Exhibit F

Judgment

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Identifier Number

SEN2021 _______________

COMMONWEALTH OF PUERTO RICO

COURT OF APPEALS

PANEL IV

WPR LA CERÁMICA LP, S.E.

Respondent

v.

COMMONWEALTH OF 

PUERTO RICO;

DEPARTMENT OF FAMILY 

AFFAIRS

Petitioners

KLCE202101045

CERTIORARI

from the Court of 

First Instance, 

Court of Carolina

Civil No.: 

CA2020CV00895

Collection of 

Money

Panel comprised of its presiding judge, Judge Cintrón DPR, Judge 

Pagán Ocasio and Judge Barresi Ramos.

Cintrón Cintrón, Judge Rapporteur.

JUDGMENT

In San Juan, Puerto Rico, on November 15, 2021.

Comes now the Department of Family Affairs, through the 

Attorney General’s Office (Department or petitioner), requesting the 

overturning of the Decision notified on May 26, 2021 by the Court of 

First Instance, Superior Court of Carolina (CFI (Court of First 

Instance)). By means of said decision, the CFI validated clause fortytwo, included via an amendment to the lease agreement signed 

between the above-captioned parties. In turn, it Dismissed the 

petitions for summary judgment filed before it.

Based on the grounds set out below, we issue the requested 

writ of certiorari and overturn the appealed pronouncement.

I.

As shown in the file, on March 1, 2014, WPR La Cerámica LP, 

S.E. (Hereinafter WPR or respondent) executed a lease agreement in 

which it figured as lessor and the Department of Family Affairs as 

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lessee. By means of said agreement, a premises located in Carolina 

was leased, to be used as a central warehouse. On August 7, 2018, 

the parties amended the agreement to reduce the leased space and 

agreed to a monthly rent of $19,479.17. Specifically, the amendment 

resulted in Clause Forty-Two of the agreement being worded as 

follows:

EFFECTIVE TERM: This contract will be in effect as from 

March 1, 2014 until February 28, 2019, subject to the 

availability of funds. After February 28, 2019, if the 

LESSEE continues to occupy the leased property, it will

pay the agreed monthly sum ($19,479.17) each month 

until the agreement is renewed or the LESSEE hands over

the key and vacates the property. The rent payments will 

be paid from the amounts of accounts identified by the 

FIRST PARTY.

This being the case, on March 9, 2020 WPR filed a complaint 

for collection of money against the Department of Family Affairs. It 

alleged that, in accordance with clause forty-two of the amendment to 

the lease agreement, the agreement terminated on February 28, 2019, 

unless the Department continued to occupy the premises, in which 

case, it would be extended from on a monthly basis. It claimed that 

the Department continued occupying the premises until August 2019, 

in view of which it agreed to extend the agreement on a monthly basis, 

with a rent of $19,479.17. It added that the Department paid it the 

rent of June 2019, but not the rent for the months of May, July, and 

August of said year. As such, it stated that it was the creditor of 

$58,115.13, which, it argued, was due and payable.

In turn, on August 6, 2020, the Department answered the 

complaint. It argued against the clause on which WPR based its claim, 

given its understanding that it implied the application of the tacit 

renewal doctrine against the State. Specifically, it reasoned that said 

doctrine was not compatible with the laws and case law governing 

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government contracting. Therefore, it requested the CFI to Dismiss the 

complaint filed against it.

After various procedures, on December 15, 2020, it requested 

the lower court to issue a summary judgment in its favor. It alleged 

that there was no dispute as to the following facts: (1) that the parties 

appropriately executed and formalized a lease agreement and its 

subsequent amendment; (2) that the term of the agreement in 

question was from March 1, 2014 until February 28, 2019; (3) that 

during the effective term of the agreement, it was amended in order to 

reduce the leased space and monthly rent; (4) that the expiration date 

continued to be February 28, 2019 and the amendment stipulated 

that, in case the Department continued to occupy the premises, the 

agreement would be extended, on a monthly basis, until renewed or 

terminated, and (5) that, on February 28, 2019, the Department 

continued to occupy the leased building for a term of six (6) months, 

from March to August 2019, until the contract ended due to the sale 

of the leased lots to a third party entity.

