TILCON NEW YORK, INC v. MORRIS COUNTY COOPERATIVE

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

 

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-5453-10T3

TILCON NEW YORK, INC., and

KELLY EXCAVATING & PAVING,

INC. (d/b/a OWL CONTRACING),

Plaintiffs-Appellants,

v.

MORRIS COUNTY COOPERATIVE

PRICING COUNCIL; TOWNSHIP OF

PARSIPPANY-TROY HILLS; LOPATCONG

TOWNSHIP; RANDOLPH TOWNSHIP;

READINGTON TOWNSHIP; MENDHAM

TOWNSHIP; MORRIS TOWNSHIP;

DENVILLE TOWNSHIP; ROXBURY

TOWNSHIP; TOWN OF MORRISTOWN;

HACKETTSTOWN BOARD OF EDUCATION;

MOUNT OLIVE TOWNSHIP; WARREN

COUNTY; GREENWICH TOWNSHIP;

POHATCONG TOWNSHIP; LEBANON

TOWNSHIP,

Defendants-Respondents.

__________________________________

March 5, 2014

 

Submitted February 12, 2013 - Decided

 

Before Judges Messano, Ostrer and Kennedy.

 

On appeal from the Superior Court of New Jersey, Law Division, Morris County, Docket No. L-569-09.

 

Lewis & McKenna, attorneys for appellants (Michael F. McKenna, of counsel; Mr. McKenna and James M. McMahon, on the briefs).

 

The Buzak Law Group, LLC, attorneys for respondents Morris County Cooperative Pricing Council and Township of Randolph (Tiena M. Cofoni and Susan L. Crawford, on the briefs).

 

Courter, Kobert & Cohen, P.C., attorneys for respondents Lopatcong Township, Township of Parsippany-Troy Hills and Warren County (Michael B. Lavery, of counsel; James F. Moscagiuri, on the brief).

 

Ballard & Dragan, attorneys for respondent Readington Township (Robert A. Ballard, Jr., on the brief).

 

Mills & Mills, P.C., attorneys for respondents Mendham Township and Township of Morris (John M. Mills, III, of counsel; Mr. Mills and Luke F. Wikander, on the briefs).

 

Dorsey & Semrau, attorneys for respondents Denville Township and Mount Olive Township, join in the briefs of respondents Morris County Cooperative Pricing Council, Lopatcong Township and Township of Parsippany-Troy Hills.

 

Murphy McKeon, P.C., attorneys for respondent Roxbury Township (James T. Bryce, on the brief).

 

Vijayant Pawar, attorney for respondent Town of Morristown, joins in the briefs of respondents Morris County Cooperative Pricing Council, Lopatcong Township and Township of Parsippany-Troy Hills.

 

Apruzzese, McDermott, Mastro & Murphy, P.C., attorneys for respondent Hackettstown Board of Education (James L. Plosia, Jr., of counsel; Jonathan F. Cohen, on the brief).

 

Stickel, Koenig & Sullivan, attorneys for respondent Greenwich Township (Michael D. Sullivan, on the brief).

Benbrook & Benbrook, LLC, attorneys for respondent Pohatcong Township, joins in the brief of respondent Morris County Cooperative Pricing Council.

 

Gebhardt & Kiefer, PC, attorneys for respondent Lebanon Township (Richard P. Cushing, on the brief).

 

The opinion of the court was delivered by

OSTRER, J.A.D.

This case involves a requirements contract between plaintiffs and a consortium of public entities. Plaintiffs, Tilcon New York, Inc. (Tilcon), and Kelly Excavating & Paving, Inc., d/b/a Owl Contracting (Owl) appeal from the Law Division's orders granting summary judgment and dismissing their action arising out of two publicly bid local cooperative pricing agreements for asphalt paving materials and services, awarded by defendant Morris County Cooperative Pricing Council (MCCPC), a cooperative pricing system. N.J.S.A. 40A:11-11(5). MCCPC's members include roughly two hundred local governmental entities in and near Morris County.

During the contract period, dramatic and unforeseen increases in the price of asphalt cement from around $350 a ton in December 2007 to as high as $822.50 in August 2008 significantly increased plaintiffs' cost of performance. The fair market price of asphalt concrete in October 2008 rose to roughly fifty percent over plaintiffs' bid. While these price shocks reverberated, MCCPC members placed, and plaintiffs filled, orders that in total, significantly exceeded MCCPC's pre-contract estimates of purchases. MCCPC did not disclose that its estimates were based on the projections of a small group of its members. The contracts required plaintiffs to fill orders of any MCCPC member, apparently violating State regulations, N.J.A.C. 5:34-7.12(a), that generally limit purchases to members who submitted pre-bid estimates.

Based on equitable doctrines of mistake and frustration of purpose, the covenant of good faith and fair dealing, and N.J.S.A. 12A:2-306 of the Uniform Commercial Code (UCC), plaintiffs claim they are entitled to retroactive increases in the price of those materials delivered to defendants in excess of MCCPC's estimates. Plaintiffs argue defendants acted in bad faith by failing to disclose the basis of their estimates, and ordering quantities of materials "unreasonably disproportionate" to estimates. See N.J.S.A. 12A:2-306.

Having carefully reviewed plaintiffs' arguments in light of the record and applicable legal principles, we affirm.

I.

In late 2007, MCCPC requested bids for two one-year-term contracts for its members covering 2008: (1) "Contract #5" for paving materials; and (2) "Contract #6" for road resurfacing. Each contract was to be awarded to one or more bidders.

MCCPC was formed pursuant to N.J.S.A. 40A:11-11(5) to establish a "cooperative pricing system" for its members.1 Randolph Township served as MCCPC's administrator.2 However, each member purchased on its own account. See N.J.A.C. 5:34-7.2 (stating that a "'cooperative pricing system' means a purchasing system in which a local contracting unit advertises for bids and awards a master contract to a successful vendor for its own quantities and the estimated quantities submitted by the individual registered members.").

A.

Contract #5, for paving materials, was awarded for two delivery categories: Category 1 required MCCPC members to pick up paving materials at the vendor's plant; and Category 2 required the vendor to deliver the paving materials to MCCPC members. The awards were further divided by three geographical districts. District 1 included sixty-six members located south of I-80, and east of I-287 within Morris, Union, Essex and Somerset Counties. District 2 included fifty-eight members located north of I-80 within Morris, Sussex and Passaic Counties. District 3 included sixty-six members including the fifteen named defendants located south of I-80 and west of I-287 within Morris, Warren and Hunterdon Counties.

The bid proposal, which was incorporated into the Master Contract, included "MINIMUM SPECIFICATIONS WHICH MUST BE MET OR EXCEEDED. (All Quantities Are More or Less)." The specifications required that materials were to be available for pick up at all times, without prior notification. MCCPC required compliance with New Jersey Department of Transportation (DOT) standard specifications for bituminous concrete,3 except the bid documents expressly excluded DOT's "pricing or escalation clauses." Instead, MCCPC provided, "All bid prices submitted shall be held firm for the duration of this contract."

DOT maintained a price index for asphalt cement, a significant component of asphalt concrete. In December 2007, the price hovered around $350 a ton. In recent years, the price had been rising, and at an accelerating rate. The price was $100 in May 1994 and breached $200 for the first time over ten years later, in June 2004. It hit $265 a ton in December 2005, and $300 a ton in December 2006. The price also fluctuated, hitting a previous high of $410 in September 2006. As discussed below, the price rose even more dramatically in 2008.

The bid documents included estimated projections of the total requirements under the contract for each material and district, but not for each individual governmental entity. The "PROPOSAL FORM," later incorporated into the Master Contract provided that these quantities were subject to increase. It stated, "We [the bidder] . . . propose to furnish and deliver all necessary materials specified and in the manner and time prescribed and understand that the quantities of material as shown herein are approximate only, and are subject to increase or decrease . . . ." The bidders promised to deliver "all quantities of material, whether increased or decreased" at the proposed prices. The document expressly stated, "All Quantities Are More or Less."

The estimates for Category 1 in District 2 included: 2600 tons of type A bituminous concrete; 2220 tons of fine aggregate bituminous concrete (FABC); 230 tons of medium aggregate bituminous concrete (MABC); and 168 containers of "liquid asphalt tac coat" (LATC). Estimates for Category 2 in Districts 1, 2 and 3 included: 4001 tons of FABC; 602 tons of MABC; and 102 containers of LATC.

As it had in previous years, MCCPC, by its administrative agent, Randolph Township, requested estimates from all of its members to provide potential bidders with a sense of potential demand. State regulations required such estimates. See N.J.A.C. 5:34-7.9(c) (stating that "[b]efore seeking bids, the lead agency shall obtain from the registered members . . . [i]n the case of a cooperative pricing system, the estimate quantities that each registered member proposes to contract for during the life of the master contract."). Only two District 3 members provided pre-bid estimates for Contract #5 defendants Parsippany-Troy Hills and Mt. Olive Townships.

MCCPC did not identify the source of its estimates, nor did it disclose to bidders those entities that did not respond. Rather, the contract characterized the estimates as the "estimated aggregate needs of said members." The contract also did not account for the potential or historical usage of the non-responding members. MCCPC thereby apparently violated State regulations, which require that a cooperative pricing system's specifications "shall list the registered members who have submitted estimates, . . . their estimated maximum quantities and other relevant information to permit the bidder to understand what is potentially involved." N.J.A.C. 5:34-7.9(e)(1). However, neither Tilcon nor Owl objected to the bid specifications.

Tilcon was awarded Contract #5 in District 2 for Category 1 and in all three districts for Category 2. Tilcon, and its corporate predecessor, had more than fifteen years of experience supplying materials and services to MCCPC's members. For Category 1 in District 2, Tilcon submitted unit prices for fourteen different materials, including $47.50 a ton for type A bituminous concrete, $39.90 a ton for FABC and MABC, and $61 a container of LATC. Based on MCCPC's estimated quantities, Tilcon's total bid for Category 1 in District 2 was $462,373.25. For Category 2 in all three districts, Tilcon submitted unit prices for four different materials, including $45.90 a ton for FABC and MABC, and $67 a container of LATC. Based on MCCPC's quantity estimates, Tilcon presented a total bid of $125,179.10 for District 1, $604.70 for District 2, and $148,241.15 for District 3.

The "MASTER CONTRACT" awarded to Tilcon on Contract #5 was executed with Randolph Township, as the "LEAD AGENCY" on January 17, 2008. It stated in part that Tilcon "covenants and agrees to furnish the said Contract #5 - Paving Materials to the members of the [MCCPC] in accordance with the following estimated aggregate needs of said members and subject to the control of and without deviation from the prices, character and quality of this MASTER CONTRACT." Tilcon also promised that it would "furnish said material required as stated in the bid proposal at anytime during the term of the Master Contract, which shall . . . remain in force for the remainder of the stipulated contract period."

Once the contract was executed, MCCPC did not monitor purchases made by members to ascertain whether they were under or above total estimates. However, as Tilcon had performed similar asphalt contracts in the past, it had experience providing quantities significantly over those estimated.

The contract provided that any MCCPC member could purchase under the contract, stating, "Members of the MCCPC may purchase items pursuant to the Master Contract by issuance of purchase orders." In that respect, the contract apparently deviated from State regulations which limit the right to purchase to members who provide estimates, absent approval of both the vendor and the lead agency. "Each registered member who submitted estimates may . . . order directly from the vendor." N.J.A.C. 5:34-7.11(c). "A registered member of a cooperative pricing system which has not submitted estimates to the lead agency before the advertisement for bids may participate in the resulting contract for that particular item only with the prior written approval of the lead agency and the contractor." N.J.A.C. 5:34-7.12(a). Neither Tilcon nor Owl apparently objected to the form of contract prior to bidding.

