“We have [] held that waivers of sovereign immunity, which are in derogation of common law, are strictly construed in favor of the State.” (Citations omitted)
How later courts described this case
- “We have [] held that waivers of sovereign immunity, which are in derogation of common law, are strictly construed in favor of the State.” (Citations omitted)
- discussing federal sovereign immunity doctrine
- “The indorsement of a check is a distinct contract.”
- explaining that a check is a written contract
Written by the judges who cited it.
The opinion
State of Maryland, Comptroller of Maryland v. Badlia Brothers, LLC d/b/a Southwest
Check Cashing, No. 23, September Term, 2024.
SOVEREIGN IMMUNITY – STATE GOVERNMENT § 12-201(a) – WRITTEN
CONTRACT – FORMAL CONTRACT
The State has inherent sovereign immunity and thus cannot be sued absent its consent.
Section 12-201(a) of the State Government Article forbids the State from raising a
sovereign immunity defense in a “contract action” that is “based on a written contract”
executed by a State official acting with proper authority. That includes a formal contract,
which is a type of written contract that is made through the observance of certain prescribed
formalities.
FORMAL CONTRACT – NEGOTIABLE INSTRUMENTS – CHECKS – HOLDER
IN DUE COURSE
A negotiable instrument is a type of formal contract that is: “an unconditional promise or
order to pay a fixed amount of money, with or without interest or other charges described
in the promise or order, if it: (1) Is payable to bearer or to order at the time it is issued or
first comes into possession of a holder; (2) Is payable on demand or at a definite time;” and
(3) With certain exceptions not relevant here, does not contain other undertakings or
instructions. Md. Code Ann., Com. Law § 3-104(a) (2013 Repl.). A check is a form of
negotiable instrument and thus a contract for purposes of the waiver of sovereign immunity
in State Government § 12-201(a). Accordingly, the State has waived sovereign immunity
for the claims of a holder in due course seeking payment on a check issued by the State.
Circuit Court for Baltimore City
Case No. 24-C-24-000440
Argued: December 10, 2024
IN THE SUPREME COURT
OF MARYLAND
No. 23
September Term, 2024
______________________________________
STATE OF MARYLAND, COMPTROLLER
OF MARYLAND
v.
BADLIA BROTHERS, LLC D/B/A
SOUTHWEST CHECK CASHING
______________________________________
Fader, C.J.,
Watts,
Booth,
Biran,
Gould,
Eaves,
Killough,
JJ.
______________________________________
Opinion by Fader, C.J.
Watts, J., dissents.
______________________________________
Pursuant to the Maryland Uniform Electronic Legal
Filed: March 28, 2025
Materials Act (§§ 10-1601 et seq. of the State
Government Article) this document is authentic.
2025.03.28
'00'04- 11:05:48
Gregory Hilton, Clerk
The question before us is whether the State has waived sovereign immunity as to
the claims of a holder of State-issued checks who paid money for the checks in good faith—
a “holder in due course”—seeking payment on those checks. The answer turns on whether
a check is a contract for purposes of the State’s waiver of sovereign immunity in
§ 12-201(a) of the State Government Article (2021 Repl.). We hold that it is. Accordingly,
the State has waived sovereign immunity.
The State of Maryland possesses an inherent sovereign immunity: there can be no
“suits against the State or its entities absent its consent.” Magnetti v. Univ. of Maryland,
402 Md. 548, 557 (2007). The State has provided such consent in a variety of
circumstances. As relevant here, § 12-201(a) of the State Government Article forbids the
State from raising a sovereign immunity defense in a “contract action” that is “based on a
written contract” executed by a State official acting with proper authority.
The State (the petitioner) and Badlia Brothers, LLC (“Badlia”) (the respondent)
dispute whether a State-issued check is a contract that can be enforced by a holder in due
course. The State accepts that checks it issues are contracts between the State and the
original payees. But the State asserts that any effort to enforce checks by subsequent
holders are not contract actions as to which the State has waived sovereign immunity.
Badlia responds that checks are contracts, that they do not lose that status when the person
seeking to enforce them is not the original payee, and that actions to enforce them are
contract actions. We agree with Badlia.
Checks are a species of negotiable instruments, meaning that, subject to certain
well-established requirements, they are freely transferable by those holding them and
payable on demand when presented to the issuer. Checks, like other negotiable
instruments, have long been considered contracts, both at common law and as codified in
the Maryland Uniform Commercial Code (“MUCC”) and its predecessor, the Negotiable
Instruments Act. Even though negotiable instruments have different requirements and
features than traditional bilateral contracts, that does not make them any less contracts. We
therefore decline the State’s invitation to read the term “contract” in State Government
§ 12-201(a) to exclude checks. Accordingly, we will affirm the decision of the Circuit
Court for Baltimore City.
BACKGROUND
The facts are not disputed. Badlia is a business that cashes checks. At issue are 15
checks Badlia cashed that were issued by the State of Maryland—some by the Maryland
Department of Labor and others by the Comptroller of Maryland—but that the State had
already paid before Badlia presented them for payment to the State’s bank. 1 In some cases,
the original payees had deposited checks using a mobile app—a process that produced
“substitute checks”—and also either fraudulently or negligently presented the same checks
to Badlia. 2 In other cases, the original payees reported checks lost or stolen, causing the
1
The parties state that 16 checks were originally at issue. However, only 15 checks
are contained in the record and referenced in the affidavits submitted in the District Court
of Maryland. In any event, by the time of the District Court’s judgment, only 10 of the
checks, written for a total of $17,198.00, remained at issue.
2
The United States Congress anticipated this problem concerning the use of mobile
deposit “substitute checks” when it passed the Check Clearing for the 21st Century Act
(“Check 21 Act”), 12 U.S.C. §§ 5001 – 5018. Under the Check 21 Act, a “substitute check”
is a reproduction of a check that contains an image of both sides of the check, contains
additional specified information, physically conforms to industry standards, and is
2
State to issue stop payment orders on the original checks and then issue and pay
replacement checks. The individuals then cashed the supposedly lost checks with Badlia.
In all 15 cases, Badlia accepted the checks with no knowledge that the State had already
made payment and then presented them for payment. The State refused to honor the
checks.
Badlia filed complaints against the State in the District Court of Maryland sitting in
Baltimore City, claiming the right to enforce the checks as a holder in due course. The
court consolidated the cases, ruled that the State enjoyed qualified immunity, and dismissed
the cases. The Circuit Court for Baltimore City reversed. The court held that a check is a
contract, and thus, the State had waived sovereign immunity. On remand, the District
Court found that Badlia was a holder in due course entitled to enforce the checks. The
circuit court affirmed, and the State petitioned for certiorari, which we granted. State v.
Badlia Brothers, LLC, 488 Md. 387 (2024).
“suitable for automated processing in the same manner as the original check.” Id.
§ 5002(16). Such a substitute check may be produced from an “electronic image of the
original check.” Id. § 5002(18). A substitute check is “the legal equivalent of the original
check for all purposes” if it is accurate and bears a legend identifying it as a copy. Id.
§ 5003(b). As discussed below in Section V, a bank that transfers, presents, or returns a
substitute check for consideration makes certain warranties, including that “no depositary
bank, drawee, drawer, or endorser will receive presentment or return of the substitute
check” such that they will be asked to make payment on a check they have already paid.
Id. § 5004. The law further establishes a remedy for, among others, the drawer of the
original check to recover for a breach of that warranty. Id. § 5005 (establishing an
indemnity for a bank that creates or first transfers a substitute check); id. § 5009(a)
(establishing the measure of damages for breach of warranty).
3
DISCUSSION
This case lies at the intersection of sovereign immunity and contract law regarding
negotiable instruments. A check, a type of negotiable instrument, was a formal written
contract at common law and remains so as codified in statute. As with other negotiable
instruments, when a holder transfers a check for value to another, who receives it in good
faith without notice of defects or defenses, the transferee becomes a holder in due course
entitled to enforce the check. See Md. Code Ann., Com. Law §§ 3-203, 3-302 (2013 Repl.).
The action of a holder in due course to enforce payment of a check is thus a contract action
for which the State has waived sovereign immunity under § 12-201(a) of the State
Government Article.
I. STANDARD OF REVIEW
Whether the State waived its sovereign immunity for holder in due course actions
is a legal question, which we review without deference. See Gables Constr., Inc. v. Red
Coats, Inc., 468 Md. 632, 645 (2020).
