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Friday, January 6, 2012

Case Requiring City to Pay for Work Outside Scope of Contract Under Theory of Equitable Estoppel Goes to Illinois Supreme Court

Last year, an Illinois Appellate Court held that the doctrine of equitable estoppel could be applied to require a municipality to pay a vendor for additional work outside of the contract even if that work was not authorized by the city council.  Patrick Engineering, Inc. v. City of Naperville.  The city filed an appeal of that decision with the Illinois Supreme Court, and the Illinois Municipal League (IML) recently filed an amicus brief supporting the city’s appeal.

A brief summary of the facts of the case is below: 

The city had entered into a contract with a vendor through a competitive-bidding process. The contract required that any additional services outside of those specified in the scope of the contract had to be agreed to in writing between the parties.  If the vendor did not receive confirmation that the additional services were approved by the city, then the vendor was not obligated to perform and would not be paid for those additional services.  Nevertheless, the vendor performed what it claimed to be additional services, but did not get the written approval or confirmation as required by the contract.  Nevertheless, the vendor submitted a substantial bill to the city for these additional services.  The city declined to pay for the additional services, citing the contract terms.  The vendor sued for breach of contract, claiming that it relied on statements by two employees to perform the additional work and the city should be required to pay for the additional work under a theory of equitable estoppel.

The trial court dismissed the case against the city, holding that equitable estoppel does not apply against a municipality unless the representation is made by the municipality itself or by an officer or employee who has explicit authority to act on behalf of the municipality.  In this case, the city could not be held responsible for statements made by someone acting beyond the scope of his or her authority.  The appellate court reversed, however, holding that the city was bound to the representations made by its employees, despite the fact that they had no express authority and the city council did not approve the additional work pursuant to the terms of the contract. 

This case is of significant importance to Illinois municipalities because the Second District’s ruling modifies the long-standing rule that equitable estoppel will only be applied against a municipality where actions are induced by the municipality itself or a municipal official with actual, not apparent authority. 


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