of Law, City of North Olmsted, Ohio, Appellee, v. CHRISTMAN, Mayor, City of North Olmsted, Ohio, Appellant.

No. 71-474.

Supreme Court of Ohio.

July 12, 1972.

Syllabus by the Court

1. An instrument which purports to be a deed but which in fact conveys no real interest to the grantee, and a lease-back of the same premises, as part of the same transaction, by the grantee to the grantor, after improvements are constructed thereon, and in which the grantee (lessor) retains no real interest, is not a bona fide deed and lease-back transaction.

2. A contract between a municipality and a construction company whereby the municipality presently and unconditionally obligates itself to make future quarterly payments until the full amount of the contract price is paid, and under which contract the company has a present right to compel each succeeding municipal council to make those payments, is an installment purchase contract and creates a present indebtedness in the amount of the total payments required to be made at future dates.

3. Where the intended purpose of a transaction is to circumvent the constitutional debt limitation provision of Section 11, Article XII of the Ohio Constitution, a municipal ordinance authorizing such transaction, when considered as a whole for what in essence it is rather than for what it purports to be, falls within the purview of activity proscribed by Section 11, Article XII of the Ohio Constitution and is invalid.

4. Mandamus is not available as a remedy to compel the mayor of a municipality to execute documents authorizing a course of action which is proscribed by the Ohio Constitution.

The facts are not in dispute. The North Olmsted City Council (herein City Council) determined that a need existed for the construction of a swimming pool; however, because of the constitutional tax rate limitations and the existing city indebtedness, the city could not issue bonds in an amount sufficient to provide funds for its construction. ¹

As a result, the Community Recreation Company (herein Company) 'presented to the city a proposal for the construction * * * (by it) on property to be conveyed (to it) by the city * * * of a municipal swimming pool * * * and the leasing of such facility including the real estate on which it is to be constructed * * * to the city for a period of ten years * * * and with provision for the city to acquire complete ownership and title to the facility and real estate upon the expiration of such lease * * *.' The city accepted this offer. This method of financing was deemed necessary in order to obtain the recreational facility 'without the necessity of the city incurring debt.'

City Council then directed the mayor to execute, on behalf of the city, a deed conveying the property to the Company, and, at the same time, to execute a lease for the same property from the Company. The deed recites that the grantor 'does hereby grant, bargain, sell and convey unto the grantee, its successors and assigns, but only for so long as the premises are subject to the lease * * *. * * * To have and to hold the same to the grantee * * * but only until the termination of the lease * * *.'

The lease provides that the Company will 'construct and develop * * * (the swimming pool) * * * in consideration of the aforesaid conveyance * * * and the city's agreement to lease the premises and the project.' The facility would be constructed at the 'sole expense' of the Company, while the city would pay rent in the amount of $8,375 quarterly, beginning the second month following the delivery of possession to the city. During the term of the lease the Company waived all right of reentry or right to retake possession of the premises for default in the payment of rent, but expressly retained 'any available remedy in law or in equity to sue for and collect such rentals as the same become due.' Upon termination of the lease, or 'at any other time that * * * (the Company's) interest in the premises terminates pursuant to the terms of the deed * * * (the Company agrees to) deliver to the city the premises * * * and any other improvements that * * * (it) has made on the premises at no cost and * * * (they) shall become the absolute property of the city.'

The lease and the deed, incorporated and made a part of the ordinance, were presented to the mayor for his signature. He refused to execute the instruments. Relator, pursuant to R.C. § 733.58 ² applied for a writ of mandamus to compel the execution of the two instruments. The Court of Appeals for Cuyahoga County granted the writ. From that judgment, respondent appeals to this court.

Squire, Sanders & Dempsey and Daniel J. O'Loughlin, Cleveland, for appellee.

Frank H. Lord, Cleveland, for appellant.