II. PRINCIPLES OF INTERPRETATION
This case requires us to interpret State Government § 12-201(a). The goal of
statutory construction is to carry out the intent of the Legislature. Westminster Mgmt., LLC
v. Smith, 486 Md. 616, 644 (2024). We begin with the text of the statute and the context
of the scheme in which the text resides. Id. We avoid adding or subtracting language and
forced or subtle interpretations that may change the meaning of the provision. Id. If words
are undefined, we often look to dictionaries as a starting point to assess the ordinary and
popular meaning of a word. Id. If the text is ambiguous—or if we seek to confirm or check
4
our plain language interpretation—we look to other indicia of legislative intent, including
legislative history. Id. at 645; see also Elsberry v. Stanley Martin Cos., 482 Md. 159, 190
(2022). Text is ambiguous if “the words of a statute are ambiguous and subject to more
than one reasonable interpretation, or where the words are clear and unambiguous when
viewed in isolation, but become ambiguous when read as part of a larger statutory
scheme[.]” See Bennett v. Harford County, 485 Md. 461, 485-86 (2023) (quoting Wheeling
v. Selene Fin. LP, 473 Md. 356, 377 (2021)).
We operate under the rebuttable presumption that the General Assembly was aware
of both the common law and case law of this Court when it passed the waiver of sovereign
immunity now codified in § 12-201(a). See Consol. Constr. Servs., Inc. v. Simpson, 372
Md. 434, 461 (2002). As the predecessor to § 12-201(a) was enacted in 1976, we will
examine whether checks were considered contracts at that time. The answer then, as now,
is that they were.
III. SOVEREIGN IMMUNITY AND CONTRACT CLAIMS
Sovereign immunity is a long-standing doctrine “[g]rounded in ancient common
law[.]” Condon v. State of Maryland-Univ. of Maryland, 332 Md. 481, 492 (1993). The
federal government, states, and tribes all possess some level of sovereign immunity, subject
to waiver. 3 In Maryland, sovereign immunity “prohibits suits against the State or its
3
See, e.g., Dep’t of Agric. Rural Dev. Rural Hous. Serv. v. Kirtz, 601 U.S. 42, 49-50
(2024) (discussing federal sovereign immunity doctrine); U.S. Const. amend. XI; Alden v.
Maine, 527 U.S. 706, 712-13 (1999) (discussing sovereign immunity as it pertains to
states); Lac du Flambeau Band of Lake Superior Chippewa Indians v. Coughlin, 599 U.S.
382, 387 (2023) (reviewing tribal sovereign immunity); Michigan v. Bay Mills Indian
Cmty., 572 U.S. 782, 785 (2014) (same).
5
entities absent its consent.” Magnetti, 402 Md. at 557; see also ARA Health Servs., Inc. v.
Dep’t of Pub. Safety & Corr. Servs., 344 Md. 85, 91-92 (1996). Sovereign immunity is an
“absolute immunity,” State v. Rovin, 472 Md. 317, 347 (2021), and one that may be waived
only “directly or by necessary implication[,]” Katz v. Washington Suburban Sanitary
Comm’n, 284 Md. 503, 507-08 (1979). Indeed, we consider sovereign immunity to be “one
of the highest attributes of sovereignty[.]” Id. at 512 (quoting Dunne v. State, 162 Md.
274, 288-89 (1932)).
Sovereign immunity precludes the maintenance of any suit against the State or its
entities absent a specific waiver by the General Assembly. Magnetti, 402 Md. at 557. In
assessing whether sovereign immunity applies, the Court looks at: “(1) whether the entity
asserting immunity qualifies for the protection; and, if so, (2) whether the legislature has
waived immunity either directly or by necessary implication, in a manner that would render
the defense of immunity unavailable.” Id. (quoting ARA Health Servs., Inc., 344 Md. at
92). Waivers of sovereign immunity are narrowly construed in favor of the State. Brawner
Builders, Inc. v. State Highway Admin., 476 Md. 15, 32 (2021).
Until 1976, the State maintained broad sovereign immunity for contract claims. See
Baltimore County v. RTKL Assocs. Inc., 380 Md. 670, 675-82 (2004) (discussing the
legislative history behind the enactment of the predecessor to § 12-201(a) and related
provisions). In 1968, the General Assembly passed a joint resolution expressing the view
that “[t]he present judicial doctrine of sovereign immunity often operates capriciously and
unjustly to preclude recovery on many meritorious claims against state and local
governments[.]” Id. at 679 (alteration in original) (quoting 1968 Md. Laws, Joint
6
Resolution No. 49). In 1976, the General Assembly enacted Article 41, § 10(a), the original
predecessor to what is now § 12-201(a). 1976 Md. Laws, Ch. 450; RTKL Assocs. Inc., 380
Md. at 675-76. In an introductory “whereas” clause, the General Assembly explained the
reason for its action: “[T]here exists a moral obligation on the part of any contracting party,
including the State or its political subdivisions, to fulfill the obligations of a contract[.]”
RTKL Assocs. Inc., 380 Md. at 676 (quoting 1976 Md. Laws, Ch. 450).
Currently, 4 § 12-201(a) provides:
Except as otherwise expressly provided by a law of the State, the State,
its officers, and its units may not raise the defense of sovereign immunity
in a contract action, in a court of the State, based on a written contract
that an official or employee executed for the State or 1 of its units while
the official or employee was acting within the scope of the authority of
the official or employee.
Here, the actions filed by Badlia were brought in a Maryland State court, the checks at
issue are in writing, and the State does not contest that the checks were issued by authorized
individuals acting within the scope of their authority. The only point of dispute concerning
4
As originally enacted in Article 41, the waiver provided:
Unless otherwise specifically provided by the Laws of Maryland, the
State of Maryland, and every officer, department, agency, board,
commission, or other unit of State government may not raise the defense
of sovereign immunity in the courts of this State in an action in contract
based upon a written contract executed on behalf of the State, or its
department, agency, board, commission, or unit by an official or
employee acting within the scope of his authority.
1976 Md. Laws, Ch. 450. In 1980, the waiver was moved without change to Article 21,
§ 7-101. 1980 Md. Laws, Ch. 775, § 8. In 1984, as part of the creation of the State
Government Article through the code revision process, the waiver was recodified without
substantive change as State Government § 12-202(a). See 1984 Md. Laws, Ch. 284, § 1.
The provision was renumbered as § 12-201(a) in 1986. 1986 Md. Laws, Ch. 265, § 1.
7
the application of § 12-201(a) is therefore whether checks are contracts. To resolve that
dispute, we turn first to some general background concerning negotiable instruments.
IV. CHECKS AS NEGOTIABLE INSTRUMENTS—
SOME GENERAL BACKGROUND
A negotiable instrument is “an unconditional promise or order to pay a fixed amount
of money, with or without interest or other charges described in the promise or order, if it:
(1) Is payable to bearer or to order[5] at the time it is issued or first comes into possession
of a holder; (2) Is payable on demand or at a definite time;” and (3) With certain exceptions
not relevant here, does not contain other undertakings or instructions. Com. Law
§ 3-104(a). A check, as relevant here, is a form of negotiable instrument that is a signed,
written instruction to pay money that is “payable on demand and drawn on a bank.” Id.
§ 3-104(f) (defining check, as relevant here, as “a draft . . . payable on demand and drawn
on a bank”); id. § 3-104 cmt. 4 (stating that “[a] draft is an instrument that is an order”); id.
§ 3-103(a)(6) (defining “order” as “a written instruction to pay money signed by the person
giving the instruction”).
The law of negotiable instruments uses specific terms to describe the parties relevant
to a particular instrument. With respect to checks, the “maker” of the check is the “person
5
A negotiable instrument that is payable to bearer, or a bearer instrument, is payable
to whomever physically possesses the instrument. See Paper, Black’s Law Dictionary
(12th ed. 2024); see also Com. Law § 3-109(a). A negotiable instrument that is “payable
. . . to order,” or an order instrument, is payable to an identified payee, who can then indorse
the instrument to be payable to bearer or to another payee. See Negotiable Instrument,
Black’s Law Dictionary (12th ed. 2024); see also Com. Law § 3-109(b). The checks at
issue here were all order instruments, made payable to the order of identified people, the
payees.
8
undertaking to pay” and the “drawer” is the “person ordering payment.” Id. § 3-103(a)(5),
(3). A maker and a drawer, often the same person, can also be referred to as an “issuer.”
Id. § 3-105(c). The “drawee” is the bank that is “ordered . . . to make payment.” Id.
§ 3-103(a)(2). With respect to the checks at issue here, the State acted as the maker,
drawer, and issuer, ordering its bank (the drawee) to make payment from the State’s funds
on deposit with that bank. The payees to whom the checks were made payable were the
original “holders” of those checks.
When the original holders transferred, or “negotiated,” 6 the checks to Badlia in
exchange for cash, Badlia became a “holder in due course” of the checks. See id.
