The Law Firm of Laguesma Magsalin Consulta and Gastardo v. COA, January 13, 2015, G.R. No. 185544 (Political Law Digest)

THE LAW FIRM OF LAGUESMA MAGSALIN CONSULTA AND GASTARDO, Petitioner, v. THE COMMISSION ON AUDIT AND/OR REYNALDO A. VILLAR AND JUANITO G. ESPINO, JR. IN THEIR CAPACITIES AS CHAIRMAN AND COMMISSIONER, RESPECTIVELY, Respondents.

When a government entity engages the legal services of private counsel, it must do so with the necessary authorization required by law; otherwise, its officials bind themselves to be personally liable for compensating private counsel’s services.

FACTS: This is a petition for certiorari filed pursuant to Rule XI, Section 1 of the 1997 Revised Rules of Procedure of the Commission on Audit.  The petition seeks to annul the decision dated September 27, 2007 and resolution dated November 5, 2008 of the Commission on Audit, which disallowed the payment of retainer fees to the law firm of Laguesma Magsalin Consulta and Gastardo for legal services rendered to Clark Development Corporation.

Sometime in 2001, officers of Clark Development Corporation, a government-owned and controlled corporation, approached the law firm of Laguesma Magsalin Consulta and Gastardo for its possible assistance in handling the corporation’s labor cases.

On May 20, 2002, the Office of the Government Corporate Counsel, through Government Corporate Counsel Amado D. Valdez (Government Corporate Counsel Valdez), reconsidered the request and approved the engagement of Laguesma Magsalin Consulta and Gastardo.  It also furnished Clark Development Corporation a copy of a pro-forma retainership contract containing the suggested terms and conditions of the retainership.  It instructed Clark Development Corporation to submit a copy of the contract to the Office of the Government Corporate Counsel after all the parties concerned have signed it.chanRoblesvirtualLawlibrary

In the meantime, Laguesma Magsalin Consulta and Gastardo commenced rendering legal services to Clark Development Corporation.  At this point, Clark Development Corporation had yet to secure the authorization and clearance from the Office of the Government Corporate Counsel or the concurrence of the Commission on Audit of the retainership contract.  According to the law firm, Clark Development Corporation’s officers assured the law firm that it was in the process of securing the approval of the Commission on Audit.

On July 13, 2005, Clark Development Corporation requested the Commission on Audit for concurrence of the retainership contract it executed with Laguesma Magsalin Consulta and Gastardo.  According to the law firm, it was only at this point when Clark Development Corporation informed them that the Commission on Audit required the clearance and approval of the Office of the Government Corporate Counsel before it could approve the release of Clark Development Corporation’s funds to settle the legal fees due to the law firm.
On August 5, 2005, State Auditor IV Elvira G. Punzalan informed Clark Development Corporation that its request for clearance could not be acted upon until the Office of the Government Corporate Counsel approves the retainership contract with finality.

On December 22, 2005, Government Corporate Counsel Agnes VST Devanadera (Government Corporate Counsel Devanadera) denied Clark Development Corporation’s request for approval on the ground that the pro-forma retainership contract given to them was not “based on the premise that the monthly retainer’s fee and concomitant charges are reasonable and could pass in audit by COA.”  She found that Clark Development Corporation adopted instead the law firm’s proposals concerning the payment of a retainer’s fee on a per case basis without informing the Office of the Government Corporate Counsel.  She, however, ruled that the law firm was entitled to payment under the principle of quantum meruit and subject to Clark Development Corporation Board’s approval and the usual government auditing rules and regulations.

On November 9, 2006, the Commission on Audit’s Office of the General Counsel, Legal and Adjudication Sector issued a “Third Indorsement” denying Clark Development Corporation’s request for clearance, citing its failure to secure a prior written concurrence of the Commission on Audit and the approval with finality of the Office of the Government Corporate Counsel. 

