SC96384 Frankenmuth Mutual Insurance Co. v. Ernie Lee Magaha

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State: Florida

Court: Supreme Court

Docket No: sc96384

Case Date: 09/21/2000

Plaintiff: SC96384 Frankenmuth Mutual Insurance Co.

Defendant: Ernie Lee Magaha

Preview:Supreme Court of Florida
No. SC96384
FRANKENMUTH MUTUAL INSURANCE COMPANY, etc.,
Appellant,
vs.
ERNIE LEE MAGAHA, etc., et al.,
Appellees.
[September 21, 2000]
LEWIS, J.
We have for review two questions of Florida law certified by the United
States Court of Appeals for the Eleventh Circuit as determinative of a cause
pending before that court and for which there is no controlling precedent.
Specifically, the Eleventh Circuit has certified the following questions to this Court:
(1) UNDER FLA. STAT. § 125.031, WHICH
REQUIRES APPROVAL OF THE BOARD OF
COUNTY COMMISSIONERS FOR CERTAIN
LEASE- PURCHASE AGREEMENTS, CAN A
COUNTY BE HELD TO HAVE APPROVED A
CONTRACT ABSENT FORMAL RESOLUTION AND

BASED SOLELY ON ACTS AND OMISSIONS OF
THE COUNTY COMMISSION?  IF SO, WHAT
STANDARD GUIDES THE CONSIDERATION OF
WHETHER A COUNTY COMMISSION HAS
“APPROVED” A CONTRACT OR AGREEMENT?
(2) IF THE LEASE-PURCHASE AGREEMENT HAS
BEEN APPROVED, DOES THE NON-
SUBSTITUTION CLAUSE IN THE LEASE-
PURCHASE AGREEMENT THAT PROVIDES FOR A
PENALTY UPON NON-APPROPRIATION AND
EXPLICITLY DISCLAIMS USE OF REVENUES
FROM AD VALOREM TAXATION VIOLATE
ARTICLE VII, § 12, OF THE FLORIDA
CONSTITUTION?
Frankenmuth Mutual Insurance Co. v. Magaha, No. 98-2962, slip op. at 10 (11th
Cir. Aug. 25, 1999).  We have jurisdiction.  See art. V, § 3(b)(6), Fla. Const.  As
more fully explained below, we answer the first certified question in the affirmative
and determine that a board of county commissioners may approve a lease-purchase
agreement under section 125.031, Florida Statutes (1999), even absent formal
resolution, if such board is not required by local ordinance or charter to take action
by formal resolution, as is the status of the local charter here.  Further, we outline a
three-prong test to guide courts in determining whether an approval without formal
resolution has occurred.  Finally, we also answer the second certified question in
the affirmative, as rephrased below, and determine that the nonsubstitution clause
implicates article VII, section 12 of the Florida Constitution, notwithstanding the
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attempted disclaimer.
I. FACTS AND PROCEDURAL HISTORY
On September 6, 1995, Frankenmuth Mutual Insurance Company
(Frankenmuth) filed a two-count complaint in the United States District Court for
the Northern District of Florida, Pensacola Division, against both Escambia
County, Florida, and Ernie Lee Magaha (Magaha), the Clerk of the Circuit Court
for Escambia County.  Frankenmuth sought declaratory relief in Count I of the
complaint and injunctive relief in Count II.  All three parties moved for summary
judgment after participating in discovery, and the federal district court set forth the
following facts in considering the parties’ motions:
In May 1992 Escambia County Comptroller Joe
Flowers signed a master lease agreement with Unisys
Leasing Corporation (“Unisys”), under schedule 01 of
which, Flowers agreed to lease-purchase a Unisys Model
A-11 mainframe computer.[1]   The schedule called for
seven annual payments totaling $2,353,814.1   In July
1993, the parties signed a second schedule agreeing to
add a Unisys imaging system for eight annual payments
1 According to the master lease agreement, title to the computer equipment vested in Flowers, the
lessee, with Unisys retaining a security interest in the equipment and the right to repossess the equipment.
Also under the master lease agreement, Flowers generally accepted responsibility for all risks related to
the equipment.   An addendum executed by the parties in September 1992 abolished Unisys’ security
interest in the equipment and its right to repossess the equipment, instead substituting other available
remedies in the event of default, including seeking compensatory damages from the lessee should the lessee
refuse to (1) sell the equipment; or (2) voluntarily return the equipment (with legal and beneficial title) to the
lessor.
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totaling $1,164,635.2   In May 1994, the parties signed a
third schedule adding further equipment and restructuring
the finance arrangement for schedule 01.  This third
schedule called for eight annual payments totaling
$3,541,908.3
Note 1: Six payments of $304,112 and one
payment of $529,142.
Note 2: One payment of $200,000, two
payments of $120,000, three payments of
$134,964, and a final payment of $319,743.
Note 3: One payment of $200,000, six
payments of $419,008 and a final payment of
$827,860.
Flowers signed each of these agreements as
“Escambia County Comptroller.”  Although he warranted
in paragraph 20 of the master lease that he had obtained a
resolution of the “governing body” of the jurisdiction
authorizing him to execute the lease, in fact, Flowers
neither requested nor obtained the permission of the
Escambia County Board of County Commissioners (“the
Board” or “the County Commission”) before signing the
agreement.
The master lease contains a number of provisions
relevant to this dispute.  Paragraph 21 includes a
“non-appropriation clause,” which provides the lease will
terminate in any given year if the “legislative body or
funding authority” fails to appropriate funds to make the
lease payments.  The same paragraph also contains a
“non-substitution clause,” providing that, in the event of
non-appropriation, Flowers agrees not to purchase or rent
any substitute computer equipment for the balance of the
appropriation period and the one following it.  Finally, an
addendum clarifies that nothing in the lease shall be
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construed to constitute a pledge of ad valorem taxes and
that, in the event of default, the Lessor has no right to
compel the County Commission to appropriate funds to
make the lease payments.
