Navotas Industrial Corporation vs. Guanzon

A public officer’s deliberate recommendation for the release of public funds to a person whom the officer knows or should have known lacks authority from the ostensible corporate principal constitutes grave misconduct, as it demonstrates an intentional violation of the rule that corporate powers are exercised exclusively by the board of directors or by agents authorized through a board resolution. Where the officer fails to demand proof of such authority in the form of a board resolution or secretary’s certificate and disregards knowledge of third-party claims, the elements of grave misconduct — including clear intent to violate the law or flagrant disregard of established rules — are established by substantial evidence.

Navotas Industrial Corporation, a domestic corporation, had an outstanding claim against Ganda Energy and Holdings Inc. arising from an Energy Conversion Agreement and a subsequent Settlement Agreement after postdated checks were dishonored. Ganda Energy, in turn, had receivables from the National Power Corporation (NPC). Navotas Industrial requested NPC to withhold payment to Ganda Energy and pay the amount to Navotas Industrial, but NPC refused, citing its policy of not releasing payment to third parties without express authorization or a court order. Sometime in 2003, purported representatives of Ganda Energy presented a letter of authority signed by one of Ganda Energy’s directors, Mr. Foo Lee Khean, authorizing Mr. Terence Selvarajah and Kay Swee Tuan of S.T. Kay & Company to settle Ganda Energy’s claims and execute a quitclaim. NPC, acting on a memorandum prepared by respondent Guanzon recommending payment, released Ganda Energy’s full receivables to Kay Swee Tuan. The authorization letter was later disowned by the signatory and found spurious.

• Nature of the Transaction: In 1993, Navotas Industrial entered into an Energy Conversion Agreement with Ganda Energy, which undertook to pay P45,647,472.07 through two postdated checks. After the agreement expired, a Settlement Agreement reduced the obligation to US$600,000.00, payable with two postdated checks, subject to automatic reversion to the original amount upon dishonor. Both checks were subsequently dishonored, leaving an outstanding balance.
• NPC’s Refusal to Intervene: Ganda Energy had receivables from NPC. On October 24, 2000, Navotas Industrial wrote to NPC requesting that the latter refrain from releasing payment to Ganda Energy and instead pay Navotas Industrial directly. NPC declined, stating that it was still discussing settlement with Ganda Energy and that its policy barred release to third parties without express authorization or a court order.
• The Questioned Authorization and Payment: In March 2003, persons claiming to represent Ganda Energy presented a letter of authority on Ganda Energy’s letterhead signed by Mr. Foo Lee Khean, a purported director, authorizing Terence Selvarajah and Kay Swee Tuan of S.T. Kay & Company to settle NPC’s outstanding claims and execute a quitclaim. Kay Swee Tuan later authorized Ms. Nora Go to collect checks on her behalf. On March 19 and 20, 2003, NPC paid Ganda Energy’s entire receivables — P124,436,195.00 and US$2,167,701.16 — to Kay Swee Tuan or S.T. Kay & Company, through bank remittances and checks.
• Respondent’s Role: Respondent Guanzon, as chair of NPC’s Committee on Contract Expiration on Insurance Capacities, prepared the memorandum recommending the approval of disbursement vouchers and the release of payment to Kay Swee Tuan. No board resolution or secretary’s certificate from Ganda Energy’s board of directors was obtained to verify the authority of Kay Swee Tuan.
• Discovery of Irregularity: The National Bureau of Investigation established that the authorization letter was unauthenticated and spurious; Mr. Khean disowned the signature. NPC had also been informed of Navotas Industrial’s money claims before the release, but respondent and other NPC officers ignored these communications and released the entire amount nonetheless.
• Ombudsman Findings: The Office of the Ombudsman found that respondent and his co-respondent knew the supposed representatives lacked authority, having relied on spurious documents and having failed to conduct proper verification despite knowing that Ganda Energy had closed its Manila office in 2000 and that another creditor existed. The Ombudsman concluded that respondent’s actions constituted grave misconduct.

• Substantial Evidence of Grave Misconduct: Petitioner maintained that the Ombudsman’s finding of guilt was supported by substantial evidence — including the spurious authorization letter, respondent’s failure to demand a board resolution, and NPC’s prior knowledge of petitioner’s claim — and that the Court of Appeals erred in substituting its judgment by exonerating respondent.
• Willful Disregard of Rules: Petitioner argued that respondent’s recommendation was made with clear intent to violate the established rule that a corporation acts only through its board of directors or through agents authorized by board resolution, and that this flagrant disregard of the law constituted grave misconduct.

• Good Faith and Limited Role: Respondent contended that the payments to Ganda Energy were made in good faith and that he merely evaluated the contract and recommended payment; his functions did not extend to determining the persons authorized to receive payment on behalf of Ganda Energy.
• Lack of Willful Intent: Respondent asserted that no substantial evidence showed he acted with willful intent to violate the law, relying on the presumption of good faith in the performance of official duties.

• Grave Misconduct: Whether there is substantial evidence to hold respondent Alberto C. Guanzon administratively liable for grave misconduct.

• Grave Misconduct: Substantial evidence established that respondent committed grave misconduct. The elements of the offense were present: a rule of action existed (the requirement under Section 23 of the Corporation Code that corporate powers be exercised by the board of directors or by validly authorized agents); respondent transgressed this rule when he recommended the release of funds to Kay Swee Tuan, who lacked the requisite board resolution; the misconduct was intimately connected with respondent’s official duty of evaluating and recommending payment; and respondent’s actions demonstrated a clear intent to violate the law or flagrant disregard of the established rule. Intent was inferred from respondent’s knowledge that NPC was dealing with a foreign entity whose authority was dubious, his failure to demand a board resolution or secretary’s certificate despite being presumed to know the law, and his disregard of petitioner’s prior notification of its claims. The payment to an unauthorized person did not extinguish NPC’s obligation, and respondent’s recommendation constituted a dereliction of duty that warranted the penalty of dismissal. As dismissal was no longer feasible, the accessory penalties of cancellation of eligibility, forfeiture of benefits, and perpetual disqualification were imposed.

