Opinion
Argued March 3, 1975
June 4, 1975.
Public contracts — Preliminary objections — Well pleaded facts — Act of 1937, May 20, P.L. 728 — Jurisdiction of the Board of Arbitration of Claims — Limitation of actions — Accrual of claim — Termination of contract — The Administrative Code of 1929, Act 1929, April 9, P.L. 177 — Disputes — Authority of the Secretary of Public Welfare — Authority of the General Counsel of the Department of Public Welfare — Unenforceable oral agreement — Compromise agreement.
1. In ruling upon preliminary objections to a complaint, the court must accept as true all facts in the complaint which are well and clearly pleaded and all inferences reasonably deducible therefrom. [463]
2. Under the Act of 1937, May 20, P.L. 728, the Board of Arbitration of Claims has no jurisdiction over a claim filed more than six months after it accrued, which is the date when the complaining party was first able to litigate his claim. [465]
3. When a contracting party receives notice of termination of a written contract and ceases all work upon the contract and can determine all expenses attributable to performance under the contract, the claim of such party under the contract has accrued and may be litigated and the jurisdictional time limit for filing such claim under the Act of 1937, May 20, P.L. 728, begins to run. [465-6]
4. Under the Administrative Code of 1929, Act 1929, April 9, P.L. 177, legal difficulties or disputes in which a department of the Commonwealth is involved must be referred to the Department of Justice, and an oral agreement by the Secretary of Public Welfare or the General Counsel of the Department of Public Welfare to resolve by a particular method a legal dispute arising under a contract to which the Department of Public Welfare was a party, is unenforceable, since neither the Secretary nor the General Counsel are authorized to bind the Commonwealth to an oral agreement compromising disputed claims. [466-7]
Judge ROGERS filed a dissenting opinion in which Judge KRAMER joined, which was substantially as follows:
1. An oral express contract between a contractor and the Commonwealth, acting through competent officers, to accept a determination of a third party of the amount owed by the Commonwealth to the contractor under a written contract and an oral implied contract for services rendered during negotiations, is enforceable and a claim thereunder accrues only when the amount owing is determined by the third party named in the agreement. [468-9]
Argued March 3, 1975, before President Judge BOWMAN and Judges CRUMLISH, JR., KRAMER, WILKINSON, JR., MENCER, ROGERS and BLATT.
Appeal, No. 85 Misc. Docket, from the Order of the Board of Arbitration of Claims in case of UEC, Inc. v. Commonwealth of Pennsylvania, Department of Public Welfare, No. 327.
Complaint before the Board of Arbitration of Claims seeking damages for breach of contract and for service rendered. Defendant filed preliminary objections. Objections dismissed. Defendant appealed to the Commonwealth Court of Pennsylvania. Held: Appeal sustained. Preliminary objections sustained. Complaint dismissed. Petition for reargument filed and denied.
Lawrence Silver, Deputy Attorney General, with him Allen C. Warshaw, Deputy Attorney General, and Robert P. Kane, Attorney General, for petitioner.
A. Martin Herring, with him Ronald Wertheim, Meyer Feldman and, of counsel, Ginsberg, Feldman and Bress and Teitelman and Herring, for respondent.
This is an appeal by the Commonwealth of Pennsylvania, Department of Public Welfare (Commonwealth), from a decision of the Board of Arbitration and Claims (Board) dismissing the Commonwealth's preliminary objections to a complaint filed by UEC, Inc. (UEC).
Of course, in deciding the efficacy of the Commonwealth's preliminary objections, we must accept as true all facts in UEC's complaint which are well and clearly pleaded and all inferences reasonaby deductible therefrom. Bruhin v. Commonwealth, 14 Pa. Commw. 300, 320 A.2d 907 (1974). Therefore, we will set forth the relevant facts of this case as revealed by our examination of UEC's complaint, which consists of two causes of action alleging breaches of both a written contract and an oral contract.
On June 15, 1970, the Commonwealth and UEC entered into a written contract whereby UEC was to receive compensation for providing program design and development, staff training, and management for a system of model day care centers. The term of the contract was to run from June 15, 1970 to June 14, 1971 and thereafter from year to year, subject to cancellation by either party on sixty days' written notice. On April 14, 1971, the Commonwealth sent a telegram to UEC purporting to constitute written notice of the cancellation of the contract. Thereafter, the Commonwealth, through its agents, informed UEC that contract extension negotiations were reopened. There then followed negotiations and several meetings between the parties on the subject of extending the contract, until October 14, 1971, when the Commonwealth verbally informed UEC for the first time since its telegram of April 14, 1971 that it would not extend the contract. UEC then terminated all operations under the contract.
