Maryland Court of Special Appeals Case Summaries: March 17, 2008

Daily Record, The (Baltimore), Mar 17, 2008

CL [section]9-607 provides: "(a) if so agreed, and in any event after default, a secured party: (1) may notify an account debtor or other person obligated on collateral to make payment or otherwise render performance to or for the benefit of the secured party; ... (3) may enforce the obligations of an account debtor or other person obligated on collateral and exercise the rights of the debtor with respect to the obligation of the account debtor or other person obligated on collateral to make payment or otherwise render performance to the debtor. ..."

The official comment to section 9-607 states that the section "explicitly provides for the secured party's enforcement of the debtor's rights in respect of the account debtor's...obligations. ..." CL [section]9-607 comment 3.

SG [section]12-201 provides that the State may not raise the defense of sovereign immunity in a contract action based on an authorized written contract. See SG [section]12-201(a). "When the State enters into a contract with constitutional authority, it acquires rights and incurs responsibilities like those of any individuals, who are parties to such a contract." State v. Dashiell, 195 Md. 677, 692 (1950).

According to the motion papers filed by the University in circuit court, the contract between Chesapeake and the University was in writing. Consequently, the University waived sovereign immunity with respect to a contract action regarding that authorized written contract.

Thus, as secured parties holding a security interest in an account receivable owed by the University to Chesapeake, the Mooneys could enforce Chesapeake's right to payment, and the University remained obligated to pay, provided that the University received proper notification.

Because the University is not immune from an action for payment by Chesapeake, it is not immune from an action to enforce the security interest by the Mooneys because the Mooneys' rights are as an assignee of Chesapeake.

COMMENTARY: The University further contended that, even if the Mooneys could assert a cause of action in contract, the cause of action would be barred because it was not timely filed.

Title 12 of the State Government Article governs the liability of governmental entities by "defining the scope and general applicability of the doctrine of sovereign immunity." Magnetti v. University of Maryland, College Park, 402 Md.548 (2007). Furthermore, Subtitle 2 of this Title defines the extent to which the State has waived sovereign immunity as to contract claims. Id.

Specifically at issue in this case was SG. [section]12-202, which provides that a contract action "is barred unless the claimant files suit within 1 year after the later of: (1) the date on which the claim arose; or (2) the completion of the contract that gives rise to the claim."

SG [section]12-202 operates as a condition to the action itself, not merely as a statute of limitations, because the waiver of sovereign immunity "vanishes" after the one year period. See State v. Shrafeld, 382 Md. 129, 148-49 (2004).