• Grave Misconduct — A public officer is liable for grave misconduct when the following elements concur: (a) there is a rule of action, standard of behavior, or rule of law; (b) the rule is transgressed intentionally, not through mere error of judgment; (c) the misconduct is closely related to the performance of the officer’s official duties and functions; and (d) corruption, clear intent to violate the law, or flagrant disregard of an established rule is present. Clear intent is shown when the officer is aware of the existing rules and intentionally chooses to disobey them, as demonstrated by a propensity to ignore the rules manifest in their actions.
• Substantial Evidence in Administrative Proceedings — Substantial evidence is “such amount of relevant evidence that a reasonable mind might accept as adequate to justify a conclusion.” It does not require overwhelming or preponderant evidence; it is satisfied where there is reasonable ground to believe the respondent is guilty of the act or omission complained of.
• Conclusiveness of Administrative Findings of Fact — Factual findings of quasi-judicial and administrative bodies supported by substantial evidence are accorded great respect and even finality, as these bodies possess expertise in their respective fields. Absent a clear showing of abuse, arbitrariness, or capriciousness, such findings bind the courts.
• Corporate Acts Require Board Authority — Under Section 23 of the Corporation Code, the corporate powers of all corporations formed under the Code shall be exercised, all business conducted, and all property controlled and held by the board of directors. A corporation can only execute its powers and transact its business through its board of directors and through its officers and agents when authorized by a board resolution or its by-laws. An individual director’s declarations, made outside the course of authorized duties, do not bind the corporation.
• Duty to Ascertain Agent’s Authority — A person dealing with an agent is put upon inquiry and must discover at their peril the agent’s authority. The third party must demand written authority from the principal; failure to do so constitutes gross and inexcusable negligence, and the resulting contract cannot be enforced against the ostensible principal.
• Payment to Third Party — Payment of an obligation must be made to the obligee, their successor in interest, or any person authorized to receive it (Civil Code, Art. 1240). Payment to a third person extinguishes the obligation only insofar as it redounded to the benefit of the creditor (Art. 1241), or when made in good faith to a person in possession of the credit (Art. 1242).

• “A public officer’s deliberate recommendation for approval for the release of public funds to a person, whom they know or should have known to be unauthorized by their ostensible principal, may constitute a failure to discharge the duties of public office. In such case, the public officer may be held liable for grave misconduct.” — This passage distills the central principle of the decision.
• “The misconduct must imply wrongful intention and not a mere error of judgment and must also have a direct relation to and be connected with the performance of the public officer’s official duties amounting either to maladministration or willful, intentional neglect, or failure to discharge the duties of the office.” — Definition of material misconduct used in determining the offense’s gravity.
• “A person dealing with an agent is put upon inquiry and must discover upon their peril the authority of the agent. They must demand a written authority from the principal, lest it would be grossly and inexcusably negligent for such third party to enter into a contract with such agent.” — Reiteration of the rule from Bordador v. Luz that undergirds respondent’s duty to verify the agent’s authority.

• In re Castor, 719 Phil. 96 (2013) — Cited for the definitions and elements of grave misconduct, including the requirement of corruption, clear intent to violate the law, or flagrant disregard of established rules.
• Office of the Deputy Ombudsman for Luzon v. Dionisio, 813 Phil. 474 (2017) — Relied upon for the rule that clear intent to violate a rule exists when public officers are aware of the rules and intentionally disobey them, as demonstrated by their manifest propensity to ignore rules.
• Manila Metal Container Corporation v. Philippine National Bank, 540 Phil. 451 (2006) — Applied as authority that the exercise of corporate powers is vested in the board of directors as a collective body, and that a corporation can generally be bound only through a board resolution or by an agent authorized by the board.
• Bordador v. Luz, 347 Phil. 654 (1997) — Followed for the principle that a third party dealing with an agent must ascertain the agent’s authority by demanding written authority, and that failure to do so constitutes gross negligence.
• Floralde v. Court of Appeals, 392 Phil. 146 (2000) — Cited for the rule that factual findings of administrative agencies supported by substantial evidence are entitled to great respect and should not be reweighed by appellate courts.

• Section 23, Batas Pambansa Bilang 68 (Corporation Code) — The corporate powers of all corporations shall be exercised, all business conducted, and all property controlled and held by the board of directors. Applied to establish the rule that Ganda Energy could only act through its board or a duly authorized agent, and that payment to one not so authorized was invalid.
• Articles 1240, 1241, and 1242, Civil Code — Payment shall be made to the person in whose favor the obligation has been constituted, or to a person authorized to receive it; payment to a third person extinguishes the obligation only to the extent of the benefit to the creditor, or when made in good faith to a person in possession of the credit. Cited to underscore that payment to Kay Swee Tuan, who lacked authority, did not validly extinguish NPC’s debt.
• Article 3, Civil Code — Ignorance of the law excuses no one from compliance therewith. Relied upon to presume respondent’s knowledge of the legal requirements for corporate agency.
• Section 50(A)(3) and Section 57, Rule 10, 2017 Rules on Administrative Cases in the Civil Service — Grave misconduct is a grave offense punishable by dismissal from the service, carrying the accessory penalties of cancellation of eligibility, forfeiture of retirement benefits, and perpetual disqualification from holding public office and taking civil service examinations. Applied in determining the imposable penalties.

Justices Carandang, Zalameda, Rosario, and Dimaampao concurred.