COUNTY OF MORRIS, PLAINTIFF-RESPONDENT, v. WILLIAM FAUVER, COMMISSIONER OF THE NEW JERSEY DEPARTMENT OF CORRECTIONS, THE NEW JERSEY DEPARTMENT OF CORRECTIONS AND THE STATE OF NEW JERSEY, DEFENDANTS-APPELLANTS.
Supreme Court of New Jersey
Argued December 1, 1997-Decided March 9, 1998.
707 A.2d 958 | 153 N.J. 80
W. Randall Bush, First Assistant County Counsel, argued the cause for respondent (Ronald Kevitz, Morris County Counsel, attorney).
Benjamin D. Leibowitz, Deputy County Counsel, argued the cause for amicus curiae, County of Middlesex (Bruce J. Kaplan, Middlesex County Counsel, attorney).
The opinion of the Court was delivered by
GARIBALDI, J.
This appeal presents yet another facet of the prison overcrowding crisis in New Jersey. In County of Gloucester v. State, 132 N.J. 141, 623 A.2d 763 (1993), and Worthington v. Fauver, 88 N.J. 183, 440 A.2d 1128 (1982), we addressed the State‘s authority to house state prisoners in county facilities under executive orders issued under the Civil Defense and Disaster Control Act (“CDDCA” or “Disaster Control Act“),
I.
A.
Commissioner‘s Authority to House State Prisoners in County Facilities
On June 19, 1981, in response to the problem of prison overcrowding, which had reached “crisis dimensions” by the early 1980s, Governor Brendan Byrne issued Executive Order No. 106. Worthington, supra, 88 N.J. at 188-89. That Order declared state prison overcrowding to be an emergency under the Disaster Control Act. Id. at 188, 190. Under the authority of the emergency powers of that Act, the Order permitted the Commissioner of Corrections to alleviate the overcrowding problem temporarily by housing state-sentenced prisoners in county correctional facilities for the 90-day duration of the Order. Id. at 190-91. That Order also directed the Commissioner to develop an appropriate program to compensate those counties holding state prisoners. Id. at 191.
In Worthington, supra, this Court upheld the validity of the Governor‘s Orders because they had a basis in legislative authority—the Disaster Control Act—as well as a limited time span. Id. at 200-02. The Court cautioned, however, that the Disaster Control Act did not permit a permanent delegation of power to the Governor to authorize the reallocation of prisoners by executive order; rather, if the Legislature wanted to change the prison housing system officially, “it could pass a statute to that effect.” Id. at 203.
The Legislature responded by passing the County Correctional Policy Act. The CCPA attempts to address the overcrowding crisis
Despite the passage of the CCPA and the DOC‘s contracts with various counties, however, the executive prison orders still remained in effect. They were extended continuously over the next twelve years by sixteen more executive orders issued by three different governors. County of Gloucester, supra, 132 N.J. at 149. Finally, in 1993, in County of Gloucester, supra, this Court held that prison overcrowding could no longer be classified as an “emergency” under the Disaster Control Act and,
In response to that observation by the Court, the Legislature passed P.L. 1994 c. 12, which declared once again that state prison overcrowding was an emergency and gave the Governor, for two years, independent statutory authority to issue executive orders deemed “necessary and appropriate to respond to the crowding problem.” In 1996, the Legislature extended the Governor‘s authority in that area for an additional two years. P.L. 1996 c. 9. Pursuant to those two statutes, two more executive orders were issued allowing the DOC to house state inmates in county facilities for appropriate compensation. Executive Order No. 16 (1994); Executive Order No. 48 (1996). Thus, from the time period around 1981 or 1982 to date, the Commissioner has had the authority to house state prisoners in county facilities through the executive orders as well as under the CCPA and financial assistance contracts with the counties.
B.
The Contract, Reimbursement Rates, and Actions of the Parties
In 1983,2 pursuant to the CCPA, the DOC and the County of Morris entered into the Morris County Correctional Facility Assistance Contract (“MCCFAC“). That contract provided that the County would “construct a forty bed addition and make renovations to its county correctional facility” in exchange for $2,156,676, which the Legislature had appropriated to the DOC to assist the County in meeting the construction costs of its facility. On the completion of that facility, the County was required to make available to the DOC forty cells to house forty minimum or
Paragraph 11 set forth the method for computing the per diem reimbursement rates required under the CCPA as well as the forty-year term of the contract:
The Department shall pay the County a per-diem rate for housing of State prisoners in the 40 cells reserved for such prisoners in the county correctional facility. The rate shall be 75% of the average of the budgeted daily costs of housing state prisoners in the State prisons at Trenton, Rahway and Leesburg during that fiscal year. The 75 per cent per-diem rate shall remain in effect until such time as the total monies retained by the Department because of the discount equals $120,680.00. Thereafter, the County shall continue to make available to the Department a total of 40 cells for use by State prisoners, but the per-diem rate shall be 100 percent of the average daily cost of housing State prisoners in the State prisons at Trenton, Rahway and Leesburg during that fiscal year. The County shall continue to make 40 cells available to the Department for use by State prisoners for the useful life of the facility, as set forth in
N.J.S.A. 40A:2-22 (forty years). At the end of this period, the Commissioner and the County shall reassess the need for continued use of the 40 cells by the Department, and may negotiate a continuation of this agreement upon such terms as are deemed appropriate.
