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Northwest Bergen County Utilities Authority v. Borough of Midland Park

Decided: January 14, 1992.


Kole, Martin J., J.A.D., Retired and Temporarily Assigned On Recall.



KOLE, MARTIN J., J.A.D., Retired and Temporarily Assigned On Recall.

This action was brought by Northwest Bergen County Utilities Authority, ("NBCUA" or "the Authority,") for declaratory relief against the Borough of Midland Park, ("Midland Park,") regarding construction or interpretation of a Service Contract entered into by the parties. The parties have asserted that it involves a novel issue of state-wide significance, since the provisions in question are common in many municipal utility service contracts. Indeed, there is evidence that a municipality that is a member of another authority, the Bergen County Utilities Authority, may be construing the provisions in the same manner as Midland Park.

The Authority was established for the purpose of constructing and operating a District Sewer System. The District is comprised of sixteen municipalities, one of which is Midland Park.

On March 12, 1965, the Authority and several of the municipalities, including Midland Park, entered into a Service Contract, (the "Service Contract" or "the Contract,") which provides for the installation, construction and operation of a District Sewer System for those municipalities.*fn1 Pursuant to the Contract, the municipalities agreed to make payments to the Authority in return for the Authority's treatment and disposal of sewerage originating in the municipalities. Such payments are in lieu of payments which would otherwise be due and owing to the Authority from individual property owners within the contracting municipalities. The Contract mandates that the amount of the payments or service charges are to be calculated by the Authority by the 17th of January of each year. It requires that these service charges be of an amount sufficient

to provide for all expenses of operation, maintenance, depreciation and repair of the District Sewer System, including establishment and maintenance of working capital and reserves, and the payment and security of principal and interest on any bonds issued or to be issued pursuant to the Municipal and County Utilities Authorities Law, N.J.S.A. 40:14B-1 et seq., so as to prevent the accrual of any deficit and to ensure that the Authority and the District Sewer System always remain self-supporting.

Of importance to the issue in this case is Article XII of the Service Contract.

Paragraph 1 of Article XII requires that each contracting municipality pay the annual service charge, established by January 17 by the Authority and certified by it, in equal quarterly payments, which equal quarterly payments " shall be due on and be made on or before the 15th day of February, May, August, and November of such year." (Emphasis supplied.) Each municipality is required in each year to make provisions for "all payments to become due from it to the Authority . . . and shall pay to the Authority for the services rendered or to be rendered to it in the disposal of sewage, in each year in equal quarterly payments . . ., the amount of money certified to it in or for such year by the Authority . . . ."

Paragraph 3 of Article XII provides that:

If any part of any such installment or payment due to the Authority from any Municipality shall remain unpaid for thirty days following its due date, the Municipality shall be charged with and pay to the Authority interest on the amount unpaid from its due date until paid at the rate of eight per cent (8%) per annum, and the Authority, in its discretion and without releasing the Municipality from any obligation to pay therefor, may refuse to permit the Municipality to discharge sewage into the District Sewer System during the period of such default and, at the expense of the Municipality after 60 days notice of such default, may shut off from the District Sewer System, and upon the curing of such default reconnect, the sewer system of the Municipality or outfall thereof.

Paragraph 4 of Article XII provides that: "[t]he provisions of this Article . . . shall be deemed a contract between each Municipality and the holders of all bonds authorized by the

[Municipal and County Utilities Authorities Law] and shall be enforceable by appropriate action at law or in equity." Pursuant to that law, the bond resolutions and agreements may require pledging or setting aside the Authority's revenues to secure the payment of the bond; and the Authority has the duty to enforce the Service Contract provisions and may be required to do so by the bondholders in the event there is a default in payment on the bond. N.J.S.A. 40:14B-30 and 31.

Midland Park has deliberately maintained a pattern of late or slow payment of the amounts due quarterly. The chart below indicates the pattern of late payment by Midland Park over four years ending in 1990:

Due Date Pay Date Days Late

-------- -------- ---------

1987: 2/15/87 3/12/87 25

5/15/87 5/29/87 14

8/15/87 8/17/87 2

11/15/87 11/16/87 1

1988: 2/15/88 2/18/88 3

5/15/88 5/16/88 1

8/15/88 9/15/88 31

11/15/88 12/01/88 16

1989: 2/15/89 2/16/89 1

5/15/89 6/08/89 24

8/15/89 9/13/89 28

11/15/89 12/08/89 24

1990: 2/15/90 2/22/90 ...

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