E AUTHORITY Present: All the Justices

KING GEORGE COUNTY SERVICE
AUTHORITY

v. Record No. 030592 OPINION BY JUSTICE CYNTHIA D. KINSER

March
5,
2004
PRESIDENTIAL SERVICE COMPANY
TIER II, INC.

FROM THE CIRCUIT COURT OF KING GEORGE COUNTY
Horace A. Revercomb, III, Judge


The dispositive issue in this appeal is whether
alleged contracts for the purchase of a privately owned
utility system by a county service authority can be
specifically enforced in the absence of a resolution by the
service authoritys board authorizing or ratifying the
contracts. Concluding that such a resolution is necessary,
we will reverse that portion of the circuit courts final
decree specifically enforcing one of the alleged contracts
and directing the service authority to purchase a certain
portion of the utility system.
MATERIAL FACTS AND PROCEEDINGS
The appellant, King George County Service Authority
(Service Authority), was created in 1992 pursuant to the
provisions of the Virginia Water and Waste Authorities Act,
Code § 15.2-5100, et seq. The Service Authority is a
public body politic and corporate. Code § 15.2-5102(A);
see also Short Pump Town Ctr. Cmty. Dev. Auth. v. Hahn, 262 Va. 733, 742, 554 S.E.2d 441, 445 (2001). Its initial
purpose was to acquire existing, privately owned water and
sewer systems in King George County.
The appellee, Presidential Service Company Tier II,
Inc. (Presidential), owned a small water system that
served some residences located in Section 14 of
Presidential Lakes Subdivision (Section 14), which is
situated in King George County. This 354-lot residential
development was designed to have individual septic tanks on
each lot and one drilled well to supply potable water. As
of 1993, only 33 homes had been allowed to connect to the
water supply on account of certain health regulations, and
individual septic tanks had been difficult to permit
because of soil conditions.

Due to a need for affordable housing in King George
County that would be served by a central water and sewer
system, the general manager of the Service Authority wrote
Presidential in June 1993 and advised that

it is the intention of the King George County Service
Authority to take over ownership and operation of all
private utility systems in the County. This policy is
in keeping with the adopted Comprehensive Plan which
calls for a central sewer and water system owned and
operated by the County . . . .


As part of that effort, the systems owned by
Presidential Services Corporation Tier [II] are
intended for acquisition.


2
Accordingly, in July 1993, the Service Authoritys
board authorized the general manager to seek funding for
the purpose of purchasing the existing water system owned
by Presidential, improving and expanding that water system,
and constructing a central sewer system for Section 14.
The Service Authority then prepared a letter agreement,
dated September 2, 1993, in which it offered to purchase
the existing water system owned by Presidential for the sum
of $280,000. The offer provided that the price would be
held firm until January 31, 1994 and if closing [was]
delayed beyond that date, the price [would] escalate at the
rate of 1/2 of one percent per month. However, the
Service Authoritys obligation to purchase the system
[was] subject to [its] ability to obtain financing by not
later than April 1, 1994. The Service Authoritys general
manager signed the letter agreement on behalf of the
Service Authority, and Presidential accepted the offer as
evidenced by the signature of its president on the
document.
1


1
The letter agreement also stated that, upon
Presidentials acceptance of the offer, a more definitive
agreement would be prepared. The parties never executed
such an agreement although the Service Authority prepared
one and sent it to Presidential.


3
On March 15, 1994, the Service Authoritys board
ratified the letter agreement entered into by the Service
Authority and Presidential for the purchase of the existing
water system. The boards resolution stated that the
agreement would expire on March 31, 1994, because the
Service Authoritys obligation to purchase the existing
water system was subject to its ability to obtain financing
no later than April 1, 1994. In light of that fact, the
Service Authoritys board, in its resolution, ratified and
confirmed the agreement for the purchase of the existing
water system, and authorized the Service Authoritys
general manager to secure short-term financing in order to
proceed with that acquisition.
2


During the ensuing weeks, representatives of both
parties discussed an alternative approach for providing a
central water and sewer system for Section 14. A letter
dated April 21, 1994, from Presidential to the general
manager of the Service Authority confirmed that
Presidential would construct an expanded water system, a
sewer collection system, and a treatment plant, and that
the Service Authority would then purchase the completed
system from Presidential instead of the Service Authority

2
The resolution also authorized the general manager to
obtain short-term financing for other acquisitions as well

4 undertaking the construction. The letter also specified
that, if the Service Authority could not obtain financing
through a particular government agency, then it would
complete the acquisition with bond financing.

Presidential subsequently prepared a Cost [S]ummary
of Presidential Lakes Section 14 Sewer & Water System,
detailing the estimated costs of each component of the
central water and sewer system, including acquisition of
the existing water system. The estimated costs, which
included a ten percent administrative fee, totaled
$1,616,146 before debt service. A subsequent memorandum
dated November 29, 1994, also prepared by Presidential,
confirmed the purchase of the existing water system for the
sum of $280,000 plus interest at 6 percent from January 31,
1994. The memorandum further provided that the Service
Authority would reimburse Presidential for all
engineering, administrative, interest, construction and any
other costs for expansions of the existing water system.
However, according to the terms of the memorandum, the
sewer system would be constructed by Presidential and sold

as development of a sewer system for Section 14.

5 to the Service Authority at a cost of reimbursement of
cost to produce.
3


In a letter dated December 1, 1994, the general
manager of the Service Authority advised a financial
institution, which was financing the construction work by
Presidential, that the Service Authoritys application for
funds from a particular government agency had been approved
and that the purchase of both the expanded water system and
the sewer system was included in the Service Authoritys
project list. However, on its December 1997 project list,
the Service Authority showed no funds designated for
acquisition of the Section 14 water and sewer system. The
Service Authority admitted that, in 1999, it advised
Presidential that the Service Authority took the position
that it had no binding obligation to purchase the water and
sewer system in Section 14.
4


This litigation then ensued. In an amended bill of
complaint, Presidential sought specific performance of the
alleged agreements for purchase of the existing water

3
Presidential asserted that the November 29, 1994
memorandum memorialized its oral agreement with the Service
Authority regarding expansion of the existing water system
and construction of the sewer system.

4
Presidential received authorization from the
Commonwealth of Virginia Department of Health, in May 1996,

6 system, the expanded water system, and the sewer system for
Section 14. The circuit court referred the matter to a
commissioner in chancery. Based on evidence presented, the
commissioner in chancery found, in an initial report, that
there was a meeting of the minds and that [t]he terms of
the contract were sufficiently certain and complete, and
that negotiations had been concluded such that the
[Service] Authority would purchase both the water and the
sewer systems as finally constructed by [Presidential] per
plans adopted by the [Service] Authoritys engineers at its
costs, including a ten (10) percent administrative fee.
The commissioner in chancery concluded that specific
performance was warranted and that Presidentials claim was
not barred by the statute of frauds. The circuit court
overruled both parties objections to the commissioners
report and referred the matter back to the commissioner in
chancery to determine the amount owed by the Service
Authority to Presidential.
In a supplemental report, the commissioner in chancery
found that the purchase price of the existing water system
was a flat $280,000.00 with interest at 6% beginning on
February 1, 1994. The commissioner in chancery concluded

to operate the sewer system in Section 14 and, in February
2000, to place the water system in Section 14 in service.

7 that the purchase price of the expanded water system and
the sewer system was $1,604,380.91, which included a 10
percent administrative fee. Finally, the commissioner in
chancery found that Presidential was entitled to
prejudgment interest on the purchase price of