Regulations prohibited members from contracting for purchases at a higher price than agreed to in the master contract. See N.J.A.C. 5:34-7.9(h). The contract noted that the "TOTAL CONTRACT AWARDED" was $736,398.20, which was the sum of the amounts Tilcon bid, based on its unit prices and MCCPC's quantity estimates.

B.

Like Contract #5, Contract #6 was awarded for multiple material types and services on a per district basis for the same three geographical districts described above.4 In contrast to Contract #5, which was denominated a contract for "Paving Materials," Contract #6 was for "Road Resurfacing," reflecting that it was a mixed contract for goods and services. Contract #6 consisted of eight categories of goods, services or a mixture of the two, each awardable to separate bidders. However, only the first four categories are relevant. Category A pertained to the installation of Superpave Hot Mix Asphalt (Superpave); Category B pertained to the installation of bituminous concrete in place; Category C pertained to milling of roadways; and Category D pertained to resurfacing preparations, which involved such tasks as raising manholes and resetting grates.5

Like Contract #5, Contract #6 required contractors to satisfy MCCPC members' requirements at a fixed price, regardless of the estimated quantities. The bid documents incorporated the DOT's standard specifications for Superpave and bituminous concrete in place, which were to be "delivered in place and rolled by bidder." However, the documents expressly excluded "any reference to pricing or escalation clauses" and provided instead that "[a]ll bid prices submitted shall be held firm for the duration of this contract."

Unlike in Contract #5, the specifications required MCCPC members to order paving work by an August 15, 2008 deadline, and required the contractor to finish the work by December 31, 2008. MCCPC members had, in the past, submitted orders after previous ordering deadlines, and it was not uncommon for vendors to honor those orders.

As in Contract #5, MCCPC provided projections of its members needs under Contract #6. The District 3 projection was based on responses from just nine of its members. The total projected was 62,0506 tons of road resurfacing asphalt materials: 5500 tons of Superpave and 56,500 tons of bituminous concrete in place. Five defendants were among the nine members that provided pre-bid estimates. Randolph Township projected 1000 tons of Superpave and 6000 tons of bituminous concrete in place; Parsippany-Troy Hills Township projected 2500 tons of Superpave and 11,000 tons of bituminous concrete in place; Roxbury Township projected 1500 tons of Superpave and 5000 tons of bituminous concrete in place; Mt. Olive Township projected 3000 tons of bituminous concrete in place; and Mendham Township projected 550 tons of Superpave.

Projected for District 2 was a total of 32,851 tons of asphalt materials, specifically Superpave plus bituminous concrete, to be supplied and paved by the successful vendor during the contract term.

The "BID PROPOSAL FORM," as incorporated into Contract #6, provided that quantities were "approximate only," and "subject to increase or decrease," but bidders promised to deliver all quantities at the proposed prices nonetheless.

Tilcon was awarded the contract in District 3 for Categories A, B and C road resurfacing with Superpave; road resurfacing with bituminous concrete in place; and milling in place and in Districts 2 and 3 for Category D, resurfacing preparations.7 For District 3, Tilcon submitted unit prices of $67.20 a ton for Superpave, and $65.45 a ton for FABC and MABC. Based on the estimated tonnage supplied by MCCPC, Tilcon listed its "TOTAL BID" in District 3 as $372,960 for Superpave, $3,685,175 for bituminous concrete, and $404,980 for milling, and as $50,027.50 and $60,377.50 for resurfacing preparations in Districts 2 and 3.

Owl was awarded the contract in District 2 for Categories A, B and C road resurfacing with Superpave; road resurfacing with bituminous concrete in place, and milling in place. Owl submitted unit prices of $62.70 to $64.25 a ton for Superpave, $64.25 a ton for FABC, and $65 a ton for MABC. Based on the estimated quantities, Owl's "TOTAL BID" for District 2 was $608,930 for Superpave, $1,487,665 for bituminous concrete in place, and $146,570 for milling in place.

Pursuant to the "MASTER CONTRACT" executed on January 17, 2008, Tilcon and Owl each promised "to furnish the said Contract #6 Road Resurfacing to the members of the [MCCPC] in accordance with the following estimated aggregate needs of said members and subject to the control of and without deviation from the prices, character and quality of this MASTER CONTRACT." Tilcon and Owl also promised to "furnish said material required as stated in the bid proposal at anytime." The total value of the contract categories awarded to Tilcon, based on its prices and MCCPC's projected quantities, was $4,573,520.

C.

In February 2008, shortly after the contracts were executed, Tilcon sent a form letter to all MCCPC members in District 3, stating it was awarded Contract #6, and requesting each member's non-binding estimate of its 2008 paving needs:

Attached you will find our 2008 . . . Anticipated Paving Request form. This form will be used to estimate the time and material we will need to supply your town. This is an ANTICIPATED ESTIMATE ONLY. YOU ARE NOT OBLIGATED to the quantities you estimate on the form. It is, however, imperative that these be returned in a timely fashion, as they will allow us to expedite our scheduling for spring paving. Many budgets are not passed until June and the bulk of the work is requested between July and September and so we are asking for the APPROXIMATE START DATE as well. If you have any left over monies from last year, we would like to set that work up for the spring. This will help lighten the workload for our busy season.

 

The record does not indicate that Owl sent a similar letter to the members in District 2 to be served under its contract.

Five of the named defendants responded to Tilcon: Hackettstown Board of Education, Mt. Olive Township, Morris Township, Randolph Township, and Readington Township. Mt. Olive and Randolph adjusted their pre-bid estimates. Hackettstown Board of Education estimated it would need 2692 tons of FABC. It asserts it only purchased 1,699.32 tons. Mt. Olive Township increased its initial estimate of 3000 tons to 3500 tons; it ultimately ordered 3318. Morris Township estimated it would need 6209 tons and ultimately ordered less. Randolph Township, which had submitted a pre-bid estimate of 7000 tons, estimated it would need 4000 tons of Superpave and 7600 tons of FABC. Readington Township sent Tilcon its paving estimate of 9940 tons of MABC in July, after it had received its engineer's estimate the previous month. The record does not reflect the total amount estimated by municipalities responding to Tilcon's February 2008 inquiry, nor whether the amount exceeded the contract estimate of 62,050 tons.

The price of asphalt started to climb in the spring 2008. It reached $410 in April, $447.50 in May, and $517.50 in June. The price climbed to $625 in the first half of July and reached $700 in the second half of July. After the price of asphalt peaked at $822.50 in August, it receded to $780 in September, $692.50 in October, $607.50 in November, and $500.00 in December. It is undisputed that the parties did not foresee the increase. Tilcon argues the increase in cement costs resulted in an increase in the fair market price of asphalt concrete to $95 a ton, or more, as of October 2008, compared to its original bid of $67.20 a ton.

On July 17, 2008, Tilcon's general sales manager, Arthur C. Holdsworth III, sent a form letter to multiple Tilcon customers, including District 2 member Wayne Township (not a defendant in this case). Holdsworth wrote that Tilcon could no longer guarantee its prices or the availability of liquid asphalt. It is unclear whether this letter was sent directly to MCCPC or to member-defendants. However, a copy of the Wayne Township letter apparently reached Randolph Township. Anita Doerr, of the Randolph Township Manager's Office, emailed all MCCPC members that she was aware of the July 17 letter, which she called "a mass mailing" sent to all Tilcon clients "which included the MCCPC members." Doerr stated, "[O]n Friday, July 25th I called Tilcon's contact (Sarah Thony) and she said that the MCCPC members are excluded from the increases. The contract prices for Contracts #5, 6 and 9 remain firm for the duration of the contract periods (December 31, 2008)."8

On August 11, 2008, Tilcon vice president Donald C. Moore, Jr., wrote to MCCPC expressing his concerns over the unanticipated, escalating price of asphalt cement. Moore stated:

As you are surely aware, costs for construction materials have skyrocketed in recent months. . . . When Tilcon and MCCPC entered into this agreement, there was some understanding that when dealing with [asphalt cement], there may be some fluctuation in prices. It should be agreed however that nobody could have predicted or anticipated such a dramatic spike in the price of [asphalt cement] during our contract period, nor does it follow that the entire burden of that change should be visited upon any one party. . . . [T]hese totally unanticipated material price increases are of such a nature, as to substantially frustrate our ability to perform and supply materials under the MCCPC agreement.

 

The circumstances we are now faced with are not totally dissimilar to those in the late 1970's and early 1980's, where factors outside the control of the industry (such as OPEC's actions [a]ffecting the price and supply of oil) resulted in drastic increase in the costs of oil and [asphalt cement]. There, the industry and the court system recognizing that the increases in oil, and [its] related products, [were] of such a drastic and unanticipated nature, made adjustments to previously set unit prices, so that a fair and equitable resolution could be achieved.

 

Understanding that MCCPC was not responsible for these unanticipated costs, Tilcon is not seeking to have MCCPC cover all of the additional costs Tilcon has, and will continue to suffer. What Tilcon proposes is to add a change order line item to each member's purchase order that includes reimbursement for 50 percent of the addi-tional cost for [a]sphalt [c]ement. This proposal is made as a good faith effort to both continue the valuable working relation-ship Tilcon has with MCCPC, and at the same time, ensure that the drastic price increases that were unanticipated at the time of contract are addressed equitably. This 50 percent split of the additional costs is in line with NJDOT 2007 Standard Specification; Section 160.03.02, which the State has utilized as a fair method of addressing these sudden, and drastic pricing increases.

 

Moore later certified that as Tilcon's price estimator, he built into Tilcon's bid the risk of five to seven percent fluctuations in price.9 He asserted that the 2008 price increase was unpredictable.

MCCPC did not respond to Tilcon's letter. Notwithstanding MCCPC's silence, Tilcon continued to honor orders from MCCPC members, including defendants. Tilcon apparently did not enforce the contract's August 15, 2008 deadline for submission of paving orders. By August 27, 2008, the total amount of materials that Tilcon delivered in District 3 exceeded MCCPC's estimate of 62,050 tons. Although the record does not indicate when the orders for these deliveries were placed, we presume that at least some of the orders were submitted after August 15, 2008.10 In the months thereafter, Tilcon delivered: 3265 tons to Greenwich Township, between August 27 and November 14, 2008; 7110 tons to Mendham Township between September 2 and November 19, 2008; 4201 tons to Lopatcong Township between September 10 and October 24, 2008; and 3317 tons to Mt. Olive Township between September 29 and October 1, 2008. In September 2008 alone, Tilcon delivered: 6020 tons to Morris Township between September 3 and 11; 774 tons to Randolph Township on September 11; and 1497 tons to Morristown on September 24 and 25. In October 2008, Tilcon distributed: 1185 tons to the Hackettstown Board of Education on October 9; 1286 tons to Parsippany-Troy Hills between October 14 and 31; and 5228 tons to Roxbury Township between October 24 and 31. Tilcon continued to make deliveries through December 2008, approximately four months after the August 15, 2008 contract deadline, distributing 2961 tons to Pohatcong Township between December 5 and 15. These deliveries, plus several others, totaled 49,217.70 tons over the District 3 estimate of 62,050 tons.

