UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF PUERTO RICO 

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PROMESA 

Title III 

Case No. 17-BK-3283 (LTS) 

Jointly Administered 

In re: 

THE FINANCIAL OVERSIGHT AND 

MANAGEMENT BOARD FOR PUERTO RICO, 

as representative of 

THE COMMONWEALTH OF PUERTO RICO, et al., 

Debtors. 1

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NOTICE OF FILING OF CERTIFIED ENGLISH TRANSLATION 

PLEASE TAKE NOTICE that on August 22, 2018 the Official Committee of Unsecured 

Creditors of all title III Debtors (other than COFINA) (the “Committee”) filed the Urgent Motion of 

Official Committee of Unsecured Creditors, Pursuant to Bankruptcy Code Sections 105(a) and 362, for 

Entry of Order Enforcing Automatic Stay and Court’s June 29, 2017 Order Confirming Application of 

Automatic Stay With Respect to GDB Restructuring (the “Motion to Enforce”) [Docket No. 3797], which 

included a Spanish document, Exhibit B (Jaap Corp. v. Dep’t of State, 187 D.P.R. 730, 739 (2013)). 

PLEASE TAKE FURTHER NOTICE that on August 22, 2018, the Committee filed the 

Motion of Official Committee of Unsecured Creditors, for Leave to File Spanish Language Document and 

Extension of Time to File Certified English Translation (the “Motion for Leave”)[Docket No. 3799], 

requesting a five (5) day extension, until August 27, 2018 to submit a certified English translation. 

 

1

 The Debtors in these title III cases, along with each Debtor’s respective title III case number listed as a 

bankruptcy case number due to software limitations and the last four (4) digits of each Debtor’s 

federal tax identification number, as applicable, are the (i) Commonwealth of Puerto Rico 

(Bankruptcy Case No. 17-BK-3283 (LTS)) (Last Four Digits of Federal Tax ID: 3481), (ii) Employees 

Retirement System of the Government of the Commonwealth of Puerto Rico (“ERS”) (Bankruptcy 

Case No. 17-BK-3566(LTS)) (Last Four Digits of Federal Tax ID: 9686), (iii) Puerto Rico Highways 

and Transportation Authority (“HTA”) (Bankruptcy Case No. 17-BK-3567 (LTS)) (Last Four Digits 

of Federal Tax ID: 3808), (iv) Puerto Rico Sales Tax Financing Corporation (“COFINA”) 

(Bankruptcy Case No. 17-BK-3284 (LTS)) (Last Four Digits of Federal Tax ID: 8474), and (v) Puerto 

Rico Electric Power Authority (“PREPA”) (Bankruptcy Case No. 17 BK 4780-LTS) (Last Four Digits 

of Federal Tax ID: 3747).. 

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2 

PLEASE TAKE FURTHER NOTICE that on August 23, 2018, the Court granted the Motion 

for Leave. The Committee hereby files a certified English translation of Exhibit B to the Motion to 

Enforce, attached hereto as Exhibit A. 

Dated: August 27, 2018 

 

/s/ Luc A. Despins .

PAUL HASTINGS LLP 

Luc. A. Despins, Esq. (Pro Hac Vice) 

James R. Bliss, Esq. (Pro Hac Vice)

James T. Grogan, Esq. (Pro Hac Vice) 

Nicholas A. Bassett, Esq. (Pro Hac Vice) 

200 Park Avenue 

New York, New York 10166 

Telephone: (212) 318-6000 

lucdespins@paulhastings.com 

jamesbliss@paulhastings.com 

jamesgrogan@paulhastings.com 

nicholasbassett@paulhastings.com 

Counsel to the Official Committee of Unsecured 

Creditors

- and - 

/s/ Juan J. Casillas .

