## Facts

- The Board of Public Works of the City of Hammond, Indiana (Board) hired L. Cosby Bernard and Co. (Cosby), an architectural firm, to design a city building.
- The written contract set Cosby’s compensation at a 6.5% commission on the total construction cost, estimated at \$1.5 million.
- Cosby prepared preliminary drawings and was paid for that work.
- Cosby was then expected to prepare final construction documents.
- The City Engineer learned that federal funds might be available and directed Cosby to design a larger and more elaborate building, with input from the City Engineer, the mayor, and other officials.
- The revised design increased the projected construction cost, and Cosby submitted a claim for additional compensation that would have nearly doubled its fee under the percentage formula.
- The City paid Cosby only based on the original \$1.5 million estimate.
- The City Controller refused to pay the additional amount because the Common Council had appropriated only enough funds to cover Cosby’s commission calculated on the \$1.5 million estimate.
- Cosby sued to recover the additional fee, asserting breach of contract and, in the alternative, quantum meruit.
- The parties disputed whether the Common Council and the Board knew of or authorized the project expansion and the federal funding effort.
- The trial court granted summary judgment for Cosby on the contract theory, concluding the contract obligated payment of the increased commission; the Board appealed.

## Issues

1. Whether the City could be held liable in contract for an increased architectural commission that exceeded the amount appropriated by the Common Council.
2. If the increased contractual obligation was not enforceable, whether Cosby could still pursue quantum meruit for the reasonable value of services the City accepted and used.

## Decision

- The Court of Appeals of Indiana reversed the trial court’s summary judgment for Cosby on the breach-of-contract claim.
- The court held the contract did not bind the City to an obligation incurred by city officials to the extent it exceeded the Council’s appropriation.
- The court remanded for further proceedings on Cosby’s alternative quantum meruit theory.

## Legal Principles

- A municipality’s officers and agents cannot bind the municipality to pay sums beyond the amount appropriated by the municipal legislative body; a contract is unenforceable in contract to the extent it requires payment in excess of the appropriation.
- A party contracting with municipal officials bears the risk that those officials may lack authority to create obligations beyond statutory and appropriation limits.
- Even when an agreement with municipal officials is not enforceable as a contract because it exceeds authorized appropriations, restitution may be available to prevent the municipality from retaining benefits without paying reasonable value.
- Quantum meruit against a municipality may be available when the claimant shows:
  - the claimant’s services conferred a benefit on the municipality,
  - the municipality had knowledge that the services were being provided,
  - the municipality accepted or retained the benefit, and
  - the services were within the municipality’s lawful powers (not outside municipal power in subject matter).

## Conclusion

The appellate court held that Hammond could not be held liable in contract for an increased architectural fee that exceeded the Common Council’s appropriation, reversed the summary judgment for the architect on the contract claim, and remanded for the trial court to determine whether the architect could recover in quantum meruit for services the City knowingly accepted and used.


Board of Public Works v. L. Cosby Bernard and Co., 435 N.E.2d 575 (1982)