Illinois Appellate Court Rules School District Must Pay For Services Provided Under Invalid Contract

In a recent case decided by the Illinois Appellate Court and approved for a review by the Illinois Supreme Court, a school district was ordered to pay for the services provided by a contractor for emergency restoration work to a school despite the contracts in question never being approved by the board of education or competitively bid in accordance with statute.

On May 10, 2014, a fire caused significant damage to a school building that the school district needed to repair prior to the commencement of the upcoming school year. As such, the school district proceeded to contact a contractor that had performed work for the school district in the past. The school district assured the contractor that it was customary to move forward with a contract for services without a board of education vote in matters involving payment of losses covered by its property loss insurance. The contractor entered into one agreement signed by the school district’s superintendent for the repair of the fire damage, but did not participate in a bidding process or board approval. The board president at the time then signed an amended agreement with the contractor that again was not presented to the full board for approval. The contractor proceeded to provide emergency mitigation and remediation services valued at over $7,000,000 pursuant to the two contracts. For the work provided, the school district’s insurance paid approximately $5,800,000, but the school district ceased payment after such payment because the contracts were entered into without the proper approval of the board. The contractor filed a claim arguing that because services were provided pursuant to an implied contract, it was entitled to payment.

The Appellate Court began its analysis of the claim by confirming that the contracts entered into between the school district and the contractor were null and void from the beginning because the contracts were not approved by the board of education and the contracts were not advertised for competitive bid. The school district took the position that because the contracts were invalid from the beginning, no contract could be implied in fact and any provisions thereto could not be enforced. The court disagreed with the school district’s argument and explained the different between a contract implied in fact and a contract implied in law. For a claim of contract implied in fact a party argues that a contract was indeed created, whereas a claim of contract implied in law is a claim to enforce expectations and prevent injustice. The court rejected the school district’s cited case law that a school district could not be held to a contract implied in fact and instead determined that the contractor’s claim was based on a contract implied in law. Thus, the court decided that because the contractor provided services to the school district with the expectation of payment for such services it would be unjust to allow the school district to benefit from the services without payment to the contractor. The case was then remanded for decision based on the Appellate Court’s findings.

Due to this decision being approved for review by the Illinois Supreme Court, it is unclear whether the Appellate Court’s decision will ultimately stand, but for the time, this decision serves to show that a school district may be required to pay for services rendered despite the invalidity of a contract. For school districts that have failed to properly approve a contract through the board of education and have sought to avoid payment due to an invalid contract, the decision seems to close the “loophole.”

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