In the case of Narciso Degaños v. People of the Philippines, the Supreme Court affirmed that novation does not extinguish criminal liability for estafa under Article 315, paragraph 1(b) of the Revised Penal Code. The Court clarified that only the State has the authority to waive criminal action against an accused, and novation is relevant only when determining changes in the nature of an obligation before criminal prosecution begins. This decision underscores that while civil liabilities may be altered through contractual agreements, criminal responsibility for offenses like estafa remains a matter of public concern, prosecutable by the State irrespective of private settlements.

From Commission to Crime: When a Sales Agreement Leads to Estafa Charges

The case revolves around Narciso Degaños, who was charged with estafa for failing to remit proceeds from jewelry and gold items received from Spouses Jose and Lydia Bordador. The Bordadors claimed that Degaños received the items under an express obligation to sell them on commission and remit the proceeds or return the unsold items. The prosecution presented evidence showing a series of transactions documented in “Kasunduan at Katibayan” receipts, which outlined the terms of the consignment. According to Lydia Bordador, Degaños would receive jewelry to sell, and he was expected to either pay for the items after a month or return the unsold pieces.

Degaños, however, argued that the agreement was one of sale on credit, not a consignment. He contended that his partial payments to the Bordadors novated the contract from agency to a loan, converting his liability from criminal to civil. The Regional Trial Court (RTC) found Degaños guilty, while the Court of Appeals (CA) affirmed the conviction but modified the penalty, leading Degaños to appeal to the Supreme Court. The central legal question was whether the agreement constituted a sale on credit or an agency relationship, and if any subsequent novation could extinguish criminal liability for estafa.

The Supreme Court disagreed with Degaños’s arguments, asserting that the transaction was indeed an agency, not a sale on credit. The Court emphasized the express terms of the “Kasunduan at Katibayan,” which stated that Degaños received the items to sell on behalf of the Bordadors, with his compensation being any overprice he obtained. According to the Court, this arrangement clearly indicated a consignment, where Degaños was obligated to account for the proceeds of the sale or return the unsold items. The Court quoted the agreement:

KASUNDUAN AT KATIBAYAN
x x x x

Akong nakalagda sa ibaba nito ay nagpapatunay na tinanggap ko kay Ginang LYDIA BORDADOR ng Calvario, Meycauayan, Bulacan ang mga hiyas (jewelries) [sic] na natatala sa ibaba nito upang ipagbili ko sa kapakanan ng nasabing Ginang. Ang pagbibilhan ko sa nasabing mga hiyas ay aking ibibigay sa nasabing Ginang, sa loob ng __________ araw at ang hindi mabili ay aking isasauli sa kanya sa loob din ng nasabing taning na panahon sa mabuting kalagayan katulad ng aking tanggapin. Ang bilang kabayaran o pabuya sa akin ay ano mang halaga na aking mapalabis na mga halagang nakatala sa ibaba nito. Ako ay walang karapatang magpautang o kaya ay magpalako sa ibang tao ng nasabing mga hiyas.

The Court contrasted this with a contract of sale, as defined in Article 1458 of the Civil Code, where one party obligates themselves to transfer ownership of and deliver a determinate thing, while the other party pays a price. As Degaños never gained ownership of the jewelry and gold, there was no sale on credit. Furthermore, the Court addressed the issue of novation, clarifying that partial payments and agreements to pay remaining obligations did not change the original agency relationship into a sale. Novation, as a concept, involves the extinguishment of an obligation by substituting a new one, either by changing the object or principal conditions, substituting the debtor, or subrogating a third person to the rights of the creditor.

To extinguish an obligation, the extinguishment must be unequivocally declared or the old and new obligations must be entirely incompatible. The Supreme Court cited Quinto v. People to emphasize that novation is never presumed and must be clearly expressed by the parties or evident through their unequivocal acts. The decision highlighted the two ways novation could occur:

• When it has been explicitly stated and declared in unequivocal terms.
• When the old and the new obligations are incompatible on every point.