Paragraph 12 provided that the ordinary and reasonable costs of housing the State prisoners in the county facility, including the costs of housing, facility maintenance, security, food, routine medical and dental care, prescriptions, transportation, and salaries of County personnel used to provide those services would be encompassed in the per diem rate. Furthermore, the DOC also was required to reimburse the County for the costs of all extraordinary and necessary medical, dental, surgical, psychiatric, and hospital services.
According to interrogatory answers by the Commissioner of the DOC, the County “began to house state inmates pursuant to the MCCFAC [the contract] in Fiscal Year 1986, beginning with the period October 1, 1985, through December 31, 1985.” County of Morris, supra, 296 N.J.Super. at 32 (alterations in original). At that time, “the average of the budgeted daily costs of housing state prisoners in the state prisons at Trenton [New Jersey State Prison], Rahway [East Jersey State Prison] and Leesburg [Bayside State Prison] . . . was $36.51.” Ibid. (alterations in original). For various other years, according to the
Prior to the time that the DOC began to house contract prisoners in Morris County, any state prisoners housed in the County‘s facilities were executive order prisoners. According to statements by William Fauver, the Commissioner of the DOC, the reimbursement rates for executive order prisoners were initially determined through separate negotiations with each county. As that became too cumbersome, the DOC set a uniform rate of compensation comparable to the costs of housing prisoners in one or various state prisons. The per diem reimbursement rate for executive order prisoners was $42.95 per inmate for fiscal year 1981, $45.00 beginning in fiscal year 1985, and $58.50 as of 1994. Ibid.
On September 7, 1984, before any state prisoners were housed in the County under the MCCFAC, Commissioner William Fauver wrote a letter to Captain John Delaney of the Morris County Jail stating:
Please be advised that the Department of Corrections has increased the per diem rate for housing State-sentenced inmates in the county facilities to $45.00 effective July 1, 1984. This rate will be paid through Fiscal Year 1985 to all counties who are housing State-sentenced inmates beyond the fifteen-day exclusionary period.
That letter made no explicit mention of the type of prisoners—executive order, contract, or both—to which it was referring.
Approximately one year after that letter, state prisoners were first housed in Morris County under the MCCFAC. Based on Fauver‘s letter, the County submitted invoices to the DOC under the contract in the amount of $45 per prisoner per day. The State paid the DOC that amount. The $45 rate paid under the contract was, for three years (1985-1987), more than the average daily cost of housing in state prisons, the amount referred to in the contract. Thus, for those years, the State overpaid the amounts due. In the years subsequent to 1988, however, the $45 amount was lower
C.
Procedural History
On April 7, 1992, almost seven years after it first began to house state prisoners, the County notified the Commissioner, pursuant to the notice provisions of the Contractual Liability Act,
The State has been paying the County at the rate of $45.00 per prisoner per day purportedly based on the State‘s average per diem rate. However, on October 23, 1989 William H. Fauver, Commissioner of the New Jersey Department of Corrections testified under oath in United States District Court Civil Action No. 82-1946 entitled “Camden County, et. al. v. John J. Parker, Warden, et. al [sic]” that the cost to house a state sentenced prisoner in the Trenton State facility was $63.00 per day. . . . Furthermore, based upon information and belief, the present average cost to house a State prisoner is approximately $65.00 per day.
Alleging that the DOC had “failed to reimburse the County for the entire per diem rate which the County [was] entitled to” under the contract, the County sought $2,604,000 in damages, representing the twenty-dollar difference between $45 and $65 for 40 prisoners for 3255 days, thе time period from May 11, 1983 to April 7, 1992. Even after it sent that notice, however, the County continued to submit invoices at the $45 rate. County of Morris, supra, 296 N.J.Super. at 33.
On October 14, 1992, the County filed suit against the Commissioner, the DOC, and the State. In June 1994, the County filed a motion for partial summary judgment, claiming it was entitled to $407,879.97 for the period covering Fiscal Years 1988 through 1993. The Commissioner cross-moved for summary judgment, and the trial court granted the Commissioner‘s motion.
