Request By:
Mr. Charles D. Wickliffe
Attorney
Executive Department for
Finance and Administration
Capitol Annex
Frankfort, Kentucky
Opinion
Opinion By: Robert F. Stephens, Attorney General; By: Charles W. Runyan, Assistant Deputy Attorney General
You refer to OAG 79-371, in which we concluded that a proposed expenditure of money in the Area Development Fund for capital projects would not be legal where the capital project property was not properly acquired through advertising for bids. Specifically, the proposed use of the money involved the retiring of a loan required in the purchase of ambulances.
You desire that the opinion be extended to cover the involvement of a "beneficiary agency". That term is defined in KRS 42.325 (as respects the Coal Severance Economic Aid Fund) and KRS 42.345 (as respects the Area Development Fund) as an agency eligible to receive the benefit of a capital project which involves political subdivisions, special districts and agencies created under the Interlocal Cooperation Act, and "not-for-profit corporations organized for public purposes and performing governmental functions and services." (Emphasis added). See KRS 273.167, stating that Chapter 273, nonstock, nonprofit, corporations may be organized for governmental purposes.
You say let us assume that a Chapter 273 corporation has borrowed money to finance the purchase of a fire truck, with the loan secured by a lien against the truck, or has borrowed money, secured by a mortgage against the property, to construct a fire house. Assume that the corporation, in acquiring the fire truck and house, did not advertise for bids.
The question is:
"Would the fact that the corporation did not advertise for bids, since it originally had no duty to do so, in your opinion, bar the Corporation from eligibility for assistance out of either the Coal Severance Economic Aid or the Area Development Fund for the retirement of debt encumbering its fire truck or fire house, both of which would otherwise qualify as "Capital Projects' eligible for financing out of either or both of the Funds?"
The more immediate question is whether the bidding statute applied to the Chapter 273 corporation at the time it acquired the property.
KRS 273.171(4) provides that the subject Chapter 273 corporation may acquire real or personal property for its corporate purpose. See KRS 271A.705. 1 There is, however, no express provision in KRS Chapter 273 or in KRS 424.260 [bidding statute] that required the corporation to observe the bidding process. Actually KRS 424.260 applies to a city, county or district, or board or commission of a city or county. Thus, at the time of the acquisition of subject property the corporation was not subject to the mandatory provisions of the bidding statute, KRS 424.260. Cf.
Board of Education of Floyd County v. Hall, Ky., 353 S.W.2d 194 (1962) 195, holding that the "statutory requirement of competitive bidding in the letting of public contracts is mandatory, and nonobservance renders the contract void." (Emphasis added).
Of course such a corporation, in exercising its corporate powers, must observe any applicable general state statutes and general public policy of the state. 19 Am.Jur.2d, Corporations, § 957, p.p. 436-437. Even though the beneficiary agency is a public corporation in terms of the nature of its purpose [governmental only], we can find no express statutory provision making bidding procedure mandatory. See 18 Am.Jur.2d, Corporations, § 8, p.p. 553-554. "In addition, in the absence of restriction, every corporation may acquire property by all the usual modes of acquiring property . . ." 19 C.J.S., Corporations, § 1090.
Our answer to your question is that since the acquisition of the property was legal at the time of acquisition, the fact that it was acquired without bidding does not bar the corporation from subsequently obtaining the assistance of either of the funds in retiring preexisting debts. In OAG 79-371 we assumed that the ambulances were acquired by units of government brought under the mandatory terms of KRS 424.260. You say that a subsequent development of the facts disclosed that in OAG 79-371 there had actually been advertisement for ambulances.
While KRS 424.260 represents a strong statement of public policy as to bidding and as applied to political subdivisions and their boards or commissions, the legislature has not expressly and explicitly made this policy applicable to Chapter 273 corporations organized for governmental purposes. We think the mandatory application of such policy cannot be effected in the absence of an express provision. However, in the public interest such corporations should seriously consider the permissive use of the bidding statute.
Footnotes
Footnotes
1 See also KRS 273.383.