As a normal part of business a service provider, such as an IT professional or a vendor supplying coffee or coke machines will sign a year to year or a 3-5 year contract with a City.
The contract will be signed by a City Officer such as the City Manager, City Administrator or even a Mayor. The service provider believes all is well and is happy to have a contract with a client who always pays. The City personnel are happy to have the service.
If the person who signed on behalf of the City had been given authority by the City Council to enter into the contract, then all is fine. However, if that person had not been given authority by City Council, then the contract may be voidable.
How can that be? Surely a service provider should be able to rely upon the authority of a Mayor or City Manager as an agent of the City to enter into a contract. Yet that is not always the case.
In Texas a City cannot be bound by a contract that the City Council did not authorize an officer or city employee to enter into. See Stirman v City of Tyler, 443 S.W.2d 354, 358 (Tex.Civ.App.-Tyler 1969, writ ref?d n.r.e.); Alamo Carriage v. City of San Antonio, 768 S.W.2d 937, 941-942 (Tex.App.?San Antonio, no writ). While the City in all likelihood will have to pay for service rendered up till the time of any termination of the contract, the City will also have the ability to adopt a position there is no contract or the contract is voidable because the City officer or city employee was not given authority to sign the contract.
The City officer or employee should always check to make sure he or she has been given authority to sign a contract, either by City Council vote or by City Council approved budgetary guidelines. And the service provider should always request that the City officer or employee verify their authority to sign the contract. This due diligence should be performed for all contracts, more so for city contracts that can be for multi-million dollar projects.
Leonard Schneider is a partner in Liles Parker PLLC in the Houston, Texas office. The firm focuses on health care audits, business contracts, general corporate and business litigation matters and municipal law. He can be contacted at email@example.com or at the firm website www.lilesparker.com. The Houston office number is 713-432-7474