The Appellate Division reversed. County of Morris, supra, 296 N.J.Super. 26, 685 A.2d 1342. That court found that the parties did not completely abandon the contract because they adhered to its material portions—the advancement of construction funds and the housing of State prisoners. Furthermore, the parties did not partially modify the payment terms of the contract because there was neither mutual assent to modify nor new consideration to support such a modification. The court instead concluded that the County had been misled.
To determine whether and to what extent any damages were warranted, the Appellate Division analyzed whether the Contractual Liability Act,
On May 21, 1997, we granted the Commissioner‘s petition for certification. 149 N.J. 409, 694 A.2d 194 (1997).3
II.
The DOC argues that the parties abandoned or modified the MCCFAC by their actions over the years, and that, even if the payment terms of the contract were not abandoned or modified, the action is barred by equitable principles of laches, waiver, and estoppel. We disagree with those assertions.
A.
Abandonment
The ability to abandon or modify one‘s contract has been consistently upheld in New Jersey. It is well established in this State that, “[i]n the absence of some vested derivative interest in another, a contract may be modified, abrogated or rescinded by . . . the contracting parties.” Gillette v. Cashion, 21 N.J.Super. 511, 516, 91 A.2d 421 (App.Div.1952).
The determination of whether contracting parties intend to abandon their agreement need not be express; it may be inferred from all their acts and circumstances. Mossberg v. Standard Oil Co., 98 N.J.Super. 393, 406, 237 A.2d 508 (Law Div.1967). As a general rule, a contract “will be treated as abandoned where one party acts in a manner inconsistent with the existence of the contract and the other party acquiesces in that behavior.” Dorchester Manor v. Borough of New Milford, 287 N.J.Super. 163, 170-71, 670 A.2d 600 (Law Div.1994), aff‘d, 287 N.J.Super. 114, 670 A.2d 576 (App.Div.1996). The intention to abandon a contract by actions or acquiescence, however, must be “clearly expressed.” Mossberg, supra, 98 N.J.Super. at 406-07. Under New Jersey law, when rescission or abandonment of a contract “is to be implied from the conduct of the parties, the actions must be positive and unequivocal.” Anstalt v. F.I.A. Ins. Co., 749 F.2d 175, 178 (3d Cir.1984); see also City of Del Rio, supra, 94 F.2d at 704 (“Where conduct is relied upon, the acts of the parties must be positive, unequivocal and inconsistent with an intent to be further bound by the contract.“).
Moreover, abandonment of a contract is similar to the remedy of rescission, which generally requires that the entire
The County of Morris and the DOC did not abandon the MCCFAC. We agree with the Appellate Division that “[n]othing in the record warrants a conclusion that either party to the contract had clearly or implicitly rejected it.” County of Morris, supra, 296 N.J.Super. at 36. The words and actions of the parties, while perhaps demonstrating mistaken assumptions about their agreement, did not evidence a definite mutual intention to abandon the entire contract. Because there were no contract prisoners housed in Morris County at the time Commissioner Fauver wrote the letter stating that the per diem rate was now $45; because the letter referred to the fifteen-day period beyond which, at that time, State prisoners could not be housed absent the Governor‘s executive orders; because the letter never mentioned contract prisoners; and because the reimburse-ment rate for executive order prisoners had actually been in-
Finally and most importantly, although the parties acted inconsistently with the payment provisions of their contract, they did adhere to the material portions of their agreement. Because the State advanced construction funds, the County expanded its facilities, and the County housed State prisoners, the parties did not “completely ignore the contract and operate contrary to it or under the terms of a different agreement.” County of Morris, supra, 296 N.J.Super. at 36. The parties clearly did not terminate their agreement in its entirety and, because the payment provisions of the contract were not severable, they did not satisfy the requirements for abandonment.
The conclusions reached by the courts in Mossberg, supra, and Dorchester Manor, supra, do not compel a different result. In Mossberg, supra, the court found that the plaintiff‘s employment
B.