Due to the above, WPR alleged that the agreement and the 

amendment in question complied with the legal requirements 

applicable to agreements between the government and a private entity, 

given that they were both in writing and were registered at the 

Comproller’s Office within 15 days of their execution. In addition, it 

emphasized that it was not a retroactive agreement because the 

amendment was made within the effective term of the original 

agreement. In other respects, it asserted that clause forty-two was in 

writing, in view of which it was improper to allude to the concept of 

tacit renewal. In this regard, it argued that said clause was in 

accordance with the applicable case law in that it managed to prevent 

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the State from unjustifiably obtaining profit at the expense of the 

private entity in situations where the State continued occupying the 

leased property after the expiration date of the agreement. Therefore, 

it maintained that said stipulation was valid and effective in law in its 

entirety. In relation to the claimed debt, WPR asserted that the 

Department made the payments for March, April, and June 2019, but 

not those corresponding to May, July, and August 2019, generating a 

debt of $58,115.13, which was due and payable.1

In turn, on December 15, 2020, the Department filed a motion 

for summary judgment. In its motion, it specified that the clause in 

question violated the law on government contracting and the good 

handling of public funds. It stressed that WPR was wrong to file a 

claim for collection of money based on the amendment to the lease 

agreement in question. It emphasized that said clause stipulated the 

application of the concept of tacit renewal to the lease, in which one 

party is a government entity. In accordance with the foregoing, it 

suggested that said agreement was unlawful, in that its open and 

vague language related to the term of the lease, with the purpose of 

being automatically renewed on a monthly basis, constituted another 

agreement that was recorded in writing and lacked the formalities 

required for government contracting. Thus, it highlighted the fact that 

the language of the amendment failed to comply with the applicable 

case law and legislative provisions due to its ambiguity and 

uncertainty in the public funds required to cover the new agreement 

on a monthly basis, without a certain or specific termination date. It 

1 Together with its request, it attached a copy of the following documents: lease agreement, the 

amendment made in 2018, invoices for the rent payments related to the months of May, July, and 

August 2019, certification of payments made to WPR by the Department of Family Affairs, dated 

September 2, 2020, checks made out to WPR, Sworn Statement of April Carol Niedda, comptroller of 

WPR, and emails between EPR and the Department.

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argued that it would have been different if the parties had agreed to 

amend the agreement for an additional effective term or to use 

economic penalty clauses on account of the occupation of property 

after the effective term of the agreement. In short, the Department 

requested the CFI to issue summary judgment in its favor.2 WPR 

opposed the motion in a timely manner and reiterated its previous 

arguments.

At this point, on May 20, 2021, the lower court issued the 

opinion, which we now review. Firstly, the Court decreed the legality 

of clause forty-two contained in the amendment to the lease 

agreement in question. In turn, it denied the petitions for summary 

judgment filed by the parties. The CFI expressed the following:

In the instant case, it is not fitting to speak of tacit 

renewal, but rather a manifest will between the 

contracting parties to continue with the lease, on a 

monthly basis, for the same sum of rent as agreed until 

one of two things occur. To wit, that the Department 

vacates and hands over the property, or until the 

agreement is renewed.

...

The fact that a fixed date has not been set for the 

termination of the contractual relationship does not 

invalidate the agreement, especially when the vacation of 

the property was left in the hands of the State. Moreover, 

in the instant case it is a kind of penalty clause stipulated 

by mutual agreement, which has the effect of holding the 

State financially accountable for staying in a private 

premises. For a contract with a government entity to be 

valid, certain requirements must by met and these 

requirements are met in the instant case.

...

In other respects, the court a quo determined that the instant 

case presented a genuine and substantial dispute as to whether the 

rent corresponding to the month of May 2019 was paid. Due to the 

above, it concluded that WPR must present evidence at a plenary 

hearing that it is owed this rent.

