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decided: January 24, 1979.


No. 34 May Term, 1978, Appeal from the Order Entered June 4, 1975, by the Commonwealth Court 85 Misc. Docket, which reversed the Order of the Board of Arbitration of Claims at Docket No. 327


Ronald M. Katzman, Harrisburg, for appellant.

Allen C. Warshaw, Deputy Atty. Gen., Dept. of Justice, Harrisburg, for appellee.

Eagen, C. J., and Roberts, Nix, Manderino and Larsen, JJ. O'Brien, J., did not participate in the decision of this case. Pomeroy, former J., did not participate in the consideration or decision of this case. Eagen, C. J., and Roberts, J., concur in the result.

Author: Larsen

[ 483 Pa. Page 508]


On May 2, 1973, appellants, UEC, Inc. (Universal Education Corporation, Inc., hereinafter "UEC") filed with the Board of Arbitration of Claims (the Board) a complaint against the Commonwealth, Department of Public Welfare (DPW), appellee, seeking damages for breach of certain written and oral contracts. DPW filed preliminary objections to the complaint, which objections were dismissed by the Board. DPW appealed the dismissal of their preliminary objections to Commonwealth Court which reversed the Board, sustained DPW's preliminary objections and dismissed UEC's complaint. Commonwealth, Dep't. of Pub. Welfare v. UEC, Inc., 19 Pa. Commw. 461, 338 A.2d 730 (1975). This appeal followed.

In deciding the efficacy of DPW's preliminary objections and the correctness of the decisions of the tribunals below, we must accept as true all well-pleaded material facts set forth in UEC's complaint, as well as all inferences reasonably arising therefrom. Reardon v. Wilbur, 441 Pa. 551, 272 A.2d 888, 889 (1971). We, therefore, set forth the relevant facts of the case as pleaded in the complaint.

UEC entered into a written contract with the Commonwealth of Pennsylvania on June 15, 1970 whereby UEC was to receive compensation of approximately $4,000,000 for providing program design and development, staff training and management for a system of model day-care centers. The term of the contract was 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 announcing the cancellation of the contract. Shortly thereafter, high officials of the Commonwealth, namely Governor Milton Shapp, Attorney General J. Shane Creamer and DPW

[ 483 Pa. Page 509]

General Counsel Marx S. Leopold, informed UEC that, notwithstanding the telegram of April 14th, negotiations to extend the contract were reopened. During the negotiations on contract extension, UEC agreed to maintain its operations at a reduced level in order to avoid new start-up costs should the contract be renewed. Operations continued until October 14, 1971, at which time the Commonwealth informed UEC, for the first time since its telegram of April 14th, that the contract would not be renewed. UEC immediately terminated operations under the contract.

From October 14, 1971 until February 15, 1973, the Commonwealth, through its agents and officers including (according to the complaint) the Governor, the Secretary of Public Welfare, Helen Wolgemuth and the DPW General Counsel Leopold, continued on numerous occasions to give assurances of its intention to pay UEC the balance due under the contract. At some point during this period, however, a dispute arose as to the exact amount of compensation remaining to be paid (some $1,130,000 of the total amount had been paid). Thereafter, on or about January 18, 1972, Secretary Wolgemuth and General Counsel Leopold orally agreed with UEC that the Commonwealth would pay, and UEC would accept in compromise and settlement, an amount to be determined through an audit conducted by the United States Department of Health, Education and Welfare (HEW).*fn1 HEW was to calculate the amount owed to UEC on a quantum meruit basis, i. e., the reasonable value of the services performed.

Pursuant to this oral agreement of January 18, 1972, the Commonwealth per Secretary Wolgemuth requested HEW to conduct the audit. HEW conducted the audit during the period from March 21, 1972 to November 22, 1972, and concluded that the total value of the services performed by UEC was an amount in excess of ...

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