§ 3-302(a). A holder in due course is a holder of a negotiable instrument who took
possession of it in exchange for value, in good faith, and without notice of any problems
with the instrument or its enforceability. 7 Id. A holder in due course has the right to
6
“Negotiation” is the transfer of possession of a negotiable instrument by anyone
other than the issuer. Com. Law § 3-201(a). The recipient thereby becomes a holder, id.,
and is entitled to enforce the instrument, id. § 3-301 (identifying “the holder of the
instrument” as a person entitled to enforce it). The negotiation of a check made payable to
an identified person requires both transfer of possession and the identified person’s
indorsement. Id. § 3-201(b).
7
More precisely, subject to exceptions not relevant here:
“[H]older in due course” means the holder of an instrument if:
(1) The instrument when issued or negotiated to the holder does not
bear such apparent evidence of forgery or alteration or is not otherwise
so irregular or incomplete as to call into question its authenticity; and
(2) The holder took the instrument (i) for value, (ii) in good faith, (iii)
without notice that the instrument is overdue or has been dishonored
or that there is an uncured default with respect to payment of another
instrument issued as part of the same series, (iv) without notice that
the instrument contains an unauthorized signature or has been altered,
9
enforce the instrument free from most contract defenses, including those “that would be
available if the person entitled to enforce the instrument were enforcing a right to payment
under a simple contract[.]” Id. § 3-305(a)(2), (b). Here, Badlia asserts that its status as a
holder in due course means it is not subject to defenses the State would have had against
the original holders, including that the State had already made payment on the checks.
Historians debate the exact origin of negotiable instruments, but the pedigree is
ancient. 8 Bills of exchange, a species of negotiable instrument, “unquestionably” existed
in the 14th century. Jenks, note 8, at 71. Although the term “holder in due course” did not
originate in England until the 19th century, see Bills of Exchange Act, 1882, 45 & 46 Vict.,
ch. 61 § 29; M.B.W. Sinclair, Codification of Negotiable Instruments Law: A Tale of
Reiterated Anachronism, 21 U. Tol. L. Rev. 625, 630 (1990), the concept of a subsequent,
good faith holder enjoying particular rights—often applied using the term “bona fide
purchaser”—well predates that, see Sinclair, above, at 630; Peacock v. Rhodes, 99 Eng.
Rep. 402, 402-03 (K.B. 1781) (holding that as to a stolen and negotiated bill of exchange,
an innocent indorsee shall recover against the drawer). The concept is that to facilitate use
of negotiable instruments and the commercial benefits they provide, a holder in due course
(v) without notice of any claim to the instrument described in § 3-306,
and (vi) without notice that any party has a defense or claim in
recoupment described in § 3-305(a).
Id. § 3-302(a).
8
See generally John H. Munro, The Medieval Origins of the Financial Revolution:
Usury, Rentes, and Negotiability, 25 Int’l Hist. Rev. 505 (2003); James Steven Rogers, The
Myth of Negotiability, 31 B.C. L. Rev. 265, 270 n.6 (1990); Jacob J. Rabinowitz, The
Origin of the Negotiable Promissory Note, 104 U. Pa. L. Rev. 927 (1956); Edward Jenks,
On the Early History of Negotiable Instruments, 9 L.Q. Rev. 70 (1893).
10
may rely on the face of the instrument without being required to investigate the details of
the original contract. See Peacock, 99 Eng. Rep. at 402 (reasoning that a lack of contract
defenses for the indorsee “would stop the currency of bills of exchange, because it would
render it necessary for every indorsee to insist upon proof of all the circumstances, and the
manner in which the bill came to the indorser”).
This principle of English common law took hold in the United States in both
common law and statute. 9 The concept and purpose behind adoption of the holder in due
course rule was summarized in the United States Supreme Court’s 1857 opinion in
9
See, e.g., Goodman v. Simonds, 61 U.S. 343, 365 (1857) (“[T]hat a bona
fide holder of a negotiable instrument for a valuable consideration, without notice of facts
which impeach its validity between the antecedent parties, if he takes it under an
endorsement made before the same becomes due, holds the title unaffected by these facts,
and may recover thereon, although, as between the antecedent parties, the transaction may
be without any legal validity.”); Cecil Bank v. Heald, 25 Md. 562, 573 (1866) (“The general
principle of commercial law, that a bona fide holder of a negotiable instrument for a
valuable consideration, without notice, will be protected against the antecedent equities of
the original parties, is fully sustained by numerous authorities[.]”); James Barr Ames,
Specialty Contracts and Equitable Defences, 9 Harv. L. Rev. 49, 58 (1895) (citing
numerous common law decisions to support the proposition that “duress by the payee upon
the maker of a negotiable note will not affect the rights of a subsequent bona fide holder
for value”); 2 Thomas H. Calvert, Daniel on Negotiable Instruments 928 (7th ed. 1933)
(explaining that, under the Negotiable Instruments Act, a holder in due course is “one who
takes the paper before its maturity free from defenses of which he had no notice”); id.
(noting that, under common law, a payee may be a holder in due course and that a “number
of defenses were denied to obligors on such instruments as against an innocent payee”); cf.
Md. Const. Declaration of Rights Art. 5(a)(1) (providing that “Inhabitants of Maryland are
entitled to the Common Law of England”); Gladden v. State, 273 Md. 383, 389 (1974) (“In
1776 the framers of the Constitution of Maryland adopted the common law [of England]
as part of the law of this State.”); Sprint Commc’ns Co., L.P. v. APCC Servs., Inc., 554
U.S. 269, 312 n.5 (2008) (Roberts, C.J., dissenting) (“Exceptions (some created by statute)
to the general rule against assignments at law arose early in the common-law period,
including exceptions for . . . negotiable instruments[.]”); 29 Richard A. Lord, Williston on
Contracts § 74:2, at 224-26 (4th ed. 2003) (acknowledging that “from the early times” bills
of exchange were an exception to various non-assignability rules).
11
Goodman v. Simonds, in which the Court characterized the principle as “so long and so
well established, and so essential to the security of negotiable paper, that it was laid up
among the fundamentals of the law, and required no authority or reasoning to be brought
out in its support[.]” 61 U.S. 343, 365 (1857). The Court went on to explain:
Such being the settled law in this court, it would seem to follow as a
necessary consequence from the proposition as stated, that if a bill of
exchange endorsed in blank, so as to be transferable by delivery, be
misappropriated by one to whom it was intrusted, or even if it be lost or
stolen, and afterwards negotiated to one having no knowledge of these
facts, for a valuable consideration, and in the usual course of business, his
title would be good, and that he would be entitled to recover the amount.
The law was thus framed, and has been so administered, in order to
encourage the free circulation of negotiable paper by giving confidence
and security to those who receive it for value; and this principle is so
comprehensive in respect to bills of exchange and promissory notes,
which pass by delivery, that the title and possession are considered as one
and inseparable[.]
Id.
Checks “bec[a]me common practice in England” in the 1830s. Fritz Redlich &
Webster M. Christman, Early American Checks and an Example of Their Use, 41 Bus.
Hist. Rev. 285, 285-86 (1967). Although they were apparently non-negotiable in England
when they were first introduced, 10 American practice diverged. See id. at 290. Indeed, it
is “likely that the American check was negotiable from its earliest history – regardless of
10
Some scholars suggest that early English checks may have been viewed as short-
term instruments meant to be cashed by recipients on the day of receipt, and so were not
susceptible to negotiability for later presentment. Redlich & Christman, above, at 286,
290; see also Albert J. Rosenthal, Negotiability—Who Needs It?, 71 Colum. L. Rev. 375,
382 n.35 (1971) (“There is a division of opinion among historians as to whether the check
was thought to be negotiable in England until the late 19th century, some authorities
holding that the instrument was not regarded as intended for negotiation and that claims
and defenses were therefore not cut off.”).
12
its form [as a bearer or order instrument] – and was primarily a medium of domestic
exchange.” Id.
V. CHECKS ARE, AND HAVE LONG BEEN REGARDED AS, CONTRACTS.
A. Checks Are Contracts Under Common Law.
Negotiable instruments, including checks, have long been recognized as a type of
contract, sometimes referred to as a formal contract, at common law. As explained in the
Restatement, certain types of contracts, including negotiable instruments, “are subject in
some respects to special rules that depend on their formal characteristics and differ from
those governing contracts in general[.]” Restatement (Second) of Contracts § 6 (Am. L.
Inst. 1981). In other words, formal contracts are “made through the observance of certain
prescribed formalities,” Formal Contract, Black’s Law Dictionary (12th ed. 2024)
(identifying “the negotiable instrument” as one type of formal contract), rather than through
satisfying the standard elements of traditional bilateral contracts. Negotiable instruments
are a recognized category of formal contracts. See, e.g., Restatement of Contracts § 7 (Am.