In several cases, these deliveries were roughly consistent with the municipalities' pre-bid estimates, or the estimates provided in response to Tilcon's February inquiry. The Hackettstown Board of Education, and Mt. Olive, Morris, Randolph and Readington Townships all purchased less than estimated in response to Tilcon's February inquiry. Roxbury Township, which submitted a total pre-bid estimate of 6500 tons, ultimately ordered about 6700 tons. The record does not include similar information regarding the timing of Owl's deliveries, and whether it filled orders placed after the August 15, 2008 deadline.

Although several defendants provided no prior estimates to Tilcon, they asserted their purchases were consistent with their capital planning. They also denied purchasing asphalt products opportunistically to take advantage of the differential between the contract price and the current, higher market price. While Greenwich Township apparently submitted its orders after the deadline in August and November 2008, it asserted its purchases were planned for and approved before the deadline, in the first half of 2008. Mendham Township, which submitted paving orders to Tilcon during the fall 2008, had previously planned to purchase 6700 tons. It ultimately purchased slightly more because another contractor breached its contract to pave another road.

In only one case of a post-deadline order, Tilcon initially threatened to enforce its contractual right to refuse to deliver. On September 29, 2008, Roxbury Township sent Tilcon its paving orders totaling 6714 tons of Superpave, among other products. Roxbury generally sent its orders in the fall of the contract year, even though, according to Roxbury's Assistant Director of Public Works, all paving and resurfacing recommendations were made in November of the previous year. Historically, vendors had honored Roxbury's orders without objection, even after the contract deadline.

On September 30, 2008, Tilcon responded to Roxbury that it would refuse to honor its order unless Roxbury agreed to a price escalation. Tilcon stated, "We . . . regret to inform you that due to unprecedented increases in the price of [a]sphalt [c]ement, . . . the effects of which are ongoing, we cannot schedule late requests at the current unit prices." After describing the increases in asphalt cement prices, which it deemed unpredictable, Tilcon referred to its August 2008 proposal to MCCPC to "share the burden of these additional costs," and noted that MCCPC had not responded. Tilcon also stated that the "time limit has been reached in the contract for paving requests," quoting the contract provision that required members to provide, by August 15, 2008, the tonnage of paving work and the specific streets to be paved.

Tilcon stated that "unless we are to come to an independent agreement as to a reasonable price per ton for materials, we cannot fulfill any requests submitted outside of the [c]ontract submission date." Tilcon asserted that the current price of asphalt cement of $692.50 a ton translated into the additional cost of $17 a ton for asphalt concrete. Tilcon offered to fill Roxbury's order at a price of $79.33 a ton, which it stated was $12.13 a ton over the $67.20 a ton price for Superpave. None of the other defendants received a similar letter. Tilcon followed its letter with a formal revised pricing proposal.

Roxbury responded on October 5, 2008. It agreed to pay whatever revised price was reached by MCCPC and Tilcon, so long as it did not exceed the contract amount by more than eighteen percent.

On October 14, 2008, Randolph's assistant township manager, Gerald Giaimis, wrote on behalf of MCCPC to its members informing them about Tilcon's request for "an equitable adjustment to [C]ontract #6," because of "the increase in asphalt prices." Giaimis advised that a formal response to Tilcon was still in preparation. However, he stated, "[A]t this time, there is no agreement . . . for any adjustment in the contract price." Giaimis added that he expected Tilcon to honor its pricing. MCCPC also reminded its members "that any deviation from the awarded MCCPC contract price" would require the members to "go out to bid" their asphalt projects "pursuant to the Local Public Contracts Law."

Ultimately, Tilcon honored Roxbury's paving orders under Contract #6. On October 24 and November 6, 2008, Tilcon sent invoices for Superpave at $67.20 a ton, and FABC at $65.45 a ton, the contract prices. Tilcon also honored its original contract unit prices for all other defendants' orders. Tilcon later conceded that it was "standard operating procedure for years that [it] would supply the asphalt as needed," even when it "was[] at the end of the year" and "was beyond the estimate, sometimes substantially."

As noted above, Tilcon calculated that it delivered 49,217.70 tons over District 3's contract estimate of 62,050 tons for Contract #6. Owl calculated that it delivered a total of 71,902 tons of asphalt under Contract #6 in District 2, compared to an estimate of 32,851 tons. Tilcon also alleged that it delivered 29,167 tons of material under Contract #5, compared to the initial estimate of about 16,000 tons of material.

D.

In its initial complaint, filed February 13, 2009, plaintiffs named only MCCPC as defendant. In an amended complaint filed September 2, 2009, plaintiffs added the fifteen District 3 members.11 Plaintiffs alleged theories of unjust enrichment (count one), quantum meruit (count two), breach of the covenant of good faith and fair dealing (count three), reformation (count four), restitution (count five), mutual mistake (count six), frustration of purpose (count seven), equitable adjustment (count eight), and bad faith under the Uniform Commercial Code (count nine). Tilcon sought damages of $2,012,673 on Contract #6 and $489,040 on Contract #5. Owl sought damages of $1,681,452 on Contract #6.

In its unjust enrichment count, plaintiffs alleged that defendants were unjustly enriched by the benefit of receiving "many tons of asphalt for dramatically below fair market price." They alleged in the quantum meruit count that defendants retained benefits without paying for them. Plaintiffs also asserted that defendants breached the covenant of good faith and fair dealing "[b]y refusing to re-negotiate adjustments to the price . . . or to award equitable adjustments."

Plaintiffs sought reformation based on the fact that the parties did not anticipate the dramatic increase in asphalt cement costs, which, plaintiffs asserted, "was not a risk that either party assumed" in the contract. Plaintiffs sought restitution on the same grounds. In their separate claims of mutual mistake and frustration of purpose, plaintiffs again alleged that the parties did not foresee the price increase, and sought reformation.

In their equitable adjustment count, plaintiffs alleged that "MCCPC continued to order asphalt at well below fair market values" increasing the total cost to plaintiffs above "estimated contract values." Plaintiffs did not expressly indicate whether they were complaining only about the impact of the asphalt cement price rise, or also that MCCPC members ordered quantities over the contract estimates. Plaintiffs alleged that while they performed under the contract, they "ma[de] MCCPC aware of the drastic and unprecedented costs increases, and that a claim for addition[al] compensation would be necessary if a mutually agreeable change order could not be issued."

In their UCC bad faith claim, plaintiffs alleged the contracts were requirement contracts, and that defendants acted in bad faith by ordering asphalt products "in quantities that far exceeded the listed contract quantities." Accordingly, plaintiffs alleged that New Jersey law barred defendants from ordering quantities "unreasonably disproportionate to any stated estimate."

In lieu of an answer, Lopatcong Township moved to dismiss the amended complaint for failure to state a claim. See R. 4:6-2(e).12 The other defendants either joined in the motion or filed similar motions. Readington Township submitted proof that it remained a member of MCCPC.

During oral argument, the court converted the motion to dismiss into a motion for summary judgment. Although the record does not contain all of the parties' filings regarding the motion, plaintiffs' counsel admitted they had presented facts outside both the pleadings and the contracts pertaining to the rise in the price of asphalt cement. Plaintiffs' counsel conceded that the motion was converted to one for summary judgment, stating, "[I]t's not a [m]otion to dismiss. They are going into these other things and it no longer becomes a [m]otion to dismiss. It's now a [m]otion for summary judgment . . . ." Nonetheless, plaintiffs' counsel objected to application of the summary judgment standard, stating, "I would not agree to a Brill13 standard in this case because we haven't put in our facts. We haven't had an opportunity to do discovery, to gather the information that would be required." When the court pressed counsel to identify what discovery his clients would need, he responded, "The fact discovery's going to show that my . . . client did not anticipate the price increases," and "I get . . . to depose the other side . . . to find out if indeed they anticipated that there was going to be" a dramatic cost increase. The court indicated that it would assume "every body didn't anticipate anything."

In an extensive oral decision, the court granted partial summary judgment.14 The court dismissed with prejudice the claims of unjust enrichment, quantum meruit, reformation, restitution, mutual mistake, frustration of purpose and equitable adjustment. Citing Printing Mart-Morristown v. Sharp Elec. Corp., 116 N.J.739, 746 (1989), the court expressly applied the standard governing a motion to dismiss, that is, the court "searched the complaint in depth and with liberality to ascertain whether the fundaments . . . of a cause of action may be gleaned." The court concluded that plaintiffs were bound by the terms of the contract, which clearly assigned to plaintiffs the risk of price fluctuations. It also held there was no mutual mistake.

The court denied the motion to dismiss as to the two counts alleging breach of the covenant of good faith and fair dealing, and bad faith under the UCC. The court found that defendants' submission of orders above the estimates could support plaintiffs' breach of the covenant of good faith and fair dealing claim. The court hypothesized that plaintiffs possessed a "potential cause of action," if they could prove that defendants, recognizing the increased asphalt cement costs, "ordered as much asphalt as they possibly could, adding the projects that they never anticipated" to take advantage of below-market prices under the contract. The court did not expressly discuss the basis for denying the motion to dismiss plaintiffs' claim of bad faith under the UCC. The judge then ordered discovery on counts three (breach of covenant) and nine (bad faith), restricting it to "[d]efendants' purchase of asphalt in excess of the estimated amount set forth in the Contract Documents which give rise to the instant dispute."

In support of a motion for reconsideration, plaintiffs filed a certification of an independent economist, as well as plaintiffs' vice-president and price estimator, Moore. The economist, Bernard Baumohl, described the market and geopolitical underpinnings of what he opined was an unpredictable and unprecedented oil price increase in 2008, which resulted in the asphalt cement price increase the same year. Moore certified that with one exception, Tilcon had performed MCCPC's asphalt contracts every year since 2001, and its corporate predecessor had done so since 1993. He asserted that Tilcon had never previously sought a price adjustment, and claimed the price increases in 2008 were unpredictable and outside the reasonable expectations of the parties, based on past experience of price fluctuations of five to seven percent, up or down.

The court denied plaintiffs' motion in a written decision, stating that it had "reviewed the contract in the light most favorable to the [p]laintiffs," and given the contract language, found "that there was no basis in [the] law to excuse the contract terms." The court added that Baumohl's testimony and Moore's certification did not provide a basis for overriding the express provisions of the contracts. The court also held that further discovery regarding the contractual provisions would be futile.

The parties proceeded to discovery on plaintiffs' UCC bad faith and breach of the covenant of good faith and fair dealing claims, focusing on the named governmental entities in District 3 serviced by Tilcon, and their purchases of asphalt paving materials under Contract #6. Moore certified that MCCPC did not disclose, and Tilcon was unaware, that the 62,050-ton estimate for paving materials under Contract #6 only represented the estimates of a "handful" of MCCPC members in District 3. Moore asserted:

It was this estimate of 62,050 tons that Tilcon based its bid for MCCPC Contract 6. Tilcon had no way of knowing, as MCCPC did not disclose to Tilcon, that this was an incomplete figure, and that MCCPC would allow municipalities who had not submitted a pre-bid contract estimate as requested by MCCPC to order material under Contract 6 after Tilcon's price had already been locked in based upon the 62,050 tonnage estimate. Tilcon argued that this difference in tonnage denied it the opportunity to "fairly and accurately" submit its original bid.

Moore explained that Tilcon calculated its damages demand by applying a price escalation to all orders that exceeded the 62,050-ton estimate. It named defendants because they placed orders after total orders exceeded 62,050 tons. Moore admitted that plaintiffs had no evidence that any individual defendants placed orders dishonestly, in bad faith, or to take advantage of the increase in the asphalt cement price index. Owl did not provide a similar submission addressing the impact of MCCPC's estimates on its proposal.

