Novation Does Not Erase Criminal Liability: Lessons from Estafa through Falsification Cases

TLDR; In cases of estafa through falsification of public documents, like property fraud, attempting to settle the debt after the crime is committed through novation will not absolve you of criminal liability under Philippine law. This case underscores the principle that criminal liability, once incurred, is a matter of public interest and cannot be extinguished by private agreements.

G.R. No. 188726, January 25, 2012: Cresencio C. Milla vs. People of the Philippines and Market Pursuits, Inc.

INTRODUCTION

Imagine losing your hard-earned savings in a fraudulent property deal, only to find out the documents you relied on were fake. This is the harsh reality for many victims of property scams, a problem prevalent in the Philippines. The case of *Cresencio C. Milla vs. People* delves into this very scenario, tackling the critical question: Can a perpetrator of fraud escape criminal charges simply by offering to pay back the money after being caught? This Supreme Court decision provides a definitive answer, reinforcing the principle that criminal liability for offenses like estafa, especially when coupled with falsification of public documents, is not erased by subsequent attempts at settlement or ‘novation’.

Cresencio Milla was found guilty of defrauding Market Pursuits, Inc. (MPI) through the falsification of a Deed of Absolute Sale and a Transfer Certificate of Title (TCT). He misrepresented himself as a real estate developer and sold MPI a property using fake documents, receiving P2 million. When the fraud was discovered, Milla issued bouncing checks in an attempt to return the money. The central legal question became whether this act of issuing checks, a form of novation, could extinguish his criminal liability for estafa.

LEGAL CONTEXT: ESTAFA THROUGH FALSIFICATION AND NOVATION

To understand this case, it’s crucial to grasp the legal concepts of *estafa through falsification of public documents* and *novation*. These are distinct areas of Philippine law that intersect in this case.

*Estafa* is a form of swindling or fraud under Article 315 of the Revised Penal Code. It involves defrauding another through various means, including false pretenses or fraudulent acts committed prior to or simultaneously with the fraud. In this instance, the relevant mode is:

“2. By means of any of the following false pretenses or fraudulent acts executed prior to or simultaneously with the commission of the fraud:
(a) By using a fictitious name, or falsely pretending to possess power, influence, qualifications, property, credit, agency, business or imaginary transactions; or by means of other similar deceits.”

Coupled with *estafa* is the *falsification of public documents*, defined and penalized under Article 172 of the Revised Penal Code. This involves a private individual falsifying public or official documents. The relevant portion states:

“Art. 172. Falsification by private individual and use of falsified documents. – The penalty of prision correccional in its medium and maximum periods and a fine of not more than 5,000 shall be imposed upon:
1. Any private individual who shall commit any of the falsification enumerated in the next preceding article in any public or official document or letter of exchange or any other kind of commercial document”

In cases of estafa through falsification, the falsification is the means to commit estafa. The Supreme Court has consistently held that when these two crimes are committed together, they constitute a complex crime of estafa through falsification of public documents.

*Novation*, on the other hand, is a concept in civil law. It refers to the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one. Milla argued that by issuing checks to repay MPI, he had effectively novated the transaction, converting it from a criminal offense to a purely civil matter of debt. He relied on the idea that novation could prevent the rise of criminal liability or cast doubt on the original transaction’s nature.

However, Philippine jurisprudence firmly establishes that novation is not a ground for extinguishing criminal liability, especially in cases of estafa. While novation might alter the civil aspect of a debt, it does not erase the criminal offense that has already been committed. The Supreme Court in *People v. Nery* clarified this, stating that novation’s role is limited to preventing criminal liability from arising in the first place or questioning the original transaction’s criminal nature, but not extinguishing liability once it exists.

CASE BREAKDOWN: MILLA’S FRAUD AND THE COURT’S DECISION

The story of *Cresencio C. Milla vs. People* unfolds as follows:

1. The Deception Begins: Cresencio Milla presented himself to Carlo Lopez, the Financial Officer of Market Pursuits, Inc. (MPI), as a real estate developer. He offered to sell MPI a property in Makati, showing a photocopy of a TCT and a Special Power of Attorney, seemingly authorized by the property owners, spouses Farley and Jocelyn Handog.
2. Verification and Initial Payment: Lopez verified the TCT with the Registry of Deeds and confirmed the Handogs as owners. Convinced of Milla’s authority, MPI agreed to purchase the property for P2 million and issued a check for P1.6 million as partial payment.
3. Fake Documents and Final Payment: Milla then provided MPI with a notarized Deed of Absolute Sale and an original Owner’s Duplicate Copy of TCT No. 216445. He later gave a copy of a supposedly new TCT (No. 218777) in MPI’s name. MPI, believing everything was in order, paid the remaining P400,000.
4. Discovery of the Fraud: Suspicion arose when Milla failed to provide receipts for transfer taxes. Lopez checked with the Register of Deeds and discovered the shocking truth: the TCT Milla provided was fake, there was no transfer to MPI, and TCT No. 218777 belonged to someone else entirely.
5. Bouncing Checks and Legal Action: Lopez demanded the P2 million back. Milla issued two checks, but they bounced due to insufficient funds. MPI, through Lopez, filed a complaint for estafa through falsification of public documents.
6. Trial and Conviction: The Regional Trial Court (RTC) found Milla guilty beyond reasonable doubt of two counts of estafa through falsification. The Court of Appeals (CA) affirmed this decision.
7. Supreme Court Appeal: Milla appealed to the Supreme Court, arguing negligence of counsel, novation, and that the transaction was a simple loan.