L. Inst. 1932) (identifying negotiable instruments as a category of “[f]ormal contracts”);
22 Richard A. Lord, Williston on Contracts § 60:1, at 493-94 (4th ed. 2003) (“[N]egotiable
instruments . . . constitute formal contracts or sets of contracts.”).
Another type of formal contract is a contract under seal, which the Appellate Court
of Maryland discussed in Venners v. Goldberg, explaining that such a contract does not
require consideration. 133 Md. App. 428, 435 (2000). The court explained: “At common
law, a contract signed under seal was a formal obligation that became operative and
enforceable upon delivery. (Hence the expression ‘signed, sealed, and delivered.’)
13
Consideration was not an essential element of such a contract, and the contract was valid
notwithstanding the absence of consideration.” Id. Similarly, checks and other negotiable
instruments do not require consideration on the face of the contract to be valid and
enforceable. The absence of that requirement does not make a contract under seal or a
negotiable instrument any less of a contract.
The long-standing view that a check, as a negotiable instrument, is a contract has
been recognized by numerous state courts for more than a century. 11 For example, in
½ Price Checks Cashed v. United Automobile Insurance Co., the Texas Supreme Court
recognized that a check is a contract and that “in signing the check, the drawer contractually
obligates itself to pay the amount of the instrument to the instrument’s holder.” 344 S.W.3d
378, 386 (Tex. 2011).
11
See, e.g., Am. Emigrant Co. v. Clark, 47 Iowa 671, 674 (1878) (“Regarding the
check as a contract complete in itself, which, as all other commercial paper, it is, the
correctness of this instruction cannot be doubted.”); Aurora Nat’l Bank v. Dils, 48 N.E. 19,
21 (Ind. Ct. App. 1897) (“The indorsement of a check is a distinct contract.”); Byrd Printing
Co. v. Whitaker Paper Co., 70 S.E. 798, 800 (Ga. 1911) (“A check is a contract[.]”); Deal
v. Atl. Coast Line R.R. Co., 144 So. 81, 82 (Ala. 1932) (“[A] check is a contract within
itself[.]”); Howard v. Zilch, 190 N.E.2d 77, 79 (Mass. 1963) (explaining that a check is a
written contract); Diemar & Kirk Co. v. Smart Styles, Inc., 134 S.E.2d 134, 136-37 (N.C.
1964) (“A check is a contract within itself. By the act of drawing and delivering it to the
payee, the drawer commits himself to pay the amount of the check in the event the drawee
refuses payment upon presentment.”); Blair v. Davis, 281 So. 2d 247, 249 (Fla. Dist. Ct.
App. 1973) (noting that a check is written contract); Rocky Mountain Claim Staking v.
Frandsen, 884 P.2d 1299, 1302 (Utah Ct. App. 1994) (stating that a check is a form of
negotiable instrument which, in turn, is a contract); Lehman Bros. Holdings, Inc. v. Kee,
268 A.3d 178, 188 (Del. 2021) (approving of another court’s historical analysis that
designated negotiable instruments as “formal contracts”).
14
B. Checks Are Contracts Under the MUCC.
Maryland statutory law has similarly long recognized checks and other negotiable
instruments as contracts. From 1898 to 1964, Maryland law on the subject was found in
the Negotiable Instruments Act. See 1898 Md. Laws, Ch. 119 (codified at Art. 13, §§ 13
– 208); Venners, 133 Md. App. at 437-38. Under that Act, an instrument was negotiable if
it was in writing and signed by the maker or drawer, contained an unconditional promise
or order to pay a sum certain, was payable on demand or at a fixed or determinable future
time, was payable to order or bearer, and, where applicable, identified the drawee with
reasonable certainty. 1898 Md. Laws, Ch. 119 (codified at Art. 13, § 20). The Act
addressed, among other subjects, the general form and interpretation of negotiable
instruments, id. (codified at Art. 13, §§ 20-42); what would be deemed consideration for
the issuance of a negotiable instrument, id. (codified at Art. 13, §§ 43 – 48); the
indorsement and negotiation of a negotiable instrument, id. (codified at Art. 13, §§ 49
‒ 69); and the rights of a holder of a negotiable instrument, including a holder in due course,
id. (codified at Art. 13, §§ 70 – 78). The Act identified checks as negotiable instruments:
“A check is a bill of exchange drawn on a bank payable on demand. Except as herein
otherwise provided, the provisions of this Act applicable to a bill of exchange payable on
demand apply to a check.” Id. (codified at Art. 13, § 204).
As at common law, negotiable instruments as regulated by the Negotiable
Instruments Act were understood to be contracts and treated as such. Thus, in John
Hancock Mutual Life Insurance Co. v. Fidelity-Baltimore National Bank & Trust Co., in
assessing a conflict of laws dispute related to a negotiable instrument, our predecessors
15
identified certain necessary factors to consider. 212 Md. 506, 511 (1957). One such factor
was “[t]hat the law relating to what law governs contracts in general is applicable” to what
law governs negotiable instruments, “so far as general principles are concerned[.]” Id.
Also, “an ordinary negotiable instrument often includes many contracts, each several
signature—as maker, drawer, acceptor, guarantor, surety or indorser—being a separate
contract[.]” Id. Accordingly, “each separate contract [reflected in a negotiable instrument]
may bring into question a different place and law[.]” Id. We proceeded to apply general
contract principles to determine the law that would define whether the checks at issue gave
rise to enforceable legal contractual obligations. Id. at 511-16.
Maryland adopted the MUCC in 1963, 12 and that Act became effective the
following year. 1963 Md. Laws, Ch. 538. The MUCC, now codified in the first ten Titles
of the Commercial Law Article, was enacted to “simplify, clarify, and modernize the law
governing commercial transactions,” permit the ongoing expansion of commercial
practices, and “make uniform the law among the various jurisdictions.” Com. Law
§ 1-103(b). However, as the drafters of the model UCC expressly recognized, that law
“was drafted against the backdrop of existing bodies of law, including the common law
and equity, and relies on those bodies of law to supplement it[s] provisions in many
important ways.” Id. § 1-103 cmt 2; 13 see also Wolfe v. Univ. Nat’l Bank, 270 Md. 70, 75
12
The MUCC is Maryland’s adoption of the model Uniform Commercial Code
(“UCC”).
The official comments to the MUCC, which are taken directly from official
13
comments to the model UCC, are a “useful aid for determining the purpose of its
16
(1973) (“UCC § 1-103 operates as a general adoption of common law principles to
commercial transactions, where the code provisions do not apply to replace them[.]”
(citation and internal quotation marks omitted)).
Title 3 of the MUCC governs the use of negotiable instruments in Maryland. See
Com. Law §§ 3-101 – 3-605. That Title adopts a uniform set of provisions defining and
setting a framework for the creation, negotiation, use, and enforcement of negotiable
instruments. Id. A check is expressly recognized as a type of negotiable instrument in
Commercial Law § 3-104 (defining a negotiable instrument, one category of which is a
“draft,” and defining a check, as relevant here, as “a draft . . . payable on demand and drawn
on a bank”).
Notably for our purposes, when it was first enacted in 1963, and as it existed in 1976
(when the General Assembly enacted the first predecessor to State Government
§ 12-201(a)), the MUCC expressly referred to negotiable instruments as contracts. For
example, § 3-413 of the MUCC, which described the obligations undertaken by the “maker
or acceptor” and “drawer” of a negotiable instrument, was titled “Contract of maker,
drawer and acceptor.” Md. Code Ann., Art. 95B, § 3-413 (1964 Repl.); Md. Code Ann.,
Com. Law § 3-413 (1975 Repl.); see also Art. 95B, § 3-414 (1964); Com. Law § 3-414
(1975) (describing obligation of an indorser who does not specify otherwise to pay an
instrument if it is dishonored by another, as well as order of liability of indorsers to each
other; titled “Contract of indorser; order of liability”); Art. 95B, § 3-414 cmt. 1 (1964);
provisions” and are persuasive but not binding. Jefferson v. Jones, 286 Md. 544, 548
(1979).
17
Com. Law § 3-414 cmt. 1 (1975) (stating that a disclaimer made with an indorsement
“varies the written contract of indorsement”); Art. 95B, § 3-415 (1964); Com. Law § 3-415
(1975) (describing rights and obligations of an accommodation party who signs an
instrument; titled “Contract of accommodation party”); Green v. State, 32 Md. App. 567,
573 (1976) (explaining that, in the context of commercial law, there are “separate and
distinct contracts of a drawer and of an indorser, as set out in §§ 3-413 and 3-414 of” the
predecessor to the Commercial Law Article). 14
In sum, a check, like other negotiable instruments, is a formal contract created by
the observance of formalities now set forth in § 3-302 of the Commercial Law Article.