Defendants moved for summary judgment on the remaining counts of the complaint after the close of discovery. After oral argument, the court filed a written decision in June 2011 granting defendants' motion, and in August 2011, supplemented the decision with additional findings.15

In its decision on the motion, the court initially reviewed its prior dismissal order, finding that plaintiffs had failed to create a genuine issue of material fact in support of the dismissed claims. Turning to the remaining claims, the court held that plaintiffs failed to create a genuine issue of material fact that defendants violated the covenant of good faith and fair dealing, stating:

A review of the parties' course of dealings reveals that the quantity of asphalt ordered by the MCCPC as a whole and by each individual member did not contravene [p]laintiffs' reasonable expectations and was not done in bad faith. Every order made by the involved member entities is easily rationalized as having occurred in the ordinary course of their business. Plaintiffs[] themselves being sophisticated contractors, were quite aware of the process by which these public entities ordered their asphalt for the year at issue. The record shows that plaintiffs were not surprised by any members['] conduct in their actual orders of material in any amount during the term of the contract. There was never a shortage of the material. Further[, p]laintiffs' distress, reflected in this record, never centered on the quantity ordered by the entities; but rather focused on the increase in the cost of their raw material, namely asphalt.

 

The court noted that Tilcon's request for estimates in February reflected Tilcon's recognition that the contract estimates were "extremely tenuous" and "subject to significant fluctuations." Tilcon's request also indicated its intention to deliver whatever was ordered.

The court found insufficient evidence that "plaintiffs actually relied upon the bid estimate in supplying the ultimate quantities of asphalt to their customers at any time during the term of the contracts involved here." The court added that there was "no indication on the record . . . that the increased demand in any way [a]ffected inefficiencies or economies of scale that [p]laintiffs had considered and relied upon when formulating their bids." Additionally, "at no point did [p]laintiffs ever even suggest that they were concerned about the quantities demanded by the MCCPC members until after the price of asphalt began to escalate in the summer of 2008."

Finally, the judge found there was no evidence of opportunistic ordering by defendants reflecting bad faith, stating:

[T]here is no proof in the record before the Court that any of the MCCPC [d]efendants: (1) made a conscious observation that the price of asphalt was "radically escalating[]"[;] (2) recognized that they could "get the asphalt at a very low price"; or that they (3) ordered excess asphalt to avail themselves of the low contract price or that any defendant "added projects or increased the scope of projects that they never anticipated" based on the rising price.

 

In its supplemental opinion, the court detailed the undisputed factual record of the estimates and orders submitted by the individual defendants, which we have set forth above. Noting that some defendants ordered without having provided estimates to MCCPC or to Tilcon in response to its February request, the court held, "[T]he fact that . . . [various] [d]efendants may have ordered asphalt without first providing estimates cannot, in itself, constitute bad faith or a breach of the covenant of good faith and fair dealing." The court further explained that there was still no evidence that those defendants' orders were opportunistic.

The trial court did not expressly address plaintiffs' claim that defendants' orders violated N.J.S.A. 12A:2-306 in that they were unreasonably disproportionate to MCCPC's estimates.

This appeal followed.

II.

We review the trial court's grant of summary judgment de novo, Lapidoth v. Telcordia Techs., Inc., 420 N.J. Super. 411, 417 (App. Div.), certif. denied, 208 N.J.600 (2011), and apply the same standard as the trial court. Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.), certif. denied, 154 N.J.608 (1998). Pursuant to Rule4:46, we "consider whether the competent evidential materials presented, when viewed in the light most favorable to the non-moving party, are sufficient to permit a rational factfinder to resolve the alleged disputed issue in favor of the non-moving party." Brill, supra, 142 N.J.at 540.

We likewise review de novo a trial court's order granting a motion to dismiss under Rule 4:6-2. Rezem Family Assocs. v. Borough of Millstone, 423 N.J. Super. 103, 114 (App. Div.), certif. denied, 208 N.J. 368 (2011). We limit our inquiry "'to examining the legal sufficiency of the facts alleged on the face of the complaint.'" Nostrame v. Santiago, 213 N.J. 109, 127 (2013) (quoting Printing Mart, supra, 116 N.J. at 746).

A.

Plaintiffs challenge on procedural grounds the court's order granting partial summary judgment, dismissing all but the covenant of good faith and fair dealing claim, and UCC bad faith claim. They assert the court erred in converting defendants' Rule 4:6-2(e) motion into one for summary judgment. Plaintiffs also assert the order was premature, as the court denied them an opportunity to conduct discovery and to present facts. We are unpersuaded.

At oral argument on the motion to dismiss, plaintiffs' counsel unambiguously asserted that the motion was really one for summary judgment. We recognize that plaintiffs also objected that they should be given an opportunity to develop the factual record and conduct discovery. Apparently, the trial court did not give plaintiffs advance notice of its intention to convert the dismissal motion into a summary judgment motion. SeeR.4:6-2 (stating that a court may convert a Rule4:6-2(e) motion into a summary judgment motion if "matters outside the pleading are presented to and not excluded by the court," but "all parties shall be given reasonable opportunity to present all material pertinent to such a motion."). However, when asked by the court, counsel was at a loss to identify what discovery plaintiffs would need, or what facts they would present, other than facts demonstrating the historic nature of the 2008 price increases.

Plaintiffs unquestionably relied on materials outside the pleadings in support of their motion for reconsideration. Plaintiffs provided certifications of Tilcon's estimator and an outside economist. They presented the uncontested fact that the 2008 increase in oil and asphalt cement prices was unpredictable and unforeseeable. They also asserted the increases were far in excess of the fluctuations that typified Tilcon's prior course of dealings with MCCPC.

Generally, a litigant should have the opportunity for full exposure of its case, Velantzas v. Colgate-Palmolive Co., 109 N.J. 189, 193 (1988), and a court should not grant summary judgment when discovery on material issues is incomplete. Mohamed v. Iglesia Evangelica Oasis De Salvacion, 424 N.J. Super. 489, 498 (App. Div. 2012). However, "discovery need not be undertaken or completed if it will patently not change the outcome." Minoia v. Kushner, 365 N.J. Super. 304, 307 (App. Div.), certif. denied, 180 N.J. 354 (2004); see also Wellington v. Estate of Wellington, 359 N.J. Super. 484, 496 (App. Div.) (stating that summary judgment was appropriate where plaintiff had failed to explain what additional discovery was available and pertinent), certif. denied, 177 N.J. 493 (2003); Auster v. Kinoian, 153 N.J. Super. 52, 56 (App. Div. 1977) (stating that a "plaintiff has an obligation to demonstrate with some degree of particularity the likelihood that further discovery will supply the missing elements of the cause of action.").

Plaintiffs provide us with no greater detail than they did to the trial court as to what additional discovery they would have conducted to support their claims, or what facts they would have presented. They argue that if permitted, they would have discovered facts that the price increases of 2008 were unprecedented and unpredictable. However, plaintiffs had access to these facts and presented them in the motion for reconsideration. Moreover, plaintiffs did not need a period of discovery to uncover facts they already possessed. Plaintiffs do not identify any information that defendants allegedly possessed, which plaintiffs sought to discover. Consequently, we are unconvinced that the court's grant of summary judgment was premature.

Plaintiffs also object that the court erred by applying the standard of review dictated by Printing Mart, supra, for motions to dismiss, as opposed to the standard imposed by Brill, supra, for summary judgment motions. We perceive no prejudice, as the Printing Mart standard is less stringent. Moreover, the court clarified in its later decision that plaintiffs failed to demonstrate a genuine issue of material fact preventing dismissal of the counts other than those pertaining to the covenant of good faith and fair dealing, and bad faith under the UCC.

Even if the court considered defendants' initial motion as one to dismiss under Rule 4:6-2(e), a dismissal under the Rule need not invariably be without prejudice to enable a party to file an amended complaint to cure pleading defects, although that is generally the preferred practice. See Nostrame, supra, 213 N.J. at 128 (affirming dismissal with prejudice under Rule 4:6-2(e) where the factual assertions were insufficient to state a claim and the "plaintiff conceded that he had no further facts to plead"). Here, plaintiffs have not identified what further facts they would plead, or revised theories they would have presented, had the dismissal been without prejudice. Therefore, we discern no basis to disturb the court's order on procedural grounds.

B.

Plaintiffs also substantively argue the court erred in dismissing their claims of mistake and frustration of purpose. We are unconvinced.16

1.

"The doctrine of mutual mistake applies when a 'mistake was mutual in that both parties were laboring under the same misapprehension as to [a] particular, essential fact.'" Bonnco Petrol, Inc. v. Epstein, 115 N.J. 599, 608 (1989) (emphasis omitted) (quoting Beachcomber Coins, Inc. v. Boskett, 166 N.J. Super. 442, 446 (App. Div. 1979)). Thus, when a mutual mistake has a material effect on the agreement, the contract is voidable by the adversely affected party. Ibid. (citing Restatement (Second) of Contracts 152(1) (1981)). Mutual mistake also applies when the writing fails to express the understanding that both parties reached. Id. at 608-09. The Restatement provides:

Where a mistake of both parties at the time a contract was made as to a basic assumption on which the contract was made has a material effect on the agreed exchange of performances, the contract is voidable by the adversely affected party unless [it] bears the risk of the mistake under the rule stated in 154.

 

[Restatement (Second) of Contracts, supra, 152(1).]

 

Plaintiffs argue the parties' mutual mistake was their mistaken assumption that any increase in plaintiffs' costs would be consistent with past experience. The fundamental flaw in their argument is that relief based on mutual mistake is not available when the mistake pertains to a prediction of future events, such as, in this case, the rise in the price of oil and asphalt cement. "[T]he erroneous belief must relate to the facts as they exist at the time of the making of the contract. A party's prediction or judgment as to events to occur in the future, even if erroneous, is not a 'mistake' as that word is defined here." Restatement (Second) of Contracts, supra, 151 comment a.

This principle has been applied to deny a government contractor's claims of mutual mistake based on unforeseen post-contract events that rendered performance uneconomical. See, e.g., Dairyland Power Coop. v. United States, 16 F.3d 1197, 1202-03 (Fed. Cir. 1994) (rejecting reformation claim based on mutual mistake consisting of the parties' failure to predict the future demise of the commercial reprocessing industry); United States v. Sw. Elec. Coop., Inc., 869 F.2d 310, 314 (7th Cir. 1989) (citing 151 comment a in rejecting claim to rescind requirements contract based on mutual mistake); Am. Emp'rs Ins. Co. v. United States, 812 F.2d 700, 705 (Fed. Cir. 1987) (denying mistake claim, notwithstanding that "neither side actually predicted or considered the possibility that former employees would bring workers' compensation claims for asbestos-related injuries years after" a final settlement agreement was reached with government); Westinghouse Elec. Corp. v. United States, 41 Fed. Cl. 229, 237-38 (1998) (refusing reformation where plaintiff alleging mutual mistaken prediction about future competition in the market).

Mutual mistake does not encompass a mistake that consists merely of "an improvident act, including the making of a contract, that is the result of . . . an erroneous belief." Restatement (Second) of Contracts, supra, 151 comment a. The Restatement also provides, in relevant part, that mutual mistake does not cover risks assumed by a party:

A party bears the risk of a mistake when
 
(a) the risk is allocated to [it] by agreement of the parties, or

 
(b) [it] is aware, at the time the contract is made, that he has only limited knowledge with respect to the facts to which the mistake relates but treats his limited knowledge as sufficient . . . .

