The Supreme Court’s decision clarifies the liability of government officials in cases of disallowed expenses due to improperly executed contracts for legal services. The Court ruled that while procedural lapses in securing required concurrences can lead to disallowances, only those directly involved in hiring the external counsel bear personal liability. This decision offers significant relief to government employees who, while performing their duties in good faith, may have processed payments under contracts later deemed deficient in procedure, ensuring that accountability aligns with direct responsibility and involvement in the contract’s formation.

When Procedure Dictates Payment: PhilRice’s Contractual Oversight

The Philippine Rice Institute (PhilRice) found itself at the center of a legal quandary when the Commission on Audit (COA) disallowed certain payments made to a retained private lawyer, Atty. Teodoro G. Mendoza. This case, Mary Grace D. Corpuz, et al. v. Commission on Audit, revolves around whether PhilRice properly followed the procedure for hiring a private legal retainer and whether certain PhilRice employees should be held personally liable for the disallowed amounts. The ensuing legal battle scrutinized not just the procedural technicalities of government contracts but also the extent to which individual government employees should be held accountable for lapses in those procedures. The Supreme Court’s analysis provides a critical framework for understanding the responsibilities and potential liabilities of government personnel involved in contracting processes.

The root of the problem stemmed from PhilRice’s engagement of Atty. Mendoza without securing the necessary concurrences from the Office of the Government Corporate Counsel (OGCC) and the COA before executing the contract. Section 14 of PhilRice’s Charter designates the OGCC as its legal counsel, a provision that necessitates adherence to specific procedures when seeking external legal assistance. COA Circular No. 95-11 further stipulates that government agencies must obtain written consent from both the OGCC and COA before hiring private lawyers, ensuring that public funds are judiciously spent.

Specifically, COA Circular No. 95-11 states:

x x x x where a government agency is provided by law with a legal officer or office who or which can handle its legal requirements or cases in courts, it (agency) may not be allowed to hire the services of private lawyers for a fee, chargeable against public funds, unless exceptional or extraordinary circumstances obtain as exemplified in the above-cited case of Municipality of Pililla, Rizal vs. Court of Appeals, et. al.

Accordingly and pursuant to this Commission’s exclusive authority to promulgate accounting and auditing rules and regulations, including for the prevention and disallowance of irregular, unnecessary, excessive, extravagant and/or unconscionable expenditure or uses of public funds and property (Sec. 2-2, Art. IX-D, Constitution), public funds shall not be utilized for payment of the services of a private legal counsel or law firm to represent government agencies 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, 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.

Although PhilRice eventually obtained these concurrences, the initial procedural lapse triggered a series of disallowances by the COA. The COA’s subsequent Legal Retainer Review No. 2009-116 not only approved the contract but also directed a reduction in the monthly retainer fee and appearance fee, and disallowed incentives, further complicating matters. These disallowances led to Notices of Disallowance (NDs) that implicated several PhilRice employees, including the petitioners in this case, holding them liable for the amounts paid to Atty. Mendoza.

The Supreme Court, in its analysis, underscored the importance of adhering to established procedures in government contracting. The Court noted that securing both OGCC and COA concurrence is a condition precedent to validly engaging external counsel. Because PhilRice failed to secure these concurrences before executing the contract, the responsible officers acted at their own peril. This emphasis on procedural compliance is designed to prevent the unauthorized and unnecessary disbursement of public funds, aligning with the COA’s constitutional mandate.

Building on this principle, the Court addressed the argument that the COA’s delay in providing concurrence should be deemed an approval. The Court clarified that at the time the contract was executed, the Anti-Red Tape Act of 2007 (R.A. No. 9485) did not contain a “deemed approved” provision, thus negating this argument. This strict interpretation reinforces the necessity of explicit approvals rather than implied consents in government transactions.