The agreement continued without incident for
several years after it was executed.  Flowers used the
equipment for a variety of municipal functions, including
county payroll and central data processing services for
the County Commission as well as the Road, Mass
Transit and Solid Waste Departments.   (Ken Gardner
Depo. 23-24).  In 1992 Unisys sold and assigned the
lease to Chicorp Financial Services, Inc. Chicorp, in turn,
sold it to Frankenmuth Mutual Insurance Company
(“Frankenmuth”)--the current owner of the lease and the
plaintiff in this case.
Although the County Commission and Flowers
both regarded the Comptroller to be a fee officer4 rather
than a budget officer, the evidence shows Flowers
submitted his budget to the County Commission each
year setting forth the fees he anticipated collecting, the
expenses he anticipated incurring and any anticipated
shortfall between the two.  Each year Flowers requested
[that] the County Commission appropriate funds to cover
the shortfall, which for fiscal years ending 1992, 1993 and
1994, amounted to roughly half the Comptroller’s total
budget.  In each of those years, Flowers listed,
respectively, $301,563, $304,561[2] and $304,113 as a
budget expense titled “Debt Service--Computer.”  Each
year, the Board appropriated Flowers’ requested funds
without question.[3]
2 The actual amount listed in Flowers’ letter to the Board of County Commissioners dated May
8, 1992, for “Debt Service - Computer” actually was $301,561, not $304,561.
3 Flowers’ budget request for the fiscal year ending September 30, 1992, was made by letter dated
June 6, 1991, almost one year before the agreement with Unisys was executed.  Further, the amount listed
in the 1991 budget request for “Debt Service - Computer” was $301,563, similar to the annual payments
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Note 4: Under Florida law, “fee officers” are
ones “assigned specialized functions within
county government and whose budgets are
established independently of the local
governing body, even though said budgets
may be reported to the local governing body
or may be composed of funds either
generally or specifically available to a local
governing authority involved.”   § 218.31(8),
Fla. Stat. (1993).
The County Commission had no direct knowledge
of the Unisys computer equipment, however, until it
began discussing implementing its own computer network
system in 1993.  By letter dated August 3, 1993 Flowers
wrote to the Board’s chairperson explaining his office
already had a central data processing  system and that the
Board should adjust its plans to integrate that system.  At
a June 28, 1994 meeting the County Commission voted to
amend its technology plan to make use of the
Comptroller’s computer equipment.
In late 1994, Flowers became the subject of
considerable controversy when Escambia County lost
millions of dollars in bad derivative investments made by
Flowers’ office.  The political uproar led to a grand jury
investigation and, eventually, a four-count indictment
charging Flowers with malfeasance.  Count Four
specifically charged Flowers with malfeasance for
entering into the Unisys lease in violation of Florida law.
Flowers pled no contest and resigned from office.
Thereafter, on August 1, 1995, the Florida
called for under the Unisys lease agreement.  Finally, Flowers’ budget request for the fiscal year ending
September 30, 1993, was made by letter dated May 8, 1992, also before the agreement with Unisys was
executed.  As noted in footnote 2, supra, the amount listed in the 1992 budget request for “Debt Service -
Computer” was $301,561, similar to the annual payments called for under the yet-to-be-executed Unisys
lease agreement.
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Legislature abolished the Office of Escambia County
Comptroller by repealing the Special Act that had created
it.  See Ch. 95-529, Laws of Fla.  As a result, Escambia
County’s elected Clerk of the Circuit Court, Ernie Lee
Magaha, became responsible for the constitutional duties
formerly held by the Office of Comptroller.5   In the
aftermath of these events, Magaha and the County
Commission obtained and reviewed, for the first time, the
Unisys master lease and schedules signed by Flowers.
After investigation and discussion, the County
Commission determined the Unisys equipment was too
old, too big, too expensive and too ineffective to serve
the County’s needs.  The County Commission therefore
advised Frankenmuth it would not make the 1995
schedule 02 and schedule 03 payments of,  respectively,
$120,000 and $419,000.  The Commission further
advised Frankenmuth it considered the lease void and
unenforceable due to Flowers’ failure to obtain approval
before signing it.
Note 5: In most Florida counties, the Clerk
of the Circuit Court serves a dual function:
he or she manages the circuit and county
court system and serves as “ex officio clerk
of the board of county commissioners,
auditor, recorder and custodian of all county
funds.”  See Fla. Const. art. VIII, § 1(d).
The Florida Constitution also provides,
however, that individual counties may
choose to divide the Clerk’s duties between
two county officers, one managing the
courts and the other serving as custodian of
county funds.  Fla. Const. art. V, § 16.  In
1972, Escambia County chose to divide the
duties between two elected officers: a Clerk
of the Circuit Court and a Comptroller.  See
Ch. 73-455, Laws of Fla.  When the
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Legislature abolished that Act, the duties of
the Comptroller reverted to the Clerk of
Court.
Consequently, in September 1995, Frankenmuth
filed this suit asking the court to declare the lease
agreement valid and enforceable and to enjoin the County
Commission and the Clerk of Court (as constitutional
successor to the Comptroller) from breaching the
agreement.  While the case proceeded through discovery,
the County Commission purchased, in April 1996, a
replacement computer system.  As a result, Frankenmuth
now seeks declaratory relief only. These motions for
summary judgment followed.
Frankenmuth Mut. Ins. Co. v. Magaha, 10 Fla. L. Weekly Fed. D340, D340 (N.D.
Fla. Aug. 30, 1996).