 

[Restatement (Second) of Contracts, supra, 154(a)-(b).]

 

Even if there were a mutual mistake about the future price of oil and asphalt cement, plaintiffs' mutual mistake claim must fail because the risk of price shifts was allocated to plaintiffs. The parties were aware when they entered the contract that their knowledge about future price movements was limited, but they proceeded nonetheless. The risk of market fluctuations are borne by the bidder, who "assumes the risk of an increase in costs." Edward D. Lord, Inc. v. Mun. Utils. Auth., 133 N.J. Super. 503, 506 (App. Div. 1975).

Plaintiffs misplace reliance on Dugan Construction Co. v. New Jersey Turnpike Authority, 398 N.J. Super. 229 (App. Div.), certif. denied, 196 N.J. 346 (2008), a case involving a bidding agency's unilateral mistake. We found that the Turnpike Authority's bidding specifications mistakenly stated that the amount of wastewater to be removed by bidders was fifty-five gallons. Id. at 239. Without bringing the obvious error to the Authority's attention, the contractor attempted to exploit the error, by proposing an exorbitant per-gallon price to remove what turned out to be over 200,000 gallons of wastewater. Id. at 237. The mistake thus pertained to the Authority's failure to draft specifications that accurately memorialized its intention. Id. at 239. See also Bonnco Petrol, supra, 115 N.J. at 608. We found that reformation was appropriate given the serious nature of the agency's mistake, and the otherwise unconscionable result that would follow from enforcement of the contract as written. Dugan, supra, 398 N.J. Super. at 240. In this case, as we have discussed, the alleged mistake pertained not to the memorialization of the parties' mutual intent, but at most, the parties' failure to predict future swings in the price of oil and asphalt cement. That provides no basis for equitable relief.

 

2.

We also find no basis to disturb the trial court's dismissal of plaintiffs' claim for relief under the frustration of purpose and impracticability doctrines.17

We recently addressed these doctrines in JB Pool Management, LLC v. Four Seasons at Smithville Homeowners Ass'n, 431 N.J. Super. 233 (App. Div. 2013). We distinguished frustration of purpose from the related defenses of impossibility and impracticability:

A successful defense of impossibility (or impracticability) of performance excuses a party from having to perform its contract obligations, where performance has become literally impossible, or at least inordinately more difficult, because of the occurrence of a supervening event that was not within the original contemplation of the contracting parties.

 

By comparison, under the related doctrine of frustration of purpose, the obligor's performance can still be carried out, but the supervening event fundamentally has changed the nature of the parties' overall bargain. . . .

 

The Second Restatement [of Contracts] expresses the concept of frustration of purpose in Section 265 as follows:

 

Where, after a contract is made, a party's principal purpose is substantially frustrated without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, [its] remaining duties to render performance are discharged, unless the language or the circumstances indicate the contrary.

 
. . . .

 

So defined, frustration of purpose "deals with the problem that arises when a change in circumstances makes one party's performance worthless to the other, frustrating his purpose in making the contract." "The frustration must be so severe that it is not fairly to be regarded as the risks that [the party invoking the doctrine] assumed under the contract."

 

[Id. at 246-47 (internal citations omitted).]

The doctrine of impracticability is described in related terms at Section 261 of the Restatement, which states:

Discharge by Supervening Impracticability
 
Where, after a contract is made, a party's performance is made impracticable without [its] fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his duty to render that performance is discharged, unless the language or the circumstances indicate the contrary.

 

[Restatement (Second) of Contracts, supra, 261.]

 

A mere increase in the price of raw materials is not sufficient, unless "well beyond the normal range," because "it is this sort of risk that a fixed-price contract is intended to cover." Id. at 261 comment d.

The doctrine is also recognized in the UCC, which excuses a seller's failure to deliver goods or delayed delivery of goods, based on the failure of a basic assumption of the contract, which makes performance impracticable. Although the provision does not apply because plaintiffs neither failed to deliver nor delayed delivery it is nonetheless instructive:

Excuse by failure of presupposed conditions

 
Except so far as a seller may have assumed a greater obligation and subject to the preceding section on substituted performance:

 
(a) Delay in delivery or non-delivery in whole or in part by a seller who complies with paragraphs (b) and (c) is not a breach of his duty under a contract for sale if performance as agreed has been made impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the contract was made or by compliance in good faith with any applicable foreign or domestic governmental regulation or order whether or not it later proves to be invalid.

 
[N.J.S.A. 12A:2-615.]18

 

The UCC commentary notes that fluctuations in price alone do not excuse performance of a fixed price contract. "Increased cost alone does not excuse performance unless the rise in cost is due to some unforeseen contingency which alters the essential nature of the performance." Comment 4 on N.J.S.A. 12A:2-615. The commentary notes that "a rise . . . in the market . . . is exactly the type of business risk which business contracts made at fixed prices are intended to cover." Ibid. Price fluctuations may excuse performance only if they arise out of "a severe shortage of raw materials or of supplies due to a contingency such as war, embargo, local crop failure, unforeseen shutdown of major sources of supply or the like." Ibid. The UCC also requires the seller to "notify the buyer seasonably that there will be delay or non-delivery." N.J.S.A. 12A:2-615(c).

Simply put, the rise in the price of asphalt cement did not frustrate the purpose of the contract, which was to sell asphalt products and services to MCCPC-member buyers at a fixed price during a specific time period. Although plaintiffs suffered a financial loss, that does not suffice as frustration of purpose. "It is not enough that the transaction has become less profitable for the affected party or even that he will sustain a loss." Restatement (Second) of Contracts, supra, 265 comment a. Here, the defendant members' performance was not worthless to plaintiffs.

Also, although plaintiffs' performance was costly, it was not impracticable. Plaintiffs do not contend that supplies of asphalt cement were unavailable. They continued to deliver the product as ordered.

Plaintiffs essentially argue that relative stability in the price of asphalt cement was an implied condition of their contract that frustrated the contract's purpose and made performance impracticable. However, "the language or the circumstances indicate the contrary." Restatement (Second) of Contracts, supra, 261, 265. Put another way, the "seller[s] . . . assumed a greater obligation." N.J.S.A. 12A:2-615(a).

Specifically, the parties expressly agreed that the contract price would remain fixed, regardless of changes in their costs. By expressly excluding the price escalation term found in the DOT's standard specifications, the parties recognized that plaintiffs' costs could rise, without adjusting the contract price. This is true even if it is assumed, as plaintiffs allege, that no one foresaw the magnitude of the increase. Under the parties' contract, plaintiffs agreed to bear the risk of price increases. "[A] fixed-price contract is an explicit assignment of the risk of market price increases to the seller and the risk of market price decreases to the buyer." N. Ind. Pub. Serv. Co. v. Carbon Cnty. Coal Co., 799 F.2d 265, 278 (7th Cir. 1986) (rejecting buyer's frustration of purpose defense to seller's enforcement of fixed price contract when prices fell).

The substantial weight of authority supports the principle that the mere increase in the cost of a party's performance does not afford the defense of frustration of purpose or commercial impracticability. See, e.g., Seaboard Lumber Co. v. United States, 308 F.3d 1283, 1295-96 (Fed. Cir. 2002) (rejecting both defenses where timber companies agreed to harvest timber from federal lands and pay the federal government a fixed price before resale prices fell precipitously, as a result of a softening of the economy and housing market); Sw. Elec. Coop., supra, 869 F.2d at 315 (rejecting frustration of purpose doctrine where price escalation increased cost of power cooperative's performance under a requirements contract); N. Ind. Pub. Serv. Co., supra, 799 F.2d at 278 (stating "If . . . the buyer forecasts the market incorrectly and therefore finds [itself] locked into a disadvantageous contract, [it] has only [itself] to blame and so cannot shift the risk back to the seller by invoking impossibility or related doctrines."); Gulf Oil Corp. v. Fed. Power Comm'n, 563 F.2d 588, 599-600 (3d Cir. 1977) (rejecting commercial impracticability defense despite claim that the increased cost of delivering natural gas would be exorbitant), cert. denied, 434 U.S. 1062, 98 S. Ct. 1235, 55 L. Ed. 2d 762 (1978); Transatl. Fin. Corp. v. United States, 363 F.2d 312, 319 (D.C. Cir. 1966) (rejecting impracticability defense whereshipper's costs increased due to closing of Suez Canal because "the promisor can legitimately be presumed to have accepted some degree of abnormal risk, and . . . impracticability is urged on the basis of added expense alone."); United States v. Wegematic Corp., 360 F.2d 674, 677 (2d Cir. 1966) (holding that a contractor's need to spend $1,000,000 to $1,500,000 to redesign a promised computer "might have made such a venture unattractive," but not impracticable); E. Air Lines, Inc. v. Gulf Oil Corp., 415 F. Supp. 429, 440, 441 (S.D. Fla. 1975) (rejecting seller's commercial impracticability defense despite significant increases in oil prices).

Some courts have focused on the magnitude of cost increases; however, courts reviewing increases not substantially different from those claimed here have found them insufficient to constitute commercial impracticability. See, e.g. Am. Trading & Prod. Corp. v. Shell Int'l Marine, 453 F.2d 939, 942 (2d Cir. 1972) (rejecting commercial impracticability claim in Suez Canal case, finding increased costs less than a third over agreed upon price of shipment was neither extreme nor unreasonable); Iowa Elec. Light & Power Co. v. Atlas Corp., 467 F. Supp. 129, 140 (N.D. Iowa 1978) (rejecting commercial impracticability claim where costs increased 52.2 percent over the contract and resulted in a loss of $2.67 million), rev'd on other grounds, 603 F.2d 1301 (8th Cir. 1979), cert. denied, 445 U.S. 911, 100 S. Ct. 1090, 63 L. Ed. 2d 327 (1980); La. Power & Light Co. v. Allegheny Ludlum Indus., 517 F. Supp. 1319, 1324, 1326 n. 6 (E.D. La. 1981) (rejecting impracticability defense where costs exceeded original contract price by thirty-eight percent, producing $428,000 loss on $1.1 million contract); Publicker Indus., Inc. v. Union Carbide Corp., 17 U.C.C. Rep. Serv. (Callaghan) 989 (E.D. Pa. 1975) (rejecting commercial impracticability defense where, as a result of OPEC increases, Union Carbide's cost of producing ethanol exceeded contract price by forty percent, stating, "We are not aware of any cases where something less than a 100% . . . cost increase has been held to make a seller's performance 'impracticable.'"); Schafer v. Sunset Packing Co., 474 P.2d 529, 530 (Or. 1970) (increase in cost of labor due to the defendant's failure to recruit workers to harvest the plaintiff's berry crop did not render performance of contract impossible); see also Sheldon W. Halpern, Application of the Doctrine of Commercial Impracticability: Searching for "The Wisdom of Solomon," 135 U. Pa. L. Rev. 1123, 1133, n.43 (1987) (stating that a "study of the cases using percentages . . . indicate[s] that when prices only double, relief is unavailable. When prices increase tenfold, relief is available.") (internal quotation marks and citation omitted).19

In support of their frustration of purpose and impracticability claim, plaintiffs rely in large part on Aluminum Co. of America v. Essex Group, Inc., 499 F. Supp. 53 (W.D. Pa. 1980) (ALCOA). We find the case, which applied Indiana law, to be unpersuasive. First, it has been generally criticized. See, e.g., Printing Indus. Ass'n of N. Ohio v. Int'l Printing and Graphic Commc'ns Union, Local No. 56, 584 F. Supp. 990, 998 (N.D. Ohio 1984) (criticizing ALCOA); Wabash, Inc. v. Avnet, Inc., 516 F. Supp. 995, 999 n.5 (N.D. Ill. 1981) (stating ALCOA would undermine predictability and certainty in contracting); Golsen v. ONG W., Inc., 756 P.2d 1209, 1222 (Okla. 1988) (Kauger, J., concurring) (observing that ALCOA has been "soundly criticized"); Halpern, supra, 135 U. Pa. L. Rev. at 1125-26 (describing ALCOA as a "radical departure" from settled principles of impossibility and commercial impracticability). Second, the case is also distinguishable, as the parties in ALCOA agreed to an escalation clause that the court found did not satisfy the parties' common intention to reflect changes in the contract price. In this case, the parties expressly rejected an escalation clause, shifting to plaintiffs the risk of increased costs.

