SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
A-2714-94T5
COUNTY OF MORRIS,
Plaintiff-Appellant-
Cross-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-Respondents-
Cross-Appellants.
__________________________________________________
Argued: October 28, 1996 - Decided: December
17, 1996
Before Judges Petrella, Landau and Wallace.
On appeal from Superior Court, Law Division,
Morris County.
W. Randall Bush, First Assistant Morris
County Counsel, argued the cause for
appellant-cross-respondent (Ronald Kevitz,
Morris County Counsel, attorney; Mr. Bush, on
the brief).
Andrew R. Sapolnick, Deputy Attorney General,
argued the cause for respondents-cross-appellants (Peter Verniero, Attorney General,
attorney; Mary C. Jacobson, Assistant
Attorney General, of counsel; Ronald L.
Bollheimer, Deputy Attorney General, of
counsel; Mr. Sapolnick, on the brief).
The opinion of the court was delivered by
PETRELLA, P.J.A.D.
The County of Morris (County) entered into a forty-year contract with the State Department of Corrections (DOC) pursuant
to the County Correctional Policy Act (the Act). The State
provided funds to the County under the contract to upgrade and
expand county correctional facilities. In return, the County
agreed to house up to forty state prisoners per day in its
facilities for the term of the contract. The eleventh paragraph
of the contract provided payment provisions. Except for an
initial period, the County was to be reimbursed at a rate equal
to the average cost of housing state inmates at three state
prisons.See footnote 1
Based upon a letter from the Commissioner, the County
submitted invoices to the State for reimbursement from 1985 to
1992 at a rate of $45 per inmate per day, mistakenly assuming
that the figure was proper. After the County determined that the
State was not reimbursing it commensurate with the average cost
of the three state prisons, the County served a notice of claim
under the New Jersey Contractual Liability Act, N.J.S.A. 59:13-1
et seq., dated April 7, 1992, and thereafter instituted suit.See footnote 2
On cross-motions for summary judgment, the motion judge
concluded that neither party intended to breach the contract with
regard to proper reimbursement. However, in so ruling, the judge
found that the parties temporarily abandoned paragraph eleven.
The judge then reinstated that provision for the remainder of the
forty-year contract period.
The Act generally permitted the State to arrange with counties to place state prisoners in county facilities.See footnote 3 Under these arrangements, the State would provide grants to upgrade county
correctional facilities and reimburse the participating county at
per diem rates for housing state prisoners.
The County agreed "to construct a 40 bed addition and make
renovations to the county correctional facility located within"
the County of Morris. The parties acknowledged in paragraph two
of the contract that the State Legislature appropriated
$2,156,676 to the DOC to assist the County in meeting its
construction costs under the agreement.
The third paragraph of the contract recited the language of
the Act that
the Legislature has directed that the terms
and conditions of said agreement should
provide for the availability and use of a
specific number of beds to be reserved for
use by prisoners remanded by the State as
well as per-diem rates favorable to the State
in recognition of its contribution to the
construction costs of the facility;
(emphasis supplied).
Paragraph eleven of the contract sets forth the method for
determining the per diem rate of reimbursement by the DOC to the
County for the costs of housing state prisoners:
11. 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.See footnote 4
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.
According to the Commissioner's answers to interrogatories,
"[t]he County of Morris 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." Although the
interrogatory answers asserted that 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] ... for Fiscal
Year 1986 was $36.51," a September 7, 1984 letter from the
Commissioner to the sheriff's captain administering the county
jail stated:
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.
In establishing the new per diem rate, I have
taken into consideration the fact that State-sentenced inmates housed in county facilities
will occasionally require medical treatment.
Accordingly, medical expenses such as
medication, both prescription and non-prescription, and any routine medical
services provided by the county medical staff
will not be considered for reimbursement.
The State contends that this letter concerned only those
inmates housed in county facilities pursuant to the Disaster
Control Act, N.J.S.A. App. A:9-30, et seq., and the numerous
executive orders issued thereunder,See footnote 5 rather than under the
parties' contract. The letter is silent in this respect.
Nothing in the letter would put the County on notice that the
State was not complying with or did not intend to comply with the
contract.
From the date the County began housing state prisoners in
1985 through September 1994, the County submitted to the State
invoices at a per diem rate of $45 in reliance on the above
letter, rather than requesting from the State any confirmation of
the per diem rate pursuant to paragraph eleven of the contract.
Neither the State nor the County ever questioned the propriety of
this amount.
