Opinion ID: 2060673
Heading Depth: 1
Heading Rank: 13

Heading: The Contractual Liability Act

Text: Although we hold that the parties have not abandoned or modified the contract and that the cause of action is not barred by equitable principles, the New Jersey Contractual Liability Act applies. Under that Act, although the MCCFAC must be enforced as written from here forward, the County is entitled to be reimbursed for some of the State's underpayments. Prior to 1970, the State could not be sued in actions in tort or contract as a result of its sovereign immunity. Frapaul Constr. Co. v. New Jersey Dep't of Transp., 175 N.J. Super. 84, 88, 417 A. 2d 592 (App.Div. 1980); Richard J. Hughes & William F. Hyland, Report on the New Jersey Tort Claims and Contractual Liability Acts 1 (July 1, 1975). The immunity from contract actions was first abolished as a common law doctrine by the Supreme Court in 1970 and was later abolished on a statutory basis by the passage of the Contractual Liability Act. P, T & L Constr. Co. v. Commissioner, Dep't of Transp., 55 N.J. 341, 346, 262 A. 2d 195 (1970); Frapaul, supra, 175 N.J. Super. at 88-89, 417 A. 2d 592. The Report of the Attorney General's Task Force on Sovereign Immunity, which urged the passage of that Act, noted that most states and the federal government had already subjected themselves to liability for contract actions and that it is unconscionable for a State to be permitted to repudiate a contract which it has voluntarily entered and which binds the other parties. George F. Kugler, Jr., Attorney General, Report of the Attorney General's Task Force on Sovereign Immunity 9 (May 1972). Specifically, the Contractual Liability Act waives [the State's] sovereign immunity from liability arising out of an express contract or a contract implied in fact and consents to have the same determined in accordance with the rules of law applicable to individuals and corporations. N.J.S.A. 59:13-3. The Contractual Liability Act also requires that all parties contracting with the State who wish to file a breach of contract suit against the government file a notice of claim with the contracting agency within ninety days of the accrual of their claim. N.J.S.A. 59:13-5. Failure to file a notice of claim within the appropriate time period results in a permanent bar against recovery, unless application is made to a judge of the Superior Court giving sufficient reason for permission to file a late notice of claim. N.J.S.A. 59:13-5 to -6. If permission is granted, the notice of claim must then be filed within one year of the accrual of the claim. N.J.S.A. 59:13-6. The claimant will also be barred from recovering if he fails to file suit within two years of accrual of his claim or within one year after completion of the contract giving rise to the claim. N.J.S.A. 59:13-5. As noted by various courts, the purposes of the notice provisions of the Act are to give state agencies, which are often faced with large amounts of litigation, an opportunity to determine the merits of the claims for the possibility of a settlement, as well as to investigate the claims for the purpose of preparing for trial. Frapaul, supra, 175 N.J. Super. at 92, 417 A. 2d 592; accord Housing Auth. of Newark v. Sagner, 142 N.J. Super. 332, 343, 361 A. 2d 565 (App.Div. 1976). We must first ascertain the date of accrual of the County's claim to determine when its notice of claim had to be filed. The Act itself states that `Accrual of claim' shall mean the date on which the claim arose and shall not be affected by the notice provisions contained herein. N.J.S.A. 59:13-2. In addition, courts have generally stated that a claim accrues, for statute of limitations purposes, on the date on which `the right to institute and maintain a suit' first arose. Rosenau v. City of New Brunswick, 51 N.J. 130, 137, 238 A. 2d 169 (1968); Deluxe Sales and Serv., Inc. v. Hyundai Eng'g & Constr. Co., 254 N.J. Super. 370, 374, 603 A. 2d 552 (App.Div. 1992). In this case, we apply the installment contract approach described in Metromedia Co. v. Hartz Mountain Associates, 139 N.J. 532, 535, 655 A. 2d 1379 (1995), to determine when the County's claim accrued. Under the installment contract method, claims based on installment contracts or other divisible, installment-type payment requirements accrue with each subsequent installment. In other words, a new statute of limitations begins to run against each installment as that installment falls due and a new cause of action arises from the date each payment is missed. Id. at 535-36, 655 A. 2d 1379. The Court in Metromedia, supra, noted that, absent a repudiation, a plaintiff may sue for each breach only as it occurs because [t]o hold otherwise