Plaintiffs also misplace reliance on Unihealth v. U.S. Healthcare, Inc., 14 F. Supp. 2d 623, 634 (D.N.J. 1998), which involved a promise by a health insurer to reimburse a hospital based on the diagnostic-related group (DRG) hospital rates that were set by the state. The State then deregulated hospital prices and ended the DRG system. Id. at 628. The court found that neither party had contemplated the end of the DRG system, and ordered formulation of a missing term comparable to the pricing scheme the parties initially accepted. Id. at 639. Nothing of the kind occurred here. The parties did not agree to a price-setting mechanism that became obsolete. They agreed to a fixed price.

In sum, we affirm the trial court's order dismissing plaintiffs' claims grounded in the doctrines of frustration of purpose and commercial impracticability.

 

 

C.

Plaintiffs next argue that the court erred in dismissing their claims for compensation based on the quantity of asphalt ordered. They assert that Randolph Township and MCCPC breached the covenant of good faith and fair dealing by failing to develop and advertise a reasonable estimate of quantities, and by failing to monitor adherence to the estimate. Plaintiffs argue that individual MCCPC members that did not present pre-bid estimates breached the covenant by submitting orders outside the estimates. Plaintiffs also argue that defendants breached both the covenant of good faith and fair dealing and N.J.S.A. 12A:2-306 by ordering amounts that were "unreasonably disproportionate" to the estimates.

1.

We recognize that MCCPC's pre-bid estimates were at best ambiguously described, and at worst, misleadingly described, as the "aggregate needs of said members" where "said members" apparently meant all members of MCCPC. For example, Contract #6 stated that the "Contractor . . . agrees to furnish the said Contract #6 - Road Resurfacing to the members of the Morris County Cooperative Council in accordance with the following estimated aggregate needs of said members." The contract language did not disclose that the estimates were compiled solely from the handful of members who responded to MCCPC's request. It is also undisputed that neither Randolph Township nor anyone else on behalf of MCCPC monitored purchases to assure compliance with the estimates or to prevent non-estimating municipalities from participating.

These actions did not breach the covenant of good faith and fair dealing. Nonetheless, we are troubled by MCCPC's evident failure to comply with regulations governing the bidding and specification of a contract by a cooperative pricing system. Although plaintiffs do not refer to the Department of Community Affairs regulations, many of their complaints regarding the aggregate estimates arise from MCCPC's deviation from the regulatory design.

Plaintiffs complain that MCCPC did not disclose the source of the estimates, that is, that the estimates were derived from the responses of a small group of members. However, had MCCPC complied with N.J.A.C. 5:34-7.9(e)(1), the source of the estimates would have been disclosed. The regulation provides that the bidding specifications of a cooperative pricing system like MCCPC "shall list the registered members who have submitted estimates, . . . their estimated maximum quantities, and other relevant information." Ibid. The requirement is designed "to permit the bidder to understand what is potentially involved." Ibid.

Plaintiffs also complain that members that did not submit pre-bid estimates to MCCPC nonetheless submitted orders to plaintiffs, thereby contributing to the excessive quantities. However, had the contract complied with the governing regulations, those members would have been barred from ordering, absent plaintiffs' approval. "Each registered member who submitted estimates may . . . order directly from the vendor." N.J.A.C. 5:34-7.11(c). "A registered member of a cooperative pricing system which has not submitted estimates to the lead agency before the advertisement for bids may participate in the resulting contract for that particular item only with the prior written approval of the lead agency and the contractor." N.J.A.C. 5:34-7.12(a).

However, the evident regulatory violations provide no basis for relief. The implied covenant of good faith and fair dealing "cannot override an express term in a contract." Wilson v. Amerada Hess Corp., 168 N.J. 236, 244 (2001). Here, notwithstanding N.J.A.C. 5:34-7.12(a), plaintiffs agreed, without limitation, that "members of the MCCPC may purchase items pursuant to the Master Contract . . . ." Defendants therefore did not breach the covenant by allowing non-estimating members to purchase.

Although the bid specifications did not identify the source of MCCPC's aggregate estimates, plaintiffs did not protest that regulatory deviation. They may not, after securing the contract, complain the specifications were illegal. Morie Energy Mgmt., Inc. v. Badame, 241 N.J. Super. 572, 577 (App. Div. 1990) (stating that "a contractor which has been improperly awarded a public contract based on illegal specifications may not seek damages against the contracting agency."). The rule is related to the policy that "illegal specifications are more likely to be discovered and eliminated if prospective bidders are encouraged to review specifications carefully and to bring any possible illegalities to the attention of the contracting agency." Ibid.

Moreover, we "will not entertain a challenge by a bidder to bidding specifications after the bids have been opened." JEN Elec., Inc. v. Cnty. of Essex, 401 N.J. Super. 203, 213 (App. Div. 2008) (citing Camden Plaza Parking, Inc. v. City of Camden, 16 N.J. 150, 158 59 (1954), and Waszen v. City of Atl. City, 1 N.J. 272, 276 (1949)), rev'd on other grounds, 197 N.J. 627 (2009). See also N.J.S.A. 40A:11 13(e) (stating that a "prospective bidder" who wishes to challenge a bidding specification must do so in writing "no less than three business days prior to the opening of the bids," and that any challenge to the bid specifications raised after that time "shall be considered void," and will have "no impact on the contracting unit or the award of a contract.").

Plaintiffs argue that MCCPC's and Randolph Township's failure to obtain estimates from all MCCPC members "denied Tilcon the ability to properly calculate the risk involved in bidding on . . . Contract #6." However, they do not cite evidence in the record, such as a statement by a Tilcon representative, that Tilcon's bid would have been different, or Tilcon would not have bid, had it known that the estimate represented only several members' projected purchases. Further, neither Tilcon nor Owl pleaded a cause of action based on misrepresentation that is, that they were induced to bid in detrimental reliance on the inaccurate or incomplete estimates. Breach of the covenant of good faith is a breach of a contract once formed, not a tort claim based on actions that wrongfully induced the making of a contract. See Wade v. Kessler Inst., 172 N.J. 327, 345 (2002) (stating that a claim for breach of the implied covenant of good faith cannot arise in the absence of an express or implied contract).

We also find no merit in plaintiffs' claim that MCCPC's failure to monitor total purchases constituted a breach of the covenant of good faith and fair dealing. Even under governing regulations, the pricing council does not mediate between members and a contractor. Plaintiffs themselves were aware of the aggregate purchase orders as they processed them. Moreover, Tilcon itself solicited estimates from MCCPC members. The record reflects the responses of the named defendants, but it does not reflect the aggregate of the February 2008 estimates, and whether the aggregate exceeded the pre-bid estimates included in the contract.

2.

We also discern no basis to find that defendants' total orders breached the covenant of good faith and fair dealing. Plaintiffs alleged that defendants opportunistically ordered asphalt products and services they otherwise would not have ordered under normal economic conditions, and defendants allegedly did so to exploit the below-market contract prices.

In Wilson, supra, 168 N.J. at 250, the Court applied the covenant to a contracting party's exercise of its unilateral right under the contract to set prices. Analogously, the asphalt contracts granted MCCPC members the unilateral power to determine the quantities purchased. In Wilson, the Court tied breach of the covenant to both the ill motive of the breaching party, and the original expectations of the contracting parties. The Court held:

[A] party exercising its right to use discretion in setting price under a contract breaches the duty of good faith and fair dealing if that party exercises its discretionary authority arbitrarily, unreasonably, or capriciously, with the objective of preventing the other party from receiving its reasonably expected fruits under the contract. Such risks clearly would be beyond the expectations of the parties at the formation of a contract when parties reasonably intend their business relationship to be mutually beneficial. They do not reasonably intend that one party would use the powers bestowed on it to destroy unilaterally the other's expectations without legitimate purpose.

 

[Id. at 251.]

 

We may assume for purposes of our decision that had a member increased its orders, or advanced projects ahead of schedule solely to take advantage of the below-market price, it would have constituted a breach.20 Arguably, that conduct would violate "community standards of decency, fairness or reasonableness," Wilson, supra, 168 N.J. at 245 (internal citation and quotation marks omitted), as it arguably, if substantial, would "'destroy[] or injur[e] the right of the other party to receive' the benefits of the contract." Brunswick Hills Racquet Club, Inc. v. Route 18 Shopping Ctr. Assocs., 182 N.J. 210, 225 (2005) (quoting Palisades Props., Inc. v. Brunetti, 44 N.J. 117, 130 (1965)).

However, after extensive discovery, plaintiffs uncovered no supporting evidence of opportunistic purchases. "Proof of 'bad motive or intention' is vital to an action for breach of the covenant." Id. at 225 (quoting Wilson, supra, 168 N.J. at 251). While the aggregate purchases from Tilcon and Owl substantially exceeded the contract estimates, all the member-defendants that purchased from Tilcon established that their purchases were generally consistent with, and deviated little, from pre-bid estimates provided to MCCPC, or post-contract estimates provided to Tilcon, or were consistent with documented capital planning if no estimates were provided. Owl presented no proofs of specific members' orders.

In sum, we shall not disturb the court's grant of summary judgment dismissing plaintiffs' covenant of good faith and fair dealing claim as it pertained to defendants' orders in excess of estimates.

3.

Finally, we reject plaintiffs' claims that they are entitled to relief because defendants' total purchases were "unreasonably disproportionate" to the estimates. See N.J.S.A. 12A:2-306. We do so primarily because even if Article 2 of the UCC applies, and even if defendants' orders were unreasonably disproportionate, plaintiffs waived their rights by delivering excess quantities without protest.

As a threshold matter, we address whether the contracts are governed by Article 2 of the UCC, which applies to "transactions in goods." N.J.S.A. 12A:2-102. See also N.J.S.A. 12A:2-105(1) (defining "goods" as "all things . . . which are movable at the time of identification to the contract for sale"). When a transaction involves a mixture of the sale of goods and services, the court must "ascertain the primary purpose of the transaction," or, put another way, "'determine whether the sales or services aspect predominates.'" DiIorio v. Structural Stone & Brick Co., 368 N.J. Super. 134, 142 (App. Div. 2004) (citation omitted). To make that determination, several factors are relevant.

[C]ourts have found it "helpful to look at the language and circumstances surrounding the contract. . . . the compensation structure of the contract. . . . [and] the interrelationship of the goods and services to be provided; whether one is incidental to the other as well as the intrinsic worth of the good being provided."

 

[Quality Guaranteed Roofing, Inc. v. Hoffman La-Roche, Inc., 302 N.J. Super. 163, 166-67 (App. Div. 1997) (alterations in original) (citation omitted).]