Under the current MUCC, as under the Negotiable Instruments Act and the common law,
the maker of a negotiable instrument undertakes a contractual obligation to pay the
14
Amendments passed in 1996 and made effective in 1997 adopted the revised
Article 3 of the Uniform Commercial Code. See 1996 Md. Laws, Ch. 91, § 2. When
making those amendments, the General Assembly did not include headings for the sections.
See id. Publishers of the Maryland Code have inserted the headings used by the drafters
of the model UCC, which use the word “Obligation,” rather than “Contract,” in reference
to the undertakings of issuers, acceptors, drawers, and indorsers. See Com. Law §§ 3-412
– 3-415. There is no suggestion in the language of the UCC, MUCC, or in the official
comments to the model UCC that the change was intended to alter the status of negotiable
instruments as contracts. Indeed, the word “obligation” itself is contractual language. See,
e.g., Patton v. Wells Fargo Fin. Maryland, Inc., 437 Md. 83, 109 (2014) (“Under Maryland
law, the parties to a contract may voluntarily agree to define their contractual rights and
obligations by reference to documents or rules external to the contract.”); Taylor v.
NationsBank, N.A., 365 Md. 166, 175 (2001) (stating that to prove a breach of contract,
one must show that “the defendant owed the plaintiff a contractual obligation and that the
defendant breached that obligation”); Contract, Black’s Law Dictionary (12th ed. 2024)
(defining “contract” as “[a]n agreement between two or more parties creating obligations
that are enforceable or otherwise recognizable at law”). And, in any event, that change
post-dated the General Assembly’s waiver of sovereign immunity for a contract action by
more than two decades.
18
instrument. Com. Law § 3-103(a)(5) (defining “maker” as the person undertaking the
obligation to pay); id. § 3-412 (explaining that the “issuer,” a term that encompasses a
“maker,” is obligated to pay the instrument). That obligation is enforceable by a holder in
due course, id. § 3-203(b), irrespective of certain defenses the issuer may have against
enforcement by a prior holder, id. § 3-305(b). The codification of the formal requirements
that must be met to create a negotiable instrument, along with the rights and obligations of
the parties to a negotiable instrument (including a maker such as the State of Maryland and
a holder in due course such as Badlia), have not altered the status of a check as a contract
or the status of those rights and obligations as contractual.
The State disagrees. It concedes that a check is a contract between its maker and its
original payee but argues that it is not a contract between its maker and a holder in due
course. The State acknowledges that under the MUCC a holder in due course is entitled to
enforce a check against the maker but contends that is a statutory right, not a contract right
for which the State has waived sovereign immunity under State Government § 12-201(a).
The foundation for the State’s contention is its position that § 12-201(a) waives sovereign
immunity only for contract actions based on traditional bilateral contracts. Because
traditional bilateral contracts require privity, see, e.g., Lithko Contracting, LLC v. XL Ins.
Am., Inc., 487 Md. 385, 404-05 (2024); Morris v. Osmose Wood Preserving, 340 Md. 519,
545 (1995); State v. Consol. Gas, Elec. Light & Power Co., 146 Md. 390, 395 (1924),
which is lacking between a maker and a holder in due course, the State argues that it has
not waived sovereign immunity for claims of holders in due course. For several reasons,
we disagree.
19
First, the State’s concession that a check is a contract between the maker and
original payee for purposes of § 12-201(a) is inconsistent with its position that § 12-201(a)
applies only to traditional bilateral contracts. Although there may be privity between a
maker and an original payee, checks generally lack an additional fundamental requirement
of a traditional bilateral contract: consideration. See Cheek v. United Healthcare of
Mid-Atl., Inc., 378 Md. 139, 147 (2003) (“To be binding and enforceable, contracts
ordinarily require consideration.”). The State’s concession that a check is a contract
between its original parties may avoid the absurdity of the position that the State’s checks
are not enforceable against it even by the original payees, but that concession undercuts its
broader defense that § 12-201(a) applies only to traditional bilateral contracts.
Second, the State’s position that § 12-201(a) applies only to traditional bilateral
contracts finds no support in the plain language or context of that provision, nor in case
law or any other authority that has been cited to us. Section 12-201 applies to a “contract
action” that is “based on a written contract.” The term “contract” is not limited to a
traditional bilateral contract. See Restatement (Second) of Contracts § 1 (Am. L. Inst.
1981) (“A contract is a promise or a set of promises for the breach of which the law gives
a remedy, or the performance of which the law in some way recognizes as a duty.”). There
is no restriction in the text of § 12-201(a) to particular types or categories of written
contracts, nor is it our place to add the phrase “traditional bilateral” before “contract” to
restrict its unambiguous scope. See Westminster Mgmt., LLC v. Smith, 486 Md. 616, 644
(2024). And nothing about the statutory scheme and context in which § 12-201(a) appears
suggests a narrower scope.
20
None of the cases cited in the State’s briefs support the proposition that § 12-201(a)
applies only to traditional bilateral contracts. In Stern v. Board of Regents, 380 Md. 691,
722 (2004), and ARA Health Services, Inc. v. Department of Public Safety & Correctional
Services, 344 Md. 85, 96 (1996), we held that sovereign immunity was not waived due to
a failure to meet specific requirements of § 12-201(a). In Stern, the requirement was that
the contract be signed, 380 Md. at 722; in ARA Health Services, the requirement was that
the relevant official or employee be acting within the scope of their authority, 344 Md. at
96. And in Lizzi v. Washington Metropolitan Area Transit Authority, which did not relate
to § 12-201(a) at all, the Appellate Court of Maryland concluded that a plaintiff’s claim
styled as a breach of contract claim did not qualify for a separate waiver of sovereign
immunity “for [the agency’s] contracts” because the claim was based on the Family and
Medical Leave Act, not a contract. 156 Md. App. 1, 12-13 (2003), aff’d on other grounds,
384 Md. 199 (2004). 15
15
At oral argument, the State cited the Appellate Court’s opinion in Maryland
Transportation Authority Police Lodge No. 34 of Fraternal Order of Police, Inc. v.
Maryland Transportation Authority, 195 Md. App. 124 (2010), rev’d on other grounds,
420 Md. 141 (2011). There, in rejecting a contention that the State could be liable for “a
contract that arises through the vehicle of promissory estoppel,” the Appellate Court stated
that because waivers of sovereign immunity must be construed narrowly, it would
“consider that [§ 12-201(a)] contemplates a traditional bilateral contract[.]” Id. at 220. The
court did not explain that conclusion, nor was that conclusion necessary to the court’s
analysis, which held that the State could be liable based only on a written contract and not
based on promissory estoppel. Id. at 219-20. In context, the court was distinguishing a
written contract signed by a person acting with authority from something that was not a
contract at all. The court was not distinguishing one type of written contract signed by a
person acting with authority (a traditional bilateral contract) from another type of written
contract signed by a person acting with authority (a negotiable instrument). In any event,
for the reasons discussed, we disavow the dicta suggesting that § 12-201(a) is limited to
traditional bilateral contracts.
21
Third, although it is unnecessary to consult legislative history given the
unambiguous scope of § 12-201(a), that too runs contrary to the State’s position. The
purpose of § 12-201(a) was to codify the “moral obligation on the part of any contracting
party, including the State or its political subdivisions, to fulfill the obligations of a
contract[.]” Baltimore County v. RTKL Assocs. Inc., 380 Md. 670, 676 (2004). As
discussed above, the obligation undertaken by the maker of a check, under the common
law and now the MUCC, includes the obligation to make payment when the check is
presented not only by the original payee but by any subsequent holder. See Com. Law §
3-203(b) (“Transfer of an instrument . . . vests in the transferee any right of the transferor
to enforce the instrument, including any right as a holder in due course[.]”). That
transferability is fundamental to any negotiable instrument and is part of the value of the
instrument itself. Were we to accept the State’s position, all checks it issues would
effectively cease to be negotiable instruments, as no subsequent holder could legally
enforce them against their maker. Although the State in this case is seeking to avoid
liability only for paying checks it has already paid to a different party, its argument is not
limited to that circumstance and would logically extend to all holders of checks who are
not the original payee. 16 In the future, such holders would lack any legal recourse against
16
The burden of such a holding might fall especially heavily on those who lack
access to traditional banks and so depend on the negotiability of checks to obtain value
from them. A report by the Federal Deposit Insurance Corporation (“FDIC”) found that
4.2% of American households and 3.4% of Maryland households had no bank account.