After considering the above-listed facts, the federal district court made
several determinations.  See id. at D341-43.  First, the court determined that even
though the County Commission had not approved the lease-purchase agreement
prior to its execution as required by section 125.031, Florida Statutes (1993), the
Commission had subsequently approved the agreement by (1) appropriating funds
to pay for computer equipment; (2) voting to change its own technology plan to
integrate the computer equipment; and (3) taking no action after learning that an
elected official in Escambia County had entered into a lease-purchase agreement in
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possible violation of section 125.031.4   See Frankenmuth, 10 Fla. L. Weekly Fed.
at D341.  Second, the court determined that the agreement’s nonsubstitution clause
rendered illusory both the nonappropriation clause and the express disclaimer
regarding ad valorem taxation, thus causing the agreement to be void as violative of
article VII, section 12 of the Florida Constitution.  See Frankenmuth, 10 Fla. L.
Weekly Fed. at D341-42.  Third, the court determined that the nonsubstitution
clause was void as against public policy because the clause “effectively contracted
away the taxpayers’ right to a central data processing system for up to two years.”
See id. at D342.  However, the court further determined that the nonsubstitution
clause was properly severable from the remainder of the agreement.  See id.
Finally, the court determined that Magaha had no contractual obligations to
Frankenmuth.  See id. at D343.  In accordance with theses determinations, the
district court declared:
4  To support this third finding, the federal district court stated: “[T]he evidence shows the
accounting firm of Saltmarsh, Cleveland & Gund advised the County Commission through a 1994
independent audit that an elected official of the county had entered into a  long-term lease agreement in
possible violation of section 125.031.”  Frankenmuth Mut. Ins. Co. v. Magaha, 10 Fla. L. Weekly Fed.
D340, D341 (N.D. Fla. Aug. 30, 1996).  The record shows that the independent auditing report stated,
“Elected officials of the County have entered into lease purchase arrangements to obtain need property and
equipment . . . [that] appear to fall within the category of transactions which must be approved by the
governing body of the County.”   This language is almost identical to that contained in the same auditing
firm’s 1991 report, which also did not specify what officials had entered into lease-purchase agreements
in possible violation of section 125.031.
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Escambia County’s Board of County Commissioners
ratified the lease and all schedules between Unisys and
Joe Flowers, the Comptroller of Escambia County.  As
the County Commission has failed to appropriate funds
to make the lease payments, Frankenmuth may exercise
its rights under the non-appropriation clause in paragraph
21 [of the lease-purchase agreement].  Frankenmuth may
not enforce the non-substitution clause, however,
because it is void for violation of Article VII, § 12 of the
Florida Constitution and for violation of public policy.
Frankenmuth has no contractual rights against Ernie Lee
Magaha, Escambia County’s Clerk of the Circuit Court.
Id. at D343.  Frankenmuth appealed to the Eleventh Circuit, and Escambia County
cross-appealed.  See Frankenmuth, No. 98-2962, slip op. at 2.
On appeal, the Eleventh Circuit discussed the issues regarding the execution
of the lease-purchase agreement and the validity of the nonsubstitution clause.  See
id. at 5-9.  After discussing these issues, that court certified for this Court’s
consideration the two questions of law set forth above.  Id. at 10.  We now address
those questions in turn.
II. ISSUES AND ANALYSIS
A. THE FIRST CERTIFIED QUESTION
In the first certified question, the Eleventh Circuit has asked us to determine
whether, consistent with the requirements of section 125.031, Florida Statutes, a
board of county commissioners may approve a lease-purchase agreement absent
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formal resolution, and, if so, what standards guide consideration of whether such
an approval has occurred.  As explained below, we determine that a board of
county commissioners may approve a lease-purchase agreement under section
125.031, even absent formal resolution, if a governing charter or ordinance does
not require the board to take action by formal resolution, as is the situation here.5
Further, we provide a three-prong test to guide the determination process as to
whether an approval without formal resolution has occurred.  Before we reach the
first certified question, however, we must first address Frankenmuth’s argument
that Flowers, as the Comptroller of Escambia County, had the independent
authority to enter into the agreement with Unisys even absent any approval
whatsoever by the Escambia County Board of County Commissioners (the Board).
If Frankenmuth’s argument on this point is correct, then we need not reach the first
question certified by Eleventh Circuit.
After careful consideration, we find Frankenmuth’s argument regarding
Flowers’ independent authority to bind the governmental entity to be without merit.
It is clear that Flowers, as Comptroller of Escambia County, was a constitutional
officer under the Florida Constitution.  See art. V, § 16, Fla. Const.; art. VIII, §
5 The parties have not referred us to any provision in the Escambia County Code requiring the
Board to take action in some specified manner.
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1(d), Fla. Const.; see also Alachua County v. Powers, 351 So. 2d 32, 35-43 (Fla.
1977).   It does not follow, however, that Flowers had the independent authority to
enter into the agreement at issue here.  As we noted in Powers, the clerk of the
circuit court-or the comptroller if duties are divided between two offices-derives
authority and responsibility from both “constitutional and statutory provisions.”
Powers, 351 So. 2d at 35; see also Escambia County v. Flowers, 390 So. 2d 386,
387 (Fla. 1st DCA 1980) (stating that Flowers’ duties as comptroller were
enumerated by legislative prerogative); cf. State v. Walton County, 93 Fla. 796,
800, 112 So. 630, 632 (1927) (noting that “[T]he board of county commissioners
of each county are constitutional officers, and under the terms of the Constitution
their powers and duties shall be fixed and prescribed the Legislature.”); Weaver v.
Heidtman, 245 So. 2d 295, 296 (Fla. 1st DCA 1971) (observing that counties are
“subject to legislative prerogatives in the conduct of their affairs”).  By enacting
section 125.031, the Legislature clearly established that agreements such as the one
at issue here may not be entered into without approval by a board of county
commissioners.  This is not an instance where the clerk of the circuit court is acting
as an arm of the judicial branch and thus under judicial control and not the control
of the Legislature.  See Times Publishing Co. v. Ake, 660 So. 2d 255, 257 (Fla.
