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Newberg, Inc. v. Ill. St. Toll Highway Auth.





Appeal from the Appellate Court for the Second District; heard in that court on appeal from the Circuit Court of Du Page County, the Hon. John L. Bowman, Judge, presiding.


In 1975, Newberg-Krug-Brighton (hereinafter Newberg), a joint venture consisting of three corporations, filed a two-count complaint in the circuit court of Du Page County against the Illinois State Toll Highway Authority (the Authority) seeking $9 million in damages for an alleged breach of contract in connection with the construction of two sections of the East-West Tollway extension.

After the complaint was filed, Richard Blakely, the Authority's executive director, directed Assistant Attorney General John Lavery, chief of the legal department of the Authority, to enter into settlement negotiations with counsel for Newberg.

In July of 1976, counsel for Newberg somehow informed Lavery that Newberg would settle the pending litigation for $2.75 million. The record does not show the manner in which that offer was made. We do not find a written offer in the record. On July 12, 1976, Lavery wrote a letter to then Attorney General William J. Scott advising him of the offer that had been made and explaining that the offer would be communicated to the board of directors of the Authority at a board meeting the latter part of July, and notifying him that a resolution approving the settlement had been prepared and would be adopted if the board decided to settle the litigation. On July 30, 1976, Lavery did present a formal resolution, No. 9634, with the proposed terms of the settlement, to the board. The resolution, approving the settlement and authorizing and directing the Authority's legal department to execute "any and all documents necessary to effectuate the settlement," was unanimously adopted by the board at that meeting.

On August 4, 1976, Attorney General Scott advised the board by letter that the board's adoption of the resolution was premature since discovery had not been taken in the case and therefore there was insufficient knowledge on the part of the Authority to determine whether settlement was in the Authority's best interests. At that time Attorney General Scott also expressed the opinion that Newberg's claim was without merit.

Again on August 25, 1976, Attorney General Scott sent a letter to the board disapproving the proposed settlement of the claims against the Authority and expressing the belief that not only was Newberg's claim without merit, but also it was possible that the Authority had a substantial counterclaim against Newberg. He noted, too, that there might be other parties that would be required to contribute to any settlement of the matter. The Authority thereafter took no further action to effectuate the settlement; in fact, on October 1, 1976, the chairman of the Authority sent a letter to Attorney General Scott, informing him that the board would defer implementation of the resolution pending further advice from him and did in fact rescind the resolution in August 1977.

On November 18, 1976, Newberg amended its complaint to add a third count based upon breach of an alleged "settlement agreement," resolution No. 9634. The Authority filed a motion to dismiss count III in the circuit court of Du Page County. The Authority alleged in its motion to dismiss that the resolution the board had adopted did not create a binding contract, and contended that count III failed to state a cause of action since it did not allege that the Attorney General had approved the settlement — an allegation, the Authority asserted, that was essential to stating a cause of action for breach of contract in count III. The circuit court granted the Authority's motion to dismiss, and Newberg appealed the circuit court's dismissal of count III to the appellate court. Newberg-Krug-Brighton v. Illinois State Toll Highway Authority (1978), 63 Ill. App.3d 780, appeal denied (1979), 72 Ill.2d 583.

In that appeal, the appellate court concluded that it was not essential that "Newberg affirmatively plead either the Attorney General's approval of the settlement agreement or his acquiescence in the course of action sought to be taken by the Authority." (63 Ill. App.3d 780, 783.) The court determined that section 15 of the Toll Highway Act (Ill. Rev. Stat. 1975, ch. 121, par. 100-15) "authorizes and obliges the Attorney General in his representation of the Authority as its legal advisor to consider its contracts as to their form and constitutionality * * * [but] does not confer upon the Attorney General an all-inclusive right to disapprove actions undertaken by the Authority pursuant to the powers granted to it by the General Assembly." (63 Ill. App.3d 780, 782.) The court held that the motion to dismiss did not suggest that the action taken by the Authority by its resolution suffered from either form or constitutional inadequacies so that there was no statutory basis to support dismissal of count III of the complaint.

The court also concluded that even though it did not agree with the Authority's position that an allegation of the Attorney General's approval was essential to the legal sufficiency of the cause of action, the Attorney General "ha[d] the authority to direct the legal affairs of the State." (63 Ill. App.3d 780, 783.) Therefore, the appellate court in that appeal remanded the cause to the circuit court, inviting the Authority or the Attorney General to assert any lawful basis which might exist by reason of which the settlement between the Authority and Newberg should not be carried out. The appellate court invited the Authority or Attorney General to assert reasons either relating to form or constitutionality of the alleged settlement contract under section 15 of the Toll Highway Act or any reason, such as fraud, which would require the Attorney General to exercise his authority as director of the State's legal affairs.

The appellate court also held that the issue of whether the Authority's resolution created a binding contract was an issue which was not to be determined by way of a motion to dismiss, but instead was an issue to be raised on remand, in the Authority's response to count III in the circuit court. The appellate court further held that the Authority had not demonstrated "why it lacked the power to contract by adoption of a resolution by its board of directors" and held that, "[i]n the absence of an express statutory provision requiring a written contract or the signature of a particular person before such a resolution is binding upon the Authority, the general rule is that the acceptance of an offer by ordinance, resolution or motion creates a contract binding upon both parties." (63 Ill. App.3d 780, 784, citing to 10 McQuillin, Municipal Corporations sec. 29.03 (3d ed. 1966); 56 Am.Jur.2d Municipal Corporations sec. 497 (1971); West Chicago Park Commissioners v. Carmody (1908), 139 Ill. App. 635.) The resolution in this case, the appellate court pointed out, had not required that any particular written document be prepared or act be done before a contract would come into existence.

On remand in the circuit court, the Authority answered count III of Newberg's complaint, denying that it had authority to settle the claim against it and therefore asserting that the resolution had not been validly adopted by its board of directors. The Authority also raised a number of affirmative defenses, including several relating to the form and constitutionality of the resolutions. The Attorney General, the Authority contended, had not approved the resolution as to form and constitutionality and had not approved of the settlement.

After considering all the evidence, the circuit court of Du Page County found that the Authority and the Attorney General had failed to establish any defects in form or constitutionality which would prevent enforcement of the settlement resolution. It also found that the affirmative defenses raised by the Authority were without support in the evidence. The circuit court held that the settlement resolution was a binding contract between the Authority and Newberg and therefore held that the Authority was liable to Newberg in the sum of $2.75 million for breach of the purported settlement agreement. The circuit court thereafter dismissed counts I and II of Newberg's complaint and provided that they could be reinstated in the event of a reversal by the appellate court in regards to count III.

The Authority appealed the circuit court's judgment on remand, contending that the agreement was invalid and unenforceable because it was not approved by the Attorney General. Newberg cross-appealed, contending it was entitled to prejudgment interest. Gust K. Newberg, Inc. v. Illinois State Toll Highway Authority (1982), 103 Ill. App.3d 557.

In this second appeal, a majority of the appellate court, one justice dissenting, reversed the circuit court's judgment that awarded Newberg $2.75 million, reinstated counts I and II of the ...

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