CASILLAS, SANTIAGO & TORRES LLC 

Juan J. Casillas Ayala, Esq., USDC - PR 218312 

Diana M. Batlle-Barasorda, Esq., USDC - PR 213103 

Alberto J. E. Añeses Negrón, Esq., USDC - PR 302710 

Ericka C. Montull-Novoa, Esq., USDC - PR 230601 

El Caribe Office Building 

53 Palmeras Street, Ste. 1601 

San Juan, Puerto Rico 00901-2419 

Telephone: (787) 523-3434 

jcasillas@cstlawpr.com 

dbatlle@cstlawpr.com 

aaneses@cstlawpr.com 

emontull@cstlawpr.com 

Local Counsel to the Official Committee of Unsecured 

Creditors

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EXHIBIT A 

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IN THE PUERTO RICO SUPREME COURT

Jaap Corporation

Respondent

v.

Department of State, et al.

Petitioners

Certiorari

2013 TSPR 11

187 DPR ____

Case Number: CC-2011-803

Date: February 1, 2013

Court of Appeals:

San Juan Judicial Region

Office of the Solicitor General:

Irene Soroeta Kodesh, Esq.

Solicitor General

Leticia Casalduc Rabell, Esq.

Assistant Solicitor General

Legal Counsel for Respondent:

Carlos A. Piovanetti Rivera, Esq.

Subject-matter: Contracts – Prohibition against retroactive contract between government and

private entity

This is an official document of the Supreme Court subject to the changes and corrections of the

compilation and official publication process of Court decisions. It is distributed electronically as a

public service to the community.

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IN THE PUERTO RICO SUPREME COURT

Jaap Corporation Certiorari

Respondent

v.

CC-2011-719

Department of State, et al.

Petitioners

Opinion of the Court pronounced by Associate Justice Pabón Charneco

In San Juan, Puerto Rico, on February 1, 2013

Today, instead of evaluating the validity of the retroactivity of a public

works contract executed by a municipality and a private entity—as we did in ALCO

Corp. v. Mun. de Toa Alta, 183 DPR 530 (2011)—we must examine the validity of

a lease agreement executed retroactively by the state and a private entity.

Specifically, we must determine whether or not the payment of rent is in order by

virtue of a contract that was executed after the use and enjoyment of the property

in question. We rule, a priori, that retroactive government contracts are contrary to

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our rules of government contracts, which promote sound public administration.

I

On July 28, 2009, Jaap Corporation (hereinafter, Jaap or Respondent) filed

a Complaint for declaratory judgment and collection of monies against the

Government of Puerto Rico. The facts stipulated by the parties show that the

Department of State leased from Jaap the third (3rd) and fourth (4th) floors of

building number 151 on Fortaleza Street, on the corner of San José Street, in Old

San Juan. Each floor was leased by means of a separate contract. The parties agreed

to the lease of the third floor by means of Contract No. 2001-000043, executed on

October 27, 2000. However, it was established that the contract would come into

effect on January 16, 2000, and end on June 30, 2000. The parties also agreed to

the following:

if, upon its expiration, neither of the contracting parties has given

notice to the other of its intent to amend or rescind the contract, it

shall be deemed to have been renewed without the two parties

needing to give prior notice for successive economic years starting

on July first, for up to a maximum of five (5) years or a maximum

of ten (10) years if the contract is for offices and buildings located

in the United States or a foreign country, including renewals.1

There is no controversy regarding the fact that this contract was filed with the

Office of the Comptroller.

1

 Joint Motion of Stipulated Facts, Stipulation No. 5.

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Five (5) years later, Jaap initiated a series of communications aimed at

executing another lease agreement. In one of its letters, the corporation pointed out

that the contract for the offices of the examining boards located on the third floor

of the building in question had expired in January 2005.2 According to

Respondent’s arguments, the parties entered into negotiations and discussions

regarding the execution of a new contract. In fact, a document entitled “Lease

Agreement for Premises for Five Years or Less or up to 10 Years” was drafted on

July 1, 2005, for the lease of the third floor.3 This document would come into effect

on “July 1, 2005, subject to the approval of the General Services Administration.”4

Similarly, it provided that it would govern the contractual relationship until June

30, 2006.5 However, this document, although it contains the initials “W.G.A.” and

“C.E.D.” on the left margin, was never signed by the parties or approved by the

General Services Administration.6

It was not until July 18, 2007, that the parties finally executed Contract No.