Dissatisfied, on June 10, 2021, the State, in representation of 

the Department of Family Affairs, requested reconsideration, which 

2 Together with its request, it included a copy of the lease agreement and the amendment made in 

2018.

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was opposed by WPR in a timely manner. By Decision issued on July 

23, 2021, the CFI denied said petition. By virtue of the above, the 

Department of Family Affairs, through the Attorney General’s Office, 

came before this Court claiming that the CFI had committed the 

following error:

The Court of First Instance erred in Dismissing the 

Motion for Summary Judgment filed by the petitioner, 

given that clause forty-two of the Amendment to the Lease 

Agreement is invalid, in view of which the respondent is 

not entitled to collect any debt on account of rent 

payments in accordance with the most basic principles of 

government contracting which govern in our legal system.

With the benefit of the appearance of the respondent, we 

proceed to resolve.

II.

A.

Article 1456 of the Civil Code of Puerto Rico 31 LPRA, sec. 4063, 

provides that if, upon termination of a lease agreement the lessee, with 

the lessor’s consent, continues with the enjoyment of the leased thing 

for fifteen (15) days, there is tacit renewal.3 Tacit renewal does not 

imply an extension of the original agreement, but rather a new 

agreement. Dalmau v. Hernández Saldaña, 103 DPR 487, 490 (1975). 

This is so because, by express provision of law, the lease ceases when 

its term expires, thus extinguishing the original agreement. Cesani 

Vargas v. Tribunal Superior, 92 DPR 239 (1965). Notwithstanding, 

when the requirements for tacit renewal concur, the agreement is 

renewed. Id. A new contract arises from the tacit agreement whose 

term is not the same as that stipulated in the original contract but as 

provided in Arts. 1467 and 1471 of the Civil Code, 31 LPRA, secs. 

4083 and 4092.

3 Civil Code applicable to the facts of the instant case.

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For tacit renewal to operate, the following requirements must 

concur: (1) that, upon termination of the lease agreement, the lessee 

continues to enjoy the leased thing for 15 days; (2) that it do so with 

the lessor’s consent, and (3) that no requirement has been foregone, 

that is to say, expression made by any of the parties to the other, of 

its wish to terminate the lease. Dalmau v. Hernández Saldaña, supra. 

In other words, the lease terminates ipso facto, by expiration of the 

term, unless tacit renewal occurs due to the lessee continuing to enjoy 

the thing with the lessor’s consent. Notwithstanding, since this 

consent is presumed, it derives from its silence and tolerance 

regarding the fact of the lessee’s possession of the thing subject to the 

contract, there must be an act that demerits that presumption, and 

this act is the requirement applies to the lessee in order to terminate 

the agreement. León Parra v. Gerardino, 58 DPR 489, 494-495 (1941).

In other respects, government contracting is deemed a matter 

that implies a high level of public interest. Therefore, the legal precepts 

that govern it aspire to promote, not only a healthy and upright public 

administration, but also to prevent squandering, corruption, and 

cronyism. Vicar Builders v. ELA, 192 DPR 256, 263 (2015); ALGO Corp. 

v. Mun. de Toa Alta, 183 DPR 530, 537 (2011); CMI Hospital v. Depto. 

Salud, 171 DPR 313, 320 (2007). In light of this reality, the provisions 

governing contracting between private and public entities are rigorous 

and of restrictive application. Vicar Builders v. ELA, supra. The efficacy 

of this type of contract is determined based on special statutes which 

regulate it, and not according to general contract theories. ALCO Corp. 

v. Mun. de Toa Alta, supra, p. 537, citing Quest Diagnostics v. Mun. 

San Juan, 175 DPR 994, 1000 (2009).

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With the aim of achieving the healthy administration of public 

funds, there is legislation to establish control of their disbursement 

and of government contracting. Rodríguez Ramos et al. v. ELA et al.,

190 DPR 448 (2014). To such end, Law No. 230 of July 23, 1974, 

known as the Government of Puerto Rico Accounting Act, 3 LPRA, sec. 