2023 FDIC National Survey of Unbanked and Underbanked Households, Appendix 73,
FDIC (last updated Nov. 14, 2024), https://www.fdic.gov/household-survey
[https://perma.cc/9F7W-5XVJ]. In addition, 14.2% of American households were
underbanked, which the FDIC says includes the usage of non-bank financial services like
22
the State and would be left to rely on the State’s moral obligation to make payment. That
is exactly what § 12-201(a) was enacted to avoid.
Fourth, in addition to failing at its premise that § 12-201(a) applies only to
traditional bilateral contracts, the State’s privity argument also fails in its application. As
explained by the New York Court of Appeals in 1857, “the maker of a negotiable
instrument is deemed in law to enter into a contract with every one to whom it is afterwards
negotiated[.]” Farmers & Mechs.’ Bank v. Butchers & Drovers’ Bank, 16 N.Y. 125, 141
(1857). Thus, the court held, “where the instrument is made by an agent . . . privity of
contract can be established between such agent and the subsequent holders[.]” 17 Id. In
other words, at common law, privity was deemed to be established between a maker and
check cashing. Id. The survey also found that “[n]early one in four households without a
high school diploma (23.1 percent) were underbanked, compared with one in ten
households with a college degree (10.4 percent).” Id. at Executive Summary 15
[https://perma.cc/296D-MU25]. “More than one in five Black, Hispanic, American Indian
or Alaska Native, and Native Hawaiian or Other Pacific Islander households were
underbanked, compared with one in ten White households (10.1 percent).” Id.
17
See also, e.g., Second Nat’l Bank of Toledo v. Walbridge, 19 Ohio St. 419, 424
(1869) (writing favorably that other courts held that “a bill of lading is not negotiable like
a bill of exchange, so as to enable the indorsee to maintain an action upon it in his own
name; the effect of the indorsement being only to transfer the right of property in the goods,
but not the contract itself” (citing Thompson v. Dominy, 14 Mees. & Welsb. 403, 153 E.R.
532 (1845))); Cincinnati, N.O. & T.P. Ry. Co. v. Citizens’ Nat’l Bank, 47 N.E. 249, 254
(Ohio 1897) (finding that a bona fide purchaser of stock should be protected as the
purchaser would for any other negotiable instrument, and that “[t]he cases and authorities
certainly show that the claim of the company that there is no duty (for that is all that can
be meant by the use of the term ‘privity’) resting upon it or its agents towards third persons
to observe care in the issue and transfer of its certificates of stock, and that, as a
consequence, it is not liable to them for negligence in such matters, is not well founded”
(citing Cook, Stocks & S. § 416)); Nat’l Bank of Webb City v. Newell-Morse Royalty Co.,
259 Mo. 637, 701-02 (1914) (rejecting a company’s claim that there is no liability because
there is no privity between it and third persons who may deal in its stock).
23
subsequent holders based on the undertakings inherent in a negotiable instrument. In any
event, whether privity is deemed to exist or whether it is simply not required for
enforcement of a formal contract such as a negotiable instrument, holders in due course
can enforce contract rights in a check against its maker. And such claims are contract
claims for which the State has waived sovereign immunity.
The State raises two other arguments we find equally unpersuasive. First, the State
argues that the checks it issues are not checks at all but are instead warrants. That is
incorrect. Warrants are internal orders issued by the Comptroller that approve a request to
spend part of an appropriation. Md. Code Ann., State Fin. & Proc. § 7-216 (2021 Repl.).
Money can then be disbursed from the State Treasury “in accordance with a warrant.” Id.
§ 7-226. A check is one way the State disburses money. Id. § 7-227 (identifying
requirements for “[a] check that is drawn to disburse money from the State Treasury”).
Finally, the State contends that it cannot be liable to pay the checks presented by
Badlia based on the foundational principle underlying sovereign immunity that, where the
General Assembly has expressly waived immunity, “an action for a money judgment may
not be maintained unless funds [have] been appropriated for that purpose or the agency can
provide funds by taxation.” Bd. of Trs. of Howard Cmty. Coll. v. John K. Ruff, Inc., 278
Md. 580, 590 (1976). The State argues that because the General Assembly allocated funds
to pay checks only once, this “action for a money judgment may not be maintained.”
However, State Government § 12-203 provides that “to carry out this subtitle, the Governor
shall include in the budget bill money that is adequate to satisfy a final judgment that, after
the exhaustion of the rights of appeal, is rendered against the State or any of its officers or
24
units.” The General Assembly has thus provided for the budget to include amounts
necessary to satisfy final judgments entered in this case.
Moreover, at least with respect to substitute check errors, we observe that the Check
21 Act, 12 U.S.C. §§ 5001 – 5018, discussed above in note 2, provides a mechanism for
the State to recover its overpayment from the bank or banks responsible for improperly
processing the checks. The Check 21 Act provides that a bank that transfers, presents, or
returns a substitute check and receives consideration “warrants, as a matter of law,” that
the substitute check meets all legal requirements under the Check 21 Act and that “no
depository bank, drawee, drawer, or endorser will receive presentment or return of the
substitute check . . . [or the] original check such that [they] will be asked to make a payment
based on a check that the bank, drawee, drawer, or endorser has already paid.” Id. § 5004.
A bank that breaches that warranty is liable for damages up to the amount of the substitute
check and interest and expenses related to the substitute check. Id. § 5009(a); see also 69
Fed. Reg. 62553 (“Under this chain of warranties and indemnities, losses generally will be
borne under the Check 21 Act by the reconverting bank, although the Act contains
comparative negligence provisions to protect the reconverting bank from losses attributable
to another person’s fault.”). Here, although we understand the State’s desire to avoid
making payment on checks it has already paid, the Check 21 Act contemplates exactly that
scenario and provides a remedy to make the State whole that is not available to a holder in
due course.
25
CONCLUSION
State Government § 12-201(a) waives the State’s sovereign immunity for contract
claims based on authorized written contracts. A check executed by a State official or
employee acting within the scope of their authority is such an authorized written contract.
Unless stated otherwise or absent any applicable exception, an inherent term of a check is
that it may be enforced by a holder in due course. Accordingly, the State has waived its
sovereign immunity for claims by a holder in due course seeking payment on an authorized
State-issued check.
JUDGMENT OF THE CIRCUIT
COURT FOR BALTIMORE CITY
AFFIRMED; COSTS TO BE PAID BY
PETITIONER.
26
Circuit Court for Baltimore City
Case No. 24-C-24-000440
Argued: December 10, 2024
IN THE SUPREME COURT
OF MARYLAND
No. 23
September Term, 2024
______________________________________
STATE OF MARYLAND, COMPTROLLER
OF MARYLAND
v.
BADLIA BROTHERS, LLC D/B/A
SOUTHWEST CHECK CASHING
______________________________________
Fader, C.J.
Watts
Booth
Biran
Gould
Eaves
Killough,
JJ.
______________________________________
Dissenting Opinion by Watts, J.
______________________________________
Filed: March 28, 2025
Respectfully, I dissent. I would hold that the State of Maryland’s sovereign
immunity is not waived by Md. Code Ann., State Gov’t (2014, 2021 Repl. Vol.) (“SG”) §
12-201(a) in an action by a holder in due course under the Maryland Uniform Commercial
Code (“MUCC”), Md. Code Ann., Com. Law (1975, 2013 Repl. Vol.) (“CL”) § 3-203, for
the payment of a check where the State has already satisfied its obligation to a payee and
the payee has negotiated or transferred the check to a third party.
I part ways with the Majority’s analysis in two respects. First, rather than examine
the plain language and legislative history of SG § 12-201(a) to ascertain the intent of the
General Assembly, the Majority’s approach appears to be to demonstrate that a check can
be “considered” or “deemed” a contract and conclude that because a check can be deemed
a contract, the requirements of SG § 12-201(a) are satisfied. Maj. Slip Op. at 2. Second,
in taking this approach, the Majority fails to grapple with the tenets of statutory
construction in terms of concluding whether the provisions of SG § 12-201 are ambiguous
and, if so, whether there is a clear expression of legislative intent to support its holding.
Applying well-settled principles of statutory construction, I would hold that the
language of SG § 12-201(a) is unambiguous and does not apply to actions by holders in
due course under CL § 3-203 seeking payment of checks issued by the State. SG § 12-
201(a) provides that the State:
may not raise the defense of sovereign immunity in a contract action, in a
court of the State, based on a written contract that an official or employee
executed for the State or 1 of its units while the official or employee was
acting within the scope of the authority of the official or employee.