2008-000009, regarding the lease of the third (3rd) floor. In that contract, the parties

2

Id., Stipulation No. 8.

3

Id., Stipulation No. 7.

4

Id.

5

Id.

6

Id. According to Stipulation No. 7, “[t]he first two folios of the document do not contain any

signatures, while the next five (5) folios entitled “Continuation Sheets” contain the signature of

Carlos E. Cortés Díaz.”

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agreed that the Department of State would pay Jaap one hundred sixteen thousand

four hundred fifty-nine dollars and eleven cents ($116,459.11) for the lease of the

third floor from July 1, 2005, to June 30, 2006.

However, the record shows that, even though the Department of State

occupied the third floor from June 1, 2005, to February 1, 2008, this government

entity never made a payment for the lease of the third (3rd) floor corresponding to

the rent for said period. According to Respondent, the rent owed amounts to a total

of three hundred twenty thousand five hundred twenty-one dollars and forty-six

cents ($320,521.46). On May 12, 2008, and December 30, 2008, the two (2)

directors of the Legal Affairs Office of the Department of State, Lourdes Adrienne

Robles Torres, Esq., and Patricia A. Castaing Lespier, Esq., sent letters to the legal

counsel for Jaap recognizing the totality of the agency’s debt.

Then, Jaap filed a Complaint for collection of monies against the

Department of State. After several procedural incidents, the Court of First Instance,

in relation to the claim regarding the third floor, ruled that there was no controversy

as to the fact that the parties had executed a Lease Agreement on July 18, 2007, to

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pay Jaap the amount of one hundred sixteen thousand four hundred fifty-nine

dollars and eleven cents ($116,459.11) and thus settle the existing debt for the rent

from July 1, 2005, to June 30, 2006. Furthermore, by virtue of the same Contract

No. 2008-000009, it found that the lease of the third floor was extended for the

effective period of the contract, until July 30, 2007. It also ruled that the Department

of State had continued to occupy the third (3rd) floor until February 2008 with

Jaap’s acquiescence, so the principle of tacit renewal applied. In conclusion, the

Court of First Instance granted the Complaint and ordered the payment of the

totality of the claim.

Dissatisfied, the Department of State appealed to the Court of Appeals. It

alleged that the debt was not supported by a duly perfected contract pursuant to the

rules applicable to government contracts. It also argued that the principle of tacit

renewal could not be applied to this case because it was against public interest and

the good management of state funds.

After the controversy was submitted, the Court of Appeals ruled that the

payment of rent accrued retroactively for the period between July 1, 2005, and June

30, 2006, was justified. It reasoned that Contract No. 2008-000009 was reduced to

writing and met with the other requirements established for government contracts.

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Regarding the retroactivity of the contract, the intermediate appellate court deemed

that the only legal provision preventing retroactive government contracts is Public

Law No. 237-2004, which did not apply to the case in question because it only

regulated contracts for professional or consulting services, not lease agreements.7

On the other hand, in relation to the period between July 1, 2006, and July

30, 2007, the court a quo ruled that Contract No. 2008-000009 lacked an essential

element of lease agreements: a fixed price. That is, the Court of Appeals construed

that the aforementioned contract did not establish a stipulated rent for the period

between July 1, 2006, and July 30, 2007. It also ruled that any efforts to establish a

price or rent would, at best, lead to speculation.

In relation to the occupation of the third floor during the period from August

1, 2007, to February 29, 2008, the Court of Appeals reversed the ruling of the Court

of First Instance. The intermediate appellate court concluded that the principle of

tacit renewal did not apply because it would amount to executing a new contract

7

 The Department of State did not present arguments before this Court about the applicability of

Public Law No. 237-2004. We therefore refuse to construe the aforementioned statute at this time.