283a, establishes, as public policy, the maintenance of “prior control

of all government operations”; that the accounting of the government 

of Puerto Rico “constitutes an effective control over the revenues, 

disbursements, funds, property, and other assets of the government,” 

and that “government expenditure be carried out within the context of 

utility and austerity.”

In accordance with the above, case law has established certain 

requirements in such a way that they are indispensable for the legal 

transaction to which the Government is party, to be valid and 

enforceable: 1) put the contract in writing; 2) keep a record to establish 

its existence; 3) send a copy to the Office of the Comptroller of Puerto 

Rico; and 4) provide proof of compliance with the time period, that is, 

show it was completed and executed fifteen (15) days earlier. These 

requirements serve as a mechanism for verifying the continuity of the 

legal transaction, and to prevent fraudulent payments and claims. 

Vicar Builders v. ELA, supra, p. 264; Ocasio v. Alcalde Mun. de 

Maunabo, 121 DPR 37, 54 (1988). Once said requirements have been 

satisfied, contracts shall be valid, enforceable and shall be subject to 

the publication required under our legislation for the effective 

administration of public policy with respect to government 

contracting. ALCO Corp. v. Mun. de Toa Alta, supra, p. 538, citing

Johnson & Johnson v. Mun. de San Juan, 172 DPR 840, 853 (2007).

However, in Vicar Builders v. ELA, supra, p. 267, the Supreme 

Court established that the law and powerful reasons of public policy 

made it impossible to apply the concept of tacit renewal in government 

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contracting. According to the above, the Supreme Court concluded 

that the nature of tacit renewal is not compatible with the laws or case 

law governing government contracting. It explained that, when tacit 

renewal operates, a new contract arises from a tacit agreement 

between the parties that results from the behavior of the lessor and 

the lessee. See Dalmau v. Hernández Saldaña, supra. To such end, it 

stated that a contract to which the State is party cannot arise from a 

tacit agreement or from the actions of the parties. Vicar Builders v. 

ELA, supra.

Likewise, the Supreme Court stated, in Vicar Builders v.

ELA, supra, p. 267-268:

From there arises the incompatibility of both legal concepts. 

If a government contract exists in writing, it is not fitting to

speak of tacit renewal. Similarly, if the requirements for 

tacit renewal are present, there can be no written contract 

that meets the requirements stipulated to bind the State. 

In other words, a new contract would arise that does not 

exist in writing, is not registered, and was not sent to the 

Office of the Comptroller.

The statutory requirements that exclude the application of 

the concept of tacit renewal are irremediable. It could be 

argued that the new contract that tacitly arises could 

subsequently be put in writing and sent to the Office of the 

Controller, in compliance with these requirements. 

However, in that case we would be permitting a practice 

that this Court has previously invalidated — retroactive 

contracting with the government. See ALCO Corp. v. Mun. 

de Toa Alta, supra. In other words, one party would be 

enjoying a leased thing for a period without the existence of 

a valid and enforceable contractual relationship. Should 

the parties decide to put the agreement arising from the 

tacit renewal in writing, the binding effect would arise after 

one party had obtained a benefit from, or enjoyed, the 

leased thing. Were we to permit such a circumstance, we 

would be endorsing an agreement that assumes a prior 

obligation under which the parties have created benefits. 

This is precisely what the Court has previously prohibited.

The application of the concept of tacit renewal would grant 

the State a means of evading compliance with the 

requirements imposed in the aforementioned statutes, 

which this Court has recognized as necessary for a 

government contract to have legal effectiveness. We would 

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be opening the door to the State to tacitly renew contracts, 

which, due to lack of publication, could not be audited by 

third parties and would distort the reality contained in 

contract registries. We cannot support the application of 

this concept the effect of which would be to reduce the 

transparency of transactions involving the government and 

allow the government to execute contracts for a period in 

excess of that stipulated in the written contract. This is 

precisely what the laws in question intend to eradicate.

In this regard, the Supreme Court established that a tacit 

extension to the effective term of a lease agreement with the State is 

invalid. See Fernández & Gutiérrez v. Mun. de San Juan, supra. 