A critical aspect of the case involved the liability of the PhilRice employees named in the Notices of Disallowance. The Court referenced the case of The Law Firm of Laguesma Magsalin Consulta and Gastardo v. Commission on Audit, which established that the violation of laws and rules on engaging external counsel results in the personal liability of the officer who hired such counsel. Applying this precedent, the Court distinguished between those who authorized the contract (Atty. Beronio, the Executive Director) and those who merely processed payments or certified documents (Corpuz, Borja, Javier, Tado, and Reyes). The Court absolved the latter group from liability, emphasizing that they were not vested with the authority to enter or execute the contract. However, it noted that the Executive Director could not have acted without the approval of the Board of Trustees and suggested further proceedings against board members. Thus the decision highlights the importance of understanding the scope of one’s authority within a government organization.

In summary, the Supreme Court’s decision clarified that certain PhilRice employees were absolved of liability under Notice of Disallowance No. 14-001-101-(09), while others, particularly those directly involved in the unauthorized execution of the contract, remained liable. The Court noted that individuals such as Conyfel D. Jiao, Eulito U. Bautista, and Ruben B. Miranda, who were similarly situated to the petitioners (i.e., without involvement in the hiring of Atty. Mendoza as legal retainer), are likewise absolved from liability under Notice of Disallowance No. 14-001-101-(09). Regarding Atty. Mendoza, the retained lawyer, the Court acknowledged his right to fair compensation but limited it to amounts deemed reasonable by the COA.

Ultimately, the Supreme Court’s ruling in Corpuz v. COA serves as a reminder of the critical importance of adhering to established procedures in government contracting. It also provides a nuanced framework for determining individual liability in cases of disallowed expenses, protecting those who act in good faith while holding accountable those who violate established rules. This approach contrasts with a strict, blanket approach and underscores the need for fair and just application of auditing rules.

FAQs

What was the key issue in this case?	The key issue was whether certain employees of PhilRice should be held personally liable for disallowed amounts paid to a private legal retainer due to procedural lapses in securing the necessary concurrences for the contract.
What is COA Circular No. 95-11?	COA Circular No. 95-11 outlines the requirements for government agencies to hire private lawyers, mandating written consent from both the OGCC and COA before engaging external counsel. It aims to prevent the unauthorized and unnecessary disbursement of public funds.
What does it mean to secure the concurrence of the OGCC and COA?	Securing the concurrence of the OGCC and COA means obtaining their written approval before entering into a contract for legal services with a private lawyer. This ensures that the engagement is justified and compliant with auditing rules.
Who bears personal liability for unlawful expenditures in government?	According to Section 103 of the Government Auditing Code of the Philippines, the official or employee directly responsible for expenditures of government funds or uses of government property in violation of law or regulations bears personal liability.
Were all PhilRice employees named in the Notices of Disallowance held liable?	No, the Supreme Court absolved those employees who were not directly involved in hiring the private legal retainer but merely processed payments or certified documents. Only those with direct authorization in the contract’s execution were held liable.
What was the basis for absolving some of the PhilRice employees from liability?	The Court reasoned that the employees who merely processed payments or certified documents lacked the authority to enter or execute the contract. They were not directly responsible for the procedural lapses that led to the disallowance.
What does the ruling mean for government employees who process payments?	The ruling provides some protection for government employees who process payments in good faith, as they will not be held liable for procedural lapses in contracts they did not authorize. This underscores the need for clear lines of authority and responsibility.
Can a government agency claim that COA’s delay implies approval of a contract?	No, the Court clarified that at the time the contract was executed, the Anti-Red Tape Act did not contain a “deemed approved” provision. Explicit written approval from COA is required.

This case clarifies the importance of adhering to established procedures in government contracting and provides a nuanced framework for determining individual liability in cases of disallowed expenses. By protecting those who act in good faith while holding accountable those who violate established rules, the Supreme Court promotes both accountability and fairness in government transactions.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Mary Grace D. Corpuz, et al. vs. Commission on Audit, G.R. No. 253777, November 23, 2021