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without complying with the rigorous requirements and formalities [of contracts],

such as written, express—not tacit—consent and registering the contract with the

Office of the Comptroller. According to the intermediate appellate court, allowing

the operation of the principle of tacit renewal would create an exception to the rules

of government contracts that would allow the expenditure of public funds without

requiring compliance with the rules of government contracts that protect the state’s

fiscal resources from squandering, malfeasance, favoritism, and risks of

nonperformance.

In short, the court a quo partially upheld the trial court’s decision in relation

to the rent corresponding to the period between July 2005 and June 30, 2006. On

the contrary, it reversed the trial court’s decision in relation to the execution and

corresponding expenditure of public funds to pay rent for the period between July

1, 2006, and July 30, 2007, because the contract lacked a fixed price. It also reversed

the trial court’s decision about the use of public funds to pay rent from July 1, 2006,

to February 2008 by virtue of tacit renewal.

Dissatisfied with the ruling of the Court of Appeals, the Department of State

filed the petition for writ of certiorari that we are addressing herein. In the petition,

it poses the following error:

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The Court of First Instance erred in ordering the payment of an

alleged debt that is not supported by a duly perfected contract

pursuant to the rules applicable to government contracts.

Having examined the petition for writ of certiorari, on December 9, 2011,

we agreed not to issue the writ of certiorari in caption. Nonetheless, on February 3,

2012, we issued the writ on reconsideration. With the benefit of the appearance of

both parties, we hereby rule on the certiorari in caption.

II

All expenditures of funds in our country are subject to the following

constitutional mandate:

Public property and funds shall only be disposed of for public

purposes and for the support and operation of state institutions, and,

in any case, pursuant to the law. Art. VI, Sec. 9, Const. P.R., LPRA,

Vol. 1.

We have been consistent in reiterating that this constitutional provision forces the

state to manage public funds in keeping with the highest ethical and fiduciary

standards. See, for example, Lugo v. Municipio de Guayama, 163 DPR 208 (2004);

Hatton v. Mun. de Ponce, 134 DPR 1001 (1994); Mar-Mol Co., Inc. v. Adm.

Servicios Gens., 126 DPR 864 (1990).

With the purpose of complying with this constitutional mandate, the

Legislature has passed legislation designed to impose fiscal controls and controls

on government contracts so that the structures of the government will comply with

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this constitutional mandate of sound administration of public funds. Thus, for

example, Public Law No. 230 of July 23, 1974, as amended, known as the

Government of Puerto Rico Accounting Act, 3 LPRA §283, establishes the state’s

public policy in relation to the control and accounting of public funds and property.

In general, the public policy set forth in this legislation consists in establishing that

government accounting shall:

provide the necessary financial information for the administration of

government operations and the preparation and execution of the

budget, and constitute an effective control over the revenues,

expenditures, funds, properties, and other assets of the government.

Art. 2(b) of Public Law No. 230, supra, 3 LPRA §283a(b).

Likewise, in RDT Const. Corp. v. Contralor I, 141 DPR 424, 451 (1996),

we pointed out that the public policy of Public Law No. 230, supra, requires:

that public expenses and funds be legitimate and lawful and promote

the maximum savings and best use of public resources and that

government expenses be incurred within a framework of usefulness,

need, and austerity. (Emphasis in the original)

Furthermore, this legislation has the purpose of creating a “prior control of all

government operations” so that each government entity can plan its budget and

government programs. Art. 2(e) of Public Law No. 230, supra, 3 LPRA §283a(e).

Art. 9(a) of the statute provides the following:

Entities shall order obligations and expenditures from their public

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funds only to obligate or pay for services, provisions of supplies and

equipment, claims, or other items authorized by law. The Secretary

shall record the obligations and make or record the expenditures

according to the documents submitted by the entities, which shall be

previously approved for obligation or payment by the head of the

corresponding entity or by the official or employee that he or she

may designate as an authorized representative. 3 LPRA §283h(a).