The Court noted that changes must be essential and not merely accidental to constitute incompatibility leading to novation. Degaños’s case only involved changes in the manner of payment, which was insufficient to extinguish the original obligation. The Supreme Court emphasized that novation is not a means recognized by the Penal Code to extinguish criminal liability, citing People v. Nery:

The novation theory may perhaps apply prior to the filing of the criminal information in court by the state prosecutors because up to that time the original trust relation may be converted by the parties into an ordinary creditor-debtor situation, thereby placing the complainant in estoppel to insist on the original trust. But after the justice authorities have taken cognizance of the crime and instituted action in court, the offended party may no longer divest the prosecution of its power to exact the criminal liability, as distinguished from the civil. The crime being an offense against the state, only the latter can renounce it.

According to the Supreme Court, novation’s role is limited to preventing criminal liability from arising or casting doubt on the nature of the original transaction. As such, because estafa is an offense against the state, only the state can waive the criminal action against the accused. The Court cited Articles 89 and 94 of the Revised Penal Code, which list the grounds for extinguishing criminal liability, and noted that novation is not among them. Thus, novation is limited to the civil aspect of liability and is not an effective defense in estafa cases.

FAQs

What was the key issue in this case?	The key issue was whether the agreement between Degaños and the Bordadors was a sale on credit or an agency relationship, and if the subsequent partial payments and proposal to pay the remaining balance amounted to a novation that extinguished criminal liability for estafa.
What is estafa under Philippine law?	Estafa is a form of fraud penalized under Article 315 of the Revised Penal Code, which involves misappropriating or converting money or property received in trust or under an obligation to return it. This typically involves deceit, causing damage or prejudice to the offended party.
What is novation, and how does it relate to contractual obligations?	Novation is the extinguishment of an existing obligation by substituting it with a new one. This can occur by changing the object or principal conditions, substituting the debtor, or subrogating a third person to the rights of the creditor, and it requires either an explicit declaration or complete incompatibility between the old and new obligations.
Can criminal liability for estafa be extinguished by novation?	No, criminal liability for estafa cannot be extinguished by novation. While novation can affect the civil aspect of the liability, it does not prevent the State from prosecuting the criminal offense, as the offense is against the State.
What is the difference between a sale on credit and an agency relationship?	In a sale on credit, ownership of the goods transfers to the buyer, who then owes the seller a debt. In an agency relationship, the agent does not acquire ownership but is tasked with selling goods on behalf of the principal, accounting for the proceeds.
What was the court’s ruling on the type of agreement in this case?	The court ruled that the agreement between Degaños and the Bordadors was an agency relationship. Degaños received the jewelry and gold items with the obligation to sell them on behalf of the Bordadors and remit the proceeds, thus making him an agent rather than a buyer on credit.
What evidence did the court consider in determining the agreement type?	The court considered the “Kasunduan at Katibayan” receipts, which expressly stated that Degaños received the items to sell on behalf of the Bordadors. The receipts detailed that Degaños was to remit the proceeds and would be compensated with any overprice he obtained, which indicated an agency agreement.
What is the significance of the People vs. Nery case in relation to novation?	The People vs. Nery case clarifies that while novation might alter the relationship between parties before a criminal information is filed, it cannot divest the State of its power to prosecute a criminal offense once legal authorities have taken cognizance of the crime.

The Supreme Court’s decision in Degaños v. People reaffirms the principle that criminal liability for estafa is a matter of public concern and cannot be compromised by private agreements. The ruling emphasizes that while parties may alter their contractual relationships, criminal liability for offenses like estafa remains prosecutable by the State, regardless of any civil settlements or arrangements. This ensures that individuals who commit fraudulent acts are held accountable under the law, maintaining the integrity of commercial transactions and protecting the public interest.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Narciso Degaños v. People, G.R. No. 162826, October 14, 2013