 

Also pertinent may be "whether the nonsale aspects of the contract are viewed as intending to foster the dominant purpose of the contract." Id. at 167 (citing Custom Commc'ns Eng'g, Inc. v. E.F. Johnson Co., 269 N.J. Super. 531, 537 (App. Div. 1993). The determination is a factual issue, although it may be decided by legal principles on review of a motion for summary judgment. See Integrity Material Handling Systems, Inc. v. Deluxe Corp., 317 N.J. Super. 406, 412 (App. Div.) (holding that Article 2 applied to a contract to remove and purchase a shelving and conveyor system), certif. denied, 160 N.J. 91 (1999).

Applied to construction contracts, we have held that construction or installation services have predominated over the sale of goods. In DiIorio, supra, 134 N.J. Super. at 142, we held that Article 2 did not apply to a contract to sell and install stone as part of a home construction project. Similarly, in Quality Roofing, supra, 302 N.J. Super. at 167, we held that Article 2 did not apply to a contract, denominated "Construction Agreement," for installation of foam roofs, as the sale of materials was incidental to construction services. See also Rose Acre Farms, Inc. v. L.P. Cavett Co. of Ind., 279 N.E.2d 280 (Ind. Ct. App. 1972) (holding that Article 2 did not apply to sale and installation of asphalt, characterizing the contract as one "for a construction job with the appellee furnishing the materials for the job and performing the labor").21 However, the analysis must be fact-specific. See Integrity, supra, 317 N.J. Super. at 412. Not every construction-related contract will be deemed outside Article 2. See Meyers v. Henderson Constr. Co., 147 N.J. Super. 77, 83 (Law Div. 1977) (holding that Article 2 governed purchase and installation of overhead doors because installation services were "incidental" to the sale aspects of the contract).

Applying these principles, there is no question that Article 2 governed Tilcon's sale of asphalt under Contract #5. Tilcon sold asphalt products for pick up at its facility, or for delivery. The delivery services were clearly incidental. By contrast, Contract #6, Category C, milling of roadways, and Category D, resurfacing preparations, both clearly involved the provision of services, as opposed to goods.

However, Categories A and B of Contract #6 the delivery or installation in place of Superpave (Category A), and bituminous concrete (Category B) present a closer question, and one that we conclude, defies resolution on a motion for summary judgment. Favoring a finding that the sale of asphalt predominated over the road resurfacing services, is the fact that the price of the asphalt exceeded the marginal cost of installation. For example, under Contract #5, Tilcon agreed to sell FABC and MABC asphalt for $39.90 a ton, picked up from its facility, and $45.90 a ton, delivered. Under Contract #6, installation of the same product, which included laying the asphalt and packing it down, was $65.45 a ton for FABC and MABC. Thus, the $39.90 a ton materials cost without delivery exceeded the marginal $25.55 a ton cost of installation. That MCCPC excluded certain services from Categories A and B, including roadway milling and raising of grates and manholes, which contractors separately bid for, also indicates that Contract #6, Categories A and B, are governed by Article 2.

On the other hand, price is not the only factor in determining whether Article 2 applies. The title of Contract #6 "Road Resurfacing" denotes a construction or service contract, not the purchase of goods. Further, MCCPC separately contracted for the straightforward purchase of asphalt products under Contract #5. To secure the contracts for Categories A and B, plaintiffs needed to demonstrate their qualifications and capabilities to undertake a road resurfacing project. Arguably, the essence of Categories A and B was the provision of construction services.

In sum, we cannot determine on this record whether Article 2 of the UCC applies to Categories A and B of Contract #6. Nonetheless, because we conclude that Article 2 applies to Contract #5, we shall assume for purposes of our remaining analysis that Article 2 also governs Categories A and B of Contract #6. We therefore address plaintiffs' claim of unreasonably disproportionate orders.

N.J.S.A. 12A:2-306(1) states:

A term which measures the quantity by the . . . requirements of the buyer means such . . . requirements as may occur in good faith, except that no quantity unreasonably disproportionate to any stated estimate or in the absence of a stated estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded.

 

The official comment to N.J.S.A. 12A:2-306 states:

If an estimate of output or require-ments is included in the agreement, no quantity unreasonably disproportionate to it may be tendered or demanded. Any minimum or maximum set by the agreement shows a clear limit on the intended elasticity. In similar fashion, the agreed estimate is to be regarded as a center around which the parties intend the variation to occur.

 

[Comment 3 on N.J.S.A. 12A:2-306.]

 

As a threshold matter, we reject the argument of Lopatcong Township, Parsippany-Troy Hills Township and Warren County that section 306 does not apply to them because they were not obliged to purchase asphalt under the MCCPC contract.22 Section 306 pertains both to a contract obliging a buyer to purchase all of a seller's output, and to a contract obliging a seller to sell all that a buyer may require.

We recognize that essential to an enforceable requirements contract is a promise by the buyer to purchase at least part of its requirements from the seller:

With regard to "requirement" contracts providing for the furnishing of such material as one may need or require they are, by the weight of authority, held mutual and binding on the parties where, from the nature of the purchaser's business the quantity of the goods needed is subject to a reasonably accurate estimate. The basis of the rule is that the purchaser's obligation to buy to the extent of his requirements or needs supplies mutuality.

 

[G. Loewus & Co. v. Vischia, 2 N.J. 54, 58 (1949).]

 

The Court in G. Loewus held that the contract was unenforceable because, although the defendant promised to produce and sell wine to the plaintiff if ordered, the plaintiff did not firmly promise to buy any wine from the defendant. Id. at 56, 59. We note as well that the plaintiff in G. Loewus provided no estimate of its projected needs. However, in Ferenczi v. National Sulphur Co., 11 N.J. Misc. 262, 266 (Cir. Ct. 1933), the court found enforceable a contract requiring the plaintiff to "take care of all of the trucking needs" of the defendant, in exchange for the defendant's promise to hire the plaintiff's company exclusively for the duration of the contract.

Persuasive authority supports the notion that an agreement may constitute a requirements contract under section 306 even if the buyer does not promise to purchase exclusively from the seller, if the buyer at least promises to act in good faith, or promises to purchase some of its estimated requirements from the seller. See City of Louisville v. Rockwell Mfg. Co., 482 F.2d 159, 164 (6th Cir. 1973); 1 Corbin on Contracts 6.5 (Perillo ed., rev. ed. 1995) (citing cases for the proposition "that enforcement of requirements contracts is not limited to cases where the buyer has promised to deal exclusively with seller."). G. Loewus, supra, does not preclude such a rule, as there was no purchase estimate in that case.

Corbin provides a compelling rationale for dispensing with an exclusivity requirement:

In view of the significant commercial use of open quantity term contracts, and the variety and the often highly complex nature of such contracts, the obligation of good faith is a preferable basis for their validation than exclusivity. This approach is supported by the official commentary to U.C.C. 2-306(1) which identifies the duty of good faith rather than forbearance from dealing with others as the buyer's consideration for the seller's promise. Official Comment 2 states: "Under this Article, a contract for output or requirements . . . [does not] lack mutuality of obligation since, under this section, the party who will determine quantity is required to operate [its] plant or conduct [its] business in good faith and according to commercial standards of fair dealing in the trade so that [its] output or requirements will approximate a reasonably foreseeable figure." If the parties intend a contract, as is often evident by virtue of the detailed provisions of their agreements, the obligation of good faith supplies the necessary consideration. Finally, there must be a reasonably certain basis for granting an appropriate remedy so that the contract will not fail for indefiniteness, but this is a question which should be addressed separately from the consideration issue. Estimates and purchases by buyer during relevant and comparable periods, as well as trade usage, course of dealing and course of performance, provide such a basis.

 

[Corbin on Contracts, supra, 6.5 (first and second alterations in original).]

 

We are cautioned that "[a]s between two equally reasonable constructions" of a contract, "we should adopt the one which makes the contract valid, as against that reaching a contrary result." G. Loewus, supra, 2 N.J. at 58. We conclude that the MCCPC contracts were not illusory.

Although we find no contract term in which any MCCPC member expressly promised to purchase exclusively from plaintiffs during the contract term, we infer that members that submitted estimated quantities incurred such an obligation, at least regarding amounts reasonably proportionate to their estimates.23 Implicit in MCCPC members' submission of estimates was a promise to purchase amounts approximately equal to those estimates. See, e.g., Cyril Bath Co. v. Winters Indus., 892 F.2d 465, 467 (6th Cir. 1989) (noting that a promise to purchase from a particular buyer in a requirements contract may be implicit); BRC Rubber & Plastics, Inc. v. Cont'l Carbon Co., 876 F. Supp. 2d 1042, 1054-55 (N.D. Ind. 2012) (stating the terms of a requirements contract may be implied by the parties' course of dealing and performance). Moreover, it appears from the parties' course of dealing although, concededly, the market price was rising that defendants treated plaintiffs as their exclusive source of asphalt products during the contract period.

The underlying goal of the statute authorizing cooperative pricing systems is to enable local governments to obtain favorable prices by pooling their purchasing power and securing prices that reflect quantity discounts and sellers' economies of scale. Potential bidders would be less likely to offer quantity-based discounts if members could submit estimates, but avoid the contract price of goods entirely if market prices fell, and enforce the contract price if market prices rose.

Also, the general language in both contracts that the estimates were "approximate" and "subject to increase or decrease," was insufficient to override the specific terms of N.J.S.A. 12A:2-306. The law is a "silent factor in every contract[, and p]arties in New Jersey are likewise presumed to have contracted with reference to the existing law." Camden Bd. of Educ. v. Alexander, 181 N.J. 187, 195 (2004) (alteration in original) (internal quotation marks and citation omitted). Given the parties' failure to clearly override section 306, we need not address whether, as a matter of law, parties may agree to do so. But see Shea-Kaiser-Lockheed-Healy v. Dep't of Water & Power of the City of Los Angeles, 140 Cal. Rptr. 884, 890 (Ct. App. 1977) (stating that parties may not disclaim the obligation to act in good faith).

Applying New Jersey law, the New York Appellate Division addressed a claim that a buyer's purchases were unreasonably disproportionate to its estimates. Orange & Rockland Utils. v. Amerada Hess Corp., 397 N.Y.S.2d 814, 818, 822 (App. Div. 1977). The court noted that section 306 limits a seller's exposure to risk, even where the buyer's purchases are made in good faith. Id. at 819.

The court identified five factors pertinent to determiningwhether purchases are unreasonably disproportionate:

(1) the amount by which the requirements exceeded the contract estimate; (2) whether the seller had any reasonable basis on which to forecast or anticipate the requested increase; (3) the amount, if any, by which the market price of the goods in question exceeded the contract price; (4) whether such an increase in market price was itself fortuitous; and (5) the reason for the increase in requirements.

 

[Ibid. (citations omitted).]

 

See also David Frisch, Lawrence's Anderson on the Uniform Commercial Code (Anderson), 2-306.83 (3d ed. 2013) (citing with approval the Orange & Rockland court's specification of relevant factors).

The New York court held that under the circumstances of that case, the plaintiff-utility's purchase of double its estimated purchases was unreasonably disproportionate. Id. at 822. The court relied on the compelling proof that the utility exploited the contractual fixed price for oil during a period in which the market price more than doubled. Id. at 819, 822. The plaintiff drastically increased its purchases in order to produce energy for sale to other utilities, as opposed to its own customers. Id. at 822. The plaintiff also reduced its usual levels of natural gas purchases, switching to oil. Id. at 821. The court likewise found that the defendant had no basis to forecast the plaintiff's level of consumption. Id. at 822.