(Emphasis added)

Likewise, Art. 8(a) of Public Law No. 230, supra, establishes the following

in pertinent part:

All appropriations and funds authorized for the expenditures of a

fiscal year shall be applied exclusively to the payment of expenses

lawfully incurred during the corresponding year or to the payment

of obligations legally incurred and duly recorded in the books... 3

LPRA §283g(a). (Emphasis added)

The concept of “obligation” is defined in Art. 3(k) of Public Law No. 230,

supra, as “a commitment that has been made and is represented by a purchase order,

contract, or similar document; is pending payment; has been signed by the

competent authority to encumber the appropriations; and may be converted into a

demandable debt in the future.” 3 LPRA §283b(k). The legal provisions cited above

show that the power of the state to expend public funds is limited by the procedures

and rules established in the law. Furthermore, as we will see below, it is also subject

to the rules of sound public administration outlined in our case law. See, for

example, Mun. Quebradillas v. Corp. Salud Lares, 180 DPR 1003 (2011); Colón

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Colón v. Mun. de Arecibo, 170 DPR 718 (2007); De Jesús González v. A.C., 148

DPR 255 (1999).

Since Ocasio v. Municipio de Maunabo, 121 DPR 37 (1988), we have

construed that the principle of sound administrative public policy requires that

government contracts meet the following requirements: 1) [they must] be reduced

to writing; 2) a faithful record [must be] maintained in order to establish their

existence prima facie; 3) a copy [must be] sent to the Office of the Comptroller as

dual evidence of the execution, terms, and existence thereof; and 4) the certainty of

the timeframe [must be] evidenced, that is, [it must] have been prepared and

executed fifteen (15) days prior. Id., p. 54. At the time, we applied those rules of

contracts to municipal contracts with private entities. Nonetheless, there is no

question that we have not only applied said rules using legislation and regulations

applicable to municipalities, but have also extended them to government contracts

involving the state. See, CMI Hospital v. Dpto. Salud, 171 DPR 313 (2007).

Thus, straying from the general rule of contracts, we have established that

all contracts between a private entity and the state must be in writing in order to be

binding on the parties. Colón Colón v. Mun. de Arecibo, supra, pp. 725-726. This

is an essential requirement because:

it has an unavoidable dimension of sound public administration

insofar as it allows us to protect the interests of the contracting

parties in the event of nonperformance, it allows for the orderly use

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of municipal funds, it prevents uncertainty in the preparation of the

municipal budget, and it makes it possible to appropriately identify

the item against which the public expenditures will be made in

compliance with the law. Colón Colón v. Mun. de Arecibo, supra,

p. 730.

Likewise, written contracts “constitute a protective mechanism to prevent

fraudulent and unlawful payments and claims.” Id.

However, in Mun. Quebradillas v. Corp. Salud Lares, supra, we examined

whether an action for collection of monies filed by a municipality against a

corporation, when no contract yet existed between the parties, was in order. In that

case, we concluded that, even though no written contract existed, a municipality

has the right to recoup public money that it expended incorrectly by means of a

void contract. Id., pp. 1015-1016. We based our ruling on the fact that “we would

be leaving public funds in private hands that are not entitled to them.” Id. We thus

clarified that our reasoning in cases of government contracts is not merely based on

favoring municipalities or the state; instead, we evaluate each case in the light of

sound administration and the protection of public funds.8

8

 To such effect, we ruled that:

Failing to make a distinction when it is a public entity that is making the claim

would allow an unscrupulous official to favor certain contractors, paying them for

services in advance, but without a written contract, so that, when the legal

proceedings for collection of monies are filed, a defense could be raised that the

contract does not meet the formal requirements established by law and the

contractor does not have to return what he or she was unlawfully paid. Mun.

Quebradillas v. Corp. Salud, 180 DPR 1003, 1016 (2011).

