G.R. No. 123807 December 13, 2005
PACIFIC MILLS, INC. and CLOVER MANUFACTURING CORPORATION, Petitioners, vs. THE HON. COURT OF APPEALS, THE DEVELOPMENT BANK OF THE PHILIPPINES and THE ASSET PRIVATIZATION TRUST (now substituted by the Privatization and Management Office), Respondents.

FACTS

Petitioners Pacific Mills, Inc. and Clover Manufacturing Corporation, sister companies, obtained loans from respondent Development Bank of the Philippines (DBP), secured by mortgages on real properties and equipment. Their accounts were later transferred to the Asset Privatization Trust (APT). In a letter dated August 20, 1987, DBP informed petitioners that, by virtue of a debt-equity swap arrangement with the Central Bank, their remaining balance of P4,018,940.67 had been fully paid, resulting in an excess payment of P146,815.62, which DBP promised to refund. DBP further stated its Legal Department was preparing the deed of cancellation of mortgage.
Subsequently, after a post-audit by the Commission on Audit, DBP discovered a computation error. In a letter dated January 6, 1988, DBP informed petitioners of an unpaid balance of P4,855,910.67 and demanded its payment, retracting its earlier statement of full settlement. Due to DBP’s refusal to cancel the mortgages, petitioners filed an action in the Regional Trial Court for cancellation of mortgages and release of titles.

ISSUE

Whether the August 20, 1987 letter from DBP constitutes a final and binding admission that petitioners’ loan obligation had been fully extinguished, thereby estopping DBP from later claiming an unpaid balance.

RULING

The Supreme Court ruled in the negative, affirming the Court of Appeals’ decision. The August 20, 1987 letter did not constitute a final, conclusive admission of full payment that would give rise to estoppel. The letter was a preliminary communication based on an initial credit advice from the Central Bank, explicitly stating that the deed of cancellation would be released only “after clearance of your account with our Transaction Processing Department.” This conditional language indicated the account was still subject to final audit and verification. The subsequent discovery of a substantial deficiency through a formal post-audit was a valid correction of a prior honest mistake in computation. Estoppel does not apply to correct errors of fact, especially when the earlier representation was made without full knowledge of all material facts and was contingent upon final processing. The law and equity do not permit a party to benefit from a mere accounting error to the detriment of a government financial institution. Therefore, DBP was not barred from demanding the correct, audited balance.