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S.S. & O. Corp. v. Township of Bernards Sewerage Authority

Decided: March 14, 1973.


For reversal and remandment -- Chief Justice Weintraub, Justices Jacobs, Hall and Mountain, and Judges Conford, Sullivan and Lewis. For affirmance -- None. The opinion of the Court was delivered by Lewis, P.J.A.D., Temporarily Assigned.


On January 15, 1970 plaintiff S.S. & O. Corporation (Developer), a real estate development company, filed a complaint against defendant Township of Bernards Sewerage Authority (Authority) by which it sought repayment of $37,800 paid for 42 sewerage connection charges pursuant to an agreement dated May 17, 1966, which was allegedly executed under duress and coercion exercised by the Authority. The complaint also sought a determination that the rate schedule, rules and regulations of the Authority as applied to newly constructed houses in plaintiff's development were arbitrary and illegal and that the utility should be enjoined from demanding payment of a $900 initial sewerage connection charge with respect to each of the remaining lots in the development upon which residential structures were to be erected. The Authority answered the complaint denying any unlawful practice and asserted that plaintiff's suit was barred by laches and estoppel; it also counterclaimed for money damages and injunctive relief to prevent further construction in plaintiff's development because Developer breached its agreement.

The trial court, after a nonjury trial, entered judgment dismissing with prejudice the complaint and the counterclaim. On Developer's appeal the judgment was affirmed by the Superior Court, Appellate Division, subtantially for the reasons expressed by the trial judge. The Authority did not cross appeal. This court granted certification, 60 N.J. 515 (1972).

It appears from the record that the Authority was created by a 1956 ordinance of the Township of Bernards pursuant to the provisions of N.J.S.A. 40:14A-1 et seq. Its first treatment plant went into operation about 1959 and thereafter, within a substantial portion of the municipality, sewer services were made available and furnished in accordance with the terms of an agreement executed in 1961 between the Authority and the township. At the time of trial (March

1971) 1823 of the 3044 homes listed on the township tax rolls were connected to the sewerage facilities.

The schedule of rates and the rules and regulations of the Authority revised in 1965, as amended April 13, 1966, classifies the users of its services into six classes, i.e., dwellings, retail businesses, public buildings, private sewers, commercial and industrial uses and developments. The "initial charge" applicable to single-family dwellings (class one) is $700 plus an "annual charge" of $65. With respect to developments (class six) the pertinent provision reads:

The owner or developer of any development or subdivision of land for residential purposes, as defined by the statute, shall in addition to the requirements for the payment of fees for permits and engineering services pay, for each lot or tract of land therein, whereon a single dwelling house is built or intended to be built, an initial charge of $900.00 and an annual charge of $65.00. The owner or developer shall pay all costs and expenses for the installation of sewers, with the equipment and appurtenances thereof, within the development and in streets abutting the same.

In February 1966 Developer acquired title to certain tracts of farm land in the Township of Bernards for the intended purpose of subdivision into building lots and the construction of 72 single-family houses. Major subdivision approvals were obtained from the appropriate municipal agencies in April 1966 and February 1967. As a condition thereof plaintiff was required to enter into a written agreement with the Authority providing for the installation of adequate sewerage facilities. A proposed agreement, dated May 5, 1966, was prepared by the Authority and submitted to the Developer for signature. Provisions were included therein for various permit fees, a $580 deposit for review of the Developer's plans by the Authority engineer, a deposit of $660 for inspection of sewerage installation work in the development and the payment of a $900 connection fee upon the issuance of a certificate of occupancy for each house connection. Additionally, the Developer was required to install at its expense underground street sewer lines, or

"laterals," throughout the development. The agreement further provided:

The Developer signed the agreement and returned it with a letter stating that the contract was executed "under protest, without waiving any of the rights of the Developer to challenge the validity of the charges that he is required to pay pursuant to the subject Agreement." The Authority's attorney replied advising that the protest letter was considered a repudiation of the proposed terms and that the Authority would "require an agreement, without reservations on the side." The next day the Developer was informed by letter that the Authority was canceling the three previously-issued permits authorizing sewer constructions.

On May 17 the Developer was furnished with a list of the requirements prerequisite to the issuance of necessary permits. The schedule, among other items, called for a new contract, "same as originally proposed," and a corporate resolution by the Developer containing a statement that no compulsion or coercion was used by the Authority and that any contract between the parties was entered into freely and voluntarily. On the same day a new agreement without any reservation was signed by the Developer and delivered to the Authority accompanied by a certified copy of a resolution adopted in conformity with the demands which had been made.

The instant suit, for the relief noted above, was commenced after the Developer had substantially completed the installation of a sewerage system within its development, connected 42 houses thereto and paid connection fees totaling

$37,800. The challenged action of the Authority and the issue of enforcement of its rate structure necessitates an interpretation of applicable statutory language.

The Legislature has enacted a Sewerage Authorities Law, N.J.S.A. 40:14A-1 et seq. (L. 1946, c. 138), by which it declared that municipalities are empowered to establish authorities and to provide sewerage services in order to promote by all reasonable means the public policy of the State against pollution. N.J.S.A. 40:14A-2. Among the powers expressly vested in a municipal Sewerage Authority is the right "to charge and collect rents, rates, fees or other charges" as governed by N.J.S.A. 40:14A-8. This section was supplemented by L. 1968, c. 317, ยง 2 (effective October 7, 1968) amending N.J.S.A. 40:14A-8(b) to read as follows:

(b) Such rents Rents, rates, fees and charges, which may be payable periodically, being in the nature of use or service charges, shall as nearly as the sewerage authority shall deem practicable and equitable be uniform throughout the district for the same type, class and amount of use or service of the sewerage system, and may be based or computed either on the consumption of water on or in connection with the real property, making due allowance for commercial use of water, or on the number and kind of water outlets on or in connection with the real property, or on the number and kind of plumbing or sewerage fixtures or facilities on or in connection with the real property, or on the number of persons residing or working on or otherwise connected or identified with the real property, or on the capacity of the improvements on or connected with the real property, or on any other factors determining the type, class and amount of use or service of the sewerage system, or on any combination of any such factors, and may give weight to the characteristics of the sewage and other wastes and any other special matter affecting the cost of treatment and disposal thereof, including chlorine demand, biochemical oxygen demand, concentration of solids and chemical compositions. In addition to any such periodic service charges, a separate charge in the nature of a connection fee or tapping fee, in respect of each connection of any property with the sewerage system may be imposed upon the person making such connection or upon the owner or occupant of the property so connected. Such connection charges shall be uniform within each class of users but the amount thereof shall otherwise be entirely within the discretion of the authority in order that

the combination of such connection fee or tapping fee and the aforesaid periodic service charges shall meet the requirements of subsection (c) hereof.*fn1

Subsections (a) and (c) of N.J.S.A. 40:14A-8 were not changed. Subsection (a) authorizes every sewer authority to charge and collect rents, rates, fees or other charges (sometimes referred to as "sewer charges") for direct or indirect connections with, or the use or services of, the sewerage system, and subsection (c) directs the sewer authority to precribe and revise a schedule of service charges which "in any event shall be such that the revenues of the sewer authority will at all times be adequate to pay all expenses of operation and maintenance of the sewerage system * * *." As stated by the Chancery Division in Kline v. Bellmawr Sewerage Authority, 55 N.J. Super. 153, 161 (Ch. Div. 1959), aff'd sub nom. Landy v. Bellmawr Sewerage Auth., 61 N.J. Super. 396 (App. Div. 1960), which dealt with the language of subsection (b) unchanged by the 1968 ...

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