In Direct Energy Business, LLC v. City of Harvey, an Illinois appellate court found that a city was not obligated to pay a retail energy provider for unpaid invoices because the parties did not have a valid and enforceable contract. At issue was an electricity contract that was signed by the city’s Director of Public Works, and served to replace an existing contract with ComEd. The energy provider began delivering electricity to the city and sent monthly invoices in line with the signed contract, which the city paid without objection for several months. At some point, the city requested that the energy provider close its account, claiming that there was no valid contract between the parties.
The energy provider sued the city to recover the amounts of unpaid invoices, which included the cost for electricity that was provided to the city. The court found that despite the existence of a signed contract, the contract was invalid because the Director of Public Works did not have authority to sign the contract and the city council did not have knowledge that the contract with ComEd was no longer in place and had not approved, or even seen, the contract with the energy provider. The court stated that the general rule is when a municipal employee acts to bind a municipality to a contract, without first receiving approval from the council of the municipality, the contract is void.
In contrast, the Illinois Supreme Court, in Restore Construction Company, Inc. v. Board of Education of Proviso THSD 209, as we reported here, found that construction contracts, executed by the Superintendent and Board President, were valid and binding on a school district even though the contracts were not approved by the board and the district did not comply with certain competitive bidding requirements. The court found that the Restore case was distinguishable because the school board in Restore, which had the power to approve contracts, was aware of the services being provided by the contractor and had no objections or issues with the services being performed. Here, the court found that the invalidity of the contract was not due to any action or misconduct by the city council because it was not involved in procuring the electricity. Because the energy provider agreement was signed only by a municipal employee without authority to bind the city, and without the city council’s involvement, the contract was void.
This case serves as an important reminder that school district employees, unless delegated by the board, do not generally have authority to approve contracts on behalf of a school district. While the city was not bound by the contract in this case, based on the ruling in the Restore case, school districts may still be bound by a contract under which goods or services have been accepted, even if the board has not approved the contract.
Please contact an attorney in the Board Governance/Corporate practice group with questions.