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LAW FIRM OF LAGUESMA MAGSALIN CONSULTA v. COA

FACTS:

The case involves a petition for certiorari against the Commission on Audit (COA) regarding the disallowance of the payment of retainer fees to a law firm for legal services rendered to the Clark Development Corporation (CDC). Initially, the CDC sought approval from the Office of the Government Corporate Counsel (OGCC) for the engagement of the law firm as external counsel. The request was denied but later reconsidered and approved. The law firm began rendering its services to CDC even before securing the necessary authorizations. The retention of the law firm was eventually approved by CDC's Board of Directors, and the request for concurrence of the retainership contract was submitted to the COA. However, the COA denied the request, stating that CDC failed to secure prior written concurrence from the COA and final approval from the OGCC. The COA upheld its decision, ruling that CDC violated circulars on engagement of legal services without proper authorization.

CDC and the law firm separately filed motions for reconsideration, which were denied by the COA. The COA also disallowed the payment of legal fees to the law firm on the ground of quantum meruit and held that it should be the personal liability of the officials of CDC. The law firm then filed a petition for certiorari to challenge the COA's decision. The main issue was whether the COA erred in disallowing the payment of legal fees to the law firm. Procedural and substantive issues regarding the timeliness of the petition, the real party-in-interest, and the validity of the engagement of the law firm were also raised. The petition was subsequently denied by the court.

The petitioner received the COA's decision and filed a motion for reconsideration, which was denied. The petitioner argues that it is a real party-in-interest as defined in the rules of civil procedure. However, respondents argue that CDC is the real party-in-interest as the subject of the decision and resolution was the corporation's request for clearance to pay the petitioner its legal fees.

CDC, a government-owned corporation, entered into a retainership contract with the petitioner, a lawyer, for the provision of legal services. CDC requested clearance from the OGCC to continue availing the services of the petitioner, but the request was denied. The OGCC held that the retainership contract is void for being contrary to law and public policy.

CDC and the petitioner argue that the retainership contract should not be invalidated, as the petitioner's services are necessary for the corporation's legal needs. Respondents argue that the contract is void for non-compliance with procurement laws and regulations and violates the constitutional prohibition on a lawyer holding multiple positions in government.

ISSUES:

  1. Whether petitioner is a real party-in-interest

  2. Whether Clark Development Corporation's Board of Directors should have been impleaded as a necessary party

  3. Whether the Commission on Audit committed grave abuse of discretion in denying the corporation's request for clearance to engage the services of petitioner as private counsel

  4. Whether Clark Development Corporation violated the rules and regulations on the engagement of private legal counsel for government-owned and controlled corporations.

  5. Whether the services of the petitioner were necessary or justified under exceptional circumstances.

  6. Whether the retainership contract between Clark Development Corporation (CDC) and the petitioner, a private legal counsel, was authorized.

  7. Whether the concurrence of the respondents was necessary prior to hiring the petitioner's services.

  8. Whether the hiring of private counsel by Clark Development Corporation without the necessary prior approvals is unauthorized.

  9. Whether the disallowance of payment to petitioner on the basis of quantum meruit was proper.

  10. Whether the fee of the lawyer who rendered legal service to the government in lieu of the Office of the Solicitor General (OSG) or Office of the Government Corporate Counsel (OGCC) is the personal liability of the government official who hired the services without the prior written conformity of the OSG or OGCC.

RULING:

  1. Petitioner is a real party-in-interest. The issue at hand relates to the disallowed disbursement of public funds for the payment of legal fees to petitioner. Petitioner stands to either be benefited or injured by the suit, or entitled to its avails. Thus, petitioner is a real party-in-interest.

  2. Clark Development Corporation's Board of Directors should have been impleaded as a necessary party. The actions of the Board of Directors precipitated the issues in this case, and any relief in this case would be incomplete without joining them as parties.

  3. The Commission on Audit did not commit grave abuse of discretion in denying the corporation's request for clearance to engage the services of petitioner as private counsel. The Office of the Government Corporate Counsel is mandated to provide legal services to government-owned and controlled corporations. Government-owned and controlled corporations are generally not allowed to engage private counsels, but there are exceptions provided by law. In this case, the Commission on Audit properly denied the corporation's request for clearance as it did not comply with the necessary requirements.

