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Graziano v. Mayor and Township Committee of Township of Montville

Decided: September 13, 1978.


On appeal from Superior Court, Law Division, Morris County.

Fritz, Botter and Ard. The opinion of the court was delivered by Botter, J.A.D.


This is an appeal from a judgment entered at the close of trial dismissing plaintiffs' action in lieu of prerogative writs. Plaintiffs challenge the legality of a "service contract" entered into by respondents Montville Township and the Montville Township Municipal Utilities Authority (MUA). Plaintiffs' principal contention is that annual payments made by the township to the MUA to offset operating deficits are illegal because they are made pursuant to the terms of the contract and bond resolutions which violate a statutory prohibition against a municipality incurring any debt or liability for bonds issued by a municipal utilities authority.

The issues in this case are issues of law, not fact. The material facts were stipulated below or were otherwise not in real dispute. See Evid. R. 3. Plaintiffs are taxpayers in Montville Township and have standing to bring this action challenging the contract and payments made out of general municipal revenues in connection with the contract.

Camden Plaza Parking, Inc. v. Camden , 16 N.J. 150, 158-159 (1954); Waszen v. Atlantic City , 1 N.J. 272, 276 (1949).

The MUA was created by ordinance of Montville Township in August 1964 pursuant to the Municipal Utilities Authorities Law (the Act), N.J.S.A. 40:14B-1 et seq. On October 1, 1967 respondents entered into a contract whereby the MUA agreed to construct, acquire and operate specified parts of a water and sanitary sewer system in Morris County. The estimated cost of the project was approximately $5,000,000, to be raised through bond issues and grants in aid from governmental entities. Thereafter, pursuant to a bond resolution of April 1971, the first permanent bonds were issued by the MUA. (We are told that short-term loans financed the construction of the project.) Another permanent bond issue of $2,000,000 was authorized by resolution adopted by the MUA on April 27, 1976, notice of which was first published in a newspaper on May 6, 1976 as required by N.J.S.A. 40:14B-28.

This action was filed on August 25, 1976, inspired, no doubt, by the new bond issue and MUA's increasing annual deficits paid by the township out of general revenues raised by local property taxes according to the value of real property and not according to the use made by property owners of MUA's services. Starting in 1971 with a deficit of $100,000, MUA's annual deficit has risen to $265,000 in 1976. Township payments to MUA totalled $932,000 for the six consecutive years inclusive of 1976.

The issues in this case pertain primarily to the provisions of sections 301 and 302 of the contract. Section 301 provides that service charges imposed upon users of the system will pay for expenses of operation and maintenance of the system, debt service on MUA bonds, and necessary reserves; provided, however, that with the township's written consent the MUA may impose service charges, "which shall be less than sufficient to comply with the foregoing requirement * * *." Section 302 provides that the township will pay

the MUA the deficit that results from not charging users of the system the full operating costs and bond requirements. The annual payments due from the township are termed "Annual Charges."

Other provisions in the contract are relevant to sections 301 and 302. Section 303 provides that service charges fixed and charged by the MUA require the township's written consent or approval. Section 413 provides that the MUA shall repay the township all moneys paid by the township under the contract except service charges on property owned by the township itself. This section, therefore, transforms the annual charges provided in section 302 into loans by the township to the MUA which are to be repaid without interest out of MUA's surplus revenues that may accrue at a future time. Section 410 authorizes the MUA to pledge the annual charges receivable from the Township as security for MUA's obligation to its bondholders.

We deal with the main substantive issue which the trial judge decided in defendants' favor, although he also held that the action was barred by the 20-day period of limitations prescribed by N.J.S.A. 40:14B-28. Appellants contend that the contract and bond resolutions created municipal debt as a charge upon the general taxing power of the municipality, in violation of N.J.S.A. 40:14B-33, citing, by analogy, DeLorenzo v. Hackensack , 9 N.J. 379 (1952). DeLorenzo held that a municipal obligation "to make contributions to meet the principal and interest on the [parking] authority's bonds where [the authority's] own revenues were insufficient" violated N.J.S.A. 40:11A-9 as it existed when DeLorenzo was decided. Id. at 386. N.J.S.A. 40:11A-9 declared that the authority's bonds shall not be a debt of the State or any political subdivision thereof and that the State and any subdivision shall not be liable thereon. DeLorenzo ...

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