Modification
As with abandonment, parties to an existing contract may, by mutual assent, modify it. Bohlinger v. Ward & Co., 34 N.J.Super. 583, 587, 113 A.2d 38 (App.Div.1955), aff‘d, 20 N.J. 331, 120 A.2d 1 (1956). While abandonment of a contract requires repudiation of the entire contract, limited changes or amendments to a contract can be accomplished through modification. Merickel, supra, 95 N.W.2d at 306 (finding that rescission “by [m]utual agreement of a single provision of a contract is a modification or an amendment without a cancellation or a voidance of the contract as a whole“). Such modification can be proved by an explicit agreement to modify, or, like abandonment, by the actions and conduct of the parties, so long as the intention to modify is mutual and clear. See 17A C.J.S. Contracts § 375 (1963) (“[A]mbiguous
A proposed modification by one party to a contract must be accepted by the other to constitute mutual assent to modify. Wheaton, supra, 84 A. at 273 (holding that proposed modification of the contract, “not being accepted or acted on by either party, leaves both complainant and defendant to their equitable rights under the original contract“). Unilateral statements or actions made after an agreement has been reached or added to a completed agreement clearly do not serve to modify the original terms of a contract, especially where the other party does not have knowledge of the changes, because knowledge and assent are essential to an effective modification. See Bonnco Petrol, supra, 115 N.J. 599, 560 A.2d 655 (unilateral insertion by purchaser that option monies were to be applied towards purchase price, without pointing out insertion to other side before signing, was ineffective in changing contract). Finally, an agreement to modify must be based upon new or additional consideration. Ross v. Orr, 3 N.J. 277, 282, 69 A.2d 730 (1949) (“[T]he terms of an agreement may be altered or changed by a subsequent agreement if based on proper consideration.“).
The County of Morris and the DOC did not modify the terms of their prisoner housing contract. As with abandonment, the parties did not clearly express a mutual intention to modify their contract, nor did one party demonstrate knowledge and acceptance of the other party‘s expressed intentions. As discussed previously, the State‘s letter was intended to apply only to executive order prisoners and, thus, was not intended to modify the payment provisions of the contract. In addition, because the County was unaware that $45 was not the correct reimbursement amount, the County‘s submission of vouchers at that rate did not demonstrate a purpose to transform the agreement. Finally, there seems to have been no consideration given for the alleged modification of the contract.
Also, when a party overpays on a contract for a number of years, as a result of an error in computation or misinterpretation or mistake of fact, that party may generally recover that overpayment and will not be obligated to continue overpaying. 13 Williston on Contracts § 1574 (Jaeger ed.1961); Liebeskind v. Mexican Light & Power Co., 116 F.2d 971, 974 (2d Cir. 1941). In Liebeskind, supra, where the defendant was required to pay interest coupons in Canadian dollars but continually paid certain coupons in United States currency, without regard to fluctuations in the rate of exchange, the defendant had not modified his agreement so as to require continued overpayment. Ibid. As noted by the court, “if a contract clearly demands a specified performance, the fact that the obligor has done more in part performance than the letter of his obligation required should not
Neither the County‘s acceptance of $45, a lesser amount than it was due, for the four years before it filed suit, nor the State‘s payment of $45, more than it owed, for the first three years of the contract, demonstrate that either party intended to modify their contract.
C.
Mutual Mistake
It does seem, however, that both parties have misinterpreted their respective rights and obligations under the contract. Although the State should have realized and then informed the County that the $45 amount was not the average cost specified under the contract, and although the State should have specified more clearly to which prisoners the letter referred, the State did not mislead the County, as the Appellate Division erroneously suggests. See County of Morris, supra, 296 N.J.Super. at 38, 685 A.2d 1342. Because of the letter‘s reference to the required fifteen-day transfer period, its lack of reference to contract prisoners, and the fact that the letter was sent before any contract prisoners were yet housed in Morris County‘s facilities, the County could not have reasonably relied on the letter as specifying the correct reimbursement amount. Moreover, the State had no incentive to pay the County $45 per day for contract prisoners at the time the letter was sent. When the County began to house contract prisoners, the actual daily cost of housing a prisoner at the three state prisons was $36.51. County of Morris, supra, 296 N.J.Super. at 29 n. 1, 32, 685 A.2d 1342. Furthermore, the terms of Paragraph 11 of the MCCFAC provided that the State was to pay 75% of the average rate ($27.38) to the County until the discount from the reduced rate equaled $120,680. Therefore, when the State began to pay the County, it was overpaying by $17.62 per prisoner per day. Because it was not in the State‘s interest to have made such overpayments, we do not find that the
Where a сontract is ambiguous, courts will consider the parties’ practical construction of the contract as evidence of their intention and as controlling weight in determining a contract‘s interpretation; where the terms of a contract are clear, however, the court must enforce it as written. Koshliek v. Board of Chosen Freeholders, 144 N.J.Super. 336, 344, 365 A.2d 492 (Law Div. 1976). Furthermore, where both parties to a contract have erred in the construction of that contract, courts will generally not require that the parties continue in that mistaken construction, but will instead insist on a return to the written provisions of the contract. Bellisfield v. Holcombe, 102 N.J. Eq. 20, 31 (Ch. 1927) (“Where terms, used in a written contract, are themselves susceptible of definite legal construction the fact that the parties have adopted and acted on an erroneous construction of the contract, will not preclude them, as to transactions not clear, from insisting on the proper and true legal construction.“).