On September 27, 2007, the Commission on Audit rendered the assailed decision denying the appeal and motion for reconsideration.  It ruled that Clark Development Corporation violated Commission on Audit Circular No. 98-002 dated June 9, 1998 and Office of the President Memorandum Circular No. 9 dated August 27, 1998 when it engaged the legal services of Laguesma Magsalin Consulta and Gastardo without the final approval and written concurrence of the Commission on Audit.  It also ruled that it was not the government’s responsibility to pay the legal fees already incurred by Clark Development Corporation, but rather by the government officials who violated the regulations on the matter.

Clark Development Corporation and Laguesma Magsalin Consulta and Gastardo separately filed motions for reconsideration, which the Commission on Audit denied in the assailed resolution dated November 5, 2008.  The resolution also disallowed the payment of legal fees to the law firm on the basis of quantum meruit since the Commission on Audit Circular No. 86-255 mandates that the engagement of private counsel without prior approval “shall be a personal liability of the officials concerned.”

RULING:
The Commission on Audit did not commit grave abuse of discretion indenying the corporation’s request for clearance to engage the services of petitioner as private counsel

Book IV, Title III, Chapter 3, Section 10 of the Administrative Code of 1987 provides:

Section. 10. Office of the Government Corporate Counsel. - The Office of the Government Corporate Counsel (OGCC) shall act as the principal law office of all government-owned or controlled corporations, their subsidiaries, other corporate off-springs and government acquired asset corporations and shall exercise control and supervision over all legal departments or divisions maintained separately and such powers and functions as are now or may hereafter be provided by law. In the exercise of such control and supervision, the Government Corporate Counsel shall promulgate rules and regulations to effectively implement the objectives of this Office. (Emphasis supplied)

The Office of the Government Corporate Counsel is mandated by law to provide legal services to government-owned and controlled corporations such as Clark Development Corporation.

As a general rule, government-owned and controlled corporations are not allowed to engage the legal services of private counsels.  However, both respondent and the Office of the President have made issuances that had the effect of providing certain exceptions to the general rule, thus:

Administrative Order No. 130, issued by the Office of the President on 19 May 1994, delineating the functions and responsibilities of the OSG and the OGCC, clarifies that all legal matters pertaining to GOCCs, their subsidiaries, other corporate off[-]springs, and government acquired asset corporations shall be exclusively referred to and handled by the OGCC, unless their respective charters expressly name the OSG as their legal counsel. Nonetheless, the GOCC may hire the services of a private counsel in exceptional cases with the written conformity and acquiescence of the Government Corporate Counsel, and with the concurrence of the Commission on Audit (COA). (Emphasis supplied)

Commission on Audit Circular No. 86-255, dated April 2, 1986, as amended, states:

xxx, public funds shall not be utilized for payment of the services of a private legal counsel or law firm to represent government agencies and instrumentalities, including government-owned or controlled corporations and local government units in court or to render legal services for them. In the event that such legal services cannot be avoided or is justified under extraordinary or exceptional circumstances for government agencies and instrumentalities, including government-owned or controlled corporations, the written conformity and acquiescence of the Solicitor General or the Government Corporate Counsel, as the case maybe, and the written concurrence of the Commission on Audit shall first be secured before the hiring or employment of a private lawyer or law firm. (Emphasis supplied)

The Office of the President Memorandum Circular No. 9, on the other hand, states:chanroblesvirtuallawlibrary
xxxSECTION 3. GOCCs are likewise enjoined to refrain from hiring private lawyers or law firms to handle their cases and legal matters. But in exceptional cases, the written conformity and acquiescence of the Solicitor General or the Government Corporate Counsel, as the case may be, and the written concurrence of the Commission on Audit shall first be secured before the hiring or employment of a private lawyer or law firm. (Emphasis supplied)

According to these rules and regulations, the general rule is that government-owned and controlled corporations must refer all their legal matters to the Office of the Government Corporate Counsel.  It is only in “extraordinary or exceptional circumstances” or “exceptional cases” that it is allowed to engage the services of private counsels.

The labor cases petitioner handled were not of a complicated or peculiar nature that could justify the hiring of a known expert in the field.  On the contrary, these appear to be standard labor cases of illegal dismissal and collective bargaining agreement negotiations, which Clark Development Corporation’s lawyers or the Office of the Government Corporate Counsel could have handled.

