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Ad-Ex, Inc. v. City of Chicago

September 19, 1990


The opinion of the court was delivered by: Justice Freeman

Supplemental Opinion on Denial of Rehearing January 9, 1991

Defendant, City of Chicago, brought this action to reverse certain orders of the circuit court and to declare a settlement agreement void and unenforceable.

In 1986, plaintiff, Ad-Ex, Inc., filed 34 lawsuits, one for each of its proposed advertising signs, against the City. The lawsuits challenged the constitutionality of the City's sign ordinance. The ordinance requires a 500 foot setback from expressways. (Chicago Municipal Code ch. 194A, § 8.9(5) (1988).) In February 1989 the City and Ad-Ex entered into a settlement agreement which purported to vary the setback requirement. The variance was agreed upon without first giving notice and holding a public hearing as is required by ordinance. (Chicago Municipal Code ch. 194A, § 11.7-2 (1988).) The circuit court entered an agreed order dismissing the lawsuits, with prejudice. The settlement agreement was incorporated in the order.

Essentially, the settlement agreement provided that the City would vary the setback requirement and issue sign permits for the erection of 21 signs, as they had been defined in the lawsuits, and for 7 additional signs, for which the parties had negotiated. Pursuant to the agreement, permits would be issued for the erection of the signs provided that "the issuance of such permits [would] comply with all applicable laws of the City of Chicago * * * and all Federal and State laws * * *." Additionally, Ad-Ex was prohibited from erecting any other signs which would not be in compliance with the City's sign ordinance.

In March and April 1989, Ad-Ex applied for permits for 16 of the 28 sign locations. In May, the applications were rejected for failure to comply with the 500 foot setback requirement. Subsequently, Ad-Ex filed a motion to compel issuance of the permits. The City opposed the motion on the grounds that Ad-Ex had not complied with all applicable laws, viz., obtaining prior approval from the City Council.

According to the City, Ad-Ex had submitted City Council orders from 1987 with its permit applications. The sign heights listed in the Council orders were inconsistent with the sign heights listed in the permit application. The Council orders which Ad-Ex submitted also required compliance with all provisions of the zoning ordinance, including those which the settlement agreement waived.

On June 14, in response to Ad-Ex's motion, the court ordered the City to issue permits on 16 pending applications by June 23, 1989. On June 23, the City filed an emergency motion to stay the court's June 14 order. The motion was denied. The City then filed, in this court, an emergency notice of appeal and an emergency motion for a stay pending appeal. The motion was denied. The City issued no permits.

On July 11, 1989, the City learned that Ad-Ex had constructed a sign at 5000 W. Flournoy. The sign's face area exceeded 2400 square feet, and there had been no permit issued for its construction. The City then commenced administrative proceedings ("F-5" proceedings) against Ad-Ex to compel its compliance with the City's sign ordinance regarding permits (Chicago Municipal Code § 14-40-090 (1990))*fn1, and its conformance with the settlement agreement. Ad-Ex did not appear for the July 26 administrative hearing, despite the fact that it had been given notice. Counsel for the City wrote to counsel for Ad-Ex, advising that Ad-Ex would have to remove the sign or modify it to reduce the sign face area to 1200 square feet, in compliance with the terms of the settlement agreement. Counsel for Ad-Ex responded that the sign was in conformance with the agreement. The City suspended Ad-Ex's permit privileges and declined to issue any permits.

Ad-Ex filed an emergency petition on July 13, 1989 for rule to show cause. At the July 31 hearing on the petition, the City agreed to continue processing the other permit applications while prosecuting the Flournoy violation.

On August 17, 1989, Ad-Ex filed an emergency motion to stay the administrative proceedings and permit the processing of permits. The trial court denied the motion to stay the proceedings but ordered the City to process Ad-Ex's permit applications independently of the issues involved in the administrative proceedings on the Flournoy sign. No permits were issued.

On September 25, 1989, Ad-Ex filed a second motion to stay administrative proceedings, and compel the processing and issuing of approved permits. On September 27, in response to the motion, the City argued that the August court order provided that the City would continue to process the permit applications during the pendency of the F-5, not that it would issue any permits. The City argued that to issue permits while there was an existing violation would effectively waive the City's penalty provisions.

On October 4, 1989 an evidentiary hearing on the September motion was held. Timothy Cullerton, Chief Electrical Inspector for the Department of Inspectional Services, testified that a City ordinance mandates the suspension of a contractor's sign permit privileges if the contractor erects a sign without a permit. According to Cullerton, the usual practice during an F-5 is to return pending permit applications without reviewing them until the F-5 is resolved. However, in compliance with the court's prior orders, the City did not return any of Ad-Ex's pending applications, but rather, continued to review them.

Chester Figlerlowicz, an electrical inspector for the City, testified that the Flournoy sign was double-faced and flag mounted. According to the City, although Ad-Ex submitted several applications for a sign at Flournoy, none of them were consistent with the 2400 square foot, double-faced, flag-mounted sign that Ad-Ex actually erected there. The court directed the City to issue, unimpeded by the F-5 proceeding, any pending permits approved for other sign locations.

Also at the October hearing, the City filed a motion to set aside the settlement agreement, claiming that Ad-Ex had materially breached it and that it was void as against public policy.