1995).   Therefore, the Legislature’s pronouncement in section 125.031 is
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controlling here, and Flowers did not have the independent authority to enter into
the agreement with Unisys without the approval of the Board.6
Turning now to the first question certified by the Eleventh Circuit, we must
consider the text of section 125.031, Florida Statutes (1999):7
Counties may enter into leases or lease-purchase
arrangements relating to properties needed for public
purposes for periods not to exceed 30 years at a
stipulated rental to be paid from current or other legally
available funds and may make all other contracts or
agreements necessary or convenient to carry out such
objective.  The county shall have the right to enter into
such leases or lease-purchase arrangements with private
individuals, other governmental agencies, or corporations.
When the term of such lease is for longer than 60 months,
the rental shall be payable only from funds arising from
sources other than ad valorem taxation.  Such leases or
lease-purchase arrangements shall be subject to approval
by the board of county commissioners, and no such lease
or lease-purchase contract shall be entered into without
said approval.
6 It is interesting to note that Flowers entered a nolo contendere plea to the charge of violating
section 125.031, Florida Statutes; if Frankenmuth’s argument were correct, then Flowers’ plea would have
responded to a charge having absolutely no basis in law.  Further, Frankenmuth’s argument on this point
is inconsistent with language contained in the underlying agreement, which stated in paragraph 20(b):
“Lessee [Flowers] has been duly authorized by the Constitution and laws of the applicable jurisdiction and
by resolution of its governing body (which resolution, if requested by Lessor, is attached hereto), to execute
and deliver this Lease and to carry out its obligations hereunder.”  If Frankenmuth’s argument regarding
Flowers’ authority were correct, the language in the agreement regarding a resolution by the governing
body of the jurisdiction would be superfluous and meaningless.
7 We quote the current version of the statute because the Legislature has not amended the statute
since 1989.  See ch. 89-103, § 1, at 279, Laws of Fla.  Thus, the current version of the statute is the same
as the version in effect at the time the events in the present case transpired.
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It is undisputed in this case that Flowers failed to obtain the express or formal
“approval” of the Escambia County Board of County Commissioners (the Board)
before entering into the agreement with Unisys.  Therefore, the initial question we
must answer is whether the Board had the power to approve the agreement after it
was executed.  We determine that Florida law clearly establishes that the Board had
the power to approve, or, stated another way, ratify, that which was initially an
unauthorized agreement after it had been executed.  See, e.g., Ramsey v. City of
Kissimmee, 139 Fla. 107, 111-13, 190 So. 474, 476-77 (1939); Brown v. City of St.
Petersburg, 111 Fla. 718, 720,153 So. 140, 140 (1933); cf. City of Panama City v.
T & A Util. Contractors, 606 So. 2d 744, 747 (Fla. 1st DCA 1992) (holding that
city ratified city manager’s unauthorized termination of contract between city and
third party); Tolar v. School Board of Liberty County, 398 So. 2d 427, 428-29
(Fla. 1981) (finding that municipality’s action taken in violation of Sunshine Law
could be later ratified if taken in accordance with such law); see generally 10A
Eugene McQuillin, The Law of Municipal Corporations, § 29.104 at 63 (3d ed.
1999) (“It is a general rule that whatever acts public officials may do or authorize to
be done in the first instance may subsequently be adopted or ratified by them with
the same effect as though properly done under previous authority.”).  The
dispositive question thus becomes, what constitutes “approval” by the Board
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within the meaning of section 125.031?
Section 125.031 does not define the term “approval” as used in the statute,
nor does the legislative history underlying the statute shed any light on the matter.8
Under such circumstances, we must give the statutory language its plain and
ordinary meaning.  See, e.g., Green v. State, 604 So. 2d 471, 473 (Fla. 1992) (“One
of the most fundamental tenets of statutory construction requires that we give
statutory language its plain and ordinary meaning, unless words are defined in the
statute or by the clear intent of the legislature.”).  In ascertaining the plain and
ordinary meaning of a term, reference may be made to a dictionary.  See id. (“If
necessary, the plain and ordinary meaning of the word can be ascertained by
reference to a dictionary.”).
In its opinion, the federal district court defined “approve” as “to have or
express a favorable opinion of” or “to accept as satisfactory.”  Frankenmuth, 10
Fla. L. Weekly Fed. at D341 (quoting Webster’s Ninth New Collegiate Dictionary
at 98 (Merriam-Webster Inc. 1991)).  In addition to the definition adopted by the
federal district court, the dictionary definition of “approve” also includes “to give
8 The Legislature created section 125.031, Florida Statutes, in 1971, see chapter 71-240, section
1, at 1318-19, Laws of Florida, and, as stated in footnote 6, supra, has amended the statute only once
since that time.  See Ch. 89-103, § 1, at 279, Laws of Fla. (increasing time period implicating statute from
24 to 60 months).   However, no legislative history surrounding these amendments sheds light on the
meaning of the term “approval” as used in the statute.
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formal or official sanction to.”  Webster’s Tenth Collegiate Dictionary at 57
(Merriam-Webster Inc. 1996).  Thus, the dictionary shows that the term “approve”
may consist of either an informal or formal expression of assent.
Florida case law9 also establishes that an approval or ratification can occur
without formal resolution.  For example, in Deutsche Credit Corp. v. Peninger, 603
So. 2d 57, 58 (Fla. 5th DCA 1992), the court stated, “Ratification of an agreement
occurs where a person expressly or impliedly adopts an act or contract entered into
in his or her behalf by another without authority.”  Similarly, in City of Panama
City, the First District determined that the city commission had ratified the city
manager’s unauthorized termination of a contract between the city and a third
party-even though the city commission did not pass a formal resolution terminating
the contract-where the city commission knew the reasons for the termination and
then voted to award the contract to a third party.  See 606 So. 2d at 747; see
generally 10A McQuillin, § 29.106 at 82 (stating that ratification of a municipal
contract may occur “by the affirmative action of the proper officials, or by any
action or non-action which in the circumstances amounts to approval of the
contract”); cf. Killearn Properties, Inc. v. City of Tallahassee, 366 So. 2d 172 (Fla.
