THE CHARTERED BANK, PETITIONER, VS. NATIONAL GOVERNMENT AUDITING OFFICE, DEPART­MENT OF PUBLIC WORK & COMMUNICATIONS AND BUREAU OF POSTS, RESPONDENTS.

Chartered Bank versus National Government Auditing Office

The Case

This is a petition for review on certiorari brought by the Chartered Bank against the National Government Auditing Office, the Department of Public Works and Communications, and the Bureau of Posts. The bank seeks to collect from the government the unpaid balance of postal money orders it had accepted and presented for payment at the Iloilo City Post Office. The case matters because it fixes two enduring rules: that a circular installing a new system may be mandatory rather than merely directory, and that the State cannot be bound or estopped by the mistake, error, or unlawful act of its agents.

Procedural History

The bank first filed a letter petition with the Auditor General. The Acting Postmaster General, in his seventh indorsement dated January 23, 1974, took the position that the arrangement between the bank and the post office cashier was a private arrangement not sanctioned by the Post Office. The Acting Chairman of the Commission on Audit, by letter dated February 27, 1974, found no legal basis for allowing payment of the claim. The Government Auditing Office affirmed the Postmaster General's decision on August 27, 1974. The bank then came to the Supreme Court by petition for review on certiorari. The Solicitor General filed his comment, the parties argued the case at a hearing set for September 5, 1974, and they later submitted their respective memoranda. The case was then submitted for decision.

Facts

Since 1946, the Chartered Bank, through its Iloilo City branch, had been accepting postal money orders from the general public and presenting them to the Iloilo City Post Office for payment. When the cash available at the post office was less than the value of the money orders presented, the post office issued receipts acknowledging the remaining balance.

On May 8, 1968, the Bureau of Posts issued an unnumbered circular, and a Memorandum of Understanding Covering Cashing and Clearing of Money Orders was likewise issued, both effective October 1, 1968. These installed a new postal money order system requiring all commercial banks, regardless of location, to clear all postal money orders they had received and paid with the Central Bank at Manila. Despite this, the bank continued the old practice through the post office's Acting Cashier, Eulogio Primalion, beyond October 1, 1968.

On July 6, 1970, the bank noticed that payment for money orders totalling 161,221 pesos and 47 centavos as of July 3, 1970 had not yet been received. Its follow-up letters drew a reply from Acting Postmaster Ernesto Cabanas, who said he was not aware that the amount was still an obligation of the Iloilo Post Office and declared that the bank had been dealing directly with the cashier without his knowledge or consent. Later letters referred the matter to higher authorities. The Officer-in-Charge of the Post Office described the arrangement as a private arrangement not sanctioned by the Post Office, and the claim was eventually reduced to 81,200 pesos. The Solicitor General noted that the respondents had not paid a single centavo, so that whatever payments were made came from Primalion himself.

Issues

• Whether or not the unnumbered circular of May 8, 1968 and the Memorandum of Understanding are directory and permissive in nature rather than mandatory.
• Whether or not the bank can collect from the respondents the balance of the postal money orders it endorsed to the Iloilo City Post Office.

Applicable Provisions

Paragraph C of the unnumbered circular of the Bureau of Posts provides:

c. The new money orders may be cashed at any money order office or commercial bank within one year from the date of issue. Those cashed at commercial bank, or handled by the bank for its customers, will be cleared through the Central Bank essentially like Treasury Warrants. It will no longer be necessary for commercial banks to bring such money orders to a post office for redemptions. This will save much time for banks and post offices.

The bank relied on the phrase "It will no longer be necessary" to argue that the circular merely offered a new procedure rather than compelled it.

Paragraph D of the same circular provides:

d. The new system will make it more difficult to forge, counterfeit or alter the new money order forms. It will enable the Money Order Division and the General Auditing Office to match promptly by machine the money Orders issued and paid, thus causing early detection of all irregularities for appropriate action. All matching or cross-checking of money orders issued and paid will be centralized in Manila instead of the City and Provincial Auditors doing it as at present.

This paragraph states the purpose of the new system, which the Court used to ascertain the intent behind the circular.

The Memorandum of Understanding provides:

Effective October 1, 1968 a new Postal Money Order System will be installed. Several changes are proposed in the cashing and clearing process of the new money orders to make them more usable in the channels of trade and commerce. It is the purpose of this memorandum of understanding to set forth certain responsibilities and agreements among the parties concerned in order that these important changes can be accomplished.

This clause shows that the installation of the new system was provided for in no uncertain terms.

The same Memorandum of Understanding further provides:

9. No old style money orders will be issued after September 30, 1968.

This prohibition negates any claim that commercial banks could choose to revert to the old procedure.

And again:

10. Effective October 1, 1968 all uncashed old style money orders will be referred to the Money Order Division for validation. Those determined to be valid will be cancelled and a Treasury Warrant issued, in the same amount, which can be cashed under the same rules as any Treasury Warrant.

This provision confirms that the old system was to be completely supplanted.

Ruling

On the first issue, the Court held that the circular and the Memorandum of Understanding are mandatory, not directory or permissive. There is no absolute formal test for determining whether a statutory direction is mandatory or directory. The decisive factor is the meaning and intention of the legislature, ascertained from the entire act, its nature, its object, and the consequences of construing it one way or the other. The Court found that the memorandum provided for the installation of a new system in no uncertain terms, and that nowhere in the circular or memorandum were exceptions granted, much less options given to commercial banks to follow or not to follow the new system depending on their convenience. Neither was there any provision granting authority to any official or employee of the Bureau of Posts to maintain the old procedure at his discretion.

On the second issue, the Court held that the bank cannot collect from the respondents. Both the bank and Cashier Primalion violated the circular and the memorandum. The bank suffered damage through no fault of the Bureau of Posts, and it cannot shift the burden of loss on the government. The Court rested this on the generally accepted principle that the State cannot be bound nor estopped by the mistake, error, or unlawful act of its agents. It added that a public official may be liable in his personal capacity for whatever damage he may have caused by his act done with malice and in bad faith, or beyond the scope of his authority or jurisdiction. Cashier Primalion, as a mere employee, was bound to comply with the memorandum and circular, and his failure to pay the balance showed that he acted beyond the scope of his authority and in bad faith. The bank's only recourse was against him. The Court also noted that the bank's acceptance of payment from Primalion was an admission that the liability was personal, not official, and estopped the bank from proceeding against the respondents.

Doctrine

First, there is no absolute formal test for determining whether a statutory direction is mandatory or directory. The decisive factor is the meaning and intention of the legislature, gathered from the entire act, its nature, its object, and the consequences that would follow from construing it one way or the other. Where the text admits of no exception and grants no option, the direction is mandatory.

Second, the State cannot be bound nor estopped by the mistake, error, or unlawful act of its agents. A party who deals with a government employee beyond the scope of his authority deals at its own risk and cannot shift the resulting loss to the government.

Third, a public official or employee may be liable in his personal capacity for whatever damage he may have caused by his act done with malice and in bad faith, or beyond the scope of his authority or jurisdiction.

Disposition

The Court affirmed the August 27, 1974 decision of the Government Auditing Office and dismissed the petition, leaving the bank to pursue its claim against the cashier personally.

Remember This

Memorize the line that the State cannot be bound nor estopped by the mistake, error, or unlawful act of its agents. Examiners use this case on the mandatory or directory character of administrative circulars and on the personal liability of public officers who act beyond the scope of their authority.