Fall 2003-01 Municipal contracts declared null

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Number 53
Fall 2003
Unless they meet formal requirements

Municipal contracts declared null

The general rule of civil law that contracts may take any form does not apply to those signed by municipalities or other government instrumentalities. Two opinions rendered by the Puerto Rico Supreme Court on July 15, 2003, expound on the mandatory formalities and "suggest" a course of action to protect the interests of private parties.

Las Marías

In Las Marías Reference Laboratory Corp. v. Municipio de San Juan, 2003 TSPR 121, the plaintiff filed suit to collect under a contract whereby from 1994 to 1997 it provided laboratory services to indigent residents of San Juan. The municipality admitted to its obligation under the original contract, but questioned sums claimed for work performed during extension periods. It happened that, once expired, the term of the contract was extended by using letters, rather than by signing another formal, contract-styled document.

Absolutely null

There was no doubt in the mind of the Supreme Court that both the trial court and the Circuit Court of Appeals had erred when they ruled that the letter extensions were valid.

Article 1 of Act No. 18 of October 30, 1975, 2 P.R. Laws Ann. § 97, reads as follows, as quoted by the Supreme Court:

"Departments, agencies instrumentalities, offices and every other organism, and the municipalities, of the Commonwealth of Puerto Rico, without any exception, must keep a registry of all contracts executed, including amendments to the same, and must deliver copies of these to the Office of the Comptroller within the fifteen (15) days that follow the date of execution of the contract or the amendment."

The court also cited directly from Article 8.004 of the Autonomous Municipalities Law, 21 P.R. Laws Ann. § 4354:

"No disbursement whatsoever may be authorized regarding contracts absent evidence of the same having been delivered to the Comptroller of Puerto Rico, pursuant to the mandates of secs. 97 et seq. of Title 2 and its Regulation."

Failure to comply with the above makes the contract absolutely null and void, which prevents the contracting municipality from making any payment thereunder.

The reason behind such strict rule is the "capital State interest in promoting a clean and proper public administration, preventing waste, corruption and string-pulling in government contracting."

Private party

Equitable remedies-such as unjust enrichment-to protect an innocent private party are not applicable when a municipality or other governmental body is concerned, added the Supreme Court. Las Marías, the private laboratory, should have been more proactive and should have ensured compliance by the San Juan Municipal Government. Not doing so resulted in Las Marías "causing its own impoverishment."

The court then "suggested" that private parties require municipalities to certify the following, in order to protect their interests:

1- that the contract was reduced to writing,
2- that the contract was registered,
3- that a copy of the contract was delivered to the Office of the Comptroller;
4- the date of delivery to the Comptroller,
5- the time of delivery,
6- the registration number assigned to the contract by the Comptroller and
7- that the municipality's legal counsel reviewed both the contract and the certification, and determined that the same comply with all state and federal laws and regulations, with all bylaws, executive orders, norms, circular letters, resolutions, and any other applicable provisions, and that said counsel has approved the same.

Private parties are not to perform any service nor make any disbursement until the above requisites have been complied with.

Ríos

Ríos v. Municipio de Isabela, 2003 TSPR 122, dealt with an emergency situation that prompted the mayor of the town of Isabela to authorize verbally Félix Ríos and others to remove debris from certain roads in 1998. Because the municipality later refused to pay, Ríos and the others sued. Thereafter the Municipal Assembly ratified the mayor's verbal authorization, and the parties to the lawsuit filed a stipulation for a judgment ordering payment of the sums owed. The judge agreed.

Elections

Said stipulation was filed in December, 2000. What had happened in the previous month was that the party in power had lost the elections. In January, 2001, the new mayor challenged the stipulated judgment and appealed. While the Circuit Court of Appeals affirmed, the Supreme Court reversed.

Because the original contract was verbal in form, and was neither registered by the municipality nor delivered to the Comptroller, it was absolutely null, and could not be ratified by the Municipal Assembly.


© 2003 Goldman Antonetti & Cordova, LLC