9 See, e.g., State v. Mitro, 700 So. 2d 643, 645 (Fla. 1997) (“In the absence of a statutory
definition, resort may be had to case law or related statutory provisions which define the term . . .   . ”).
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1st DCA 1979) (employing doctrine of estoppel to bar city from challenging
validity of agreements on grounds of lack of proper formalities in the passage of
such agreements).  As a result, we determine that the term “approval” as used in
section 125.031 does not require a board of county commissioners to pass a
formal resolution, unless passage of such a resolution is required by the governing
law of the county.10   We do note, however, that several principles must be satisfied
before a board of county commissioners may be deemed to have approved an
agreement absent formal resolution.
First, we determine that an approval absent formal resolution must be made
in compliance with Florida’s Sunshine Law, which is of both constitutional and
statutory dimension.  See art. I, § 24(b), Fla Const.; § 286.011(1), Fla. Stat. (1999).
Under the Sunshine Law, any meeting at which official acts are to be taken must be
open to the public, and no “resolution, rule or formal action shall be considered
binding except as taken or made at such meeting.”   § 286.011(1), Fla. Stat. (1999);
see also, e.g., Zorc v. City of Vero Beach, 722 So. 2d 891, 896 (Fla. 4th DCA
10 We recognize that in reaching its decision in City of Panama City, the First District  distinguished
the process of ratifying entry into an agreement from the process of ratifying the termination of an
agreement.   See 606 So. 2d at 747.   However, the different policy concerns implicated in those
distinguishable processes does not alter the conclusion that an approval or ratification of an agreement may
occur absent formal resolution where the governing law of the county does not require action by formal
resolution.
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1998) (interpreting Sunshine Law).  As we previously have stated, “The intent of
[the Sunshine Law] is to cover any gathering of the members of the Board where
the members deal with some matter on which foreseeable action will be taken by the
Board.”  Tolar, 398 So. 2d at 428.  Thus, for a board of county commissioners to
approve a lease or lease-purchase agreement in accordance with section 125.031,
we find it necessary that such approval be made “in the sunshine.”
If an “approval” by a board of county commissioners of a lease or lease
purchase agreement under section 125.031 must be made in accordance with the
Sunshine Law, it necessarily follows that any subsequent ratification of such an
agreement must also be made in compliance with the Sunshine Law.  This is so
because we have recognized that for a local government to properly ratify a
previously executed, unauthorized agreement, the agreement must be ratified “in the
same manner . . . in which it might have been originally adopted.”  Ramsey, 139
Fla. at 113, 190 So. at 477; see also Broward County v. Conner, 660 So. 2d 288,
290 (Fla. 4th DCA 1995) (interpreting Sunshine Law) (“If the county could not
have entered into this contract without action taken at a meeting, it necessarily
follows that the actions of the county’s attorneys could not bind the county to
specific performance of a contract in the absence of proper commission
approval.”).  As stated by the First District in City of Panama City, the apparent
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policy justification for the requirement set forth in Ramsey is that “taxpayers should
not be held accountable on a contract unless the contract has been entered into
according to the strict letter of the law.  Otherwise, corrupt (or merely inept) public
officials could subject the public to untold financial liability.”                        606 So. 2d at 747.
Second, in addition to the requirement that a subsequent approval in the form
of ratification be made “in the sunshine” in the same manner that a formal approval
would have required, there are several other general principles undergirding the
concept of ratification warranting our attention.  In the vintage opinion of Ball v.
Yates, 158 Fla. 521, 527, 29 So. 2d 729, 732 (1946), this Court stated, “Before
ratification will be implied of an act of an unauthorized agent it must be made to
appear that the principle has been fully informed and that he has approved.”  In
Peninger, 603 So. 2d at 58, the Fifth District Court of Appeal expounded upon the
general pronouncement made by this Court in Ball:
An agreement is deemed ratified where the principal has
full knowledge of all material facts and circumstances
relating to the unauthorized act or transaction at the time
of the ratification. G & M, 161 So. 2d at 558.  See also
Ball v. Yates, 158 Fla. 521, 29 So. 2d 729 (1946), cert.
den., 332 U.S. 774, 68 S.Ct. 66, 92 L.Ed. 359 (1947);
Pedro Realty Inc. v. Silva, 399 So. 2d 367 (Fla. 3d DCA
1981); Bach v. Florida State Bd. of Dentistry, 378 So. 2d
34 (Fla. 1st DCA 1979).  An affirmative showing of the
principal’s intent to ratify the act in question is required.
Pelloni, 370 So. 2d at 452.  Moreover, the issue of
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whether an agent’s act has been ratified by the principal is
a question of fact.  One Hour Valet of America, Inc. v.
Keck, 157 So. 2d 83 (Fla. 2d DCA 1963).
Regarding the “full knowledge” requirement discussed in Peninger, the First District
stated the following in Bach v. Florida State Board of Dentistry, 378 So. 2d 34, 36-
37 (Fla. 1st DCA 1979):
Before one may infer that a principal ratified an
unauthorized act of his agent, the evidence must
demonstrate that the principal was fully informed and that
he approved of the act.  Ball v. Yates, 158 Fla. 521, 29
So. 2d 729, 732 (1946).  It is generally the rule that the
doctrine of constructive knowledge does not apply to
bring about ratification.  The principal is charged only
upon a showing of full knowledge, and not because he
had notice which should have caused him to make
inquiry, which in turn would have brought to his attention
the knowledge of the unauthorized act of the employee.   2
Fla.Jur.2d, Agency and Employment, § 52 at page 204
(1977). . .                                                                            .  There is no duty imposed upon the principal
to make inquiries as to whether his agent has carried out
his responsibilities.  The principal “has a right to presume
that his agent has followed instructions, and has not
exceeded his authority.”  Oxford Lakeline v. First Nat.
