TL;DR

The Supreme Court ruled that while taxpayers have the right to sue over illegal disbursement of public funds, a city must be represented by its City Prosecutor, not a private law firm, unless a specific exception applies. The Court emphasized that public funds should not be used to hire private lawyers when a public officer is mandated to provide legal representation. Although procedural lapses in the initial filings were noted, the Court prioritized substantial justice by addressing the core issues, including the propriety of taxpayer suits and the representation of local government units.

This decision safeguards public resources and reinforces the principle that local governments must adhere to established legal representation protocols. It also upholds taxpayers’ rights to challenge potential misuse of public funds, ensuring governmental accountability and transparency.

Urdaneta City on Trial: Can a City Switch Sides with a Private Lawyer?

This case revolves around a complaint filed by taxpayers against the City of Urdaneta and several contractors, alleging irregularities in contracts for a major construction project. The taxpayers claimed that public funds were being misused through these contracts, prompting them to seek legal recourse. The central legal questions involve the taxpayers’ standing to sue, the propriety of a private law firm representing the city, and the city’s ability to reverse its initial defense of the contracts.

The case began with respondent Waldo C. Del Castillo, in his capacity as a taxpayer, filing a complaint for annulment of contracts against the City of Urdaneta, Ceferino J. Capalad (doing business under JJEFWA Builders), and petitioners Asean Pacific Planners (APP) and Asean Pacific Planners Construction and Development Corporation (APPCDC). Del Castillo argued that contracts for the construction of a commercial center and hotel, funded by a Philippine National Bank (PNB) loan, were void because the land was public domain and devoted to a public purpose. Further, he alleged that the contracts were awarded solely to the Goco family. In response, APP and APPCDC asserted the contracts’ validity, while then-Mayor Amadeo R. Perez, Jr., initially defended the contracts, stating they were properly executed with authority from the Sangguniang Panlungsod.

However, the legal landscape shifted when the Lazaro Law Firm entered its appearance for Urdaneta City, seeking to withdraw the city’s original answer, drop the city as a defendant, and join as a plaintiff. This move aimed to rectify the city’s position, claiming inadequate legal representation had hindered its ability to protect its interests. The Regional Trial Court (RTC) granted these requests, prompting APP and APPCDC to file a petition for certiorari before the Court of Appeals, which was initially dismissed on procedural grounds. The Supreme Court then addressed both the procedural and substantive issues.

On the issue of taxpayer standing, the Court referenced Public Interest Center, Inc. v. Roxas, emphasizing that taxpayers may sue to prevent the illegal expenditure of money raised by taxation. The Court stated that the allegation of taxpayers Del Castillo, Del Prado, Ordono and Maguisa that P95 million of the P250 million PNB loan had already been paid for minimal work is sufficient allegation of overpayment, of illegal disbursement, that invests them with personality to sue. Since Urdaneta City acquired ownership of the money loaned from PNB, the money became public funds, making the taxpayers’ suit valid. This stance contrasts with the argument that since the funds came from a loan, they weren’t derived from taxation and therefore couldn’t be challenged by taxpayers.

However, the Court found the appearance of the Lazaro Law Firm to be against the law. Citing Section 481(a) of the Local Government Code (LGC) of 1991, the Court stressed that a city legal officer, or in their absence, the City Prosecutor, should represent the city. The Court acknowledged that while Urdaneta City’s charter was enacted in 1998, the position of city legal officer remained vacant, making the City Prosecutor the proper representative. The Court highlighted that public funds should not be used to hire private lawyers when a public officer is available to act for the public entity. The Court stated that the appearance of the Lazaro Law Firm as counsel for Urdaneta City is against the law. Section 481(b)(3)(i) of the LGC provides when a special legal officer may be employed, that is, in actions or proceedings where a component city or municipality is a party adverse to the provincial government.

Regarding the shift in the city’s position, the Court acknowledged that pleadings could be amended under Rule 10 of the Rules of Court. The Court explained that despite Urdaneta City’s judicial admissions, the trial court is still given leeway to consider other evidence to be presented for said admissions may not necessarily prevail over documentary evidence, e.g., the contracts assailed. The Court also upheld the RTC’s decision to admit Capalad’s complaint and remove him as a defendant, given the conflict of interest involving his initial attorney, Atty. Sahagun. This action was deemed necessary to ensure fair representation and to prevent any potential prejudice to Capalad’s case.

FAQs

For inquiries regarding the application of this ruling to specific circumstances, please contact Atty. Gabriel Ablola through gaboogle.com or via email at connect@gaboogle.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: ASEAN PACIFIC PLANNERS, APP CONSTRUCTION AND DEVELOPMENT CORPORATION VS. CITY OF URDANETA, G.R. No. 162525, September 23, 2008