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The last time we pronounced an opinion regarding government contracts

was in ALCO Corp. v. Mun. de Toa Alta, supra. The controversy in that case arose

when ALCO bid for and was awarded a public works contract to pave an area in

the Municipality of Toa Alta. Even without obtaining a written contract, ALCO

began performing the work, that is, began paving. It was not until after it completed

the paving work that the parties executed the written contract. There was no

question that the Municipality had sent a copy to the Office of the Comptroller and

that it was recorded in the municipal books. After several collection attempts with

the Municipality, ALCO filed a Complaint for collection of monies with the Court

of First Instance, which dismissed the Complaint summarily because it believed

that the rigorousness of the requirements for municipal contracts prevented ALCO

from being paid for work performed prior to the execution of the written contract.

The Court of Appeals upheld the trial court’s decision and stated that “[ruling]

otherwise would upset the system of controls for the expenditure of public funds...

as it would allow validating agreements reached between contractors and

municipalities without complying with the process established by our legal

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system.” ALCO Corp. v. Mun. de Toa Alta, supra, p. 553.

We took advantage of that case to categorically reject the validation of

retroactive municipal contracts. In that sense, we concluded that a written contract

needed to be executed before the work was performed. “Otherwise, we would be

ignoring the public interest of regulating the inspections of the public works and

restricting the subcontracting parameters, among other preventive measures...”

(Emphasis in the original) ALCO Corp. v. Mun. de Toa Alta, supra, p. 551. We

specifically established that validating a retroactive contract could encourage a

contractor to perform the work before the execution of the written contract as a

means to pressure [the municipality] to execute the contract in the future. Id., p.

543. We also reasoned that validating retroactive contracts could encourage a

contractor to perform the work and wait until the municipal administration changed

to validate the act. Therefore, endorsing that theory:

would reward a person who conspires with a corrupt municipal

official not to follow the rules of sound public administration,

knowing that, as soon as the work is done, he or she would have the

right to claim compensation regardless of the fact that he or she did

not comply with the law when entering into the contract. Id., p. 544.

Furthermore, when construing Art. 8.004 of Public Law No. 81 of August 30, 1991,

as amended, known as the Commonwealth of Puerto Rico Autonomous

Municipalities Act of 1991, 21 LPRA §4354, we ruled that said action “obligated

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the funds of one fiscal year to pay for an obligation that was unlawfully incurred

in a previous fiscal year.” Id., p. 543. (Emphasis added)

Finally, we concluded that performing work before having a written

contract violates the principles of government contracts that promote sound public

administration and the control of expenditures of public funds.

Pursuant to the foregoing, we will now apply the grounds that we have set

forth to the case herein to determine whether it is in order to collect the rent for the

third floor of the leased property by virtue of a Lease Agreement that was executed

after the use and enjoyment of the property in question.

III

As we had suggested, today, instead of evaluating the validity of a public

works contract that was executed retroactively by a municipality and a private

entity as we did in ALCO Corp. v. Mun. de Toa Alta, supra, we must examine the

validity of a lease agreement agreed to retroactively by the state and a private entity.

The Department of State alleges that retroactive contracts are contrary to

the rules of government contracts because they favor verbal agreements, which are

against the law and our rulings. It therefore believes that the claim in this case is

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not enforceable because it is based on a retroactive contract executed on July 18,

2007, to cover rent payments corresponding to the period from July 1, 2005, to June

30, 2006.

On the other hand, Jaap argues that the third (3rd) floor of the building in

question was originally leased by means of Contract No. 2001-000043, which was

in effect from January 16, 2000, to June 30, 2000. Respondent furthermore alleges

that the lease in question was covered by the original contract, as clause three (3)

specifies that, if neither of the parties gave notice to the other of its intent to amend

or rescind the contract, it would be automatically renewed for five (5) years or for

ten (10) if the property was located in the United States. The position of the

corporation is that the Department of State occupied the third (3rd) floor during a

period of time that was covered by the automatic renewal clause established in

Contract No. 2001-000043 and that this contract could have been extended for ten

(10) years, until January 15, 2010. Finally, it alleged that Contract No. 2008-000009

had the limited effect of formalizing the automatic renewal agreed to in the first

contract. We disagree.

