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SC Clears Former Mayor from Liability in Collection Case against Construction Companies
Posted: July 1, 2011; By Jen T. Tuazon
The Supreme Court En Banc has ruled that former Cebu City Mayor Tomas Osmeña, in his personal capacity, is not liable for the charges of damages, attorney's fees, and litigation expenses awarded in favor of two construction companies in two collection cases filed against the City of Cebu.
In a decision penned by Justice Arturo D. Brion, the High Court granted the petition for certiorari filed by Osmeña against the Commission on Audit (COA). The Court thus set aside COA's ruling which had found Osmeña personally liable for the Php2.6M in damages awarded to WT Construction, Inc. (WTCI) and Dakay Construction and Development Company (DCDC) for the former Mayor's alleged failure to comply with the legal requirements for the disbursement of public funds in the construction of the Cebu City Sports Complex for the 1994 Palarang Pambansa.
The Court held that a public official's personal liability arises only if the expenditure of government funds was made in violation of the law. The damages in question, however, were found by the Court paid to WTCI and DCDC pursuant to final judgments from the collection cases filed by the construction companies against the City before the Cebu City Regional Trial Court, and are thus legal. The Court added that the Change and Extra Work Orders issued by Osmeña to WTCI and DCDC, the main subject of the collection cases, were justified even without approval from the Sangguniang Panlungsod (Sanggunian) and outside the coverage of the Supplemental Agreement between the City and the construction companies as the circumstances at the time the orders were executed and completed indicate that the City of Cebu tacitly approved the orders, rendering a supplemental agreement or authorization from the Sanggunian unnecessary. The Court noted that the orders were approved by the Pre-Qualification, Bids, and Awards Committee which has two Sanggunian members and a COA representative, none of whom objected to the issuance of the orders. It further stressed that, aside from supplemental agreements to cover change and extra work orders not always being mandatory, the RTC itself had already ruled out the necessity of a supplemental agreement as the projects had been completed, accepted, and used by the City.
The Court also noted that the Sanggunian's enactment of the appropriation ordinance, as compelled by the RTC to satisfy the judgments in favor of WTCI and DCDC, though belated, still constitutes as sufficient compliance with the requirements of the law. Despite the Sanggunian's initial refusal, its eventual enactment of the ordinance serves as a confirmatory act signifying the body's ratification of all the change and extra work orders issued by Osmeña.
Finally, the Court stressed that it is unjust to order Osmeña to shoulder the amount of damages when the government had already received and accepted benefits from the utilization of the sports complex and that the City incurred no substantial loss in paying for the additional work and damages awarded to WTCI and DCDC. The Court noted that the funds for the construction of the complex, which was placed in a time deposit, has earned interest amounting to Php12.8M or more than enough to cover the Php2.6 M worth of damages due the construction companies. It concluded that all in all, absent any showing of ill-motives from the former Mayor or that he personally profited from the funds, Osmeña issued the orders for the City's successful hosting of the Palarong Pambansa and not for any other “nefarious behavior.”
In preparation for its hosting of the 1994 Palarong Pambansa, Osmeña, as authorized by the Sanggunian, represented the City of Cebu in the execution of contracts with WTCI and DCDC for the construction and renovation of the Cebu City Sports Complex. During the construction, Osmeña issued 20 Change/Extra Work orders to WTCI amounting to Php35M or 83% of the original contract price and to DCDC amounting to Php15M or 31% of the original contract price. The orders were neither covered by any Supplemental Agreement nor authorized by the Sanggunian. The Sanggunian refused to include the orders in the appropriation effecting the payment for the services of WTCI and DCDC prompting the companies to file two separate collection cases before the RTC. The RTC ordered the City to pay for the extra work performed as well as for damages, litigation expenses, and attorney's fees in the amount of Php2,514,255.40 to WTCI and Php102,015.00 for DCDC. To satisfy the judgments, the Sanggunian passed the required appropriation ordinances.
The City Auditor, however, later disallowed the payment on the ground that these were unnecessary expenses for which the public officers must be held liable in their personal capacities. Upon appeal before the COA Regional Office, the Sanggunian members were absolved from any liability while Osmeña was held to be solely liable for the payment of the awarded damages. COA affirmed the finding prompting Osmeña to challenge the decision before the Supreme Court. (GR No. 188818, Osmeña v. COA, May 31, 2011)