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Although decided pursuant to Supreme Court Rule 23 (i.e. not to be cited as precedent), the First District Appellate Court addressed the enforceability of contracts against municipalities acting through a JAWA in South Suburban Joint Action Water Agency v. Postl-Yore and Associates v. Village of Alsip et. al., 2018 IL App. 172790-U (1st Dist. 2018)*.

In June of 2011, Markham and Robbins created a Joint Water Action Agency (JAWA) by Intergovernmental Agreement (IGA) pursuant to ILCS 220/3.1. ¶4  The purpose of the JAWA was to provide potable water to the member municipalities. ¶5  Several other municipalities (Alsip, Blue Island, Calumet Park, Harvey, and Midlothian) joined the JAWA between 2011 and 2012. ¶6

The JAWA chairman signed a management contract with Postl-Yore in the summer of 2011. ¶5  Postl-Yore agreed to manage the program and was paid a percentage of program costs as best estimated each month.  The contract also stated that should the JAWA cancel the contract, the individual municipalities would be liable for payment of all amounts owed Postl-Yore. ¶5

In November 2013 the JAWA terminated its contract with Postl-Yore, suing Postl-Yore for breach of contract. ¶6 Although not stated in the appellate court ruling, the JAWA was later dissolved with virtually no remaining assets and did not pursue its claim.  Postl-Yore then filed a third-party complaint against the individual municipalities, seeking the amounts owed by the JAWA from each of them pursuant to the contract. ¶7

The issue on appeal was whether Postl-Yore could enforce the terms of its contract with the JAWA against each of the member municipalities.  The municipalities filed Motion to Dismiss this third-party claim, which was granted with prejudice in the trial court. ¶8

The appellate court reviewed the trial court’s dismissal *** ¶15  Initially, the appellate court noted that the JAWA was a legal entity capable of being sued, and that Postl-Yore must state a viable cause of action against at least one member of the JAWA to prevail. ¶16

The court then noted that the municipalities did not sign the contract with Postl-Yore, nor make themselves a party to the contract.  ¶18  The court also found that no agency relationship existed between the JAWA and the municipalities, as the municipalities could not control the JAWA’s actions nor disapprove of the JAWA’s actions.  Each member municipality could appoint a director to the JAWA, but only a majority of directors could control the JAWA. ¶19

Similarly, Postl-Yore’s argument of apparent agency by the JAWA failed.  The court stated that “anyone dealing with a governmental body takes the risk of having accurately ascertained that he who purports to act for it stays within the bounds of his authority.”   Citing Cities Service Oil Co. v. City of Des Plaines, 21 Ill.2d 157, 160-161 (IL Supreme 1961) and Patrick Engineering v. City of Naperville, 2012 IL 113148 ¶36 (IL Supreme 2012).  The JAWA had no such authority to bind its members. ¶21

Postl-Yore also argued it was a third-party beneficiary of the Agreement that created the JAWA.  However, the court found that Postl-Yore had no claim as a third-party beneficiary.  No mention of Postl-Yore was made in the JAWA Agreement, and it was not identified specifically as a third-party beneficiary.  ¶23-24  The appellate court ruled against Postl-Yore, finding the trial court correctly dismissed its complaint. ¶27

Individuals and corporations contracting with governmental bodies in Illinois take the risk that the representative of the body is authorized to bind its principal.  Any such contractor would do well to investigate a representative’s authority to contract.  In addition, a governmental body must have approval of its Board before making expenditures.  Depending on the circumstances, this approval may be in the form of an Ordinance, Resolution, Motion, or Budgetary appropriation.  Failure to follow these rules can result in an unenforceable contract.  Consulting with your government attorney is highly recommended before entering into any contract.

 

*Author Peter M. Murphy represented the Village of Midlothian in this case on appeal.

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