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Summer 2004-04 Legislature repeals Supreme Court ruling on government contract nullity

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Number 56
Summer 2004
Follow up

Legislature repeals Supreme Court ruling on government contract nullity

Contracts with municipalities and other government instrumentalities are no longer null if not filed with the Office of the Comptroller.

Background

As reported in the Fall, 2003, issue of Puerto Rico Business Law Developments, the Supreme Court of Puerto Rico ruled that all government contracts must be filed with the Comptroller's office in order to be valid. Las Marías Reference Laboratory Corp. v. Municipio de San Juan, 2003 TSPR 121, and Ríos v. Municipio de Isabela, 2003 TSPR 122. The fact that such nullity adversely affects innocent private parties who have no control over the filing process did not move the Court. Equitable remedies-such as unjust enrichment-are not applicable when dealing with the government, the Court stated.

The repeal

With Act Number 127 of May 31, 2004, the Puerto Rico Legislative Assembly repealed the ruling. Expressly mentioning the Las Marías case in its Statement of Motives, the new law provides that a government contract that is otherwise valid may not be annulled by the agency's failure to file it with the Comptroller. Certain contracts need not be filed, to wit:

sporadic personal services contracts for less than six months and amounts lower than $2,000,

contracts for professional services for one year or less and amounts not exceeding $5,000,

contracts of public works not exceeding $2,000,

contracts adjudicated through a bidding process, other than for construction,

other contracts designated by the Comptroller.

Procedure

Act 127 also sets forth a filing procedure.

All government instrumentalities and municipalities must maintain a record of all contracts that they execute and their amendments, and must remit copies of the same to the Office of the Comptroller within 15 days from their date of signature. This period is extended to 30 days when the contract is signed without Puerto Rico. It may also be extended in 15 days for just cause acceptable to the Office of the Comptroller.

The Comptroller may present objections to the contract. In that event the government agency is given 30 days to cure the defect. Act 127 is silent with respect to an agency's right to challenge the Comptroller's determination.

Notice

All contracts must display the following notice:

"No consideration may be required under this contract until the same has been filed for recordation with the Office of the Comptroller pursuant to the provisions of Act No. 18 of October 30, 1975, as amended."

Effectiveness

The law applies to all government contracts signed on or before May 31, 2004.

Act 127 does not appear to apply to contracts signed after May 31, 2004, which seemingly could be annulled if not filed as set forth in Las Marías. n


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