Bank, 40 Fla. 349, 24 So. 480, 483 (1898).  And,
[w]henever he is sought to be held liable on
the ground of ratification, either express or
implied, it must be shown that he ratified
upon full knowledge of all material facts, or
that he was willfully ignorant, or purposely
refrained from seeking information, or that
he intended to adopt the unauthorized act at
all events, under whatever circumstances.
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Id.
Based on the above principles well established in Florida jurisprudence, we
determine that a three-prong test is appropriate for determining whether an after-the-
fact “approval,” or ratification, has occurred in satisfaction of section 125.031,
Florida Statutes.  First, a board of county commissioners must have the power to
approve the agreement.11   See, e.g., P.C.B. Partnership v. City of Largo, 549 So.
2d 738, 740 (Fla. 2d DCA 1989) (determining that city did not have authority to
enter into an agreement that effectively contracted away the city’s police powers).
Second, a board of county commissioners must ratify an agreement in the same
manner in which the agreement would have been initially approved.  For example,
as we stated above, the approval must be made in accordance with the “Sunshine
Law.”  Additionally, where a charter or ordinance requires a board of county
commissioners to take action in a specified manner, such as by passing a formal
resolution (unlike the circumstances here), then an after-the-fact approval must
satisfy the specified manner to be valid.  See Ramsey, 190 So. at 476-77, 139 Fla.
11 As will be addressed in our discussion concerning the second certified question, Escambia
County argues that the first prong of this test has not been met here because the Escambia County Board
of County Commissioners allegedly did not have the power to initially approve the agreement.  Specifically,
Escambia County argues that (1) the agreement, based on its nonsubstitution clause, required approval by
voter referendum due to its alleged practical long-term impact on ad valorem taxes; and (2) the
nonsubstitution clause is not severable from the agreement.
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at 111-13 (involving city charter requiring the city commission to take action on
certain contracts by ordinance or resolution).  Finally, in ratifying the agreement in
the same manner in which it initially could have been approved, a board of county
commissioners must have full knowledge of the material facts relative to the
agreement.  As we have not been asked to determine whether a proper ratification
occurred in this case, we leave that question open for determination by the Eleventh
Circuit based on the principles set forth above.
B. THE SECOND CERTIFIED QUESTION
The second certified question presented by the Eleventh Circuit has asked us
to determine whether the nonsubstitution clause contained in the underlying
agreement violates article VII, section 12 of the Florida Constitution, which
provides:
Counties, school districts, municipalities, special
districts and local governmental bodies with taxing
powers may issue bonds, certificates of indebtedness or
any form of tax anticipation certificates, payable from ad
valorem taxation and maturing more than twelve months
after issuance only:
(a) to finance or refinance capital projects
authorized by law and only when approved by vote of the
electors who are owners of freeholds therein not wholly
exempt from taxation . . .
To more accurately reflect the procedural posture and underlying facts of this case,
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we rephrase the second certified question to read:
DOES THE NONSUBSTITUTION CLAUSE IN THE
LEASE-PURCHASE AGREEMENT, WHICH
REQUIRES UP TO A TWO-YEAR LAPSE IN
COMPUTER SERVICES UPON
NONAPPROPRIATION, VIOLATE ARTICLE VII,
SECTION 12, OF THE FLORIDA CONSTITUTION,
EVEN THOUGH THE AGREEMENT ALSO
EXPRESSLY DISCLAIMS USE OF REVENUES
FROM AD VALOREM TAXATION ?
After careful consideration, we answer the second certified question, as
rephrased, in the affirmative.
The 1968 revision to the Florida Constitution, which produced article VII,
section 12 of the Florida Constitution, became effective on January 7, 1969.12   See
12 The predecessor constitutional provision to article VII, section 12, was article IX, section 6 of
the Constitution of 1885, which was effective from 1930 until January 7, 1969.   See State v. County of
Dade, 234 So. 2d 651, 654 (Fla. 1970).  That section provided:
The Legislature shall have power to provide for issuing State bonds only
for the purpose of repelling invasion or suppressing insurrection, and the
Counties, Districts, or Municipalities of the State of Florida shall have
power to issue bonds only after the same shall have been approved by a
majority of the votes cast in an election in which a majority of the
freeholders who are qualified electors residing in such Counties, Districts,
or Municipalities shall participate, to be held in the manner to be
prescribed by law; but the provisions of this act shall not apply to the
refunding of bonds issued exclusively for the purpose of refunding of the
bonds or the interest thereon of such Counties, Districts, or Municipalities.
Art. IX, § 6, Fla. Const. (1885).  In numerous decisions, this Court held that various kinds of debts were
not  “bonds” for the purposes of the referendum requirement.    See, e.g., State v. Miami Beach
Redevelopment Agency, 392 So. 2d 875, 895-98 (Fla. 1980) (discussing this Court’s cases construing
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State v. County of Dade, 234 So. 2d 651, 652 (Fla. 1970).  Since that time, we
have addressed the constitutional provision on several occasions.  Escambia
County asserts that our decisions in County of Volusia v. State,   417 So. 2d 968
(Fla. 1982), and Nohrr v. Brevard County Educational Facilities Authority, 247 So.
2d 304 (Fla. 1971),13 support a finding that the nonsubstitution clause implicates
article VII, section 12, while Frankenmuth attempts to distinguish Nohrr and
County of Volusia, primarily relying on our decisions in Murphy v. City of Port St.
Lucie, 666 So. 2d 879 (Fla. 1995); State v. School Board of Sarasota  County, 561
So. 2d 549, 553 (Fla. 1990); State v. Brevard County, 539 So. 2d 461 (Fla. 1989);
City of Palatka v. State, 440 So. 2d 1271 (Fla. 1983); and State v. Alachua County,
335 So. 2d 554 (Fla. 1976).  In federal district court, the parties presented
arguments similar to those presented here, and the court there determined that the
nonsubstitution clause contained in Paragraph 21 of the agreement implicates article
VII, section 12 of the Florida Constitution, and thus the agreement could not have
the predecessor constitutional provision); see generally Patricia M. Lee, Note, Bond Financing and the
Referendum Requirement: Harmless Creative Financing or Assault on the Constitution?, 20 Stet. L. Rev.
