Liability in Government Contracts: Mere Initialing Not Enough

The Supreme Court recently clarified the rules on personal liability of corporate officers for disallowed government payments. In Alejandrino v. Commission on Audit (G.R. No. 245400, November 12, 2019), the Court ruled that officers who merely perform ministerial duties in approving payments—without participating in policy-making—cannot be held personally liable for amounts disallowed by the Commission on Audit (COA).

The case arose from the Philippine National Construction Corporation's (PNCC) hiring of four private lawyers in 2011. The COA disallowed the payment of their salaries totaling P911,580.96 because PNCC failed to secure the required written conformity from the Office of the Government Corporate Counsel (OGCC) and written concurrence from the COA.

The Nature of PNCC

The petitioners, former executive officers of PNCC, argued that the corporation was not a government-owned and controlled corporation (GOCC) but a private corporation. They claimed PNCC was merely a government-acquired asset corporation arising from a debt-to-equity conversion of loans from government financial institutions.

The Court rejected this argument. While PNCC was originally a private construction firm (CDCP), the government acquired majority ownership through debt-to-equity conversion under Letter of Instruction No. 1295. The Court cited Strategic Alliance v. Radstock Securities (622 Phil. 431 [2009]), which held that PNCC is "indisputably a government owned corporation" with the government owning 90.3% of its shares.

Under the Constitution and prevailing jurisprudence, the determining factor for COA's audit jurisdiction is government ownership or control, not the manner of the corporation's creation. Thus, PNCC, being a GOCC without an original charter, falls under COA's audit authority.

The Rule on Hiring Private Lawyers

The Court reiterated that GOCCs are generally not allowed to engage private counsel. The OGCC serves as the principal law office of all GOCCs under Section 10, Chapter 3, Book IV, Title III of the Administrative Code.

However, exceptions exist. Under COA Circular No. 95-011 and Office of the President Memorandum Circular No. 9, a GOCC may hire private lawyers only in exceptional cases, provided it secures: (1) the written conformity and acquiescence of the Solicitor General or the Government Corporate Counsel, and (2) the written concurrence of the COA.

PNCC failed to satisfy these requirements. The Court noted that the hired lawyers' functions—attending court hearings, conducting research, and preparing pleadings—overlapped with OGCC's authority. The contracts were also clearly for independent contractor services, not employment.

Who Bears the Liability?

While the Court affirmed the disallowance, it applied the principle that recipients in good faith need not refund disallowed amounts. The lawyers who rendered services were not required to return their salaries, consistent with Polloso v. Gangan (390 Phil. 1101 [2002]) and the principle of quantum meruit.

More significantly, the Court extended this protection to the petitioning officers. Applying COA Circular No. 006-09 and the ruling in MWSS v. COA (G.R. Nos. 195105 & 220729, November 21, 2017), the Court held that liability must be based on the nature of the officer's participation in the disallowed transaction.

The petitioners—a Senior Vice-President for Human Resources and an Acting Treasurer—were not involved in policy-making or decision-making regarding the hiring. They merely performed ministerial duties in approving payments under directives from PNCC's executive officers. Without proof of bad faith, they could not be held personally liable.

Practical Takeaways

• Government officers who merely perform ministerial or routine duties in processing payments are generally not personally liable for disallowed amounts, absent bad faith or participation in policy-making.
• GOCCs must secure written conformity from the OGCC and written concurrence from the COA before hiring private lawyers, even in exceptional cases.
• The nature of a corporation's creation does not determine COA's audit jurisdiction—government ownership or control does.
• Payees who receive disallowed amounts in good faith may keep them, but approving officers who act in bad faith or participate in decision-making may be held personally liable.
• Corporate officers should document their compliance with directives from superiors to establish good faith and ministerial performance of duties.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.