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Supreme Court Reverses Ruling on Quantum Meruit Claims Against Municipality

A prior post covered an appellate decision addressing whether a Georgia municipality may be held liable under quantum meruit for ultra vires acts of its agents.  That opinion generated a great deal of uncertainty because, contrary to prior cases, it seemed to open the door to municipal liability for unauthorized contracts.  Earlier this year, the Supreme Court of Georgia resolved that uncertainty by reversing the appellate opinion in favor of the municipality. 

Factual Background

The facts of the case are found in the prior post.  In short, an engineering firm sought compensation for engineering services and related work in connection with a wastewater treatment plant.  When the city determined that federal funds were unavailable, it declined to pay the engineering firm.

The city relied on the following provision of its charter:

No contract with the city shall be binding on the city unless the contract is in writing, is signed after review by the city attorney, and is approved by the city council subsequent to its signature by the city attorney, with such council approval entered on the council journal.

Since neither the city attorney nor the city council approved the contract, the city argued the purported agreement between the city’s mayor and the engineering firm was ultra vires.

Legal Analysis

As indicated in the prior post, the Court of Appeals held, in certain circumstances, municipalities may be found liable for quantum meruit claims because their authority to enter contracts is not statutory.  In contrast to counties, municipal contracting authority arises from charters, which it argued, are given less weight than statutory restrictions on contracting authority.

But the Supreme Court rejected this distinction.  It reasoned that city charters are originally enacted by the General Assembly — just like statutes.  The statutory limitation on counties’ authority is sufficiently similar to limitations arising from municipal charters to warrant similar treatment of counties and cities for this purpose.  Thus, like counties, cities may not be held liable in quantum meruit for purported contracts that do not receive approval required by city charters.

The engineering firm further argued that even if the city did not properly authorize the contract, it was nevertheless a contract that it could have authorized.  In other words, the services offered under the contract were services that the city had authority to procure, with the proper approvals.  The Supreme Court was not persuaded by this argument, primarily relying on the interest of taxpayers.

Adherence to these longstanding principles is essential to protect the rule of law and the interests of taxpaying citizens. If a municipal charter or other governing law says  that only the city council, by majority vote, can approve a contract that binds the city—and thereby commit the city  and its taxpayers to pay under the contract—that is how contracts must be approved if the contract is to be enforceable  directly or through equitable remedies.

There was no question that neither the city attorney nor the city council approved the contract.  Accordingly, the Supreme Court held that the engineering firm could not recover under quantum meruit.

Implications

The ruling should provide some comfort and certainty to attorneys for municipalities.  It certainly raises the bar for contractors and others seeking to recover based on ultra vires acts of municipal representatives and employees.  But it should not be a reason to ignore the importance of good contracts and procurement principles.

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