                    IN THE COURT OF APPEALS OF TENNESSEE
                                AT NASHVILLE

   PROFESSIONAL ENGINEERING SERVICES, INC. v. CITY OF RED
               BOILING SPRINGS, TENNESSEE

                  Direct Appeal from the Chancery Court for Macon County
                         No. 2557; The Honorable C. K. Smith, Judge



                   No. M1999-00342-COA-R3-CV - Decided April 26, 2000


This appeal involves a dispute over whether a contract to provide services was formed between
defendant-city and plaintiff-engineers and if so, whether defendant-city breached the contract. The
court below held that a contract was formed between the parties and granted plaintiff-engineers
recovery under the contract. In the alternative, the trial court held that plaintiff-engineers would be
entitled to recover in quantum meruit in the absence of a valid contract. Defendant-city appeals.

Tenn. R. App. P. 3; Appeal as of right; Judgment of the Chancery Court Reversed in Part and
Affirmed in Part

HIGHERS , J., delivered the opinion of the court, in which CRAWFORD , P.J., W.S., and FARMER, J.,
joined.

           Jacky O. Bellar, BELLAR & BELLAR, Carthage, Tennessee for Appellant

                       A. Russell Brown, Lafayette, Tennessee for Appellee

                                             OPINION

        City of Red Boiling Springs (“City”) appeals the trial court’s holding that City breached its
contract with Professional Engineering Services (“PES”). City also appeals the trial court’s
alternative holding that PES was entitled to recovery under quantum meruit. For the following
reasons, the decision of the trial court is affirmed in part and reversed in part.

                                   Facts and Procedural History
        This appeal arises from a suit filed by PES against City for breach of contract. PES alleged
that City contracted with PES to do both preliminary preparations and design work for a new water
treatment facility, and that City later breached that contract. In the alternative, if the contract was
found unenforceable, PES sought recovery in quantum meruit. City claimed that no contract existed
with PES because of PES’s failure to gain the required approval of the contract by the city attorney
and city council. The trial court found in favor of PES, holding that City had contracted with PES
and subsequently breached that contract. The court further found that in the event this court found
no contract existed, that PES was entitled to recovery in quantum meruit. City appeals based on the
following facts.

        In March 1992, City received a letter from the Tennessee Department of Environment and
Conservation (“TDEC”) indicating that surface water had contaminated the City water system. The
City was instructed to hire an engineer to determine a feasible solution for the problem and to submit
the engineer’s study within ninety days. In addition, the City was given an October 1, 1993, deadline
for construction of a filtration treatment system or other redevelopment of the groundwater source.
Failure to comply with the letter’s instructions would violate TDEC regulations and could result in
fines.

        The city council voted for local engineer Ronnie Reece (PES) to do the required study. 1 This
was memorialized in an “Engineering Agreement” signed by Mayor Tommy Spivey, providing for
PES to prepare the study, assist in application for grant or loan assistance, and if approved, to
provide various other services and documents. The Engineering Agreement also specified PES’s
compensation based upon the construction cost of the project. This agreement was signed on April
28, 1992. PES kept one copy of the contract in its files and delivered two copies of the contract to
the City.

        PES prepared the study as was requested, and forwarded it to the City for approval. The study
included estimates for the construction of a water treatment plant, an engineering design fee, and an
inspection fee, as well as a recommendation regarding funding. After approval by the City, PES sent
the study to the TDEC. The TDEC approved PES’s study and recommendations on September 28,
1992.

         At a city council meeting in October, PES reported the TDEC’s approval to the council and
made funding recommendations which were approved by the City. The council voted for PES to
proceed with the plans on the water filtration plant. PES did so, picking a site for the proposed
facility, locating needed equipment, and performing other preparatory work.2 In addition, PES
appeared before the city council each month to provide an update on the design status of the project.

       In December 1992, the City approved PES’s proposal to apply for a loan from the Tennessee
Association of Utility Districts (TAUD) for funding of the filtration plant. In January 1993, the City
learned that its loan application had been approved. In April, the City authorized the Mayor to apply
for an additional loan/grant. This loan/grant application contained a signed “Agreement For
Engineering Services” providing that PES was to perform the engineering services for the project.


