Harford County v. Town of Bel Air

³⁶⁶ ELDRIDGE, Judge. We issued a writ of certiorari in this case primarily to address Harford County’s argument that, under the doctrine of governmental immunity, “the County could abrogate its obligations under a contract entered into in performance of a governmental function if dictated by the public good.” (Har-ford County’s brief at 17). We shall reject this argument, along -with several other contentions advanced by Harford County in an effort to justify the County’s breach of a contract with the Town of Bel Air. I. In 1954, Harford County and the Town of Bel Air entered into an agreement whereby the Town leased approximately 27 acres of land from the County for 25 years, at $1 per year.

The Town used a portion of the 27 acres as a sanitary landfill (presently known as “Tollgate Landfill”), and the County reserved the right to use the remainder of the acreage. 1 On February 24,1969, the County and the Town executed a new contract which replaced the 1954 contract. In exchange for the Town’s agreement to terminate the 1954 contract, the County agreed: “1. To provide, for a term of ninety-nine (99) years, adequate facilities or transfer stations, for the disposal of all refuse originating in the Town of Bel Air, including garbage, household trash, minor home appliances, stumps, brush and leaves [and] demolition rubble at no ‘on-site expense’ to the [Town]; ... “2. To provide for a term of ninety-nine (99) years adequate facilities for disposal of major home appliances, ³⁶⁷ and other like bulky non-burnable articles at no ‘on-site expense’ to [the Town].” The Town also agreed to the following provisions: “1.

It shall not be the responsibility of the [County] to provide equipment to haul or transport such refuse originating in the Town of Bel Air to such refuse disposal facilities or transfer station. “2. The [Town] will not use the said facilities or transfer station for any other purposes than those listed above without obtaining prior approval from the [County] in writing.” In 1981 Harford County enacted Bill No. 81-24, which imposed a $10 per ton fee on solid waste haulers for “any solid waste, collected in Harford County for deposit in any solid waste facility or landfill operated by or under contract for Harford County located within Harford County.” In light of Bill No. 81-24, the County attempted to charge the Town $10 per ton of refuse that the Town deposited into county facilities or landfills. In response, the Town filed an action for a declaratory judgment in the Circuit Court for Harford County, asserting that the 1969 agreement exempted it from the fee. On March 17, 1982, the circuit court rendered a declaratory judgment which concluded that “the Lease Agreement dated February 24,1969, is a valid agreement” and “[t]hat the Town of Bel Air is exempt from the charges imposed by Bill 81-24____” The court based its conclusion on the following four determinations: (1) “solid waste disposal operations are ... a proprietary function” and, therefore, Harford County had no governmental immunity from suit; (2) the County and the Town were authorized to execute the 1969 agreement; (3) the phrase “on-site expense” in the 1969 agreement, exempting the Town from such expenses, encompassed the $10 per ton fee; and (4) “the County is not able ... to cancel the contract ... on the basis of unreasonableness.” The County appealed the trial court’s decision to the Court of Special Appeals.

Prior to briefing and argument in that ³⁶⁸ court, both the County and the Town petitioned this Court for a writ of certiorari, which we denied. Thereafter, the County filed a motion in the Court of Special Appeals to dismiss its appeal, and the intermediate appellate court dismissed the appeal. In 1988, the General Assembly enacted the Maryland Recycling Act, which imposed a mandatory requirement on the County to recycle 20% of its solid waste by January 1, 1994. The Recycling Act also required that the County adopt a plan to accomplish this objective.

See Ch. 536 of the Acts of 1988; Maryland Code (1982, 1996 Repl.Vol.), § 9-505(a)(18) of the Environment Article. In 1992, in accordance with the Maryland Recycling Act, the County administrators submitted a recycling plan to the County Council for its approval. Accompanying this plan was Bill No. 92-10, which imposed a $35 per ton “tipping fee” 2 on solid waste haulers depositing waste at either the County municipal sanitary landfill or at the Harford Resource Recovery Facility (HRRF). 3 The County adopted the plan and enacted Bill No. 92-10 in February 1992. Shortly thereafter, the County again attempted to charge the Town for the municipal waste and recyclables that the Town deposited either at the county municipal sanitary landfill or at the HRRF. 4 ³⁶⁹ The Town brought another declaratory judgment action against the County in the Circuit Court for Harford County, seeking a declaration that the fee was an illegal tax and that imposition of the fee violated the 1969 agreement. 5 The County filed a counterclaim for accrued fees, and both parties filed motions for partial summary judgment on the issue of the fee’s legality.