Considering the parties’ mutual misconstruction of their contract, we hold that the payment terms of the MCCFAC, which were clear as written, not only should have been followed over the years, but also continue to apply. To avoid similar mistakes in the futurе, we conclude that the State must provide the County with regular reports stating the average costs of housing in the state prisons. Similarly, the County must regularly provide the State with the exact number of contract, as opposed to executive order, prisoners housed in the County‘s facilities.
Equitable Defenses
As previously observed, we find that the equitable defenses of estoppel, laches, and waiver also do not bar the County‘s contract action. We discuss each principle briefly.
Estoppel
Equitable estoppel is:
The effect of the voluntary conduct of a party whereby he is absolutely precluded, both at law and in equity, from asserting rights which might otherwise have existed ..., as against another person, who has in good faith relied upon such conduct, and has been led thereby to change his position for the worse....
[Carlsen v. Masters, Mates & Pilots Pension Plan Trust, 80 N.J. 334, 339, 403 A.2d 880 (1979) (citations omitted).]
In O‘Malley v. Department of Energy, 109 N.J. 309, 316, 537 A.2d 647 (1987) (citations omitted), this Court stated: “Equitable estoppel is rarely invoked against a governmental entity.... Nonetheless equitable considerations are relevant to assessing governmental conduct, and may be invoked to prevent manifest injustice.” see also Township of Fairfield v. Likanchuk‘s, Inc., 274 N.J.Super. 320, 331, 644 A.2d 120 (App. Div. 1994) (explaining that equitable estoppel is applied against governmental entities “‘only in very compelling circumstances‘“) (citations omitted). This is so because “matters of public interest and legislative will should not be easily compromised by freely applying the doctrine of estoppel to irregular municipal conduct.” Juliano v. Borough of Ocean Gate, 214 N.J.Super. 503, 507, 520 A.2d 418 (Law Div. 1986). This case presents no such compelling circumstances, and therefore, the doctrine of estoppel cannot be invoked against the County to prevent it from pursuing its reimbursement claim.
Waiver
Waiver “is the intentional relinquishment of a known right.” West Jersey Title & Guar. Co. v. Industrial Trust Co., 27 N.J. 144, 152, 141 A.2d 782 (1958). Waiver must be voluntary and there must be a clear act showing the intent to waive the right. Ibid. Furthermore, waiver “presupposes a full knowledge of the
Laches
Laches “has been found where there is unexplainable and inexcusable delay in enforcing a known right whereby prejudice has resulted to the other party because of such delay.” Dorchester Manor, supra, 287 N.J.Super. at 171, 670 A.2d 600. The policy behind laches is to discourage stale claims. Ibid. The time constraints imposed are flexible under the doctrine. Lavin v. Board of Educ., 90 N.J. 145, 151, 447 A.2d 516 (1982). The factors to be considered when determining whether to apply laches include: length of the delay; reasons for the delay; and “changing conditions of either or both parties during the delay.” Id. at 152, 447 A.2d 516. “It is assumed that the party to whom laches is imputed has knowledge of his rights, and sufficient opportunity to assert them in the proper forum.” Dorchester Manor, supra, 287 N.J.Super. at 172, 670 A.2d 600. The other party, in contrast, may have good reason to believe those rights have been abandoned. Ibid.
Because the County did not have knowledge of its claims against the State until many years after the incorrect payments began, laches does not apply. Although the County‘s delay in asserting its rights was long, the mistaken assumptions of the parties suggest that their claim should be permitted. Moreover, the conditions of the parties have not changed to an extent that justifies barring the County‘s claim.
III.
The Contractual Liability Act
Although we hold that the parties have not abandoned or modified the contract and that the cause of action is not barred by
Prior to 1970, the State could not be sued in actions in tort or contract as a result of its sоvereign immunity. Frapaul Constr. Co. v. New Jersey Dep‘t of Transp., 175 N.J.Super. 84, 88, 417 A.2d 592 (App. Div. 1980); Richard J. Hughes & William F. Hyland, Report on the New Jersey Tort Claims and Contractual Liability Acts 1 (July 1, 1975). The immunity from contract actions was first abolished as a common law doctrine by the Supreme Court in 1970 and was later abolished on a statutory basis by the passage of the Contractual Liability Act. P, T & L Constr. Co. v. Commissioner, Dep‘t of Transp., 55 N.J. 341, 346, 262 A.2d 195 (1970); Frapaul, supra, 175 N.J.Super. at 88-89, 417 A.2d 592. The Report of the Attorney General‘s Task Force on Sovereign Immunity, which urged the passage of that Act, noted that most states and the federal government had already subjected themselves to liability for contract actions and that it is “unconscionable for a State to be permitted to repudiate a contract which it has voluntarily entered and which binds the other parties.” George F. Kugler, Jr., Attorney General, Report of the Attorney General‘s Task Force on Sovereign Immunity 9 (May 1972).