         1
           Ronnie Reece and Ricky White were partners in Professional Services Group Ltd, a company that was at that
time working on another job for the City. The first agreement at issue was between Professional Services Group and the
City. Professional Services Group was incorp orated as P rofessional E ngineering S ervices prio r to the second agreement
at issue in this lawsuit. For the sake of clarity, the party will be referred to as PES throughout this opinion.

         2
         During this period, Ricky White took over the primary functions of the job, acting as design engineer and
overseeing the drafting and writing of the pro ject specifications.


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        In June, the City decided to apply for a Community Development Block Grant (CDBG) for
additional funding. As required by the CDBG, the City advertised for an engineer and administrator
for the project. PES prepared and submitted the CDBG application for the City. In July 1993, the
council discussed the hiring of engineers for the project. At this time, it was noted that PES had a
contract authorizing it to proceed with the design of the project. The council also discussed a bill
for $46,088.92 that it had received from PES. The council passed a motion to hire PES as engineer
for the city CDBG water filtration project.

       In August 1993, the council discussed payment of PES’s invoice and the validity of the
contract between the City and PES. The council voted that the contract was not valid and advised
PES to work with the City attorney to prepare a new contract and proceed with the project.

        In October 1993, the City passed a resolution requiring PES to produce a preliminary
engineering report for the project. The resolution stated that pending approval of the CDBG, PES
would be engaged to design plans, inspect construction, and perform other required project services.
Later that month, the CDBG grant was approved.

        In November 1993, the council hired Water Management Services to study the feasibility of
alternatives to the construction of a new water treatment facility. In April 1994, PES explained the
difference between the conventional water treatment plant and a pressure filter plant. A motion was
made and passed by the council to have a conventional water treatment plant installed. On May 12,
1994, the council voted to employ Water Management Services as engineers to install a water
pressure filter system. The new water treatment plant was built on the site previously chosen by PES.

        On August 3, 1994, PES filed suit against the City for breach of contract. PES alleged that
both the Engineering Agreement of April 1992 and the Agreement for Engineering Services of April
1993 were contracts for PES’s services. In addition, PES alleged that it was never paid for its work
and that it was not allowed to complete the project. According to PES, the designs were eighty-five
percent complete at the time the City breached the contract. In the alternative, PES sought to recover
for quantum meruit.

        In its answer and a subsequent motion for summary judgment, the City alleged that PES
failed to state any claim because no contract had been formed. The City alleged that all contracts
had to be approved by the city council and city attorney to be valid. The court denied the City’s
motion for summary judgment.

        At trial, PES presented evidence indicating the formation of a contract with the City. This
evidence included testimony by both engineers who worked on the project as well as the various
written agreements between PES and the City. In response, the City offered testimony regarding the
correct procedure for contracting with the City. This procedure required approval of the contract by
both the city attorney and city council. The court found in favor of PES and awarded damages for
breach of contract in the amount of $56,488 plus pre-judgment interest. The court also found that
if the contracts were held invalid by the appellate court, that PES could recover $123,277 on the


                                                -3-
basis of quantum meruit. The City appeals.

        On appeal, the City asserts that the trial court erred in holding the PES is entitled to recover
for breach of contract. City asserts that the contracts were not valid and that therefore, City cannot
be liable for breach. In addition, City asserts that the trial court erred in finding that PES was
entitled to recover in quantum meruit if the contracts were found invalid by this court. Finally, City
asserts that PES lacked capacity to bring the suit based on its change from a partnership to a
corporation.

                                               Analysis
        As a preliminary matter, we find it necessary to address City’s argument that PES lacks
capacity to bring this suit. Regardless of any alleged problem as to capacity that may have existed
when this suit was initiated, the issue has not been properly raised or preserved by the City.
According to Rule 9.01 of the Tennessee Rules of Civil Procedure, an objection to the existence or
capacity of any party must be addressed by specific negative averment of the challenging party. 3
Failure to follow this procedure results in the waiver of the objection. Kemmons Wilson V. Allied
Bank of Texas, 836 S.W.2d 104 (Tenn. Ct. App. 1992) (stating that failure to make a specific
negative averment as to a party’s authority to sue waives the objection); see also TENN . R. CIV . P.
12.08.4 For the reasons stated above, we find it unnecessary to address this issue further. We now
turn to the City’s remaining issues.