After examining the entire record, we cannot conclude that there was an

automatic renewal of Lease No. 2001-000043. We found no evidence or legal

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grounds in the record supporting Jaap’s position. Our conclusion becomes evident

upon examining Contract No. 2008-000009, which establishes the following:

FOURTH: The DEPARTMENT and JAAP Corporation

executed a lease agreement for the third floor of the old Marshall

building in Old San Juan (automatically renewable for five

consecutive years) on January 16, 2000, and the term of the

contractual agreement ended on January 15, 2005 (emphasis

added). Contract No. 2008-000009, p. 3.

FIFTH: After the expiration of the contract between the parties,

JAAP Corporation consented and agreed to allow the

DEPARTMENT to continue occupying the third floor of the

abovementioned building so that the services provided by the

examining boards to the citizens would not be interrupted and

affected, even though there was no written contractual agreement

(emphasis added). Id.

The foregoing shows, first, that the parties agreed and construed that the

original contract was in effect until January 15, 2005, and was not extended for

ten (10) years as Jaap argues. That is, the Department of State occupied the third

floor from July 1, 2005, to February 29, 2008, without a written contract. Secondly,

these clauses reveal that Jaap expressly consented to allow the Department of

State to continue occupying the third floor, without a written contract. In

conclusion, Jaap’s allegation to the effect that Contract No. 2001-000049 was

automatically renewed is not warranted. Said convenient construction has no

grounds and is contrary to the clear statements made by both parties in Contract

No. 2008-000009. Nonetheless, we must still determine whether the subsequent

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contract had the effect of creating a valid obligation for the retroactive payment of

rent.

The rent payment that Jaap intends to obtain by virtue of Contract No. 2008-

000009 has the purpose of collecting a sum amounting to one hundred sixteen

thousand four hundred fifty-nine dollars and eleven cents ($116,459.11) to thus pay

Jaap for the retroactive use and enjoyment of the third (3rd) floor. In other words,

what Contract No. 2008-000009 intends to recognize is a payment obligation that

was created without having a written and perfected contract in accordance

with the formalities that apply to government contracts. However, as we

mentioned before, in ALCO Corp. v. Mun. de Toa Alta, supra, p. 551, we made it

clear that a private entity needs to make sure that it obtains a written contract before

performing work or providing benefits and consideration, such as allowing the use

and enjoyment of the third floor of the building owned by Jaap in this case.

A retroactive contract like the one in question presupposes one of two (2)

situations: 1) that there was a verbal contract between the state and the private entity

and the latter was performing the contract or providing benefits without having a

written agreement; or 2) that there was simply no kind of contract while the private

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entity provides benefits to the state in the hope that a contract will be executed in

its favor someday and it will be paid for its goods or services. Either of the two (2)

previous situations promotes not executing written contracts while trying to create

obligations to encumber appropriations of public funds. There is no question that

this is contrary to the rule of government contracts that requires that contracts

between the government and a private entity be governed only by written contracts.

ALCO Corp. v. Municipio de Toa Alta, supra; Colón v. Mun. de Arecibo, supra.

We must remember that we would otherwise be rewarding a person who conspires

with a corrupt official “not to follow the rules of sound public administration,

knowing that... he or she would have the right to claim compensation regardless of

the fact that he or she did not comply with the law when entering into the contract.”

ALCO Corp. v. Mun. de Toa Alta, supra, p. 544.

In this case, Jaap allowed the Department of State to enjoy and use the third

floor of the building. This leads us to conclude that Jaap provided benefits

characteristic of a lease agreement—providing the “enjoyment or use of a thing for

a specified period of time...”9—in the hope that, even without a written contract,

the Department of State would execute a written contract in the future by virtue of

which it could encumber public funds for the payment of rent.

9

 Art. 1433 of the Puerto Rico Civil Code, 31 LPRA 4012.