In this case, Clark Development Corporation had failed to secure the final approval of the Office of the Government Corporate Counsel and the written concurrence of respondent before it engaged the services of petitioner.

When Government Corporate Counsel Valdez granted Clark Development Corporation’s request for reconsideration, the approval was merely conditional and subject to its submission of the signed pro-forma retainership contract provided for by the Office of the Government Corporate Counsel. 

In view of Clark Development Corporation’s failure to secure the final conformity and acquiescence of the Office of the Government Corporate Counsel, its retainership contract with petitioner could not have been considered as authorized.

The concurrence of respondents was also not secured by Clark Development Corporation prior to hiring petitioner’s services.  The corporation only wrote a letter-request to respondents three (3) years after it had engaged the services of petitioner as private legal counsel.

The Commission on Audit did not commit grave abuse of discretion in
disallowing the payment to petitioner on the basis of quantum meruit

In National Power Corporation v. Heirs of Macabangkit Sangkay, quantum meruit:

— literally meaning as much as he deserves — is used as basis for determining an attorney’s professional fees in the absence of an express agreement. The recovery of attorney’s fees on the basis of quantum meruit is a device that prevents an unscrupulous client from running away with the fruits of the legal services of counsel without paying for it and also avoids unjust enrichment on the part of the attorney himself. An attorney must show that he is entitled to reasonable compensation for the effort in pursuing the client’s cause, taking into account certain factors in fixing the amount of legal fees.

Here, the Board of Directors, acting on behalf of Clark Development Corporation, contracted the services of petitioner, without the necessary prior approvals required by the rules and regulations for the hiring of private counsel.  Their actions were clearly unauthorized.

It was, thus, erroneous for Government Corporate Counsel Devanadera to bind Clark Development Corporation, a government entity, to pay petitioner on a quantum meruit basis for legal services, which were neither approved nor authorized by the government.  Even granting that petitioner ought to be paid for services rendered, it should not be the government’s liability, but that of the officials who engaged the services of petitioner without the required authorization.

The amendment of Commission on Audit Circular No. 86-255 by Commission on Audit Circular No. 98-002 created a gap in the law

Commission on Audit Circular No. 86-255 dated April 2, 1986 previously stated that:chanroblesvirtuallawlibrary

[a]ccordingly, it is hereby directed that, henceforth, the payment out of public funds of retainer fees to private law practitioners who are so hired or employed without the prior written conformity and acquiescence of the Solicitor General or the Government Corporate Counsel, as the case may be, as well as the written concurrence of the Commission on Audit shall be disallowed in audit and the same shall be a personal liability of the officials concerned. (Emphasis supplied)

However, when Commission on Audit Circular No. 86-255 was amended by Commission on Audit Circular No. 98-002 on June 9, 1998, it failed to retain the liability of the officials who violated the circular.  This gap in the law paves the way for both the erring officials of the government-owned and controlled corporations to disclaim any responsibility for the liabilities owing to private practitioners.

It cannot be denied that petitioner rendered legal services to Clark Development Corporation.  It assisted the corporation in litigating numerous labor cases during the period of its engagement.  It would be an injustice for petitioner not to be compensated for services rendered even if the engagement was unauthorized.

The fulfillment of the requirements of the rules and regulations was Clark Development Corporation’s responsibility, not petitioner’s.  The Board of Directors, by its irresponsible actions, unjustly procured for themselves petitioner’s legal services without compensation.

To fill the gap created by the amendment of Commission on Audit Circular No. 86-255, respondents correctly held that the officials of Clark Development Corporation who violated the provisions of Circular No. 98-002 and Circular No. 9 should be personally liable to pay the legal fees of petitioner, as previously provided for in Circular No. 86-255.

This finds support in Section 103 of the Government Auditing Code of the Philippines, which states:

SEC. 103. General liability for unlawful expenditures. – Expenditures of government funds or uses of government property in violation of law or regulations shall be a personal liability of the official or employee found to be directly responsible therefor.

WHEREFORE, the petition is DISMISSED without prejudice to petitioner filing another action against the proper parties.