989, 992-98 (1991) (same).
13 In State v. School Board of Sarasota County, 561 So. 2d 549, 553 (Fla. 1990), this Court
indicated that our prior decision in Nohrr construed the predecessor to article VII, section 12 of the Florida
Constitution.  However, after reviewing the opinion in Nohrr, it is clear that (1) the facts in that case took
place after the 1968 constitutional revision became effective; and (2) this Court was construing the new
constitutional provision in that case.
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been approved absent a voter referendum.  See Frankenmuth, 10 Fla. L. Weekly
Fed. at D342.  In essence, the court determined that the inclusion of the
nonsubstitution clause transformed the agreement into a long-term certificate of
indebtedness pledging ad valorem taxes.  See id. at D341.  In making this
determination, the district court engaged in the following analysis:
Like many long-term municipal lease agreements,
the Unisys master lease contains a non-appropriation
clause, providing that, if in any given year the governing
body fails to appropriate funds to make the lease
payments, the lease will terminate.   (Master Lease ¶ 21).
Such non-appropriation or non-renewal clauses are
essential to prevent long-term municipal financing
arrangements from being classified as debt under state
law, thus triggering state-law requirements such as voter
referendum.  See M. David Gelfand, State & Local
Government Debt Financing, § 3:17 at 32 (Clark
Boardman & Callaghan 1993).
The Unisys lease also contains a non-substitution
clause, providing that, in the event of non-appropriation,
the Lessee agrees not to procure substitute computer
equipment [or equivalent services] for the remainder of
the appropriation period and the one following it.   (Master
Lease ¶ 21).  Such clauses are a common method by
which the lessor creates an economic disincentive for the
municipality to exercise its non-appropriation rights.
Gelfand § 3:17 at 32.  As one commentator has noted,
however, “there is considerable doubt about the
enforceability of the non-substitution clause and its effect
on the validity of the lease.”  Id. at 33.                                         “[T]he inclusion
of the nonsubstitution clause may be viewed as
compelling the lessee to continue to appropriate funds
throughout the full lease term, thereby rendering the
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optional features of the nonappropriation and nonrenewal
clauses illusory.”  Id.
This court agrees a non-substitution clause may
render a non-appropriation clause illusory, thereby
requiring a lease to undergo Article VII, § 12 voter
referendum.  While Florida’s courts have not addressed
the precise issue, several decisions lead to that
conclusion.  In Nohrr v. Brevard County Educational
Facilities Authority, 247 So. 2d 304 (Fla. 1971), the court
validated non-referendum revenue bonds that had been
authorized to raise money to build educational facilities.
The court deleted from the bonds, however, certain
provisions that created a mortgage on the property,
allowing the bondholders to foreclose in the event of
default.  The court reasoned the mortgage would “morally
compel” the governing body to levy taxes to avoid
foreclosure in the event bond payments could not be
made from non-ad valorem revenue.  Id. at 311.  In
effect, the mortgage provision amounted to a pledge of
ad valorem taxes, which is invalid absent approval by the
electorate.
Similarly in State v. Brevard County, 539 So. 2d
461 (Fla. 1989), the court approved a long-term
lease-purchase arrangement which included an annual
“renewal option” similar to the annual non-appropriation
clause in the Unisys lease.  The court rejected an
argument that the financing arrangement violated Nohrr,
but specifically noted the deal allowed the county to
“terminate the lease without further obligation” in any
given year.  Id. at 463.  Thus, the court reasoned, “[w]ith
its ‘annual renewal option’ under the lease, the county
maintains full budgetary flexibility.”
In contrast, a non-substitution clause denies the
county “full budgetary flexibility” because it renders the
non-appropriation clause illusory by compelling the
municipality to make the lease payments or suffer a
penalty. The Attorney General of at least one State has
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opined a non-substitution clause compels lease payments
and creates debt.  See La. Atty Gen. Op. No. 86-517,
1986 WL 236994;
Accordingly, the court must address two issues to
determine the validity of the non-substitution clause in this
case: (1) whether the risk of non-substitution would
morally compel the County Commission to appropriate
funds for the lease payments; and (2) whether those
funds would come from ad valorem tax dollars.
A. Moral Compulsion
Had funds not been appropriated to make the
Unisys lease payments, the evidence is undisputed the
consequences of non-substitution would have been
disastrous.  The Unisys equipment provided the primary
means for county payroll and central data processing for
the County Commission and numerous other county
offices.  At deposition, Flowers made the following
comments regarding non-substitution:
Q: What would happen?
A: If they took the equipment out, then we
would be shut down.  We wouldn’t  be able
to operate.
Q: Why is that?
A: Because everything was on that
computer.
(Flowers Depo. at 65).  Given these facts, the court
wastes little time finding the County Commission would
feel morally compelled to appropriate funds to make the
lease payments to avoid the risk of running county
government without a central data processing ability for
up to two years.  In this regard, the non-appropriation
clause is rendered illusory and the lease creates a
multi-year debt.
B. Ad Valorem Taxes
A municipal debt does not trigger Article VII, § 12,
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however, unless it pledges ad valorem tax dollars as its
source of payment.  E.g. State v. School Bd. of Sarasota
County, 561 So. 2d 549, 552 (Fla. 1990).  In this case,
the addendum to the master lease specifies no ad valorem
taxes are pledged:
Nothing herein shall constitute a pledge by
the Lessee of the full faith and credit of the
Lessee, nor does the Lessee pledge any ad
valorem taxes or other moneys other than
moneys lawfully appropriated by the County
Commission of Escambia County from time
to time. . .                                                  .  Lessor shall not have the right
to require or compel the exercise of the ad
valorem taxing power of, or the
appropriation of any funds by the County
Commission to obtain the payment or
performance of any of the Lessee’s
obligations created by this agreement.