By its plain language, SG § 12-201(a) prohibits the State from raising the defense of
sovereign immunity: (1) in a contract action, (2) based on a written contract, (3) that an
official or employee executed for the State, and (4) where the official or employee was
acting within the scope of the authority of the official or employee. SG § 12-201(a) does
not refer to checks or define written contracts as checks, and there is no indication in the
language of the statute that the General Assembly intended that actions brought by holders
in due course be considered contract actions, that checks the State issues to its employees
or others be “considered” or “deemed” written contracts for purposes of SG § 12-201(a),
or that checks the State issues be deemed to have been executed by an official or employee
acting within the scope of the person’s duty for purposes of SG § 12-201(a). See Maj. Slip
Op. at 2, 26. Although some sources have described a check as a type of contract, see, e.g.,
22 Williston on Contracts § 60:1 (4th ed.); Restatement (Second) of Contracts § 6 (1981),
there is no suggestion in the plain language of SG § 12-201(a) that the General Assembly
intended to adopt such a definition or intended that an action by a holder in due course to
enforce payment of a check be considered a written contract action for purposes of the
statute.
Badlia Brothers, LLC d/b/a Southwest Check Cashing (“Badlia”), Respondent,
argues, and the Majority agrees, that a check is a negotiable instruction, and negotiable
instruments are formal contracts. See Maj. Slip Op. at 2. After extensive discussion about
the meaning and definition of a check, the Majority concludes that a check can be
considered a formal contract and that a check satisfies the requirement of a contract under
SG § 12-201(a) because the General Assembly did not include language in the statute
ruling out checks as contracts. See Maj. Slip Op. at 13, 18, 20. A plain language analysis
-2-
of SG § 12-201(a), however, involves examining the language of the statute to determine
whether, by its ordinarily understood meaning, the phrase “a contract action . . . based on
a written contract” would be understood to mean an action by a third-party holder in due
course for payment of a check that the State has already paid.
In interpreting a statute, “[t]he cardinal rule of statutory construction is to ascertain
and effectuate the intent of the General Assembly[,]” and “we look first to the language of
the statute, giving it its natural and ordinary meaning.” Amaya v. DGS Constr., LLC, 479
Md. 515, 540, 278 A.3d 1216, 1231 (2022) (cleaned up). “If the words of the statute,
construed according to their common and everyday meaning, are clear and unambiguous
and express a plain meaning,” i.e., if there is no ambiguity, the Court gives “effect to the
statute as it is written” and “the inquiry as to legislative intent ends.” Id. at 540-41, 278
A.3d at 1231 (citation omitted); see also Koste v. Town of Oxford, 431 Md. 14, 26, 63
A.3d 582, 589 (2013) (“If the language of a statute is clear and unambiguous, we need not
look beyond the statute’s provisions and our analysis ends.” (Cleaned up)). In the event
of ambiguity, a court will carefully examine a “statute’s legislative history, case law,
purpose, structure, and overarching statutory scheme in aid of searching for the” General
Assembly’s intent. Koste, 41 Md. at 26, 63 A.3d at 589 (citation omitted).
In this case, in interpreting the language of SG § 12-201(a), the Majority does none
of the above. Rather, in its brief analysis of SG § 12-201(a), the Majority simply states
that a check can be deemed or considered a contract but does not conclude that based on
the plain language of the statute the term “written contract” is unambiguous and the
General Assembly intended a written contract to include a check issued by the State. See
-3-
Maj. Slip Op. at 13, 15, 18. Instead, the Majority concludes that, in SG § 12-201(a), the
word “contract” is not limited to a bilateral contract and that “[t]here is no restriction in the
text of § 12-201(a) to particular types or categories of written contracts, nor is it our place
to add the phrase ‘traditional bilateral’ before ‘contract’ to restrict its unambiguous scope.”
Maj. Slip Op. at 20. Rather than examine the meaning of the language in the statute, the
Majority conducts an analysis that exceeds an examination of the plain language of the
statute, determines after research that a check is a formal contract, and concludes that
because the General Assembly did not put limits on the word “contract,” it intended the
word to have a scope broad enough to include checks. This is not a plain language analysis.
Using this approach, the language of any statute could be said to be unambiguous where
the General Assembly did not limit the language at issue to rule out the interpretation in
dispute. And, the Majority’s approach exceeds, in the first place, a plain language analysis
of the term “written contract,” which would involve determining whether the meaning of
the words is ordinarily understood to include a check.
Employing the traditional principles of statutory construction, I would conclude that
the language of SG § 12-201(a) is unambiguous and does not include an action by a holder
in due course to enforce payment of a check that the State has already paid. The statute
provides by its plain language that the State may not raise a sovereign immunity defense
in a contract action that is based on a written contract executed by a State official or
employee where the official or employee was acting with the scope of the person’s
authority. The statute says what it means and means what it says. To the extent that there
is any ambiguity, or, more specifically, to the extent that there is any remote possibility
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that SG § 12-201(a) could be interpreted to mean that a check is a written contract and that
an action by a holder in due course to enforce payment of a check that the State has already
paid is a contract action for which the State may not raise the defense of sovereign
immunity, this would be an absurd interpretation of the statute.
A “contract” is defined as “[a]n agreement between two or more parties creating
obligations that are enforceable or otherwise recognizable at law” and “[t]he writing that
sets forth such an agreement[.]” Contract, Black’s Law Dictionary (12th ed. 2024).
Similarly, Merriam-Webster defines “contract” in part to mean “a binding agreement
between two or more persons or parties[,] especially: one legally enforceable[,]” and “a
document describing the terms of a contract[.]” Contract, Merriam-Webster (2025),
https://www.merriam-webster.com/dictionary/contract [https://perma.cc/B9TC-V7Z5].
The word “action” is derived in part from an Anglo-Norman word meaning “the exercise
of a claim before a judge[.]” Action, Black’s Law Dictionary (12th ed. 2024). “Action”
means “[a] civil or criminal judicial proceeding; esp[ecially,] lawsuit.” Id. (cleaned up).
“Action” has also been defined as “the initiating of a proceeding in a court of justice by
which one demands or enforces one’s right[.]” Action, Merriam-Webster (2025),
https://www.merriam-webster.com/dictionary/action [https://perma.cc/R7M6-AL4S].
Reading the terms “contract” and “action” together, a contract action can be said to be a
civil proceeding in a court arising out of an agreement creating obligations between two or
more parties that is legally enforceable.
A “written contract” is defined as one “whose terms have been reduced to writing.”
Written Contract, Black’s Law Dictionary (12th ed. 2024). Merriam-Webster defines
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“written” as “made or done in writing[,]” such as “a written contract/agreement[.]”
Written, Merriam-Webster (2025), https://www.merriam-webster.com/dictionary/written
[https://perma.cc/MR5A-J4Q6]. Unlike a check, a written contract is a formal agreement
that outlines the terms and conditions of the agreement, making the agreement enforceable
in court. See, e.g., Sy-Lene of Wash., Inc. v. Starwood Urban Retail II, LLC, 376 Md. 157,
166, 829 A.2d 540, 546 (2003) (“Under the objective test of contract interpretation, the
written language embodying the terms of an agreement will govern the rights and liabilities
of the parties, irrespective of the intent of the parties at the time they entered into the
contract.” (Cleaned up)); see also Cochran v. Norkunas, 398 Md. 1, 14, 919 A.2d 700, 708
(2007) (“[M]anifestation of mutual assent is an essential prerequisite to the creation or
formation of a contract . . . [and] includes two issues: (1) intent to be bound, and (2)
definiteness of terms.” (Citations omitted)). Written contracts clearly define the rights,
responsibilities, and obligations of each party. 1
As the Majority correctly points out:
The law of negotiable instruments uses specific terms to describe the
parties relevant to a particular instrument. With respect to checks, the
“maker” of the check is the “person undertaking to pay” and the “drawer” is
the “person ordering payment.” [CL] § 3-103(a)(5), (3). A maker and a
drawer, often the same person, can also be referred to as an “issuer.” [CL]
§ 3-105(c).
1
By contrast, a “check” is defined as “[a] draft, other than a document draft, signed
by the drawer, payable on demand, drawn on a bank, and unconditionally
negotiable.” Check, Black’s Law Dictionary (12th ed. 2024). “Check” is also defined as
“a written order directing a bank to pay money as instructed[.]” Check, Merriam-Webster
(2025), https://www.merriam-webster.com/dictionary/check [https://perma.cc/83TJ-
CUS6]. In other words, the plain meaning of the word “check” is distinct from the common
meanings of the word “contract” or “written contract.”
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Maj. Slip Op. at 8-9. The language concerning a drawer, maker, or issuer of a check under
CL §§ 3-103 and 3-105 is not synonymous with the language used in SG § 12-201(a)
prohibiting the State from asserting the defense of sovereign immunity in a contract action
based on a written contract that “an official or employee executed for the State or 1 of its
units while the official or employee was acting within the scope of the authority of the
official or employee.”