  4. Clark Development Corporation violated the rules and regulations on the engagement of private legal counsel for government-owned and controlled corporations. The Commission on Audit Circular No. 86-255 and Office of the President Memorandum Circular No. 9 require that the written conformity and acquiescence of the Government Corporate Counsel 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. In this case, Clark Development Corporation failed to secure the final approval of the Government Corporate Counsel and the written concurrence of the Commission on Audit before engaging the services of the petitioner.

  5. The services of the petitioner were not necessary or justified under exceptional circumstances. The labor cases handled by the petitioner were not of a complicated or peculiar nature that could justify the hiring of a known expert in the field. These appeared to be standard labor cases that Clark Development Corporation's lawyers or the Office of the Government Corporate Counsel could have handled.

  6. The retainership contract between CDC and the petitioner could not be considered as authorized because CDC failed to secure the final conformity and acquiescence of the Office of the Government Corporate Counsel (OGCC).

  7. The concurrence of the respondents was necessary prior to hiring petitioner's services, but CDC only sought their concurrence three years after engaging petitioner.

  8. The hiring of private counsel by Clark Development Corporation without the necessary prior approvals is unauthorized. The government-owned and controlled corporation must not only secure the conformity and acquiescence of the Office of the Government Corporate Counsel but also the written concurrence of the Commission on Audit. The failure to secure the written conformity of the Commission on Audit means that the hiring of private counsel becomes unauthorized. Therefore, the actions of the Board of Directors, acting on behalf of Clark Development Corporation, were unauthorized.

  9. The disallowance of payment to petitioner on the basis of quantum meruit was proper. The contract between petitioner and Clark Development Corporation was executed in violation of COA Circular No. 86-255 and OP Memorandum Circular No. 9. The payment on the basis of quantum meruit was allowed by Government Corporate Counsel Devanadera; however, the Commission on Audit disallowed it and ruled that the retainership contract between them should be deemed a private contract for which the officials of Clark Development Corporation should be liable. The disallowance was made on the grounds that the hiring of petitioner's services was unauthorized and violated the provisions of the circulars. The Commission on Audit's ruling that the payment should be the personal liability of the officials is consistent with Section 103 of the Government Auditing Code of the Philippines.

  10. The Supreme Court dismissed the petition without prejudice to the petitioner filing another action against the proper parties. The Court did not rule on the issue of whether the fee of the lawyer is the personal liability of the government official.

PRINCIPLES:

  • A real party-in-interest is one who stands to be benefited or injured by the judgment in the suit, or the party entitled to the avails of the suit.

  • A necessary party is one who is not indispensable but ought to be joined if complete relief is to be accorded to those already parties or for a complete determination or settlement of the claim.

  • The Office of the Government Corporate Counsel is the principal law office of all government-owned or controlled corporations and provides legal services to them. Government-owned and controlled corporations are generally not allowed to engage private counsels, with exceptions provided by law.

  • 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 unless justified under exceptional circumstances and with the written conformity of the Solicitor General or Government Corporate Counsel and the written concurrence of the Commission on Audit.

  • Government-owned and controlled corporations must refer all their legal matters to the Office of the Government Corporate Counsel, and engaging the services of private counsels is only allowed in exceptional cases.

  • The engagement of private legal counsel by a government-owned and controlled corporation (GOCC) must comply with certain conditions, including securing the written conformity and acquiescence of the appropriate government legal office, such as the OGCC or the Office of the Solicitor General (OSG) (Polloso v. Gangan and PHIVIDEC Industrial Authority v. Capitol Steel Corporation).

  • Exceptional cases may warrant the hiring of private legal counsel by a GOCC, but the necessary authorizations and concurrence must still be obtained (PHIVIDEC Industrial Authority v. Capitol Steel Corporation).

  • Hiring of private counsel by government-owned and controlled corporations without the necessary prior approvals is unauthorized.

  • Quantum meruit is used as a basis for determining attorney's fees in the absence of an express agreement and is a device that prevents unjust enrichment and ensures payment for legal services.

  • Officials who violate circulars and unlawfully expend government funds or use government property may be held personally liable for the liabilities owing to private practitioners.

  • The fee of the lawyer who rendered legal service to the government in lieu of the OSG or the OGCC is the personal liability of the government official who hired his services without the prior written conformity of the OSG or OGCC, as the case may be.