UEC had maintained its operations, although at a lower level, during the six months of negotiations from April 14, 1971 until October 14, 1971.
Subsequent to October 14, 1971, the Commonwealth, through its agents, continued to assure UEC that it intended to pay the balance due plaintiff under the contract. Because there was a disagreement as to the amount of the balance owing to UEC, the Commonwealth, acting through its agents, the Secretary of Public Welfare, Helene Wohlgemuth, and the General Counsel of the Department of Public Welfare, Marx S. Leopold, entered into an oral agreement with UEC on or about January 18, 1972, in which the Commonwealth promised to pay, and UEC promised to accept, in compromise and settlement of the disputed amount owing to UEC, an amount to be determined on a quantum meruit basis through an audit of UEC's performance to be conducted by the United States Department of Health, Education and Welfare (HEW) at the request of the Commonwealth.
Pursuant to this agreement, the Commonwealth, by letter dated March 21, 1972, requested HEW to establish a monetary value for the services furnished by UEC, specifying that HEW only consider the value of these services on a quantum meruit basis. HEW conducted an audit during the period of March 21, 1972 to November 22, 1972 and reached a conclusion that the total value of the services rendered by UEC was $2,559,671. The Commonwealth was informed of the HEW determination on or about November 9, 1972 but has failed to compensate UEC for the balance owing as determined by the HEW audit.
UEC's complaint alleging all of the above facts was filed with the Board on May 2, 1973. The Commonwealth then filed preliminary objections claiming, inter alia, that the Board was without jurisdiction because UEC did not file its complaint within six months of the time that its alleged claims accrued. As to UEC's claim under the written agreement, we must agree with the Commonwealth's contention. Therefore, we conclude that the Commonwealth's preliminary objections to that cause of action should be sustained.
Section 6 of the Act of May 20, 1937, P. L. 728, No. 193, as amended, 72 P. S. § 4651-6, reads in pertinent part as follows:
"The board shall have no power and exercise no jurisdiction over a claim asserted against the Commonwealth unless the claim shall have been filed within six months after it accrued."
This section has been interpreted to mean that the jurisdictional period begins to run from the time when the injured party is first able to litigate his claim. Penn-Jersey Contractors, Inc. v. The General State Authority, 12 Pa. Commw. 203, 315 A.2d 920 (1974).
The question then becomes: At what date did UEC's claim for breach of the written contract become ripe for litigation? We find that the latest possible date on which UEC was first able to sue for damages arising from its written contract with the Commonwealth was October 14, 1971. This was the day when the Commonwealth informed UEC that it would not extend the contract and the date on which UEC then ceased operations under the contract. Of course, this date is more than six months prior to the filing of UEC's complaint with the Board on May 2, 1973.
In short, we find that UEC's claim accrued on October 14, 1971, upon its termination of performance under the contract. On that date all work terminated and all expenses attributable to performance under the contract were determinable. UEC was therefore able to litigate its claim on this date. Any subsequent agreement as to settling this claim could in no way alter the fact that the claim existed on October 14, 1971. Since UEC's claim was not filed with the Board until eighteen months later, it is clear that the Board has no jurisdiction over this claim.
There remains for our consideration UEC's cause of action on the oral agreement to settle its claim under the written contract for an amount to be determined by the HEW audit. Initially, we find that the Board does have jurisdiction over this claim since it could not have accrued before November 9, 1972, the date on which the Commonwealth was first informed of the result of the HEW audit. UEC surely could not have known the amount of its claim until it received the result of the audit. The filing of this claim with the Board on May 2, 1973 was within a six-month period; therefore, the Board has jurisdiction.
Although UEC's claim passes the jurisdictional hurdle, it is also confronted by the Commonwealth's demurrer for failure to state a cause of action upon which relief can be granted. This demurrer is based on the Commonwealth's contention that, as a matter of law, its agents, Secretary Wohlgemuth and General Counsel Leopold lacked the authority to bind the Commonwealth to an oral agreement compromising claims. We must agree.