                                       A. Breach of Contract
        On appeal, the City argues that the agreements entered into between PES and the City were
not valid contracts. City alleges that these agreements are void or voidable as ultra vires, because
they were not properly authorized by the city council or approved by the city attorney. In support
of this contention, the City points to the relevant provisions in the city charter, which outline the
proper procedure for contracting with the City.

        Municipalities may exercise only those express or necessarily implied powers delegated to
them by the Legislature in their charters or under statutes. City of Lebanon v. Baird, 756 S.W.2d
236, at 241 (Tenn. 1988) citing Barnes v. City of Dayton, 216 Tenn. 400, 410, 392 S.W.2d 813, 817

         3
           T ENN. R. C IV. P. 9.01 provides: “It is not necessary to aver the capacity o f a party to sue or be sued or the
authority of a party to sue or be sued in a representative capacity or the legal existence of an organized association of
persons that is made a p arty. When a party desire s to raise an issue as to the leg al existence of any pa rty or the ca pacity
of any party to sue or be sued or the authority o f a party to su e or to be su ed in a rep resentative capacity , he or she sh all
do so by specific negative averment, which shall include such supporting particulars as are peculiarly within the
pleader's knowledge.” (emphasis added)

          4
           T ENN. R. C IV. P. 12.08 provides in relevant par t: “A party waiv es all defenses a nd obje ctions which the party
does not present either by motion as hereinabove provided, or, if the party has made no motion, in the party's answer or
reply, or any ame ndments the reto...The objection or defense , if made at the trial, shall be dispo sed of as pr ovided in R ule
15 in the light o f any evidenc e that may hav e been rec eived.”




                                                               -4-
(1965); Adams v. Memphis & Little Rock R.R. Co., 42 Tenn. 645, 654 (1866). "[T]he provisions
of the charter are mandatory, and must be obeyed by the city and its agents.... " Barnes v. Ingram,
217 Tenn. 363, 373, 397 S.W.2d 821, 825 (1965). When a municipality fails to act within its charter
or under applicable statutory authority, the action is ultra vires and void or voidable. Crocker v.
Town of Manchester, 178 Tenn. 67, 70, 156 S.W.2d 383, 384 (1941).

        A municipality’s action can be ultra vires because the action was outside the city’s authority
under its charter or statute, or because the action taken was not consistent with the charter or statute’s
mandatory provisions. City of Lebanon v. Baird, 756 S.W.2d 236, at 241 (Tenn. 1988) Accordingly,
the law distinguishes between the existence of a municipal power and the manner or mode of
exercising municipal power legitimately. See City of Chattanooga v. Tennessee Electric Power Co.,
172 Tenn. 524, 112 S.W.2d 385 (1938) (existence of power); Rutherford v. City of Nashville, 168
Tenn. 499, 79 S.W.2d 581 (1935) (manner of exercise).

       At issue here is whether the City acted consistently with its charter regarding the agreements
with PES. According to the charter, the city council has the power to “authorize the expenditure of
money for any municipal purpose,” and to “provide for the acquisition, construction, building,
operation, and maintenance of ...any...public improvements, inside or outside the City.” In addition,
the mayor shall sign contracts only “when authorized by the Council to do so...” Finally, the
contracts must be approved by the city attorney.

         From our reading of the record, the agreements between PES and the City were not made
according to the procedures outlined in the charter. PES obtained the mayor’s signature on the first
agreement without obtaining the express approval of either the city council or city attorney.
Although PES did make this agreement available to the City, and therefore to the council and city
attorney, there is no evidence that formal approval was given. In addition, the second agreement
fails to reflect the requirements outlined by the city charter. Therefore, for the reasons stated above,
the agreements between PES and the City were ultra vires. The trial court erred in holding that the
agreements were enforceable contracts.