On April 7, 1992, by notice of claim pursuant to the New
Jersey Contractual Liability Act, N.J.S.A. 59:13-1, et seq., the
County notified Commissioner Fauver of the DOC that it was in
breach of the payment provisions of the contract. The notice
recited that
[t]he 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." 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.
The notice concluded with a request for $2,604,000, representing
the twenty-dollar difference between $65 and $45 for forty celled
prisoners for 3,255 days claimed under the contract from May 11,
1983. Nevertheless, the County apparently continued to send
invoices requesting reimbursement at the $45 per diem rate
without qualification until January 1995.
The State refused to reimburse the County at the $65 rate or
to acknowledge a breach of the contract. On October 14, 1992,
the County filed suit against the State. On December 17, 1992,
the Commissioner filed an answer admitting the existence of the
contract, but denying its breach. After a period of discovery,
the County moved for partial summary judgment, demanding
$407,879.97 for the "total differential of monies due and owing
for FY 1988 thru 2nd Qtr FY 1993." The Commissioner cross-moved
for summary judgment.
After oral argument, the motion judge, in a December 5, 1994
letter opinion, granted the Commissioner's cross-motion. The
judge's opinion noted that the terms of the contract were "not
entirely clear and are somewhat ambiguous." Despite that
premise, the judge found that both parties ignored the contract's
payment scheme:
It is clear that when Commissioner Fauver
sent the letter of September 7, 1984 fixing a
$45.00 per diem rate he simply was not
adverting to the provisions of paragraph 11
of the contract. He was not in any way
intending to breach the contract. He was
routinely applying to Morris County a general
statewide policy applying to State prisoners
housed in county correctional facilities
throughout the State. When the County
submitted vouchers to the Department to cover
all State prisoners held in the Morris County
Correctional Facility during the years 1985
to 1992, and when all of those vouchers
uniformly requested payment at the rate of
$45.00 per day per prisoner, the County
simply was not adverting to the provisions of
paragraph 11. In short, from 1985 until
1992, both the Department and the County
ignored the payment terms of paragraph 11 of
the contract. Both parties fell into a
practice upon which both relied in making
their respective budgetary arrangements.
Nevertheless, the judge ordered that "[t]he contract will
continue to be in force for 29 years into the future" and that
the parties were to again abide by paragraph eleven.
After a telephone conference with the attorneys on January
5, 1995, the judge supplemented his letter opinion and ruled that
the County's act of filing the complaint on October 14, 1992,
rather than April 7, 1992 (the date of the notice of claim),
constituted the formal manifestation of the County's intent to
receive payment pursuant to paragraph eleven. The County was
therefore deemed "not entitled to any payment in excess of $45.00
per day for any period covered by a voucher which was submitted
prior to October 14, 1992."
The January 5, 1995 order stated that "Morris County shall
be reimbursed pursuant to the provisions of paragraph 11 of the
May 11, 1983 Morris County Correctional Facility Assistance
Contract with revised rates effective from October 14, 1992"; and
further "ordered that all vouchers for payment hereafter
submitted by the County of Morris shall reflect the payment rate
for prisoners for which the County believes itself legally
entitled for the time period covered by the voucher."
Subsequently, the County submitted vouchers for
reimbursement in the per diem amount of $58.50, with the
notation: "This voucher is submitted w/o prejudice as to any
future submittals for reimbursement pursuant to the January 5,
1995 decision" of the Law Division. This appeal and cross-appeal
followed.
reimburse Morris County pursuant to paragraph 11 of [the
contract] from the date of January 1, 1988 throughout the term of
said contract."
The Commissioner asserts that the motion judge, relying on
Mossberg v. Standard Oil Co. of N.J.,
98 N.J. Super. 393, 406-407
(Law Div. 1967), correctly found that both parties abandoned
paragraph eleven, but argues in its cross-appeal that the
judgment should be modified to reflect total abandonment of
paragraph eleven. The Commissioner, however, does not suggest a
payment plan to replace paragraph eleven. The Commissioner
raises defenses of equitable estoppel, waiver, and laches in
response to the County's argument in support of a breach of
contract. He also asserts that the rate referred to in his
September 7, 1994 letter to Morris County did not apply to
contract prisoners, although we observe that nothing in the
letter would reasonably inform the County of the State's
position.
