Amicable Settlements and Novation Can Prevent Criminal Liability in Estafa Cases

Rex Sorongon v. People of the Philippines, G.R. No. 230669, June 16, 2021

Imagine borrowing a valuable item from a friend, agreeing to return it after use. Now, what if you reach a settlement where your friend agrees to waive ownership of that item in exchange for certain conditions? Can this settlement prevent any criminal liability for failing to return the item? This is the crux of the Supreme Court’s decision in the case of Rex Sorongon v. People of the Philippines, which sheds light on the legal concept of novation in the context of estafa under Philippine law.

In this case, Rex Sorongon was accused of estafa for allegedly failing to return a borrowed cement mixer. However, the parties had entered into an amicable settlement before the criminal complaint was filed. The Supreme Court ruled that this settlement effectively novated the original contract of commodatum, thereby preventing any incipient criminal liability for estafa. This decision underscores the importance of understanding how legal agreements can impact criminal proceedings.

Legal Context: Novation and Estafa Under Philippine Law

Estafa, as defined under Article 315 of the Revised Penal Code, involves deceit or abuse of confidence in various transactions, including the misappropriation of property received in trust or under an obligation to return it. The relevant provision states:

“Art. 315. Swindling (estafa). — Any person who shall defraud another by any of the means mentioned hereinbelow shall be punished by…”

Novation, on the other hand, is a legal concept under the Civil Code that refers to the substitution of a new obligation for an existing one, which extinguishes the old obligation. Article 1291 of the Civil Code provides:

“Obligations may be modified by… changing their object or principal conditions, or by substituting the person of the debtor, or by subrogating a third person in the rights of the creditor.”

In the context of estafa, novation can prevent criminal liability if it occurs before the filing of the criminal complaint. This is because estafa is considered a public offense, and only the state can prosecute it. However, if the underlying contractual relationship between the parties is novated before the criminal complaint is filed, the original obligation that could lead to criminal liability is extinguished.

For example, if a borrower and lender agree to replace a loan agreement with a new contract where the lender waives the right to repayment in exchange for other considerations, this novation could prevent any criminal liability for estafa if the borrower fails to repay the original loan.

Case Breakdown: The Journey of Rex Sorongon

Rex Sorongon, a civil engineer, was hired by Nelly Vander Bom and her husband to set up a water system for their business. In July 2004, after the project was completed, Sorongon borrowed a cement mixer from the couple for his project in Iloilo City. He promised to return it once his project was finished.

Months passed, and when the Vander Boms demanded the return of the mixer, Sorongon did not comply. They filed a complaint against him in the barangay, which led to an amicable settlement in March 2005. This settlement included the cement mixer and other alleged debts, with Nelly agreeing to waive ownership of these items in exchange for Sorongon not filing any countercharges against her.

Despite the settlement, the Vander Boms filed a criminal complaint for estafa against Sorongon in January 2006. The trial court and the Court of Appeals found Sorongon guilty, reasoning that the amicable settlement did not extinguish his criminal liability.

However, the Supreme Court reversed these decisions, emphasizing the effect of the amicable settlement on the original contract of commodatum. The Court stated:

“The amicable settlement stipulated, in no uncertain terms, that the parties agreed that they would desist from filing countercharges in the future.”

The Court further noted:

“With Nelly waiving her ownership over the cement mixer in favor of petitioner in exchange for the concession that he would refrain from filing any case against her in the future, there was clearly an implied novation of the original contract of commodatum between her and petitioner.”

The procedural steps in this case were as follows:

• Sorongon borrowed the cement mixer in July 2004.
• The Vander Boms demanded its return, but Sorongon did not comply.
• An amicable settlement was reached in March 2005, including the cement mixer.
• The criminal complaint for estafa was filed in January 2006.
• The trial court convicted Sorongon in 2011, and the Court of Appeals affirmed this decision in 2016.
• The Supreme Court granted the petition for review in 2021, acquitting Sorongon based on the novation effect of the amicable settlement.

Practical Implications: Navigating Estafa and Novation

The Supreme Court’s decision in Sorongon v. People highlights the potential for amicable settlements to prevent criminal liability in estafa cases, particularly when they involve an underlying contractual relationship that can be novated. This ruling may influence how parties approach disputes involving borrowed property or funds, encouraging them to seek settlements that can alter the legal obligations between them.

For businesses and individuals, it is crucial to document any agreements that modify existing obligations. If you are involved in a situation where property or funds are borrowed under an obligation to return them, consider the following:

• Seek legal advice before entering into any settlement or agreement that might affect your legal rights or obligations.
• Ensure that any settlement agreement is clear and unequivocal about the extinguishment of the original obligation.
• Understand that while novation can prevent criminal liability, it must occur before the filing of a criminal complaint.

Key Lessons:

• Amicable settlements can prevent criminal liability for estafa if they effectively novate the original obligation.
• It is essential to document any changes to existing legal obligations clearly.
• Consult with a legal professional to navigate the complexities of novation and its impact on criminal liability.

Frequently Asked Questions

What is estafa under Philippine law?

Estafa is a crime defined under Article 315 of the Revised Penal Code, involving deceit or abuse of confidence in transactions, such as misappropriating property received in trust or under an obligation to return it.

What is novation, and how does it relate to estafa?

Novation is the substitution of a new obligation for an existing one, which extinguishes the old obligation. In estafa cases, novation can prevent criminal liability if it occurs before the filing of a criminal complaint and effectively changes the original obligation.

Can an amicable settlement prevent criminal liability for estafa?

Yes, an amicable settlement can prevent criminal liability for estafa if it novates the original obligation before a criminal complaint is filed. The settlement must clearly extinguish the old obligation and establish a new one.

What should I do if I am accused of estafa?

If you are accused of estafa, seek legal advice immediately. Consider whether any agreements or settlements you have entered into might affect your criminal liability.

How can I ensure that a settlement agreement is legally binding?

To ensure a settlement agreement is legally binding, it should be in writing, signed by all parties, and ideally notarized. It should also clearly state the terms of the new obligation and the extinguishment of the old one.

ASG Law specializes in criminal law and civil transactions. Contact us or email hello@asglawpartners.com to schedule a consultation and navigate the complexities of estafa and novation in your case.