                                          B. Quantum Meruit
        Before turning to the actual quantum meruit analysis, we must address another argument City
asserts as a bar to equitable relief. City asserts a governmental immunity argument based on Tenn.
Code Ann. § 9-8-107.5 According to City, this provision limits any recovery against a municipality


         5
           Tenn. C ode Ann . § 9-8-307 provides in relevant pa rt:
         (a)(1) The commission or each commissioner sitting individually has exclusive jurisdiction to determine all
monetary claims against th e state based on the acts or omissions of "state employees," as such term is defined in §
8-42-101(3 ), falling within one (1) or more of the following catego ries:
          (L) Actions for breach of a written contract between the claimant and the state which was executed by one (1)
or more state officers or employee s with authority to execute the contract; pro vided, that the group insur ance agree ments
created pursuant to §§ 8-27-201 and 8-27-302 shall be considered contracts for purposes of this subsection in order for
the commission to determine insurance claims which have been previously rejected by the state insurance committee or
the local education insurance committee;


                                                            -5-
to actual damages based on an express written contract, and therefore PES cannot be awarded an
equitable remedy. The statute cited by City is not applicable to this case. Section 9-8-107 refers to
the jurisdiction of the Tennessee Board of Claims, which deals exclusively with claims against the
state and state employees, not municipalities. See also Tenn. Code Ann. § 8-42-101(3)6 (providing


           (d) The state will be liable for ac tual damag es only. No award shall b e made un less the facts found by the
commission would entitle the claimant to a judgment in an action at law if the state had been a private individual. The
state will not be liable for punitive d amages an d the costs o f litigation other than court costs. T he state will not be liable
for willful, malicious, or criminal acts by state emplo yees, or for ac ts on the part of state employees done for personal
gain. The state may assert any and all defenses, including common law defenses , which would have been available to
the officer or employee in an action against such an individual based upon the same occurrence. The state may assert
any absolute common law immunities available to the officer or employee, however, good faith common law immunity
may not be asserted. If the claimant is successful with any claim filed with the claims commission after January 1, 1985,
the state shall pay such interest as the commissioner may determine to be proper, not exceeding the legal rate as provided
in § 47-14-121. In contract actions, interest may be awarded, but if the rate of interest is provided in the contract, the
award of interest shall be at that rate.


         6
            Tenn. C ode Ann . § 8-42-10 1(3) pro vides:
          (A) "State employee" means any person who is a state official, includ ing memb ers of the gene ral assembly and
legislative officials elected by the general assembly, or any person who is employed in the service of and w hose
compensation is payable by the state, or any person who is employed by the state whose compen sation is paid in whole
or in part from federal funds, but does not include any person employed on a contractual or percentag e basis. "State
employee" includes a foste r parent und er a contrac t with the state of T ennessee to provide foster home care for children
in the care and custody of the state and within the confines of the foster parent-child relationship. Notwithstanding any
statute to the contrary, for the purposes of provision of legal representation, "state employee " also includes employees
of community service agencies, and for purpose s of §§ 9-8 -112 and 9-8-307 , including, but n ot limited to, §
9-8-307(a)(1)(k), "state employee" also includes employees of community service age ncies. "State employee" also
includes a contract security employee working with the department of children's services, solely to the extent that such
contract security employee shall be permitted to drive a state vehicle pursuant to the rules and regulations of the
departm ent of general services, division of motor vehicle management, if such contract security employee's duties include
the transportation of juveniles and, such contract security employee shall not be considered a state employee for any other
purpose;
          (B) "Sta te employee" also includes any person designated by a department or agency h ead as a p articipant in
a volunteer p rogram a uthorized b y the departm ent or agenc y head. "State employee" also includes community service
agency volunteers designated by the commissioner of the department of health; provided, that designated volunteers who
are medical p rofessionals p roviding d irect health car e pursuant to title 378, chap ter 5, part 3 shall be con sidered state
employees solely for the category of "profes sional malp ractice" pu rsuant to § 9 -8-307. V olunteers sha ll not be eligible
for workers' com pensation b enefits from the sta te. It is the duty of eac h agency and departm ent to register with the board
of claims the names of all persons participating in a volunteer program authorized by such department or agency head.
If an agency or department head fails to register the name of a volunteer with the board of claims, any amounts paid by
the state pursuant to this chapter or title 9, chapter 8 as a result of the volunteer's actions shall be funded through the
age ncy's or department's budget. The commissioner of finance and administration is authorized to promulgate rules and
regulations to determine who is qualified to be designated as a volunteer. Such rules and regulations may set forth the
criteria for qua lification of partic ipants in volun teer progr ams. All such ru les and regu lations shall be p romulgate d in
accordance with the provisions of the Uniform Administrative Procedures Act, compiled in title 4, chapter 5;