Specifically, the Contractual Liability Act “waives [the State‘s] sovereign immunity from liability arising out of an express contract or a contract implied in fact and consents to have the same determined in accordance with the rules of law applicable to individuals and corporations.”
We must first ascertain the date of accrual of the County‘s claim to dеtermine when its notice of claim had to be filed. The Act itself states that “‘Accrual of claim’ shall mean the date on which the claim arose and shall not be affected by the notice provisions contained herein.”
In this case, we apply the installment contract approach described in Metromedia Co. v. Hartz Mountain Associates, 139 N.J. 532, 535, 655 A.2d 1379 (1995), to determine when the County‘s claim accrued. Under the installment contract method, claims based on installment contracts or other divisible, installment-type payment requirements accrue with each subsequent installment. In other words, a new statute of limitations begins to run against each installment as that installment falls due and a new cause of action arises from the date each payment is missed.
The installment contract approach has been applied in a variety of situations. As noted by the Court in Metromedia, supra, the theory has been used in connection with coupons on county bonds due annually, periodic payments for promissory notes, periodic payments under a divorce settlement, and monthly payments under an equipment lease. Id. at 535, 655 A.2d 1379. In Ballantyne House Associates v. City of Newark, 269 N.J.Super. 322, 331-32, 635 A.2d 551 (App. Div. 1993), the Appellate Division found that Newark‘s failure to perform its garbage collection obligations, under the tax abatement agreements at issue in that case, “could be considered a series of continuing breaches for which plaintiffs could maintain an action for any breach occurring within six years of the filing of the complaint, even if more than six years had elapsed since Newark‘s initial breach.” Similarly, courts in various jurisdictions have found that a new cause of action accrued monthly on electricity contracts where a new payment was due each month based on the customer‘s usage over that month, Kiamichi Elec. Cooperative v. Underwood, 842 P.2d 358 (Okla. Ct. App. 1992); that the obligation to make pension fund withdrawal
The discovery rule should not be applied to determine when the County‘s claims accrued. The discovery rule provides that, “in an appropriate case, a cause of action will not accrue until the injured party discovers, or by exercise of reasonable diligence and intelligence should have discovered, facts which form the basis of a cause of action.” O‘Keeffe v. Snyder, 83 N.J. 478, 491, 416 A.2d 862 (1980). Although it seems “inequitable that an injured person, unaware that he has a cause of action, should be denied his day in court solely because of his ignorance, if he is otherwise blameless,” it may also be “unjust, however, to compel a person to defend a law suit long after the alleged injury has occurred, when memories have faded, witnesses have died and evidence has been lost.” Lopez v. Swyer, 62 N.J. 267, 274, 300 A.2d 563 (1973). Therefore, this Court has held that the equitable claims of the parties must be weighed against each other and that not every delayed discovery will justify the application of the rule. Id. at 274-75, 300 A.2d 563. As a result, the discovery rule has been applied most frequently in personal injury or negligence-type actions, which by their nature are often self-concealing or undiscoverable. Although the rule originally was developed to provide relief for plaintiffs in foreign body or other medical malpractice claims, id. at 273, 300 A.2d 563, the rule has since been extended to various other negligence-type suits, such as legal malpractice, Grunwald v. Bronkesh, 131 N.J. 483, 493-94, 621 A.2d 459 (1993); products liability suits, id. at 493, 621 A.2d 459 (citing Burd v. New Jersey Tel. Co., 76 N.J. 284, 291-92, 386 A.2d 1310 (1978)); negligent miscalculation of acreage by a professional engineer and land surveyor, Lopez, supra, 62 N.J. at 273, 300 A.2d 563 (citing New Market Poultry Farms, Inc. v. Fellows, 51 N.J. 419, 241 A.2d 633 (1968)); and common law fraud, Interlox Punch & Die Corp. v. Insilco Corp., 174 N.J.Super. 175, 176, 415 A.2d 1208 (Law Div. 1980).