Section 512 of The Administrative Code of 1929, Act of April 9, 1929, P. L. 177, as amended, 71 P. S. § 192 (Supp. 1974-75), in pertinent part provides: "[W]hen any legal difficulty or dispute arises . . . in which any department . . . is concerned, . . . it shall be the duty of such department . . . to refer the same to the Department of Justice."
Here the written contract between the Commonwealth and UEC had terminated as of June 15, 1971, and a dispute existed as to whether UEC had fully performed its obligations under the provisions of the written contract and how much money was due and owing to UEC by the Commonwealth as a consequence of the written contract. This dispute was not referred to the Department of Justice by Secretary Wohlgemuth, as she was obligated to do by Section 512 of The Administrative Code of 1929 but rather, without authority, she entered into an oral agreement with UEC to resolve the dispute by requesting HEW to conduct an audit of UEC performance under the written contract and to pay UEC an amount to be set by HEW on a quantum meruit basis. The audit was performed and $2,559,671 was determined by HEW to be the amount of money due UEC. The Department of Public Welfare refused to honor Secretary Wohlgemuth's oral promise to be bound by the HEW audit and UEC was not paid.
Commonwealth had the authority to enter into this written contract with UEC by virtue of the provisions of Section 206 of the Public Welfare Code, Act of June 13, 1967, P, L. 31, as amended, 62 P. S. § 206.
Certainly the Department of Public Welfare has a moral obligation to pay to UEC that amount which the Commonwealth by its own determination contends is the correct amount due and owing under the terms of the written contract.
We reluctantly conclude that UEC cannot, under the circumstances here, enforce the oral agreement entered into with Secretary Wohlgemuth by a claim to the Board. See Commonwealth v. Seagram Distillers Corporation, 379 Pa. 411, 109 A.2d 184 (1954).
It is sad, but true, that persons contracting with the Commonwealth must know the extent of the authority of the officer purporting to act for the Commonwealth. Those lacking such knowledge contract at their peril.
Therefore, for the above reasons, we enter the following
ORDER
NOW, this 4th day of June, 1975, the appeal of the Commonwealth of Pennsylvania, Department of Public Welfare, is sustained, and its preliminary objections to UEC, Inc.'s complaint are hereby sustained, and the complaint is hereby dismissed.
I respectfully dissent.
UEC, Inc. has performed services for the Commonwealth of Pennsylvania valued in excess of $2,500,000, which the majority holds that it may not now recover because it did not timely file a claim with the Board of Arbitration of Claims although (1) competent officers of the Commonwealth, including the Secretary of Welfare, acknowledged the indebtedness and assured UEC of payment, (2) the same officers agreed with UEC that the amount payable, which was in dispute, should be determined by the U.S. Department of Health and Welfare, after audit, (3) UEC filed its claim within six months from the date of HEW's determination of the amount due, and (4) the Commonwealth simply repudiated the agreement after the amount due was determined as it had agreed. It is important to point out that UEC's claim is for services performed during a six months period of negotiations with the Commonwealth for an extension of a written contract after the Commonwealth had sent a notice of termination, and that four of the six months postdated the termination of the written contract.
The parties, in my view of the matter, clearly entered into at least three contracts: First, the written contract of June 15, 1970 which the Commonwealth terminated as of June 14, 1971; second, an oral implied contract for UEC's services, rendered and accepted after June 14, 1971 and until October 14, 1971; and third, an oral express contract that the disputed amount due by the Commonwealth to UEC would be determined by HEW after an audit. The last contract was entered into on January 18, 1972. It was supported by consideration, UEC giving up its right to receive an amount claimed in excess of that to be determined to be due by HEW, and the Commonwealth relinquishing its right to pay less. This contract plainly contained a precondition to the accrual of a right to file a claim — the ascertainment by HEW of the amount, if any, due. This was not accomplished until November 9, 1972. The case therefore clearly falls within the principle of Penn Jersey Contractors, Inc. v. The General State Authority, 12 Pa. Commw. 203, 315 A.2d 920 (1974); Lashner, Inc. v. Commonwealth Department of Highways, 1 Pa. Commw. 486, 275 A.2d 403 (1971), that where the parties intend that the claim should accrue when its amount is determined, such claim is timely made if filed within six months from the determination.
Judge KRAMER joins in this dissent.