At a subsequent hearing on the motion, the City argued that the agreement was void because it purported to waive enforcement of a mandatory zoning ordinance, without notice or a public hearing. Regarding the alleged breach, the City presented testimony that the Flournoy sign was leaning and out of plumb. The City states in its brief that at an earlier hearing there was testimony that the sign was not in conformance with the terms of the agreement. Thomas Walsh, an executive with Ad-Ex's parent company, Universal, testified that Ad-Ex had expended funds, and made commitments to clients in reliance on the settlement agreement.

The court, in denying the City's motion, stated that the City had acted repeatedly, since the February settlement, in a way which would indicate, both by its remarks and its conduct, that they were ratifying the actions of the corporation counsel in entering into the settlement. The court also noted that the City Council had passed no resolution disavowing the settlement.*fn2 The court stated that it was persuaded to deny the city's motion to set aside the agreement because of the apparent reliance and expenditure incurred by Ad-Ex.

On November 2, 1989, the court again entered an order directing the City to issue the permits upon Ad-Ex's compliance with all applicable laws. On November 15, 1989, the court held a hearing on Ad-Ex's second petition for rule to show cause. The City argued that it had not issued the pending permits because Ad-Ex's bond had been revoked and because the drawings submitted with its applications showed double-faced, rather than single-faced signs. The court held that the bond, based on Ad-Ex's Flournoy sign, should not be used to block the issuance of permits at other sites. The court then ordered the City to issue three permits, on the condition that they were in compliance with the terms in the settlement agreement and all other applicable laws.

On November 28 Ad-Ex filed a motion to have permits issued for structures with two sign capability. The court denied Ad-Ex's motion to issue double sign permits, finding that the settlement agreement contemplated one sign structures only.

The City appeals from the court's several orders, and these appeals have been consolidated. The City urges two contentions on appeal: (1) the settlement agreement cannot be enforced; and, (2) the trial court erred by directing it not to enforce a mandatory penalty set by ordinance.

Ad-Ex cross appeals contending that section 506.01 of the chapter on roads and bridges (Ill.Rev.Stat.1987, ch. 121, par. 506.01) must have been contemplated by the parties in the settlement agreement and, therefore, the word definitions therein must be implied in its interpretation. Thus, it argues, based on the statute more than one sign face per location should be permitted and that the trial court erred in finding otherwise.

Since we find the City's first argument dispositive, we need not reach the other issues raised in this appeal.

The City first contends that the settlement agreement cannot be enforced. It argues that the agreement is void and unenforceable because it violates a duly enacted city ordinance. Since the agreement waives the required 500 foot setback for advertising signs (Chicago Municipal Code ch. 194A, sec. 8.9(5) (1988)), absent proper notice and a public hearing on the waiver (Chicago Municipal Code ch. 194A, sec. 11.7-2 (1988)), the agreement is void.

Municipalities are limited to only those powers which are given to them by constitution and statute, and a municipality cannot be bound by a contract that does not comply with the prescribed conditions for the exercise of its power. ( Wacker-Wabash Corp. v. City of Chicago (1953), 350 Ill.App. 343, 354, 112 N.E.2d 903.) A municipality must follow its own valid ordinances. Further, "[a] person dealing with a municipal corporation is charged with the knowledge of the limitations of the power of the corporation for any contract attempted to be entered into by any of its officials." ( May v. City of Chicago (1906), 222 Ill. 595, 599-600, 78 N.E. 912.) Compliance with a charter or statutory requirements which are merely directory, or do not involve the right or power of the city to make the contract, or which relate merely to questions of procedure, is not essential to the validity of a municipal contract. 63 C.J.S. Municipal Corporations § 979.

In our view, the requirements of prior notice and a public hearing in zoning cases, imposed upon the City by the Municipal Code, are not simply directory, but are instead mandatory pre-requisites to the city's power to vary its zoning ordinances. These requirements are, therefore, conditions precedent to the validity of the settlement agreement in issue here.

Ad-Ex argues that under Mahoney Grease Service v. City of Joliet (1980), 85 Ill.App.3d 578, 40 Ill.Dec. 708, 406 N.E.2d 911, and Chicago Title & Trust Co. v. Mt. Prospect (1987), 160 Ill.App.3d 851, 112 Ill.Dec. 306, 513 N.E.2d 915, the lack of notice and a hearing were merely irregular exercises of the City's authority. Therefore, since the City was not absolutely without power to vary the setback requirement, the settlement agreement is merely voidable, not void, and should be enforced.

In Mahoney, the city of Joliet contended that a settlement agreement, into which it had entered, providing for the rezoning of land, was void because the city failed to hold a hearing, as required by law, prior to enacting the zoning change. The court acknowledged that a municipal contract which is legally prohibited or beyond the power of the municipality is absolutely void and cannot be ratified by later municipal action. However, the court reasoned that since the city had the legal authority to zone land, the rezoning, without the statutorily required hearing, was not an absolutely void act per se. The court held, that the failure to hold the hearing was merely an irregularity in the exercise of the city's authority, and likened the case to Branigar v. Village of Riverdale (1947), 396 Ill. 534, 72 N.E.2d ...

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