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Today, we rule that retroactive contracts regarding the lease of property are

against the rules of not only municipal contracts, but also government contracts in

general. Retroactive government contracts certainly render any control prior to the

creation of a government obligation inoperative, which is contrary to the public

policy established in Art. 2(e) of Public Law No. 230, supra, 3 LPRA§283a(e).

This practice also prevents third parties, such as the Office of the Comptroller, from

complying with the public policy of Public Law No. 230, supra, and the citizens

from being able to obtain the written contract to pass judgment on the same, as the

contract is written and published after the performance and fulfillment of the

obligations established therein. ALCO Corp. v. Mun. de Toa Alta, supra.

When we apply the aforementioned rules, we deduce that Respondent’s

claim is not enforceable. We cannot reach a different conclusion, as the claim in

controversy is supported on a contract executed on July 18, 2007, to cover the rent

corresponding to the period from June 1, 2005, to June 30, 2006. This action

obligated the funds of one fiscal year for the payment of an obligation that was

unlawfully incurred in a previous fiscal year, in violation of Art. 8(a) of Public

Law No. 230, supra, 3 LPRA §283g(a). See ALCO Corp. v. Mun. de Toa Alta,

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supra, p. 543. This contract is ineffective.10 The state cannot expend public funds

in violation of the law and the case law construing the strict requirements that apply

to government contracts. Consequently, it is not appropriate to order the

Department of State to comply with Contract No. 2008-000009.11

IV

On the grounds set forth above, we partially reverse the appealed ruling

pronounced by the Court of Appeals in relation to the payment of rent to Jaap in

the amount of one hundred sixteen thousand four hundred fifty-nine dollars and

10 Moreover, the application of the principle of tacit renewal presupposes the existence of a valid

contract. Art. 1456 of the Civil Code, 31 LPRA 4063. By ruling that Contract No. 2008-000009 is

ineffective, we do not need to express an opinion as to the application of the doctrine of tacit renewal

to government contracts.

11 Alternatively, Respondent argues that, if a rule other than that alleged in its pleading is enforced,

we must not apply it to the case in caption because, when executing Contract No. 2008-000009,

Jaap relied on the rule of law established by Executive Order No. 2006-23 dated June 22, 2006. That

Executive Order essentially established that public agencies and instrumentalities could execute

formal contracts with a retroactive effective date. Without going into the validity of the Executive

Order, the truth is that retroactive contracts have been subject to forceful remarks from the Office

of the Comptroller and the Department of Justice. See Office of the Comptroller, Circular Letter

OC-98-01 dated July 8, 1997; Opinion of the Secretary of Justice No. No. [sic] 2001-14 dated July

2, 2001. It was not until the Executive Order was issued that the use of retroactive formal contracts

was first encouraged.

Jaap’s request does not change our reasoning. Examining the chronology of the facts is

sufficient to know that Jaap allowed the Department of State to enjoy the third floor of the building

in question while Executive Order No. 2006-23, supra, did even not exist.

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eleven cents ($116,459.11).

A Judgment shall be pronounced accordingly.

Mildred G. Pabón Charneco

Associate Justice

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IN THE PUERTO RICO SUPREME COURT

Jaap Corporation Certiorari

Respondent

v.

CC-2011-719

Department of State, et al.

Petitioners

JUDGMENT

In San Juan, Puerto Rico, on February 1, 2013.

On the grounds set forth above, we partially reverse the appealed ruling

pronounced by the Court of Appeals in relation to the payment of rent to Jaap in

the amount of one hundred sixteen thousand four hundred fifty-nine dollars and

eleven cents ($116,459.11).

Agreed and ordered by the Court and certified by the Clerk of the Supreme

Court. Associate Justice Fiol Matta and Associate Justice Rodríguez Rodríguez did

not intervene. Chief Justice Hernández Denton did not intervene.

Aida Ileana Oquendo Graulau

Clerk of the Supreme Court

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