It appears that the motion judge attempted to equitably
resolve the dispute summarily, and without taking testimony, by
ruling that both parties temporarily abandoned paragraph eleven
of the contract. Presumably the judge did so under the standard
in Brill v. Guardian Life Ins. Co. of America,
142 N.J. 520
(1995). However, the only authority cited by the motion judge in
support of his temporary partial abandonment ruling was Mossberg,
supra (98 N.J. Super. at 406-407), which does not furnish
authority for his ruling on paragraph eleven. The plaintiff in
Mossberg had entered into an employment contract with his
employer in 1937. Eight years later, a union collective
bargaining agreement was executed, and although Mossberg was not
a union member, his wages were fixed by the terms of the union
agreement for over twenty years. In 1964 when the union went on
strike, Mossberg sued to recover wages under his 1937 employment
contract. The court found that the employment contract had been
"virtually ignored and legally abandoned" by the parties for over
twenty years, rendering it unenforceable in its entirety. Id. at
407. In so ruling, the court relied on contract abandonment
principles: "A contract duly executed and thereafter abandoned
or ignored by the contracting parties is unenforceable.
Moreover, an abandonment may be inferred from the conduct of the
parties and the attendant circumstances." Ibid. (citations
omitted). More significantly, Mossberg cautioned that an intent
to abandon a contract "must, however, be clearly expressed."
Ibid. (citations omitted).
In the instant matter the parties did not completely ignore
the contract and operate contrary to it or under the terms of a
different agreement. The State advanced construction funds and
the County housed state prisoners, all as contemplated. The
County submitted vouchers in reliance on the only per diem rate
ever given to it by the Commissioner. At most, the County was
unaware that the State had itself not complied with paragraph
eleven.
We are satisfied under the standards in Brill v. Guardian
Life Ins. Co. of America, supra (
142 N.J. 520), see R. 2:10-5,
that the County could reasonably rely on the actions of the
Commissioner who had signed the contract and at all times
proceeded thereunder as an agent of the State. Reasonable men
could not differ in concluding that the County could reasonably
rely on the Commissioner's representation of the per diem rate in
the 1983 letter as applying to all state prisoners housed in the
County's facility.
Nothing in the record warrants a conclusion that either
party to the contract had clearly or implicitly rejected it. The
parties never abandoned the material portions of the contract
that contained provisions for reimbursement to the County for the
expansion of its facilities, restrictions on the type of state
prisoners permitted to be housed in the County, the State's
access to prisoners and records, and a requirement that the state
prisoners engage in work under the County's supervision.
The motion judge tried creatively to avoid eliminating the
reimbursement formula by constructing a limited abandonment
theory that reinstated the original payment provisions of
paragraph eleven. The court's reliance on Mossberg in support of
extrapolation of a principle of partial abandonment is flawed.
Abandonment is similar to the remedy of rescission and generally
requires the undoing of the entire contract. Merickel v.
Erickson Stores Corp.,
95 N.W.2d 303, 306 (Minn. 1959); see also
Bonnco Petrol, Inc. v. Epstein,
115 N.J. 599, 612 (1984) ("As a
general rule a contract is not to be partially rescinded. It is
true, however, that a severable transaction may be partially
rescinded."). No party seeks that result, although the State's
argument would effectively accomplish that with respect to
calculating reimbursement under the contract. A limited or
partial abandonment of a contract is in essence a modification
which requires clear and convincing evidence of mutual assent.
Merickel v. Erickson Stores Corp., supra (95 N.W.
2d at 306).
It is true that a contract may be modified without the
parties' express mutual assent. Bankoff v. Wycoff,
233 F.2d 476,
478 (10th Cir. 1956). Modification may be implied from the acts
and circumstances of the parties. "An agreement to change the
terms of a contract may be shown by the conduct of the parties,
as well as by an explicit agreement to modify." Matanuska Valley
Farmers Cooperating Ass'n v. Monaghan,
188 F.2d 906 (9th Cir.
1951).
Such modification must be based upon new consideration.
Ross v. Orr,
3 N.J. 277, 282 (1949) ("[T]he terms of a written
contract may be altered or changed by a subsequent agreement if
based on a proper consideration."). The State argues that, when
the County initially submitted the $45 vouchers, that sum was
greater than the computation under paragraph eleven for the first
few years of the contract and represents new consideration.
Albeit nothing in the record indicates the County was aware of
this fact, the State asserts that an "implicit agreement" was
created which modified the original contract.
We reject that argument. Here, modification is not
appropriate because there is nothing to indicate any clear and
convincing proof that the County was aware the term of the
contract had been modified. The State did not reject the
County's vouchers and did not inform the county the rate was
inappropriate. The Commissioner submitted a rate upon which the
County could reasonably rely. It may be said that the County was
misled. At best the contract might be said to be voidable. See
Marcangelo v. Boardwalk Regency Corp.,
847 F. Supp. 1222, 1230
(D.N.J. 1994); Restatement 2d Contracts §§ 7, 376, 384 (1981).