Therefore, parties entering into contract with government entities 

must comply with the requirements of the applicable laws. CMI 

Hospital v. Depto. Salud, supra, p. 321.

Consequently, in order to prevent irregular situations in which 

the State may obtain undue benefits, the parties must be meticulous 

in executing their contracts. Vicar Builders v. ELA, supra. That is to 

say, the development of the contractual clauses shall be essential in 

deciding how to proceed upon the expiration of a lease agreement 

executed with the government. Only in this way can any situation, 

which could place a private party at a disadvantage vis-à-vis the State, 

be remedied. Id. By virtue of the above, the Supreme Court has stated 

that it is essential to stipulate the following, beforehand, in the 

contract: (1) under what conditions the lease would be extended; (2) 

for what additional period; (3) what the rent payment would be; and 

(4) penalty clauses to prevent one party from being affected by the 

non-compliance of the other. Vicar Builders v. ELA, supra, p. 270.

B.

Furthermore, a penalty clause has been defined as “an ancillary 

agreement to a principal obligation, whereby a promise is made to 

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provide a benefit, generally financial, in case one of the parties fails to 

comply, or incorrectly or irregularly complies, with the undertaking.” 

Coop. Sabaneña v. Casiano Rivera, 184 DPR 169, 175 (2011), citing 

J.R. Vélez Torres, Derecho de Obligaciones, 2nd ed., San Juan, 

continuing Legal Education Program of the Faculty of Law of the 

U.I.A., 1997, p. 299. Its function is: (1) to ensure the performance of 

an obligation and (2) evaluate, beforehand, the possible damages 

caused to the creditor by the non-performance of the obligation. R.C. 

Leasing Corp. v. Williams Int. Ltd., 103 DPR 163 (1974).

It is not necessary to allege damages under a penalty clause. 

Clausells v. Salas, 51 DPR 89-95 (1937). That is to say, when such a 

clause is agreed upon, it is not necessary to prove the damages 

suffered by the creditor due to the non-performance of the obligation. 

C.M. & Finance Corp. v. Cooley, 103 DPR 6, 9-10 (1974). “In obligations 

with a penalty clause, the penalty shall replace compensation for 

damages and payment of interest in the event of non-performance, its 

purpose is not always the anticipated liquidation of damages. It has a 

function of sanctioning a violation of the legal obligation, which gives 

the clause its other name of liquidated damages and which, beyond 

the motive of gain in the ordinary obligation, introduces an element of 

coercion and threat that urges the debtor to comply.” Jack's Beach 

Resort, Inc. v. Cia. Turismo, 112 DPR 344, 349 (1982).

III.

In its petition, the petitioner alleges that the CFI erred in issuing 

its opinion and determining that the respondent is entitled to collect 

a debt for rent payments. It understands that clause forty-two of the 

lease agreement in question is inoperative against the Government, 

due to being contrary to the principles that govern this type of 

contracting. It is right.

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In the instant case, on March 1, 2014, the parties signed a valid 

lease agreement that met all the requirements applicable to 

government contracts. That is to say, the agreement was recorded in 

writing, it was registered and a copy was sent to the Office of the 

Comptroller. The expiration date was February 28, 2019. However, on 

August 7, 2018, the parties amended the agreement to include the 

clause under our consideration, whereby, if the petitioner continued 

occupying the property after February 28, 2019, it was obligated to 

pay the agreed amount every month until: (1) the contract was 

renewed or (2) the key was handed over and the property vacated. Said 

amendment was also recorded in writing and it was also registered 

with the Office of the Comptroller within the term stipulated by law.

In this regard, the petitioner alleges that an exhaustive analysis 

of its text shows prejudicial effects to government contracting because 

it has the same effects as the application of the doctrine of tacit 

renewal. The CFI concluded that it was not fitting to speak of said 

doctrine, but rather a manifest will between the contracting parties to 

continue with the lease, on a monthly basis, for the same sum of rent 

as agreed until the occurrence of one of the two aforementioned 

circumstances. In turn, the respondent agrees with the result of the 

lower court, in that it believes that the clause in question, included in 

the amendment, complies with all the legal requirements concerning 

government contracting. Specifically, it points out that the 

amendment left the remaining terms of the agreement unaltered, all 

subject to the availability of funds. It specifies that the total sum of 

the monthly rent payments under the agreement, including those 

attributable to the period of six (6) months covered by the amendment, 

was less than the originally budgeted amount.