It is apparent that determining whether quantities are unreasonably disproportionate to contracted estimates requires a fact-intensive inquiry. See BRC, supra, 876 F. Supp 2d at 1056 (denying summary judgment where the plaintiff purchased twice the contracted estimate). See also Anderson, supra, 2-306:83 (stating that it would be "unwise" to define "'unreasonably disproportionate'" solely "in terms of rigid quantities.").24

In this case, we conclude there exist genuine issues of material fact as to whether defendants' total orders were unreasonably disproportionate to the estimates. MCCPC members ordered 49,217.70 tons above the 62,050-ton estimate under Contract #6 with Tilcon. MCCPC members ordered 39,051 tons over the 32,851-ton estimate under Contract #6 with Owl. MCCPC members purchased 29,167 tons of material from Tilcon under Contract #5, exceeding the estimate of approximately 16,000 tons. Although Tilcon sold asphalt products to MCCPC members over more than fifteen years, the record does not disclose whether, based on the parties' course of dealing, the deviation from the stated estimates was foreseeable. The market price increases would tend to support a finding of unreasonable disproportionality. On the other hand, the members' good faith purchases, in accord with their capital planning, would tend to support a finding that the quantities, even if disproportionate, were not unreasonably so. In sum, the question is not one that can be decided based on the record before us.

Nonetheless, we conclude that summary judgment was properly granted to defendants because plaintiffs waived their right to relief under section 306 by delivering quantities without protest, notwithstanding their claim before us that the amounts were unreasonably disproportionate. Moreover, Tilcon waived its explicit contract rights when it filled orders placed after the August 15, 2008 deadline.

We recognize that ordinarily, summary judgment should not be granted on a claim of waiver, as it involves a finding of the state of mind of the party who has purportedly relinquished its rights intentionally. See, e.g., Lombardi v. Masso, 207 N.J. 517, 544 (2011). Nonetheless, where there is no genuine issue of material fact, the court is not precluded from granting summary judgment, even if issues involve state of mind. Fielder v. Stonack, 141 N.J.101, 127, 129 (1995). "[W]hen the evidence is so one-sided that one party must prevail as a matter of law, the trial court should not hesitate to grant summary judgment." Brill, supra, 142 N.J.at 540 (internal quotation marks and citation omitted).

In this case, plaintiffs did not avail themselves of their right to continue to deliver asphalt under an explicit protest. "A party that with explicit reservation of rights performs or promises or assents to performance in a manner demanded or offered by the other party does not thereby prejudice the rights reserved. Such words as 'without prejudice,' 'under protest,' or the like are sufficient." N.J.S.A. 12A:1-308.25 "When a waivable right or claim is involved, the failure to make a reservation of the right causes a loss of the right and bars its assertion at a later date." Anderson, supra, 1-308:15 [Rev.]. See also id. at 2-306:93 ("The fact that the seller continues to deliver goods on demand is not a waiver of the seller's contention that the buyer is not entitled to the quantity of goods demanded when the seller made delivery with a reservation of its rights.") (emphasis added).

Although Tilcon certainly expressed its dissatisfaction with the contract price given the escalating cost of materials, it never expressed any concern about the total quantities

ordered in relation to the estimate. The record is devoid of any communications from Owl. Tilcon did threaten to refuse to fill Roxbury Township's order absent a price increase, ostensibly because Roxbury submitted its order after the August 15, 2008 deadline. Yet, Tilcon then withdrew its demand for a price increase from Roxbury, and proceeded to deliver despite the late order, without reserving its rights.

Particularly given the uncertain nature of the limitation in section 306 on total quantities, it is incumbent on the party asserting breach to notify the other party timely if the question of breach is reasonably debatable. The notified party may then choose to cease ordering to avoid the risk that it might later be required to pay damages to the protesting party. The notified party may also choose to continue to order, insisting upon what it asserts are its rights. Or, the parties may reach a separate accord. It would be unfair to subject defendants to liability for excessive orders, absent advance notification, especially in those cases where defendants' orders were consistent with the estimates they submitted to Tilcon, without objection, in response to Tilcon's request in February 2008.

In conclusion, we shall not disturb the trial court's order granting summary judgment and dismissing with prejudice plaintiffs' complaint.

Affirmed.

1 N.J.S.A. 40A:11-11(5) provides:

The governing bodies of two or more contracting units or boards of education . . . may by resolution establish a cooperative pricing system as hereinafter provided. Any such resolution shall establish procedures whereby one participating contracting unit in the cooperative pricing system shall be empowered to advertise and receive bids to provide prices for all other participating contracting units in such system for the provision or performance of goods or services; provided, however, that no contract shall be awarded by any participating contracting unit for a price which exceeds any other price available to the participating contracting unit, or for a purchase of goods or services in deviation from the specifications, price or quality set forth by the participating contracting unit.

See also N.J.A.C. 5:34-7.3 (authorizing creation of cooperative pricing system).

2 The contract language stated that Randolph acted on behalf of MCCPC and "each participating local unit according to law and N.J.A.C. 5:30-17." The reference to N.J.A.C. 5:30-17 appears to be an error, as that section of the Administrative Code has, since 2003, pertained to electronic disbursement controls for payroll purposes. See 34 N.J.R. 2377(a) (July 15, 2002) (rule proposal), 35 N.J.R. 2223(a) (May 19, 2003) (rule adoption).

3 Bituminous concrete also called blacktop, asphalt, and asphalt concrete is made from a mixture of asphalt cement and various mineral aggregates and fillers. Asphalt cement is a by-product of oil, and serves as a binder.

4 However, sixty-eight MCCPC members two more than listed in Contract #5 were identified in District 3.

5 Category E involved cleaning and sealing existing cracks in roadways; Category F involved pavement restoration; Category G involved pavement seam repairs; and Category H involved "[p]urchase and [i]nstallation" of Belgium block or concrete curbing. Neither Tilcon nor Owl was awarded the contract for any of these four categories of work.

6 The total pre-bid estimate provided by District 3 for Contract #6 differs in the record. One document indicates that the total estimate for materials in District 3 was 62,050, while another suggests that the total estimate was 62,400. The difference appears to be in the estimated quantity of Superpave required: one document suggests the amount is 5900, while the other indicates the amount is 5550. For purposes of our opinion, we will utilize the 62,050-ton figure.

7 Milling "involves removal of asphalt".

8 In oral argument on defendants' motion to dismiss, plaintiffs' counsel stated that any demands for price adjustments were directed to MCCPC, and not to individual members. As discussed below, however, Tilcon did direct a price adjustment to Roxbury Township.

9 As we have noted, prices fluctuated by significantly more than that in 2006.

10 As discussed below, Tilcon expressly noted that Roxbury's orders were post-deadline.

11 Tilcon's counsel explained that mediation failed after it filed its first complaint. He asserted that MCCPC insisted that Tilcon needed to join the individual member municipalities.

12 Lopatcong included copies of Contracts #5 and #6 in support of its motion. However, this alone did not convert the motion to one for summary judgment. See Banco Popular N. Am. v. Gandi, 184 N.J. 161, 183 (2005) (stating that a court may consider documents upon which a claim is based in a motion to dismiss); N.J. Citizen Action, Inc. v. Cnty. of Bergen, 391 N.J. Super. 596, 605 (App. Div.) (stating that "consideration of the documents referred to in the complaint . . . does not convert defendants' R. 4:6-2(e) motions into motions for summary judgment"), certif. denied, 192 N.J. 597 (2007).

13 Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995).

14 Plaintiffs objected to the statement in the court's form of order that the court had "converted said motion to dismiss to one for summary judgment pursuant to Rule 4:46 with the consent of all counsel." Plaintiffs argued no such consent was given.

15 The court did so pursuant to Rule 2:5-1(b) after plaintiffs filed their notice of appeal.

16 As plaintiffs do not address the court's dismissal of the unjust enrichment, quantum meruit, reformation, restitution and equitable adjustment counts, we deem those abandoned, except to the extent plaintiffs seek reformation or restitution based on their claims of mutual mistake and frustration of purpose. See Liebling v. Garden State Indem., 337 N.J. Super. 447, 465-66 (App. Div.) (stating that "an issue not briefed . . . is deemed waived."), certif. denied, 169 N.J. 606 (2001).

17 We recognize that plaintiffs denominated this claim solely as one of frustration of purpose in their complaint.

18 We address below the question of whether the sale of the asphalt in place constituted a sale of goods governed by Article 2 of the UCC, notwithstanding that plaintiffs also laid and compacted the asphalt.

19 We recognize that the cost of asphalt cement increased during the contract period by multiples, but, as Tilcon asserts, the fair market value of the delivered product was $95 a ton, compared to the contract price of $67 a ton an increase of less than fifty percent.

20 However, the MCCPC members might argue that their purchases were not designed to deny plaintiffs the fruits of their contract, but simply intended to conserve public resources and efficiently procure goods and services. That, they might argue, would be a legitimate purpose. Moreover, at least to some degree, parties to a fixed price requirements contract would naturally expect orders to rise with market-price increases, and fall with market-price drops.

21 We note that the Indiana Court also relied on the fact that the blacktop was specially manufactured for the contracted job and was not resalable. Rose Acre Farms, supra, 279 N.E 2d at 278-79. However, N.J.S.A. 12A:2-105(1) expressly includes specially manufactured items, and refers to the movability of goods when identified in the contract, as opposed to after installation.

22 Had MCCPC complied with the regulations, only members that provided pre-bid estimates would have been eligible to purchase under the contract absent approval by MCCPC and the contractor. Those members would also have been required to purchase only from the contractor. See N.J.A.C. 5:34-7.11(d) ("Registered members who submit estimates shall not issue orders and contractors shall not make deliveries, that deviate from the specifications or price as set forth in the master contract.").

23 Had Randolph Township complied with Department of Community Affairs guidelines, Randolph as distinct from other members would have firmly promised to purchase quantities to meet its needs. See Dep't of Cmty. Affairs, Cooperative Purchasing: A Guide for Local Officials 19 (5th ed. 2006) (stating that the "Master Contract" between a lead agency of a cooperative pricing system and a successful bidder shall provide for: "(A) The quantities ordered for the Lead Agency's own needs, and (B) The estimated aggregate quantities to be ordered by other participating contracting units by separate contracts, subject to the specifications and prices set forth in the Lead Agency's Master Contract.").

24 In Shea-Kaiser-Lockheed-Healy, supra, 140 Cal. Rptr. at 888-90, the court affirmed the trial court's finding of unreasonably disproportionate purchases where the contract required the defendant to purchase a minimum of 386,000 tons of concrete aggregate, and the contract estimated total purchases of 495,000 tons, but the defendant ordered almost 796,000 tons. The appellate court relied on the comment to section 306, providing that where the contract includes a minimum purchase quantity as well as an estimate, the estimate should be viewed as a median. Id. at 888 & n.4. The maximum quantity implied is obtained by adding the difference between the minimum quantity the buyer is obligated to purchase and the stated estimate. Id. at 888 n.4. Consequently, the difference between the stated estimate and the minimum required purchase "is treated as the limit of elasticity." Ibid. In this case, Contract #5 and Contract #6 did not set minimum purchases.

25 This provision previously appeared at N.J.S.A. 12A:1-207. No substantive change was made by its renumbering. See L. 2013, c. 65, 1.