“Illegal But Equitable” To the Rescue?

At the continued urging of a New York City official, and to meet certain deadlines, a contractor performed substantial quantities of work for the City before the contract was signed, and without the contract even having been publicly bid. The work, which was satisfactorily performed, called for the construction of “close to home” housing facilities for youths adjudicated as delinquents by the Family Court. At the point at which approximately two thirds of the price had been paid to the contractor, the contract – – by this time signed – – could not be registered with the Comptroller’s office because it had not been publicly bid and thus was “illegal.” Consequently, the contractor’s then pending requisitions for approved work could not be paid.[i]

The contractor discontinued its work and filed an action against the City for breach of contract based on non-payment of the pending requisitions. However, the action was dismissed on the ground that the contract was illegal and unenforceable for not having been publicly bid; and the contractor’s related claims, including quantum meruit, were dismissed on related grounds. Notwithstanding its dismissal of the claims, the court noted that in urging the contractor to perform the work without a public bidding of the contract, the City “acted unlawfully and treated… [the contractor] unfairly.”[ii]

The “illegal but equitable” provision of the New York City Administrative Code, §7-206, provides a possible remedy in this scenario. Section 7-206 provides that a claim against the City may fully or partially be paid if the Comptroller first certifies that the claim “is illegal or invalid, but that it is equitable and proper that such claim be paid in whole or in part.” While payment under the “illegal but equitable” theory is discretionary with the designated City officials, §7-206 nevertheless should be considered where an irregularity in the formation of a contract with the City impedes payment for the work provided.[iii]

[i] Michael R. Gianatasio, P. E., P.C. v. City of New York, 2016 N.Y.Misc. LEXIS 3110 (Sup. Ct., N. Y. Co., Aug. 26, 2016)

[ii] The City had designated a private party – – the manager of the youth housing facilities that were being built — as the entity that would enter into the construction contract with the contractor. This, arguably, would have dispensed with the need for public bidding and the other formalities that are required for contracts entered into with a governmental body. However, the City itself mistakenly signed the contract, thus triggering the need for public bidding and other public contract requirements.

[iii] See also Prosper Contracting Corp. v. Bd. of Educ., 73 Misc.2d 280 (Sup. Ct., N. Y. Co., 1973), aff’d, 43 A. D.2d 823 (1st Dep’t 1974), recognizing a contractor’s equitable position in a similar fact pattern.

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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