John McShain, Inc. of Maryland v. State

• Decision Date: 11 March 1980
• Docket Number: No. 126,126
• Citation: 411 A.2d 1048,287 Md. 297
• Parties: JOHN McSHAIN, INC. OF MARYLAND v. STATE of Maryland et al.
• Court: Maryland Court of Appeals

Page 297

287 Md. 297

411 A.2d 1048

JOHN McSHAIN, INC. OF MARYLAND v. STATE of Maryland et al.

No. 126.

Court of Appeals of Maryland.

March 11, 1980.

Alva P. Weaver, III, Baltimore (David F. Clinnin and Lord, Whip. Coughlan & Green, P. A., Baltimore, on the brief), for appellant.

Thomas A. Baker, Asst. Atty. Gen., Baltimore (Stephen H. Sachs, Atty. Gen., and Allan S. Levy, Asst. Atty. Gen., on the brief), for appellees.

Argued before MURPHY, C. J., and SMITH, DIGGES, ELDRIDGE, COLE, DAVIDSON and RODOWSKY, JJ.

MURPHY, Chief Judge.

The issue in this case is whether the defense of sovereign immunity may be successfully asserted in a suit for money damages filed against the State and one of its agencies, the University of Maryland, for the alleged breach of a construction contract executed prior to July 1, 1976, but amended subsequent to that date by a series of contract modifications known as "change orders."

By ch. 450 of the Acts of 1976, codified as Maryland Code (1957, 1978 Repl.Vol.), Art. 41, § 10A, the legislature waived the defense of sovereign immunity theretofore available to the State in contract actions. ¹ The statute provides that neither the State nor any of its agents may plead sovereign immunity "in an action in contract based upon a written contract executed on behalf of the State . . . ." ² The Act, which became effective on July 1, 1976, provides in § 6: "(T)his Act shall not apply to any action based on a contract entered into or executed prior to the effective date of this Act."

(1)

On May 17, 1974, appellant John McShain, Inc. contracted with the State, for the use of the University of Maryland, to construct a building for $19,167,000. Under the terms of the contract, the State had the right to order changes in the work during the course of construction. The contract provided that "No order for change at any time or place shall in any manner or to any extent relieve the Contractor of any of his obligations under the Contract."

Beginning in May 1975, the parties executed a series of "change orders," each of which provided that "All work proposed herewith shall be done pursuant to the terms and conditions of the existing contract between (the parties) and, except as modified herein, the contract remains in full force and effect." Between July 1, 1976 and October 17, 1978, a total of eighteen "change orders" were executed, ranging in cost from $172 for relocating certain acid waste lines to $8,559 for installing insulation on specified spiral duct and flexible ductwork connections. These "change orders" increased the total contract price by $24,826.64, bringing the final total to $19,224,694.73. The building was completed in 1978.

McShain sued the State and the University in the Superior Court of Baltimore City for breach of contract, alleging three distinct grounds for recovery. First, McShain claimed that although it had fully performed its obligations under the contract, the State had refused to pay the sum of $117,226.24, which was due and owing. Second, McShain alleged that contrary to agreement, the State did not make the entire construction site available until November 5, 1974, four months after the agreed upon time. McShain asserted that this delay completely disrupted its construction procedures and the scheduling of its work and resulted in $1,581,155 in damages. Finally, McShain claimed that it suffered $2,000,000 in damages as a result of a two and a half year stop work order which related to the architectural design and equipping of the auditorium. None of these damage claims were based on an alleged breach of any contract provision accountable to change orders effectuated after July 1, 1976.

Pursuant to Maryland Rule 323 a 9, the State raised a preliminary objection on the ground of sovereign immunity. The court (Sodaro, J.) granted the motion and entered judgment for the defendants, stating that the contract between the parties was entered into on May 17, 1974, "thus prior to July 1, 1976, after which time the Legislature removed the protection of sovereign immunity against the State of Maryland." The court concluded "that the approximately 28 change orders are not novations, nor do they have the legal effect of renewing the contract" so as to bring it within the provisions of § 10A of Art. 41.

On appeal, ³ McShain contends that the contract on which it bases its suit was in fact entered into after July 1, 1976. It reasons that each time the parties agreed to modify the original contract by entering into a "change order," a new contract sprang into existence. It claims that each of these new contracts was based on a new "meeting of the minds" at which point the parties intended to merge all the unmodified items of the original agreement into the modification contract. Thus, it claims that each change order represented a new modified agreement which took the place of the original contract and any previous modification contract. McShain argues that because the parties agreed to amend the terms of the...