          (C) "State employee" under this chapter and under title 9, chapter 8, also includes, as a volunteer, a person
designated by the district attorney general of each judicial district as a member of a judicial district task force relating
to the investigation and prosecution of drug cases. The district attorney general of each judic ial district shall register o nly


                                                              -6-
applicable definition of state employees).

       The trial court held that, if the agreements were found unenforceable, PES was entitled to
recovery on the basis of quantum meruit. On appeal, the City argues that PES is not entitled to
recovery pursuant to quantum meruit because PES did not confer a benefit on the City. For the
following reasons, we find that the trial court was correct in holding that PES could recover quantum
meruit damages.

         An action in quantum meruit provides an equitable substitute for contract claims. Such an
action allows parties who have provided goods and services to another to recover the reasonable
value of these goods and services. In order to recover under quantum meruit, the following factors
must be established: (1) there must be no existing, enforceable contract between the parties covering
the same subject matter; (2) the party seeking recovery must prove that it provided valuable goods
and services; (3) the party to be charged must have received the goods and services; (4) the
circumstances must indicate that the parties involved in the transaction should have reasonably
understood that the person providing the goods or services expected to be compensated; and (5) the
circumstances must also demonstrate that it would be unjust for the party benefitting from the goods
or services to retain them without paying for them. Castelli v. Lien, 910 S.W.2d 420, at 427 (Tenn.
Ct. App. 1995).

         PES has met all of the factors required to recover for quantum meruit. As we previously
stated, there is no enforceable contract between PES and the City because the agreements were ultra
vires. PES supplied and the City received a valuable service, by virtue of both PES’s preparation
of the preliminary report, the loan, and grant applications, and by selecting the site that was
ultimately used to build the water treatment facility. Both the testimony of PES engineers and the
minutes from the city council meetings indicate that the City understood that PES expected to be
paid for its services. At two of the council meetings, PES’s bill for services was discussed. Finally,


the names of properly qualified and designated task force members with the board of claims. Any member of such a task
force designated by the district attorney general shall meet the criteria for qu alifying as such a m ember as set forth in
rules and regulations promulgated by the commissioner of finance and administration. The commissioner, after
consultation with the department of safety and the Tennessee bureau of investigation, is auth orized to promulgate rules
and regulations to determine who shall qualify to be designated as a member of such judicial district task forces. Such
rules and regulations may set criteria for qualifications of members and may set limits on the numbers of task force
members from each district who may be registered. All such rules and regulations shall be promulgated in accordance
with the provisions of the Uniform Administrative Procedures Act, compiled in title 4, chapter 5. Task force members
are not eligible for workers' compensation benefits from the state of Tennessee; and
          (D) "State employee" also includes persons who are both members of community-based screening agencies that
function under title 33, chapter 2, part 6 and who screen individuals to make judgments required by title 33, chapter 2,
part 6. "State employee" furt her incl ude s the dep artm ent o f me ntal hea lth a nd m enta l ret ard atio n's "medical consultant";
this individual shall be a licensed physician who is designated by the commissioner of mental health and mental
retardation to provide medical consultation and advisory services to and on behalf of the commissioner and to the
department of mental health and mental retardation under title 33. The commissioner shall register only the names of
properly qualified and designated p ersons with the board of claims. Persons designated under this item a re not eligible
for worker s' compensa tion benefits fro m the state of T ennessee.



                                                                -7-
it would be unjust for the City benefit from the services provided by PES without providing
compensation. Accordingly, the trial court did not err in holding that PES is entitled to recover in
quantum meruit.

                                              Conclusion
        For the foregoing reasons, the trial court’s finding of breach of contract is hereby reversed,
and the trial court’s finding of recovery in quantum meruit is affirmed. Costs of appeal are taxed to
the Appellant, City, for which execution may issue, if necessary.




                                                 -8-