C. WILLIAM O'NEILL, Chief Justice.

At the outset, it should be emphasized that this court examines this transaction, not for what it purports to be, but for what, in essence, it is. In short, this court looks through the form to the substance of the proposed transaction. 'To view the matter otherwise would exalt form over substance and impair the integrity of our constitutional government.' State ex rel. Nevada Building Authority v. Hancock (1970), 81 Nev. 310, 468 P.2d 333, 337. Accord, Tucson Transit Authority v. Nelson (1971), 107 Ariz. 246, 485 P.2d 816; State ex rel. Hall v. Taylor (W.Va.1970), 178 S.E.2d 48; Phoenix v. Phoenix Civic Auditorium Assn. (1965), 99 Ariz. 270, 408 P.2d 818; Board of Supervisors v. Massey (1969), 210 Va. 253, 169 S.E.2d 556; Ayer v. Commr. of Administration (1960), 340 Mass. 586, 165 N.E.2d 885. See, also, State ex rel. Public Institutional Building Authority v. Neffner (1940), 137 Ohio St. 390, 30 N.E.2d 705.

While there is no evidence in the record which is probative of the Company's method of financing the facility, there is other probative evidence which shows that the intent of the parties was to create, in effect, an installment purchase contract.

In the preamble of the ordinance it is stated that: 'Whereas, this council finds and determines that for some time there has been and there continues to be an urgent necessity for providing in this city * * * an outdoor swimming pool facility but that applicable constitutional tax rate limitations when considered with existing indebtedness * * * are such that the city cannot issue bonds in an amount sufficient to provide for the construction by the city of such an outdoor swimming pool facility.' (Emphasis added.)

The preamble also states that the Company had submitted 'a proposal for the construction and development * * * of a municipal swimming pool facility * * * (with the) usual appurtenances * * * with provision for the city to acquire complete ownership * * * upon the expiration of such lease.' (Emphasis added.)

Although the lease is to be executed simultaneously with the deed, the term of the lease does not begin until the facility is completed and possession is delivered to the city. The annual rental is $33,500, plus 'an amount equivalent to any and all ad valorem taxes and special assessments and other similar impositions levied or assessed or imposed by any taxing authority.' The lease provided further that 'In the event the city should fail to make any of the payments * * * the item or installment so in default shall continue as an obligation of the city.' (Emphasis added.) Although, by the terms of the lease, the Company is required to erect the facility at its sole expense, 'No alterations shall be made in the work * * * except upon the written order of the city * * * and when so made, the value of the work added or omitted * * * shall be added to or deducted from the quarterly rental payments.' (Emphasis added.)

The Company also convenanted to keep the swimming pool and its equipment in proper working condition, unless 'such structural and mechanical improvements are used for other than their intended purpose, to wit, the operation of an outdoor municipal swimming pool facility.' (Emphasis added.) Moreover, the Company 'waives, relinquishes and releases any and all rights to reentry or to retake possession of the project * * * and agrees not to exercise any such rights in the event of the failure of the city to make payment of the rent * * *. In the event of * * * (such) failure * * * the rights of * * * (the Company) shall be limited to any available remedy in law or equity to sue for and collect such rentals.'

Upon termination of the lease, the Company's interest in the premises terminates 'pursuant to the terms of the deed,' and the premises, including the facility, become the absolute property of the city without additional cost. The deed provides that the interest of the grantee exists 'only until the termination of the lease * * * and no longer.' The deed also provides that, in the event 'of the lessee's (sic) failure, refusal or inability to complete 'the project' * * * all of the right, title and interest conveyed hereby shall automatically terminate and revert to grantor.'

The facts above mentioned show that the Company has no real interest in the premises after the delivery of possession to the city. The deed conveys a determinable fee which is, in effect, a lease of the premises for ten years, i. e., 'only until the termination of the lease.' The lease is, in effect, a contract for the construction and sale of a municipal swimming pool, with the usual provisions contained in construction contracts. The Company (lessor) obtained the property in consideration of the city's agreement to lease the premises. It cannot use or enjoy the premises, it cannot reenter the premises (except for repairs), nor can it look for payment of the 'rentals' from a sale or reletting of the premises in the event of default of payment. Practically speaking, complete ownership of the premises remained in the city.

The court concludes that the parties actually...