Agreements vs. Contracts in Puerto Rico
Many a time have I seen contracts titled “agreements”, but are they different under PR law? Both terms are used indistinctly here, and give the fact that Puerto Rico is a hub of international commerce because of our unique cultural, language and political duality, private documents between two parties are named “agreements” frequently. Obligations drafted in English are titled “Agreements”, and every day, thousands of these are used to provide goods and services throughout the Commonwealth.
Agreements are contracts under Puerto Rico law.
There is no such distinction here. An agreement, without any “consideration”, or monetary disposition or value, is granted full contract status here. Perhaps the title reads “agreement”, but for all purposes, what negotiating parties are really agreeing to, is a full blown contract.
Obligations that are born from contracts are the law between parties (31 L.P.R.A. § 2994), and since “agreements” are not recognized separately by our Civil Code, they are granted the same enforceability as they would a contract.
But, how about verbal contracts? Is a verbal agreement also a contract?
Verbal agreements are known as verbal contracts in Puerto Rico.
The only three requirements for a valid contract here are: consent of both parties, the object of the contract, and the cause, or motivation for it.
Before I get into a very dense discussion of contracts and obligations, chock full of verbose legalese, it is very important for anyone doing business in Puerto Rico that once an offer has been accepted by the accepting party, a contract is born.
Here’s an example:
- Company A in Poughkeepsie offers to sell 1,0o0 widgets monthly for the next 5 years to Company B in Humacao for $1 per widget.
- Company B calls company A over the phone, and the Sales Rep answers the call.
- Company B’s purchasing agent orders, over the phone, the offered 1,000 widgets at the agreed price.
Voila! A contract for 1,000 widgets for $1 apiece was born! No, a fax need not be sent detailing the purchase order, nor a letter, nor a notarized document is needed. Now, Company A MUST sell the widgets to Company B for the next 5 years. PERIOD.
Widget market value, production costs, and materials may increase, but the price offered cannot be altered, not even by a court (under almost all circumstances) and that’s that.
This example may be simple, but I cannot stress enough the importance of carefully handling possible contracts under our law. Great deference is granted to contractual obligations, and the extinction to claim the right to personal obligations (such as contracts) by prescription is 15 years since they were last requested (31 L.P.R.A. sec. 5294). This means that Company B can be buying widgets for a very long time.