would allow a claimant to trigger the statute of limitations upon presentation of a claim rather than having the existence of a claim trigger the statute of limitations. Ibid. As a result, the Court found that where the defendant agreed to reimburse the plaintiff for cleaning costs, and for six and one-half years the plaintiff paid for the service but did not submit bills to the defendant, the plaintiff's enforceable right arose on a monthly basis, upon completion of the cleaning services and the accumulation of the right to payment. Id. at 533-35, 655 A. 2d 1379. Therefore, the plaintiff in that case could recover only for those bills relating to the months for which the applicable statute of limitations had not expired at the time the plaintiff filed suit; any bills submitted for months more than six years before the suit was commenced were forever barred from recovery. Id. at 536, 655 A. 2d 1379. The installment contract approach has been applied in a variety of situations. As noted by the Court in Metromedia, supra, the theory has been used in connection with coupons on county bonds due annually, periodic payments for promissory notes, periodic payments under a divorce settlement, and monthly payments under an equipment lease. Id. at 535, 655 A. 2d 1379. In Ballantyne House Associates v. City of Newark, 269 N.J. Super. 322, 331-32, 635 A. 2d 551 (App.Div. 1993), the Appellate Division found that Newark's failure to perform its garbage collection obligations, under the tax abatement agreements at issue in that case, could be considered a series of continuing breaches for which plaintiffs could maintain an action for any breach occurring within six years of the filing of the complaint, even if more than six years had elapsed since Newark's initial breach. Similarly, courts in various jurisdictions have found that a new cause of action accrued monthly on electricity contracts where a new payment was due each month based on the customer's usage over that month, Kiamichi Elec. Cooperative v. Underwood, 842 P. 2d 358 (Okla. Ct. App. 1992); that the obligation to make pension fund withdrawal liability payments was akin to the obligation to make payments on an installment contract, Board of Trustees v. Kahle Eng'g Corp., 43 F. 3d 852, 857 (3d Cir.1994); and that the dates of submission of invoices for payment were the dates on which a plaintiff's claims accrued, Deluxe Sales and Serv., Inc., supra, 254 N.J. Super. at 374-75, 603 A. 2d 552. The discovery rule should not be applied to determine when the County's claims accrued. The discovery rule provides that, in an appropriate case, a cause of action will not accrue until the injured party discovers, or by exercise of reasonable diligence and intelligence should have discovered, facts which form the basis of a cause of action. O'Keeffe v. Snyder, 83 N.J. 478, 491, 416 A. 2d 862 (1980). Although it seems inequitable that an injured person, unaware that he has a cause of action, should be denied his day in court solely because of his ignorance, if he is otherwise blameless, it may also be unjust, however, to compel a person to defend a law suit long after the alleged injury has occurred, when memories have faded, witnesses have died and evidence has been lost. Lopez v. Swyer, 62 N.J. 267, 274, 300 A. 2d 563 (1973). Therefore, this Court has held that the equitable claims of the parties must be weighed against each other and that not every delayed discovery will justify the application of the rule. Id. at 274-75, 300 A. 2d 563. As a result, the discovery rule has been applied most frequently in personal injury or negligence-type actions, which by their nature are often self-concealing or undiscoverable. Although the rule originally was developed to provide relief for plaintiffs in foreign body or other medical malpractice claims, id. at 273, 300 A. 2d 563, the rule has since been extended to various other negligence-type suits, such as legal malpractice, Grunwald v. Bronkesh, 131 N.J. 483, 493-94, 621 A. 2d 459 (1993); products liability suits, id. at 493, 621 A. 2d 459 (citing Burd v. New Jersey Tel. Co., 76 N.J. 284, 291-92, 386 A. 2d 1310 (1978)); negligent miscalculation of acreage by a professional engineer and land surveyor, Lopez, supra, 62 N.J. at 273, 300 A. 2d 563 (citing New Market Poultry Farms, Inc. v. Fellows, 51 N.J. 419, 241 A. 2d 633 (1968)); and common law fraud, Interlox Punch & Die Corp. v. Insilco Corp., 174 N.J. Super. 