The victim of a misrepresentation has a choice of either
rescinding or affirming the contract. Id. If he rescinds, the
monies received under the contract must be returned but
restitution is available. Merchants Indem. Corp. v. Eggleston,
37 N.J. 114, 130 (1962). Rescission is only available, however,
in cases where the parties can be returned to their original
positions. Intertech Associates, Inc. v. City of Paterson,
255 N.J. Super. 52, 59 (App. Div. 1992). This is not possible here
because the County has already received the funds to upgrade its
facilities and done so, and has also housed numerous state
prisoners.
If the victim of misrepresentation chooses to affirm the
contract, damages are recoverable to make him whole. Correa v.
Maggiore,
196 N.J. Super. 273, 286 (App. Div. 1984). In
calculating damages, a court should try to "put a plaintiff in as
good a position as he would have been had the defendant kept his
contract." Lieberman v. Employers Ins. of Wausau,
84 N.J. 325,
341 (1980) (quoting Giumarra v. Harrington Heights,
33 N.J.
Super. 178, 196 (App. Div. 1954), aff'd. o.b.,
18 N.J. 548
(1955)). Under this scenario, the County should receive the
difference between what it has received and what it should have
received under paragraph eleven.
Damages may be limited temporally. The doctrine of nullum
tempus is no longer applicable to contractual claims made by the
government. N.J. Educ. Facilities Auth. v. Gruzen Partnership,
125 N.J. 66, 76 (1991). Governmental entities must adhere to
appropriate statutes of limitations. Ibid.
The Commissioner argues that assuming he breached the
contract, the County's claim is barred by the Contractual
Liability Act (N.J.S.A. 59:13-1 to -10). Under this Act, a party
that has contracted with the State and claims that the State has
breached the contract must submit to the State a notice of claim
for a breach of contract within ninety days of the accrual of the
claim. N.J.S.A. 59:13-5. Failure to do so within ninety days
results in a permanent bar from recovery against the State.
N.J.S.A. 59:13-5(a). After the ninety days, the claim will be
forever barred unless the claimant files suit within two years of
the claim's accrual or within one year after completion of the
contract giving rise to the claim. N.J.S.A. 59:13-5(b).
Of course, statute of limitations are subject to the
"discovery rule." Gantes v. Kason Corp.,
145 N.J. 478, 487
(1996). The discovery rule is founded in equitable principles
designed to mitigate unjust results that sometimes arise from
strict adherence to a statute of limitations. O'Keefe v. Snyder,
83 N.J. 478, 491 (1980); Lopez v. Swyer,
62 N.J. 267, 273-274
(1973). The rule provides that a cause of action does not accrue
until either the injured party discovers or should have
reasonably discovered the facts which underlie the basis for the
action. O'Keefe, supra (83 N.J. at 491); Burd v. New Jersey
Telephone Co.,
76 N.J. 284, 291-292 (1978).
The record indicates that the County only became aware of a
potential breach in 1992. Thereafter, the County filed its
notice of claim on April 7, 1992. Although a new cause of action
arose with each payment, Metromedia v. Hertz Mount. Assoc.,
139 N.J. 532, 535-536 (1995), there was a continuing breach, and the
County is not here limited to only the ninety-day period before
its notice under N.J.S.A. 59:13-5 because nothing indicates that
the County knew or should have known of the State's prior
disregard of the contract and its breach of the contractual
provision. It would be a harsh and unfair result to hold that
the State could participate in a contractual arrangement and reap
a windfall due to its noncompliance with the terms of the
agreement when it was the only party privy to the true facts.
The State must be fair in its contractual duties, and may even be
said to have a greater responsibility in that regard,
particularly due to its superior bargaining position and
obligation to act both legally and ethically. As our Supreme
Court has said with respect to the State and its contractual
responsibility: "government must `turn square corners' rather
than exploit litigational or bargaining advantages that might
otherwise be available to private citizens." W.V. Pangborne &
Co. v. N.J. DOT,
116 N.J. 543, 561 (1989). The government must
act fairly and "with compunction and integrity." Id. at 562
(quoting F.M.C. Stores Co. v. Borough of Morris Plains,
100 N.J. 418, 427 (1985). We see no reason to make a distinction because
the County is also a public entity, and even a subdivision of the
State. Fair dealing should still be uppermost. See Van Gemert
v. Boeing Co.,
520 F.2d 1373 (2d Cir.), cert. denied,
423 U.S. 947,
96 S. Ct. 364,
46 L. Ed.2d 282 (1975); New Brunswick
Savings Bank v. Markouski,
123 N.J. 402, 423-426 (1991); Rudbart
v. North Jersey District Water Supply Commission,
127 N.J. 344,
379-380 (1992) (concurring opinion).