(Addendum ¶ 1).
Regardless of the above provision, the court finds
the lease, and in particular the non-substitution clause,
would inevitably require the County Commission to
appropriate ad valorem tax dollars to make the lease
payments.  The case is similar to County of Volusia v.
State, 417 So. 2d 968 (Fla. 1982), in which the
municipality sought to secure bonds by pledging “All
legally available sources of unencumbered county revenue
other than ad valorem taxes.”  The supreme court
reasoned this pledge, along with Volusia County’s
promise to do all things necessary to continue to receive
the non-ad valorem revenue, would inevitably lead to
higher ad valorem taxes during the life of the bonds. The
court denied validation, reasoning, “that which may not
be done directly may not be done indirectly.”  Id. at 972.;
cf. Brevard County, 538 So. 2d at 463 (refusing to apply
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County of Volusia to a case in which the municipality,
unlike Escambia County in this case, “reserve[d] the right
to terminate the lease without further obligation.”)
County of Volusia applies squarely to these facts.
The size of the lease payments together with the
consequences of non-substitution indicate the County
Commission would inevitably be forced to spend ad
valorem taxes dollars to fund this lease.  The addendum
clause pledging otherwise is illusory.  For these reasons,
the court finds the non-substitution clause violates Article
VII, § 12 of the Florida Constitution and is therefore
unenforceable.
Frankenmuth, 10 Fla. L. Weekly Fed. at D341-42 (footnote omitted).
We agree with the federal district court’s thorough analysis regarding the
nonsubstitution clause in the present agreement.  While the addendum to the master
lease agreement states that there is to be no pledge of ad valorem taxes to fund the
payments due under the agreement, and further disclaims any right to compel the
procurement of ad valorem taxes, this is not a case where there is a pledge of a
specifically demarcated source of revenue to satisfy the underlying obligation.  See
Murphy, 666 So. 2d at 881 (upholding bond validation where non-ad valorem taxes
were pledged as a supplement to specifically demarcated source of revenue); City
of Palatka, 440 So. 2d at 1273 (validating bond where two specific non-ad valorem
sources of revenue were pledged); Alachua County, 335 So. 2d at 556-58
(validating bonds funded by pledge of revenue sharing funds and race track
-29-

proceeds).  More importantly, this is not a case where the county has retained “full
budgetary flexibility.”  See School Board of Sarasota County, 561 So. 2d at 552-53
(noting that school board could maintain “full budgetary flexibility” under terms of
agreement);14 Brevard County, 539 So. 2d at 464 (noting that “annual renewal
option” under lease-purchase agreement would allow county to maintain “full
budgetary flexibility”).  Instead, due to the expense and functionality of the
computer equipment covered by the agreement here, the nonsubstitution clause
interrelates with other lease provisions, see County of Volusia, 417 So. 2d at 972,
to “morally compel” the county to pledge ad valorem taxes to fulfill the obligations
of the lease.  See Nohrr, 247 So. 2d at 311.  Accordingly, we answer the second
certified question, as rephrased, in the affirmative.15
14 In School Board of Sarasota County, we noted that the school board’s failure to appropriate
funds would result in “lease penalties,” but that even with such penalties, the board maintained its “full
budgetary flexibility.”   See 561 So. 2d at 552-53.   As set forth in our opinion in that case, the lease
penalties included either purchasing the constructed facilities or surrendering possession of the facilities and
the land upon which those facilities stood for the remainder of the lease term.   See id. at 551.   We
emphasized, however, that the school board was “free to substitute other facilities for those surrendered.”
See id.  Clearly, the presence of a nonsubstitution clause here distinguishes this case from our decision in
School Board of Sarasota County, insofar as “full budgetary flexibility” is concerned.
15 The federal district court determined that the nonsubstitution clause is severable from the
remainder of the agreement, see Frankenmuth, 10 Fla. L. Weekly Fed. at D342, but the Eleventh Circuit
has not asked us to make a determination regarding severability.  We decline to address the severability
issue here, given that the issue is not novel and has not been fully briefed in this Court.   We do note,
however, that if the nonsubstitution clause is not severable from the remainder of the agreement, then the
entire agreement must be invalidated as violative of article VII, section 12 of the Florida Constitution.
-30-

III. CONCLUSION
As we have analyzed, the first certified question is answered in the affirmative
upon our determination that a board of county commissioners may approve in the
form of ratification a lease-purchase agreement under section 125.031, Florida
Statutes, even absent formal resolution, where the board is not required by local
ordinance or charter to take action by formal resolution.  Further, we have
established a three-prong test to guide the determination of whether an approval
without formal resolution has occurred.  Finally, we have responded to the second
certified question as rephrased in the affirmative upon the determination that, based
on the particular facts in this case, the nonsubstitution clause implicates article VII,
section 12 of the Florida Constitution.  Accordingly, we return the record in this
case to the United States Court of Appeals for the Eleventh Circuit.
It is so ordered.
WELLS, C.J., and SHAW, HARDING, ANSTEAD, PARIENTE and QUINCE,
JJ., concur.
NOT FINAL UNTIL TIME EXPIRES TO FILE REHEARING MOTION, AND
IF FILED, DETERMINED.
Certified Question of Law from the United States Court of Appeals for the Eleventh
Circuit - Case No. 98-2962
J. Lofton Westmoreland and William R. Mitchell of Moore, Hill, Westmoreland, Hook
-31-

& Bolton, P.A.
for Appellant
Paula G. Drummond, Pensacola, Florida, on behalf of Appellee Ernie Lee Magaha;
and David G. Tucker, Janet Lander, and James M. Messer, Pensacola, Florida, on
behalf of Appellee Escambia County, Florida,
for Appellees
Carole Sanzeri, Senior Assistant County Attorney, Pinellas County Attorney’s Office,
Clearwater, Florida,
for the Florida Association of County Attorneys, Inc., Amicus Curiae
-32-

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