After some procedural skirmishes, the circuit court in substance denied the motions for partial summary judgment and set the case for trial in May 1995. At the conclusion of the trial, the circuit court issued a declaratory judgment, declaring that the 1969 agreement was valid and that the Town was exempt from the fee imposed by Bill No. 92-10. The court reasoned that it was bound by the 1982 declaratory judgment under principles of res judicata, stating: “[0]n the res judicata issue that does bind us in certain findings that Judge Fader made back in 1982. He did find that this was a valid contract supported by adequate consideration; ... “He also found that the solid waste issue was a proprietary as opposed to a governmental function.

And as I read the Eslinger case, that is something that I am bound by, even if I would have come to a different decision had I approached it as a fresh issue. “And in all probability, quite frankly, I think under the facts presented in this case I think that’s more likely than ³⁷⁰ not the answer. Although I am not making a finding in that regard, I think more likely than not under today’s law it probably would be determined to be a governmental issue. But we are bound by Judge Fader’s decision on that issue, as I previously mentioned. “We are also bound by his decision as to what an on-site expense is, insofar as the ’82 tipping fee is concerned. Of course as to the present fee he didn’t make a finding because it wasn’t in effect.

But I do find that the two statutes establishing the respective fees are similar except that the present tipping fee exempts recycling. So I really think they are so similar almost to be distinction without a difference.” The court rejected the County’s argument that it was entitled to rescind the agreement on the ground that the contract was unenforceable under the doctrines of frustration of purpose and legal impossibility. The court also rejected the County’s argument that the agreement was ultra vires and against public policy. The County’s claim for accrued fees was denied.

The County filed a notice of appeal. Prior to briefing and argument in the Court of Special Appeals, the Town filed in this Court a petition for a writ of certiorari which we granted. The County’s primary argument before this Court is that it is entitled to governmental immunity under this Court’s decisions in American Structures v. City of Balto., 278 Md. 356 , 364 A.2d 55 (1976); Lake Roland Elevated Railway Co. v. Mayor & c. of Balto., 77 Md. 352 , 26 A. 510 (1893); and Rittenhouse v. Baltimore, 25 Md. 336 (1866). The County specifically argues that, pursuant to those cases, it is entitled to “abrogate its obligations under a contract entered into in performance of a governmental function if dictated by the public good.” (County’s brief at 17).

According to the County, the collection and disposal of municipal waste “constitutes a governmental, not a proprietary, function.” (Id. at 24). While recognizing that in 1976 the General Assembly abolished any ³⁷¹ entitlement to governmental immunity in contract actions which might otherwise be possessed by a charter county, 6 Harford County maintains that, under the above cited cases, the County is entitled to immunity with regard to contracts entered into prior to 1976. The County further argues that, as the 1982 case involved a “totally different transaction” from the present one, in that the two “fees were enacted at different times and for entirely different motives,” principles of res judicata do not bar the relitigation of its governmental immunity. The County further argues that, even if it is not entitled to governmental immunity with regard to the Town’s declaratory judgment action, the 1969 Agreement, under general principles of contract law, (1) lacked consideration, (2) is unenforceable due to inadequacy of consideration, (3) is unreasonable, (4) is a nullity under the doctrines of frustration of purpose and impossibility of performance, (5) contravenes the statutory public policies mandating recycling and solid waste management.

According to the Town, however, the circuit court correctly relied on the 1982 declaratory judgment that the County was not immune from this action. The Town contends that the activity involved is “proprietary” rather than “governmental.” The Town further argues that the County cannot escape its contractual obligations under any of the above-mentioned contract theories. In the Town’s view, the 1969 agreement exempts it from the $35 fee. Alternatively, the Town asserts that the “decree of March 17, 1982, declaring the Town County agreement to be valid is conclusive as a matter of res judicata.” (Town’s brief at 24).