The Supreme Court rejected Milla’s arguments and affirmed the lower courts’ decisions. Regarding novation, the Court emphasized:

“The principles of novation cannot apply to the present case as to extinguish his criminal liability… mere payment of an obligation before the institution of a criminal complaint does not, on its own, constitute novation that may prevent criminal liability.”

The Court reiterated that criminal liability for estafa already committed is not affected by subsequent novation, as it is a public offense. Furthermore, the Court underscored the binding nature of factual findings by trial courts, especially when affirmed by the Court of Appeals, stating:

“Factual findings of the trial court, especially when affirmed by the appellate court, are binding on and accorded great respect by this Court.”

Ultimately, the Supreme Court upheld Milla’s conviction, reinforcing that attempts to settle a debt after committing estafa through falsification do not erase criminal liability.

PRACTICAL IMPLICATIONS: DUE DILIGENCE AND CRIMINAL LIABILITY

This case serves as a stark reminder of the importance of due diligence in property transactions and the unwavering principle that criminal liability for fraud is not easily escaped through civil remedies like novation.

For businesses and individuals engaging in property purchases, the key takeaway is to conduct thorough due diligence. This includes:

• Verifying documents directly with official registries: Don’t rely solely on documents presented by the seller. Always verify the authenticity of titles and other documents with the Register of Deeds.
• Independent appraisal: Get an independent appraisal of the property to ensure its value aligns with the asking price and market rates.
• Legal counsel: Engage a lawyer specializing in property law to review documents, conduct due diligence, and guide you through the transaction.
• Scrutinize Special Powers of Attorney: If dealing with an attorney-in-fact, carefully examine the SPA and verify its authenticity and scope.

For individuals who might consider settling debts after committing fraud, this case is a clear warning: criminal liability for estafa, especially when involving falsification of public documents, is a serious matter. Offering repayment or issuing checks after the crime has been committed and discovered does not erase the criminal offense. The state has a vested interest in prosecuting such crimes to protect the public and maintain order.

Key Lessons from Milla vs. People:

• Due Diligence is Paramount: Always verify property documents and seller’s authority independently.
• Novation is Not a Criminal Defense: Offering to pay back defrauded money does not extinguish criminal liability for estafa through falsification.
• Counsel Negligence Generally Binds Client: Mistakes of counsel usually bind the client, highlighting the importance of choosing competent legal representation.
• Factual Findings of Lower Courts are Respected: The Supreme Court generally respects the factual findings of trial and appellate courts, emphasizing the importance of a strong defense at the trial level.

FREQUENTLY ASKED QUESTIONS (FAQs)

Q1: What is Estafa through Falsification of Public Documents?

A: It is a complex crime in the Philippines where estafa (fraud or swindling) is committed by means of falsifying public documents like titles or deeds. The falsification is the tool used to perpetrate the fraud.

Q2: Can I avoid criminal charges for estafa if I pay back the money I defrauded?

A: Generally, no. Paying back the money might mitigate civil damages, but it does not automatically extinguish criminal liability, especially if the crime is already committed and discovered.

Q3: What is Novation and how does it relate to criminal cases?

A: Novation is a civil law concept where an old obligation is replaced by a new one. In criminal law, novation is generally not a defense to extinguish criminal liability for offenses already committed. It may, in limited cases, prevent criminal liability from arising initially if it changes the fundamental nature of the transaction before a crime is committed.

Q4: What kind of due diligence should I do when buying property in the Philippines?

A: Due diligence includes verifying documents at the Register of Deeds, getting an independent appraisal, seeking legal counsel, and thoroughly investigating the seller’s authority and the property’s history.

Q5: What happens if my lawyer is negligent in handling my case?

A: Generally, the negligence of your lawyer binds you. Gross negligence might be an exception, but it’s a high bar to prove. It’s crucial to choose a competent and diligent lawyer.

Q6: Is issuing bouncing checks considered novation?

A: No. Issuing checks, especially bouncing checks, to repay a debt arising from fraud is not considered novation that extinguishes criminal liability. It can even be a separate offense under Philippine law (Bouncing Checks Law).

Q7: Why is falsification of public documents taken so seriously?

A: Public documents have evidentiary value and are relied upon by the public and government agencies. Falsifying them undermines public trust and the integrity of official records, hence the severe penalties, especially when used to commit fraud.

ASG Law specializes in Criminal Litigation and Property Law. Contact us or email hello@asglawpartners.com to schedule a consultation.