G.R. No. L-38513. March 31, 1987.
THE CHARTERED BANK, petitioner, vs. NATIONAL GOVERNMENT AUDITING OFFICE, DEPARTMENT OF PUBLIC WORKS & COMMUNICATIONS and BUREAU OF POSTS, respondents.

FACTS

The Chartered Bank, through its Iloilo City branch, had a long-standing practice of accepting postal money orders from the public and presenting them to the Iloilo City Post Office for payment. When the post office had insufficient cash, it would issue receipts for the unpaid balances. However, the Bureau of Posts issued a new circular and a Memorandum of Understanding in 1968, effective October 1, 1968, which established a new system requiring all commercial banks to clear postal money orders through the Central Bank in Manila, eliminating the old practice of direct presentation to local post offices for payment.
Despite knowledge of this new mandatory system, the petitioner bank, through its branch manager, continued the old practice with the Iloilo Post Office’s Acting Cashier, Eulogio Primalion, beyond the effective date. This continued until July 1970, when the bank discovered unpaid balances totaling P161,221.47. The Acting Postmaster of Iloilo disclaimed liability, stating the transactions were unauthorized as they violated the new circular. The Postmaster General and the Commission on Audit subsequently denied the bank’s claim, characterizing the arrangement as a private, unsanctioned transaction between the bank and the cashier.

ISSUE

Whether the government, through the Bureau of Posts, is liable to pay the petitioner bank for the unpaid postal money orders processed under the old, discontinued procedure after the implementation of the new mandatory clearing system.

RULING

The Supreme Court affirmed the decision of the Government Auditing Office, dismissing the petition. The Court ruled that the government cannot be held liable. The legal logic rests on two key principles. First, the 1968 circular and memorandum instituted a mandatory new system. Their provisions were not merely directory or permissive; they explicitly terminated the old procedure of banks presenting money orders directly to post offices for payment. The petitioner bank was aware of this change but chose to continue dealing with Cashier Primalion in violation of the new rules.
Second, and decisively, the State cannot be estopped by the unauthorized or unlawful acts of its agents. The doctrine of estoppel does not generally apply against the government in the exercise of its sovereign functions. Cashier Primalion acted beyond the scope of his authority and in bad faith by continuing the prohibited transactions. Consequently, any liability arising from this unauthorized arrangement is personal to him, not official to the Bureau of Posts or the government. The Court noted that the bank’s acceptance of partial payments from Primalion (reducing the claim) estopped it from proceeding against the government and confirmed the personal nature of the cashier’s liability. The bank’s recourse is to pursue its claim against the erring employee, not the public treasury.