Estafa and Agency Criminal Liability Cannot Be Extinguished by Contractual Novation

The Supreme Court has long held that a contract's modification—called novation—cannot erase criminal liability once a crime like estafa has been committed. In Degaños v. People (G.R. No. 162826, October 14, 2013), the Court reaffirmed this principle, explaining that only the State may waive a criminal action, and that private parties cannot convert a criminal case into a purely civil matter through their agreements.

The case involved Narciso Degaños, who received gold and jewelry from spouses Jose and Lydia Bordador under written agreements called "Kasunduan at Katibayan." The receipts stated that Degaños received the items "to sell for the benefit" of the complainants, with any excess over the listed price serving as his commission. Unsold items had to be returned within a set period. When Degaños failed to remit proceeds or return the unsold items despite demands, the spouses filed estafa charges under Article 315, paragraph 1(b) of the Revised Penal Code.

The Transaction Was an Agency, Not a Sale on Credit

Degaños argued that his agreement with the complainants was a sale on credit, not a consignment. The Court rejected this, pointing to the express terms of the Kasunduan at Katibayan. The receipts clearly stated he received the jewelry to sell on behalf of the complainants, with his compensation being the overprice as commission.

Under Article 1458 of the Civil Code, a contract of sale requires one party to transfer ownership of a determinate thing while the other pays a price certain. Here, ownership never passed to Degaños. He was an agent obligated to account for sale proceeds or return unsold items—the classic relationship that supports estafa liability for misappropriation.

Novation Does Not Extinguish Criminal Liability

Degaños next claimed that his partial payments novated the agency into a loan, converting his liability from criminal to civil. The Court firmly rejected this argument.

Novation is the extinguishment of an obligation by substituting it with a new one that terminates the first—either by changing the object or principal conditions, substituting the debtor, or subrogating a third person in the creditor's rights. For novation to occur, the extinguishment must be declared in unequivocal terms, or the old and new obligations must be incompatible on every point. Mere acceptance of partial payments does not prove an intent to extinguish the original relationship.

More fundamentally, the Court cited Articles 89 and 94 of the Revised Penal Code, which list the exclusive grounds for total and partial extinguishment of criminal liability. Novation is not among them. As the Court explained in People v. Nery:

"The crime being an offense against the state, only the latter can renounce it."

Novation's role in criminal cases is limited. It may prevent criminal liability from arising in the first place—for example, where parties convert a trust relationship into an ordinary creditor-debtor arrangement before prosecution begins. It may also cast doubt on whether the original transaction was truly one that could give rise to penal responsibility. But once the crime is committed and prosecution has begun, the offended party cannot divest the State of its power to exact criminal liability.

Partial Payments Do Not Confirm Novation

The Court also found that Degaños' partial payments and his proposal to settle the balance during barangay proceedings did not amount to novation. These acts were not incompatible with his liability under the agency agreement. Rather than converting the agency into a sale, they confirmed his liability as the complainants' sales agent.

The Court affirmed Degaños' conviction for estafa, with the penalty as modified by the Court of Appeals.

Practical Takeaways

• Novation is not a defense to estafa. Once criminal liability has attached, changing or modifying the underlying contract does not erase the crime.
• Only the State can waive criminal liability. Private parties cannot agree to "convert" a criminal case into a civil one, even if they settle or compromise the civil aspect.
• Read your contracts carefully. The label matters less than the substance. An agreement to sell on commission, where unsold items must be returned, creates an agency relationship—not a sale—and can expose the recipient to estafa charges.
• Partial payments do not change the nature of the obligation. Accepting installments does not novate an agency into a loan, absent clear and unequivocal intent to extinguish the original relationship.
• Timing matters. Novation might prevent criminal liability only if it occurs before prosecution begins and genuinely changes the nature of the original transaction. After the State takes cognizance of the crime, it is too late.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.