The central issue in these back-to-back appeals, which have been consolidated for the purpose of issuing a single opinion, is whether municipalities have an implied contractual (seller-consumer) relationship with residents to whom they distribute metered potable water. The answer to that question determines whether plaintiffs may sue defendants under a breach-of-contract theory on the grounds that the water supplied to them contains a high level of contaminants.
Plaintiffs rely on older cases holding there was a contractual relationship between residents and their towns with respect to water service. Defendants rely on more recent cases recognizing a different type of relationship between municipal water distributors and residents—one that is not based on principles of contract law.
The court concludes that under the current governance framework for public water systems, potable water is a public resource owned by the people and held in trust for them. Under that paradigm, defendant municipalities distribute water to their residents for a governmental purpose. They are not tantamount to private companies that sell water for profit. The fact they charge residents for the costs incurred for providing this governmental service —which varies based on the amount of water a resident receives—does not automatically create a contractual relationship.
The court also concludes that for all practical purposes, the theory of liability in plaintiffs' complaints, while carefully drafted to employ the terminology of contract law, is indistinguishable from a warranty of fitness cause of action explicitly precluded under a provision of the Tort Claims Act, N.J.S.A. 59:9-2(b). Stated another way, using the label of a contract dispute to describe the cause of action does not change its essential character or transform the relationship between municipal water distributors and residents into a contractual one. The court thus concludes there is no foundation upon which contractual damages may be claimed against defendant municipalities.