Since we shall reject the County’s arguments on their merits, we need not, and shall not, reach the parties’ contentions based on principles of res judicata. ³⁷² II. This Court has consistently taken the position that “Maryland law has never recognized the defense of governmental immunity in contract actions against counties and municipalities” and that “counties and municipalities are normally bound by their contracts to the same extent as private entities.” Montgomery County v. Revere, 341 Md. 366, 384 , 671 A.2d 1, 10 (1996). “[Municipalities and counties have been regularly subject to suit in contract actions, whether the contracts were made in the performance of a governmental or proprietary function, as long as the execution of the contract was within the power of the governmental unit.” American Structures v. City of Balto., supra, 278 Md. at 359-360 , 364 A.2d at 57 , and cases there cited. See also, e.g., Fraternal Order of Police v. Baltimore County, 340 Md. 157, 173 , 665 A.2d 1029, 1037 (1995) (“Baltimore County was bound by the contract which it had made with the Union”); Board v. Town of Riverdale, 320 Md. 384, 389 , 578 A.2d 207, 210 (1990) (“counties and municipalities have never been granted immunity in contract actions”); Md.-Nat’l Cap. P. & P. Comm’n v. Kranz, 308 Md. 618, 622 , 521 A.2d 729, 731 (1987) (“counties and municipalities do not possess [the State’s] general immunity.

Instead, counties and municipalities have never been given immunity in contract actions”). The scope of governmental immunity for counties and municipalities was recently summarized by this Court in Board v. Town of Riverdale, supra, 320 Md. at 389-390 , 578 A.2d at 210 : “State agencies have normally been treated as if they were the State of Maryland for purposes of immunity, so that they enjoy the same immunity from ordinary tort and contract suits which the State enjoys. “Counties and municipalities, on the other hand, have not been accorded this broad general immunity from suit. Md-Natl Cap. P. & P. Comm’n v. Kranz, supra, 308 Md. at 622 , 521 A.2d at 731 .

It is true that they are ³⁷³ instrumentalities of the State, created by the State to carry out some of the State’s governmental functions. Nevertheless, under Maryland law, they have consistently been treated differently from State agencies and the State itself for purposes of immunity from suit. Thus, counties and municipalities have never been granted immunity in contract actions. Md.-Nat’l Cap.

P. & P. Comm’n v. Kranz, supra, 308 Md. at 622 , 521 A.2d at 731 ; American Structures v. City of Balto., 278 Md. 356, 359-360 , 364 A.2d 55 (1976). Their immunity ‘is limited to tortious conduct,’ Austin v. City of Baltimore, supra, 286 Md. at 53, 405 A.2d at 256. And, as to tort actions, the immunity is limited. As previously noted, it is inapplicable to nuisance actions.

Tadjer v. Montgomery County, supra, 300 Md. at 550, 479 A.2d at 1326. It is also inapplicable to actions based on violations of constitutional rights. Clea v. City of Baltimore, 312 Md. 662 , 667-668 n. 3, 541 A.2d 1303 (1988), and cases there cited. “With regard to ordinary tort actions, counties and municipalities can rely on the defense of governmental immunity only when they exercise a function categorized as ‘governmental’ rather than ‘proprietary’ or ‘corporate.’ ” Under the above-summarized principles, therefore, Harford County has no governmental immunity in contract actions or in declaratory judgment actions relating to contractual rights and liabilities. The governmental-proprietary distinction, relied on by the court below and debated by the parties, has no application in contract actions.

The distinction is pertinent only in certain types of tort actions against counties or municipalities. Nevertheless, Harford County asserts that three of this Court’s decisions authorize a county to abrogate or breach a contract as long as the contract involves the performance of a “governmental function” and the abrogation or breach is in accordance with “the public good.” The three cases relied upon are American Structures v. City of Balto., supra, 278 Md. 356 , 364 A.2d 55 ; Lake Roland Elevated Railway Co. v. Mayor & c. of Balto., supra, 77 Md. 352 , 26 A. 510 ; and ³⁷⁴ Rittenhouse v. Baltimore, supra, 25 Md. 336 . The decisions in these cases do not support Harford County’s position. American Structures v. City of Balto., supra, 278 Md. 356 , 364 A.2d 55 , involved a contract between Baltimore City and American Structures under which American Structures was to construct a storm drain outfall in accordance with specifications furnished by the Maryland State Highway Administration.

