Plaintiff, City of Newark, seeks an adjudication rescinding two water supply contracts entered into between defendant North Jersey District Water Supply Commission (hereinafter referred to as "Commission"), Newark and a number of other municipalities.
The Commission moves for summary judgment on the ground that there exists no genuine issue as to any material fact and that it is entitled to judgment as a matter of law. At the oral argument, defendants Town of Kearny and the Borough of Glen Ridge joined in the Commission's motion. Defendants Township of Cedar Grove and Borough of West Caldwell expressed their desire to withdraw from the Raritan Valley water project as presently constituted and opposed the motion for summary judgment. Defendant Borough of Verona opposed the motion for summary judgment on the ground that one of the water supply contracts requires clarification respecting that Borough's obligation therein.
The Commission and several municipalities executed a contract dated July 13, 1965 for the supply of additional water to the heavily populated and industrialized northeastern section of New Jersey. Newark became a signatory to the contract on October 1, 1965. The contract did not become operative until September 12, 1966 when the requisite minimum subscription level of 50 million gaillons daily was reached.
On April 6, 1966 Newark entered into a second and independent agreement entitled "Cooperation Agreement Between City of Newark -- North Jersey Water Supply Commission -- Contracting Municipalities" (hereinafter referred to as "cooperation agreement"). Pursuant to its option terms, several of the participating municipalities became parties to this agreement. Its purpose was to facilitate the carrying out of the basic contract by permitting the contracting municipalities to utilize Newark's distribution system or to exchange
water to be obtained from the State's Round Valley-Spruce Run reservoirs and the Raritan River (hereinafter referred to as "Raritan Valley water") for water from Newark's Wanaque supply.
Throughout the period of negotiations the parties were apprised of the fact that the figures that they were working with were only estimates, subject to fluctuation resulting from changes in interest rates, the costs of materials and labor, and the total subscription level. In February 1967 Newark, apparently dissatisfied with the arrangement, passed a resolution and ordinance rescinding the two contracts. The Commission then instituted an action in which it sought an adjudication that the two contracts were valid and binding upon the signatories. The trial court entered such a judgment on February 9, 1968. North Jersey District Water Supply Commission v. City of Newark, et al., 103 N.J. Super. 542 (Ch. Div. 1968).
Ten days after this judgment was entered the Gilbert Associates Report was made available to all the participating municipalities. This report promulgated four alternate plans for the project. In possession of this report, Newark, on March 13, 1968 filed an appeal to the Appellate Division. Certification was granted and the matter was argued before the Supreme Court on June 4, 1968. On June 28, 1968 the trial court's judgment was affirmed. 52 N.J. 134 (1968).
In a letter dated July 1, 1968 the City of Newark through its Mayor wrote the Commission that events have transpired since the hearing in the Chancery Division on December 15, 1967 which render inequitable any insistence by the Commission upon the performance of the contracts by Newark. The letter stated that the contractual undertakings have been altered beyond any reasonable contemplation by the parties at the time they entered into the agreements, and performance has been rendered economically unfeasible. The Mayor concluded that "In view of the foregoing it is entirely inadvisable that the Commission proceed at this time or in the foreseeable future toward implementing any bonding negotiations,
or toward any further action with respect to the entire project."
On August 15, 1968 the Commission, in order to provide temporary financing, adopted a resolution authorizing the issuance of its bond anticipation notes in a sum not exceeding $4,500,000 in furtherance of the Raritan Valley project estimated to cost $51,226,182. To market the proposed bond anticipation notes, the Commission must certify that there is no litigation pending. The effect of the present suit is to thwart the project.
The gravamen of Newark's complaint is set forth in Paragraph 5 which recites that:
"5. From and after the date of the rendition of the judgment of the Chancery Division as aforesaid, the following matters have occurred, rendering inequitable any insistence by the defendant Commission upon the performance of the aforesaid agreements by the plaintiff:
a. The contractual undertakings of the plaintiff, as now projected by the defendant Commission, have been altered, physically and financially, far beyond any reasonable contemplation of the parties at the dates of such agreements, rendering the project and undertaking economically unfeasible.
b. When the 1965 contract was entered into, the anticipated cost for Raritan Valley water was between $165 and $185 per mg (million gallons).
c. The defendant Commission's engineers, Gilbert Associates, completed a study of the Raritan Valley transmission facilities, which was submitted for review to the plaintiff on or about February 19, 1968. In this study, there was recommended construction of a treatment plant and transmission facilities extending from Bound Brook to Newark, under an Alternate Plan 1A, which would have a capacity of 70 mgd (million gallons daily) at an estimated cost of between $217 and $251 per mg. This is the project adopted by defendant Commission. Because of high interest rates presently anticipated, it is realistic to use $250 per mg as the estimated base cost under such study.
d. The base cost was estimated at the designed capacity of 70 mgd, therefore, all the municipalities participating in this project, including the plaintiff, will have to pay for the difference between the 70 mgd designed capacity and the 61 mgd commitment of the participating municipalities. This will add approximately $29 per mg to the base cost.
e. The plaintiff cannot accept the Raritan Valley water without making improvements to the plaintiff's internal distribution system, to receive the designed capacity of 70 mgd, at an approximate cost to
the plaintiff of over $7,000,000. This the plaintiff is not obligated to do under the 1966 agreement, * * *.
f. The defendant Commission's latest estimates show that it will cost an additional $30 per mg to filter Wanaque water and, in the above mentioned cooperation agreement, * * * this cost must be arbitrated. Therefore, it is possible that this cost of $30 per mg will have to be added to the base cost.
g. Considering the factors aforementioned, the total unit cost of raw water from the Raritan Valley system may ...