The rationale for employing the discovery rule in tort- or fraud-type actions, however, does not carry over to most contract actions, and therefore, the discovery rule generally has not been applied in such suits. Although some negligence or malpractice actions involve inherently undiscoverable types of injuries, most contract actions presume that the parties to a contract know the terms of their agreement and a breach is generally obvious and detectable with any reasonable diligence. Because the discovery rule imposes on plaintiffs an affirmative duty to use reasonable diligence to investigate a potential cause of action, and thus bars from recovery plaintiffs who had “reason to know” of their injuries, the discovery rule generally does not apply to contract actions. See Berlen v. Consolidated Rail Corp., 291 N.J.Super. 542, 551, 677 A.2d 1150 (App. Div. 1996) (finding affirmative duty to investigate); O‘Keeffe, supra, 83 N.J. at 497-98, 416 A.2d 862 (imposing duty of reasonable diligence in investigation in order to toll statute of limitations); D‘Aries v. Schell, 274 N.J.Super. 349, 363, 644 A.2d 134 (App. Div. 1994) (“lack of diligence precluded plaintiff from benefiting from the discovery rule“); cf. Gibbins v. Kosuga, 121 N.J.Super. 252, 296 A.2d 557 (Law Div. 1972) (applying discovery rule to breach of contract and misrepresentation action where plaintiffs did not find out and had no reason to know until ten years after they bought house that well supplying water was not located on their property, but not applying discovery rule to counterclaim in same action for $1500 never paid on promissory note).
In this case, the discovery rule does not apply. The present situation involves a contract with clear and explicit payment provisions. The actual payments due under the contract were readily discoverable through public information and calculation. Not only could the County have discovered the lack of adherence to the contractual reimbursement rate through the
Instead, as we have indicated, the installment contract approach should be applied. The County submitted regular vouchers for reimbursement for the housing of State prisoners. Every time the County submitted a new voucher and the State did not pay the correct amount, the County‘s cause of action on that voucher accrued. Therefore, the County was obligated to file a notice of claim with the State, for each voucher on which it wished to sue, within ninety days of the submission of that voucher. Because the County did not file a notice of claim until April 7, 1992, the County met the notice requirements of the Contractual Liability Act only with respect to those invoices submitted within the ninety days before that date. As a result, we hold that the County is entitled to reimbursement for the difference between what was paid on the contract and what should have been paid under the contract for all invoice periods occurring on or after January 9, 1992 to date, but is barred from reimbursement for all periods occurring before that dаte. As required by
The judgment of the Appellate Division is affirmed in part and reversed in part.
STEIN, J., concurring in part and dissenting in part.
I join in the Court‘s opinion to the extent that it allows Morris County (County) to recover all underpayments due to it from the
I
The controlling legal principles are best articulated in W.V. Pangborne & Co. v. New Jersey Department of Transportation, 116 N.J. 543, 562 A.2d 222 (1989). There, as here, a State agency asserted the claim limitations provision of the Contractual Liability Act (Act) to bar a claim by a contractor that, at the State‘s invitation, had pursued an administrative disposition of its claim. The applicable provision of the Act required that suit be instituted within one year after completion of the contract,
Concluding that DOT could not be permitted to assert the statute of limitations defense, Justice Handler, writing for a unanimous Court, observed:
We do not think obligations or entitlements under public contracts should become the matter of either cunning or guess-work.
....
Moreover, we have insisted that in the exercise of statutory responsibilities, government must “turn square corners” rather than exploit litigational or bargaining advantages that might otherwise be available to private citizens. F.M.C. Stores Co. v. Borough of Morris Plains, 100 N.J. 418, 426, 495 A.2d 1313 (1985). “[The government‘s] primary obligation is to comport itself with compunction and integrity, and in doing so government may have to forego the freedom of action that private citizens may employ in dealing with one another.” Id. at 427, 495 A.2d 1313. We have similarly insisted that government adhere to strict standards in its contractual dealings. P.T. & L. Constr. Co. v. Department of Transp., 108 N.J. 539, 531 A.2d 1330 (1987); Keyes Martin & Co. v. Director, Div. of Purchase, 99 N.J. 244, 491 A.2d 1236 (1985); L. Pucillo & Sons, Inc. v. Mayor and Council of New Milford, 73 N.J. 349, 375 A.2d 602 (1977). Therefore, DOT‘s failure to act with greater clarity regarding the statute of limitations, its successful encouragement of an administrative proceeding that redounded to its advantage in terms of added investigation, complete discovery, fuller preparation in defense of the contractor‘s claim, as well as delay in payment, and its subsequent attempt to seek a litigational advantage based on Pangborne‘s inadvertence or false impression constituted conduct that seems inconsistent with the notion that government must act fairly and “with compunction and integrity.” F.M.C. Stores, supra, 100 N.J. at 427, 495 A.2d 1313.
II
Several aspects of this record suggest strongly the appropriateness of an evidentiary hearing to determine whether the State‘s assertion of the statute of limitations defense is consistent with the high standards to which governmental agencies are held in their contractual relationships. To begin with, it bears noting that the County Correctional Policy Act of 1982,
Moreover, the Court is far too generous to the State in its willingness to impose responsibility on the County for failing to discover the correct rate of reimbursement at an earlier date. The Court states:
The present situation involves a contract with clear and explicit payment provisions. The actual payments due under the contract were readily discoverable through public information and calculation. Not only could the County have discovered the lack of adherence to the contractual reimbursement rate through the exercise of reasonable diligence, but the County probably had actual knowledge that there existed a difference in payment as early as 1989, the time at which the Commissioner stated, that the cost to house a State prisoner in Trenton was $63.