During the construction, a dispute arose over a requested adjustment of the contract price because American Structures encountered conditions allegedly different from those contemplated by the contract. American Structures, claiming that the City had breached the contract, filed a declaratory judgment action against, inter alia, Baltimore City. The City moved to dismiss on the ground of governmental immunity. The trial court, in granting the motion to dismiss, filed an opinion in which the court held that the City’s “purpose [was] to further the public benefit and general welfare” and that the construction activity constituted “a governmental function.” 7 This Court, while not disagreeing with the trial court’s holdings concerning public benefit and governmental function, reversed the dismissal of the action against the City.

We held that the City was not entitled to governmental immunity in a contract action, regardless of whether the contract was made in the performance of a governmental or a proprietary function. The holding in American Structures clearly refutes Harford County’s argument that counties and municipalities are entitled to abrogate or breach their contracts as long as the activity involved is “governmental” and the governmental decision is consistent with the “public good.” Nonetheless, there is language in the American Structures opinion, describing the holdings in Lake Roland Elevated Railway Co. v. Mayor & c. of Balto., supra, 77 Md. 352 , 26 A. 510 , and Rittenhouse v. Baltimore, supra, 25 Md. 336, which, if taken out of context, might seem to support Harford County’s argument in the ³⁷⁵ present case. The Court in American Structures commented as follows ( 278 Md. at 359-360 , 364 A.2d at 57 ): “Lake Roland Elevated Ry. v. Baltimore, 77 Md. 352, 370-372, 381 , 26 A. 510, 512-513, 516 (1893) and Rittenhouse v. Baltimore, 25 Md. 336, 346-48 (1866), are authority for the proposition that while a municipality may abrogate its responsibility under a contact entered into in performance of a governmental function if dictated by the public good, the municipality is answerable in damages incurred to the time of cancellation. As a consequence, municipalities and counties have been regularly subject to suit in contract actions, whether the contracts were made in performance of a governmental or proprietary function, as long as the execution of the contract was within the power of the governmental unit----” Harford County argues that the first sentence of the above-quoted passage supports its contention that local governments have governmental immunity in contract actions if the activity involved is “governmental” and if the local government’s breach of the contract is in the “public good.” If the first sentence of the quoted passage means what Harford County contends, it would appear to be inconsistent with the sentence which immediately follows it.

The Court in the first sentence of the above-quoted passage, however, was not recognizing a degree of local “governmental immunity” in contract actions. Instead, the two sentences together flatly reject any notion that a local government has immunity from suit in a contract action. The Court in the sentence quoted above was doing no more than attempting to characterize the Lake Roland Elevated Railway and Ritten-house cases, and to point out that, even when a municipality is entitled to abrogate a contract, it has no governmental immunity which would bar a suit for damages. An examination of the Lake Roland Elevated Railway and Rittenhouse cases demonstrates that the reference to a municipality’s entitlement to abrogate a contract, and limit its damages, did not concern governmental immunity from suit.

Rather, it related to a special situation where an earlier statute specifically ³⁷⁶ granted or authorized the grant of alleged contractual rights to a person or entity, where a later statute repealed the earlier statute, and where the validity of the later statute was challenged on the ground that it impaired the obligation of contracts in violation of Art. I, § 10, cl. 1, of the United States Constitution. Rittenhouse v. Baltimore concerned an ordinance enacted by the City Council of Baltimore in 1860 which expressly authorized the City to purchase the site for and erect an almshouse. Pursuant to the ordinance, the City in 1860 entered into a contract with George R. Rittenhouse under which Rittenhouse agreed to perform all of the brick-mason’s work for the almshouse, including supplying the bricks and the materials for mortar. In 1861, the City Council enacted another ordinance which expressly repealed the 1860 ordinance, and Rittenhouse was notified of the repealing ordinance in a letter from the Mayor.