175, 176, 415 A. 2d 1208 (Law Div. 1980). The rationale for employing the discovery rule in tort- or fraud-type actions, however, does not carry over to most contract actions, and therefore, the discovery rule generally has not been applied in such suits. Although some negligence or malpractice actions involve inherently undiscoverable types of injuries, most contract actions presume that the parties to a contract know the terms of their agreement and a breach is generally obvious and detectable with any reasonable diligence. Because the discovery rule imposes on plaintiffs an affirmative duty to use reasonable diligence to investigate a potential cause of action, and thus bars from recovery plaintiffs who had reason to know of their injuries, the discovery rule generally does not apply to contract actions. See Berlen v. Consolidated Rail Corp., 291 N.J. Super. 542, 551, 677 A. 2d 1150 (App.Div. 1996) (finding affirmative duty to investigate); O'Keeffe, supra, 83 N.J. at 497-98, 416 A. 2d 862 (imposing duty of reasonable diligence in investigation in order to toll statute of limitations); D'Aries v. Schell, 274 N.J. Super. 349, 363, 644 A. 2d 134 (App.Div. 1994) (lack of diligence precluded plaintiff from benefiting from the discovery rule); cf. Gibbins v. Kosuga, 121 N.J. Super. 252, 296 A. 2d 557 (Law Div. 1972) (applying discovery rule to breach of contract and misrepresentation action where plaintiffs did not find out and had no reason to know until ten years after they bought house that well supplying water was not located on their property, but not applying discovery rule to counterclaim in same action for $1500 never paid on promissory note). In this case, the discovery rule does not apply. The present situation involves a contract with clear and explicit payment provisions. The actual payments due under the contract were readily discoverable through public information and calculation. Not only could the County have discovered the lack of adherence to the contractual reimbursement rate through the exercise of reasonable diligence, but the County probably had actual knowledge that there existed a difference in payment as early as 1989, the time at which the Commissioner stated that the cost to house a State prisoner in Trenton was $63. Upon finding that a difference existed, the County should then have investigated the proper differential amount. The fact that the State overpaid for the first few years of the contract suggests that the incorrect payments were not entirely the fault of nor purposeful on the part of the State. Because both parties mutually erred and the County, as well as the State, should have discovered the mistake at an earlier time, the discovery rule is not appropriate. Instead, as we have indicated, the installment contract approach should be applied. The County submitted regular vouchers for reimbursement for the housing of State prisoners. Every time the County submitted a new voucher and the State did not pay the correct amount, the County's cause of action on that voucher accrued. Therefore, the County was obligated to file a notice of claim with the State, for each voucher on which it wished to sue, within ninety days of the submission of that voucher. Because the County did not file a notice of claim until April 7, 1992, the County met the notice requirements of the Contractual Liability Act only with respect to those invoices submitted within the ninety days before that date. As a result, we hold that the County is entitled to reimbursement for the difference between what was paid on the contract and what should have been paid under the contract for all invoice periods occurring on or after January 9, 1992 to date, but is barred from reimbursement for all periods occurring before that date. As required by N.J.S.A. 59:13-8 of the Contractual Liability Act, no prejudgment interest will be added to that amount. The judgment of the Appellate Division is affirmed in part and reversed in part. STEIN, J., concurring in part and dissenting in part. I join in the Court's opinion to the extent that it allows Morris County (County) to recover all underpayments due to it from the State from and after January 9, 1992, pursuant to its 1983 agreement with the Department of Corrections (Contract). I disagree with the Court's summary disposition that precludes the County from recovering underpayments prior to that date because of its alleged failure to comply with the notice and suit filing requirements imposed by the provisions of the Contractual Liability Act. N.J.S.A. 59:13-1 to -10. Fairly read, this record mandates a remand for an evidentiary hearing to permit a trial court to determine whether the State acted in good faith in failing to honor the contract terms for such an extended period, and whether the County, through the exercise of reasonable diligence, could have discovered earlier the fact and the extent of the State's noncompliance with the Contract's reimbursement provisions.