[Ante at 110-11, 707 A.2d at 973.]
However, this record also reveals that in the course of appellate litigation concerning the adequacy of the State‘s reimbursement rate to counties concerning Executive Order prisoners housed in county jails, see County of Gloucester v. State, 256 N.J.Super. 143, 606 A.2d 843 (App. Div. 1992), aff‘d as mod., 132 N.J. 141, 623 A.2d 763 (1993), Commissioner Fauver wrote to the Appellate Division Presiding Judge on May 31, 1991, and qualified his federal court testimony about the prevailing reimbursement rate:
In the documents that have now been included to supplement the record, I stated that a fair indication of the cost of housing a state prisoner is approximately $63. See transcript in Camden County Jail Inmates v. Parker at 196, lines 6-17. This figure includes the costs for treatment, education and care programs which are provided at the state level which are not, in many instances, being provided at the county level. When adjustments are made for these services, the average cost of housing a state prisoner is approximately $50 per day.
Commissioner Fauver‘s letter to the Appellate Division in Gloucester demonstrates that any county‘s reliance on the Commissioner‘s 1989 federal court testimony would not have resulted in a reliable and incontestable contract reimbursement rate. Moreover, at oral argument before us, сounsel for amicus Middlesex County asserted that the State acted in bad faith in refusing to respond to Middlesex County‘s requests to ascertain the correct contract reimbursement rate. The Middlesex County correspondence appears in the State‘s Appendix to its Petition for Certification and includes a copy of Commissioner Fauver‘s letter of July 7, 1992, to the Warden of the Middlesex County jail in which the Commissioner declines to provide information about budgeted daily costs of housing state prisoners, from which the County‘s
Dear Warden Johnson:
This will respond to your correspondence of April 13, 1992 and June 25, 1992 wherein you have requested both information concerning budgeted daily costs of housing state prisoners at certain facilities, as well as increased per diem payments for state inmates housed in your facility.
The Department of Corrections is unable to comply with either of your requests at this time. The issue is currently under litigation in Gloucester v. New Jersey, et al. and as such I am not able to provide budget figures. Further, there are no legislatively appropriated funds to pay for any increased per diem.
Very truly yours,
William H. Fauver
Commissioner
Two subsequent letters, dated July 27 and October 2, 1992, to Commissioner Fauver from the Middlesex County counsel, noting that the Gloucester litigation concerned Executive Order reimbursement and that the Warden‘s letter sought information about the reimbursement rate for contract prisoners, apparently were not answered.
The Court‘s unsubstantiated assertion that “the average state housing rates were public information,” ante at 103, 707 A.2d at 969, and the Attorney General‘s highly questionable assumption that Morris County could have “calculate[d] amounts it thought it was entitled to under the agreement” by examining the State Budget, are simply unpersuasive. This record contains more than a slight suggestion of obfuscation and non-disclosure, and an inference that the Legislature had not appropriated adequate funds to permit DOC to pay the full contract rate. The very fact that three other counties are claiming that the State also has breached its contract with them—and in the very same manner as alleged by Morris County—should be sufficient to convince the Court that a remand is warranted.
To afford the State the benefit of the statute of limitations provisiоns of the Contractual Liability Act is, on this record, an undeserved and unjustified windfall. The Court‘s disposition may
III
I would remand the matter to the Law Division for an evidentiary hearing to determine whether the State‘s assertion of the statute of limitations defense is consistent with the principles we articulated in Pangborne, supra, 116 N.J. at 560-63, 562 A.2d 222.
Justice HANDLER joins in this opinion.
For affirmance in part; reversal in part—Chief Justice PORITZ and Justices POLLOCK, O‘HERN, GARIBALDI and COLEMAN—5.
Concur in part; dissent in part—Justices HANDLER and STEIN—2.
707 A.2d 977
ALICE I. MAVRIKIDIS AND KONSTANTINOS MAVRIKIDIS, HER HUSBAND, PLAINTIFFS-APPELLANTS AND CROSS-RESPONDENTS, v. GERALD PETULLO, PETULLO BROS., INC., ITS AGENTS, SERVANTS AND/OR EMPLOYEES, ANGELO PETULLO, GERALDINE PETULLO, OTTAVIO PETULLO AND/OR GERALD PETULLO, TRADING AS PETULLO BROS., INC., AN