Thereafter, Rittenhouse brought a breach of contract action against the City, contending that the City should not have stopped him “in the execution of his contract with the defendant ... after the passing of the said repealing ordinance.” 25 Md. at 341-342 . From a trial court judgment in favor of the City, Rittenhouse appealed to this Court. He argued that the repealing ordinance was unconstitutional, stating ( 25 Md. at 343 ): “To affirm that a municipal corporation may, under a pretext of a change in its policy, annul the obligation of its contracts made with individuals, is to arrogate for such corporation a more absolute sovereignty than is possessed by the State, to whom it owes its existence. By the Constitution of the United States, Article I, section 10, no State shall pass any law impairing the obligation of contracts, and by fair implication no State can be permitted to confer on an inferior organization a power which is denied to itself.” Baltimore City countered that the 1861 repealing ordinance was constitutional, saying that the City {id. at 344-345) ³⁷⁷ “possessed jurisdiction and power, in its public or municipal character, to pass the repealing Ordinance, and have validly exercised that power.

The contract must be understood as having been entered into with full knowledge of, and subject to the power of the appellee to repeal its Ordinance of 1860, and to abandon the site, and with it the work, if in its judgment the public good demanded it.” This Court’s opinion in Rittenhouse held that the 1861 repealing ordinance was valid, pointing out that the legislative body of the City had determined that the public good required that the construction of the almshouse be discontinued, that generally “a municipal corporation cannot, by contract, abridge its legislative power” (id. at 347), and that the City “acted in its public legislative capacity, in which its powers could not be abridged by any previous covenant into which it had entered” (id. at 348). Because the 1861 ordinance was held to be valid, the Court stated that Rittenhouse was “not entitled to claim any damages on account of profits he might have realized under the contract if he had been permitted to go on with the work” (ibid.). Nevertheless, this Court reversed the judgment in favor of the City, holding that Ritten-house was entitled to recover damages actually sustained. Moreover, the Court criticized a jury instruction which limited Rittenhouse to damages sustained prior to the repealing ordinance, saying (id. at 349-350): “[Tjhere is one expression in the court’s instruction that might mislead the jury in regard to this item of claim;—the appellant was limited to recover ‘any damage which he had actually sustained by reason of the contract, and before the enactment of the repealing Ordinance. ’ With regard to the damage resulting from the loss in the sale of the bricks, it might be said that it had not been actually sustained till they were sold, which was after the repealing Ordinance had been passed, and thus, under the instruction, the jury may have considered it as excluded.

Considering that this damage, if found by the jury, was one actually suffered under the contract while it was in force, although the amount of it was not ascertained till afterwards, and ought to be allowed, ³⁷⁸ and believing the jury may have been misled by the language of the court, we think there ought to be a new trial....” Lake Roland Elevated Railway Co. v. Mayor & c. of Balto. also involved the issue of whether a repealing statute was valid under the Contract Clause of the United States Constitution. Baltimore City Ordinance No. 23, enacted in April 1891, specifically authorized Lake Roland Elevated Railway Co.’s predecessor to lay down tracks on specified Baltimore City streets, including double tracks on Lexington Street. Thereafter, the Railway Company began to lay double tracks on Lexington Street over the objection of the Mayor. Apparently, streetcars on double tracks would not leave enough room for the passage of other vehicles in some locations.

Ordinance No. 1, approved in November 1892, “repealed that portion of Ordinance No. 23 which authorized the double tracks on Lexington Street, but permitted the laying of single track on certain conditions.” 77 Md. at 365 , 26 A. at 511 . Baltimore City then began to remove the double tracks pursuant to the repealing ordinance. The Railway Company filed a bill of complaint in the Circuit Court of Baltimore City (an equity court) for an injunction to restrain the City authorities from removing the double tracks. The ground for the injunction was that the repealing ordinance was invalid.

The Circuit Court, holding that the repealing ordinance was valid, dismissed the bill of complaint. The Railway Company appealed, arguing that Ordinance No. 23 of