A factual determination must be made to calculate the number
of state prisoners housed in the Morris County prison pursuant to
the contract from May 11, 1983, the date claimed in the County's
complaint, and when the $120,680 threshold amount was reached.
The Commissioner contends that state prisoners have been
housed both under the terms of the contract and pursuant to the
Disaster Control Act and the executive orders issued thereunder.
Moreover, he argues that the DOC "removed all inmates from the
County facility as of June 30, 1993 that were housed there
pursuant to the Contract. Thereafter, the Department of
Corrections has not placed any state inmates in Morris County's
correctional facility." The County argues that the Commissioner
draws this distinction only to avoid paying the appropriate
amount owed it under the terms of the contract. The County
contends state prisoners are still housed in its facilities. The
motion judge's only remark on this issue is found in his letter
opinion:
During many of the years thus far covered
by the contract, the Department has also
purported to exercise the right to have State
prisoners in county correctional facilities
without the consent of the counties involved
pursuant to executive orders issued by the
Governor of New Jersey.
This factual dispute must be resolved.
We reject the State's argument on its cross-appeal. Courts
should not lightly set aside contracts, particularly between
government entities. See Driver v. Smith,
89 N.J. Eq. 339, 359
(Ch. 1918). Cf. U.S. Const. art. I § 10, cl. 1. There is no
basis for the State to negate the terms of the contract or
conclude there was an abandonment. Moreover, waiver, estoppel,
and laches are not favored when sought to be applied against
public entities. O'Malley v. Dep't of Energy,
109 N.J. 309, 316
(1987); Township of Fairfield v. Likanchuk's, Inc.,
274 N.J.
Super. 320, 331 (App. Div. 1994). The Act and the contractSee footnote 6
contemplate that the State will use the County facility
constructed with state funds to house forty state prisoners for
the forty-year term of the contract. Thus, notwithstanding any
emergency ordersSee footnote 7, the contract remains viable and the State is
contractually bound to pay for up to forty of its prisoners
housed in the Morris County jail under the terms of the contract.
We reverse and remand for calculation of damages owed to the
County from the date State prisoners were first housed by the
County under the terms of the contract. The cross-appeal is
dismissed.
Footnote: 1The record contains a Department of Corrections summary for
prisoner housing for the fiscal years from 1985 through 1993.
The average per capita cost for state prisoners at New Jersey,
East Jersey, and Bayside in those years was:
1985 - $36.87 1988 - $45.43 1991 - $53.13
1986 - $36.51 1989 - $48.26 1992 - $51.75
1987 - $42.74 1990 - $49.79 1993 - $56.87
In its brief the State asserts that "the uniform rate of compensation by the DOC initially was $42.95 in 1981; in 1985 was increased to $45.00; and in 1994 was increased to $58.40." Footnote: 2Apparently only the Commissioner was served. We attribute no controlling effect to the fact that the State was not served since the Commissioner acted in his official capacity as a State officer. Footnote: 3Although the Act also provided for establishment of "county corrections advisory boards" by participating counties, see N.J.S.A. 30:8-16.7(a), there is no indication in the record when or if such a board was constituted in Morris County. Nor are we referred to any administrative regulations adopted by the Commissioner under the Act to implement N.J.S.A. 30:8-16.7(b), 16.12. Our research discloses none. Footnote: 4Because there is no assertion that any rate other than the 100" per diem rate applies to 1988 and subsequent years, we presume the DOC has no claim under the discount provision and has retained the required sum. Footnote: 5See Gloucester County v. State, 132 N.J. 141 (1993), for a discussion of executive order No. 106 (1981), issued pursuant to the Disaster Control Act, N.J.S.A. App. A:9-30 et seq., and the extensions of that executive order. The Legislature subsequently authorized successive two-year periods for the Governor to issue executive orders for the housing of state inmates in county facilities. See L. 1994, c. 12 and L. 1996, c. 9. However, there is nothing to indicate that any executive order was intended to or could negate existing contracts between the State and any county. Footnote: 6See particularly paragraph three of the contract, quoted supra at page 4. Footnote: 7The emergency orders were declared no longer effective as of April 22, 1994, in Gloucester County v. State, 132 N.J. 141, 143 (1993). See also footnote 4, supra.