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After a prudent examination of the circumstances of the instant 

case, together with the pleadings of both parties, we find that clause 

forty-two is invalid. Let us explain.

Indeed, it could be interpreted that the literal text of the clause 

complies with the applicable legal requirements. However, we should 

bear in mind that when entering into contract with the Government, 

the interpretation of said provision must be restrictive. Let us not 

forget that these cases imply the highest level of public interest.

Thus, analyzing the content of clause forty-two, we notice that 

it intended to activate a type of renewal, given that it extended, on a 

monthly basis, the term of the lease agreement until the occurrence 

of one of the circumstances set forth therein. We deem that this 

practice creates uncertainty, which is incompatible in matters in 

which the Government is party, particularly concerning the 

availability of the necessary public funds to make the subsequent rent 

payments.

As explained by the Supreme Court in Vicar Builder v. ELA, 

supra,, it is clear that in this case, the parties were not meticulous 

upon introducing the amendment in question, in such a way as to 

address any situation in which a party might fail to comply with that 

agreed upon therein. In particular, because one of the contracting 

parties is the Government. In light of the above, we believe that the 

language is vague and fails to comply with that required by our legal 

system. It would have been different if said article had an exact start 

and termination date of the agreement, and not merely leaving it to be 

renewed “on a monthly basis,” attributing the moment of its 

termination to the petitioner.

In other respects, we also deem that the clause in question does 

not contain the elements of a penalty clause. Although the existence 

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of a clause of this nature does not depend on the evaluation of the 

contracting parties, but rather the authentic function implied by the 

agreement,4 we deem that the lower court erred in thus accepting it, 

and concluding that it had the effect of holding the petitioner 

financially responsible for its remaining in a private premises after the 

agreement had lost validity.

In accordance with the foregoing, and in order to prevent a 

failing of justice, it is applicable to issue the petitioned writ of certiorari

and overturn the appealed decision.5

IV.

Due to the above grounds, the writ of certiorari is issued and 

the appealed decision is overturned. The case is returned to the CFI 

for the continuation of the proceedings.

Thus decided and ordered by the Court and certified by the 

Clerk.

Judge Barresi Ramos agrees with the result, without written 

opinion.

Lilia M. Oquendo Solis, Esq.

Court of Appeals Clerk

4 Jack’s Beach Resort, Inc. v. Cía. Turismo, supra, p. 349. 5

As we know, the writ of certiorari is of a discretionary nature. Rule 52.1 of Civil Procedure, 32 LPRA,

App. V, R. 52.1, restrictively provides for the matters we can address by means of said writ. Scotiabank 

de Puerto Rico v. ZAF Corporation, 202 DPR 478 (2019). Our decision regarding itsissuance is subject 

to the consideration of the following criteria:

(A) Whether the remedy and the issuance of the appealed decision, unlike its grounds, are 

unlawful.

(B) Whether the situation of facts raised is the most appropriate for the analysis of the problem.

(C) Whether prejudice, partiality or gross and manifest error is involved in the evaluation of the 

evidence by the Court of First Instance.

(D) Whether the matter raised requires more meticulous consideration in light of the original case 

records, which should be submitted, or of more elaborate pleadings.

(E) Whether the stage of the proceeding at which this case is presented, is the most favorable for 

its consideration.

(F) Whether the issuance of the decision or the order to show cause do not cause undue fractioning 

of the dispute and an undesirable delay in the ultimate resolution of the litigation.

(G) Whether the issuance of the decision or the order to show cause avoids a failure of justice.

Rule 40 of the Regulations of the Court of Appeals, 4 LPRA, App. XXII-B, R. 40; García v. Padró,

165 DPR 324, 334 (2005).

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