In addition to being inconsistent with the plain language of the statute, adopting the
reasoning that a check is a written contract for purposes of SG § 12-201 is an illogical
interpretation of the statute and violates basic principles of contract law. Although a check
is a negotiable instrument subject to the MUCC, it is not a written contract that
memorializes an agreement and that consists of an offer, acceptance, and consideration
between the parties, as is required by SG § 12-201(a). 2 To be valid, a contract must contain
all of the following elements: an offer, acceptance, and consideration; and a contract must
be legally made. See Cochran, 398 Md. at 23, 919 A.2d at 713 (“Creation of a contract
requires an offer by one party and acceptance by the other party.” (Citations omitted));
Cheek v. United Healthcare of Mid-Atl., Inc., 378 Md. 139, 147, 835 A.2d 656, 661 (2003)
2
To be sure, on brief in this case, the State, unfortunately, conceded that a check is
a contract. This is an ill-conceived concession that this Court should not rely on for a
number of reasons. First, there is no indication that SG § 12-201(a) applies to actions
concerning negotiable instruments brought by holders in due course under CL § 3-203 of
the MUCC. Second, CL § 3-203 does not authorize a contract action based on a written
check as described in SG § 12-201(a). Rather, CL § 3-203 sets forth grounds on which a
holder in due course of a negotiable instrument can recover if the holder in due course took
a negotiable instrument in good faith and there was no fraud on the transferee’s part. CL
§ 3-203 does not set forth an action that sounds in contract.
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(“To be binding and enforceable, contracts ordinarily require consideration.” (Citations
omitted)). Consideration is the act of each party exchanging or promising to exchange
something of value. See Chernick v. Chernick, 327 Md. 470, 479-80, 610 A.2d 770, 774
(1992) (“Consideration necessitates that ‘a performance or a return promise must be
bargained for.’ A performance is bargained for if ‘it is sought by the promisor in exchange
for his promise and is given by the promisee in exchange for that promise.’” (Quoting
Restatement (Second) of Contracts § 71 (1981)). For a contract to be valid, both parties
must provide consideration. See Cheek, 378 Md. at 148, 835 A.2d at 661 (“In Maryland,
consideration may be established by showing a benefit to the promisor and a detriment to
the promisee.” (Cleaned up)). The Majority’s interpretation of SG § 12-201(a), which
appears to be that a check is a formal contract because it is negotiable instrument or a
promise to pay an obligation, eliminates the requirement that a written contract be based
on an offer, acceptance, and consideration, depriving the purported contract of necessary
elements.
The Majority’s analysis adds language to SG § 12-201(a) that does not exist and
presupposes an intent that does not exist. SG § 12-201(a) does not state that the General
Assembly has waived the State’s sovereign immunity with respect to negotiable
instruments executed by State officials that may be considered written contracts. Rather,
SG § 12-201(a) applies to written contracts executed by State officials, which a check,
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issued by the State, under any definition of a written contract, is not. 3 Equally important,
our precedent establishes that SG § 12-201(a) is to be strictly construed, for it sits in
contravention of the common law. See, e.g., Brawner Builders, Inc. v. State Highway
Admin., 476 Md. 15, 32, 258 A.3d 217, 227 (2021) (“We have [] held that waivers of
sovereign immunity, which are in derogation of common law, are strictly construed in favor
of the State.” (Citations omitted)); Bd. of Educ. of Balt. City v. Zimmer-Rubert, 409 Md.
200, 212, 973 A.2d 233, 240 (2009) (“When considering waivers of sovereign immunity,
this Court and [the Appellate Court of Maryland] have strictly construed such waivers in
favor of the sovereign.” (Citations omitted)). The Majority’s analysis conflicts with this
principle.
In addition to a check not complying with the definition of a written contract, there
are restrictions on how long one has to cash a check that are significantly shorter than the
general three-year statute of limitations that applies to most contract actions. See Md. Code
Ann., Cts. & Jud. Proc. (1974, 2020 Repl. Vol.) § 5-101 (“A civil action at law shall be
filed within three years from the date it accrues unless another provision of the Code
provides a different period of time within which an action shall be commenced.”).
Specifically, most checks must be cashed within six months. See CL § 4-404 (“A bank is
under no obligation to a customer having a checking account to pay a check, other than a
3
A check is a negotiable instrument that is said to be a “formal contract,” meaning
that negotiable instruments require certain formal requirements to be satisfied, like the
statutory conditions concerning negotiability in CL § 3-104 (defining “negotiable
instrument”). Under this definition, a check, although a negotiable instrument, is not a
written contract.
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certified check, which is presented more than six months after its date[.]”). All of this
shows that the Majority’s determination fails to comport with a plain language analysis and
reaches an illogical result.
Although the language of SG § 12-201(a) is not ambiguous and one need not look
beyond the language of the statute to ascertain the General Assembly’s intent, were further
inquiry into the General Assembly’s intent necessary, it is clear that, in enacting the statute,
the General Assembly’s purpose was, among other things, to ensure that State did not raise
the defense of sovereign immunity in contract actions involving written contracts that were
properly executed by its officials or employees. The legislative history of the statute is
devoid of any intent by the General Assembly that the State relinquish the defense of
sovereign immunity in instances in which holders in due course seek payment for checks
where the State has already satisfied its obligation to a payee.
In discussing the legislative history of SG § 12-201, the Majority states that “[t]he
purpose of [SG] § 12-201(a) was to codify the moral obligation on the part of any
contracting party, including the State or its political subdivisions, to fulfill the obligations
of a contract.” Maj. Slip Op. at 22 (cleaned up). This language provides no support for
the Majority’s holding. First, it is only good common sense that the State of Maryland
would want to honor its obligations, i.e., a statement to this effect is not indicative of a
clear expression on the State’s part that it has waived sovereign immunity under SG § 12-
201(a) for payment of checks to holders in due course. Next, under the circumstances of
this case, the State has already satisfied its moral obligation and rendered the payment it
promised to make, i.e., the intended payee has received the contemplated payment.
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Badlia argues that the holding of the Supreme Court of Texas in ½ Price Checks
Cashed v. United Auto. Ins. Co., 344 S.W.3d 378, 386 (Tex. 2011), that the drawer of a
check enters into a contract to pay the payee and a subsequent holder in due course, informs
the outcome of this case. Citing ½ Price Checks Cashed as an example, the Majority states
that “[t]he long-standing view that a check, as a negotiable instrument, is a contract has
been recognized by numerous state courts for more than a century.” Maj. Slip Op. at 14
(footnote omitted). In the Texas case, a check cashier filed suit for breach of contract
against the drawer of a dishonored check. See ½ Price Checks Cashed, 344 S.W.3d at 381.
And, the Supreme Court of Texas stated: “It is settled law that a check—as a type of
negotiable instrument—is a formal contract, a rule established not only in treatises but also
the common law of this state and other states.” Id. at 383-84 (footnotes omitted). Citing
Section 3.414 of the Texas Business and Commercial Code, which is similar to CL § 3-
414, the Supreme Court of Texas held: “The drawer of a check has a clear obligation to
pay the holder of a dishonored check under section 3.414.” ½ Price Checks Cashed, 344
S.W.3d at 384. This is an accurate recitation of the Court’s holding, but this does not mean
that the Maryland General Assembly has waived the State’s sovereign immunity with
respect to checks issued by the State that have been transferred to third party holders in due
course where the third party seeks payment after the original payee has already been paid.
Under the circumstances of this case, and others like it, in which the State has
satisfied its obligation and paid the payee, in the absence of a waiver of the State’s
sovereign immunity, Badlia has a remedy. Badlia and others who are similarly situated
may institute an action against the payee who is responsible for the fraud. For example, in
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the event that a person wrote a check as a gift to a relative and the relative cashed the check,
but also negotiated or transferred the check to a third party, the third party would have an
action against the relative who transferred the check to the third party after having already
cashed it. To conclude otherwise would be absurd. The maker of the check would not
have a moral obligation to pay the third party, where the relative had already cashed the
check.
Badlia makes the point that if third parties have no recourse with the State, they will
not want to do business with the State and will not accept assignment of State contracts
and obligations. But this case does not involve the assignment of a contract or an assignee
bringing a contractual action based on an assignment. While Badlia is concerned that
holding that SG § 12-201(a) does not provide for a contractual action will result in a chilling
effect on people’s willingness to do business with the State, the real concern is that the
Majority’s holding will embolden fraudulent transfers of State checks, like those that
occurred in this case. Equally concerning is the prospect that the Majority’s holding will
drive up costs to the State, as the State will be obligated to pay checks twice and bring an
action against its bank for having negligently or erroneously paid the check a second time
to a holder in due course.
For the above reasons, respectfully, I dissent.
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