Metropolitan Bank and Trust Company vs. Reynado

Novation or compromise does not extinguish criminal liability for estafa, nor does a settlement agreement with the principal offender bar the prosecution of accomplices who are strangers to the agreement.

Petitioner Metropolitan Bank and Trust Company charged respondents Rogelio Reynado and Jose C. Adraneda, voting members of its Port Area branch credit committee, with estafa under Article 315, paragraph 1(b) of the Revised Penal Code. A special audit uncovered that respondents, in connivance with client Universal Converter Philippines, Inc., allowed Universal to withdraw ₱81,652,000.00 against uncleared regional checks without head office approval. The uncleared checks were subsequently dishonored. Before the filing of the criminal information, petitioner and Universal executed a Debt Settlement Agreement wherein Universal acknowledged its indebtedness and undertook to pay in bi-monthly amortizations.

• The Anomalous Transactions: Petitioner’s audit officer alleged that a special audit uncovered fraudulent transactions at petitioner’s Port Area branch perpetrated by respondents in connivance with client Universal Converter Philippines, Inc. Respondents were the only voting members of the branch credit committee authorized to extend credit accommodation up to ₱200,000.00. Through Bills Purchase Transactions, Universal—which had a paid-up capital of only ₱125,000.00 and an actual maintaining balance of ₱5,000.00—was able to withdraw ₱81,652,000.00 against uncleared regional checks without the prior approval of petitioner’s head office. The uncleared checks were later dishonored by the drawee bank for the reason "Account Closed."
• The Debt Settlement Agreement: On February 26, 1997, before the filing of the criminal information, petitioner and Universal executed a Debt Settlement Agreement. Universal acknowledged its indebtedness of ₱50,990,976.27 and undertook to pay in bi-monthly amortizations of ₱300,000.00 starting January 15, 1997, plus a balloon payment of the remaining balance on December 31, 2001.
• The Defense: Respondents denied responsibility for the anomalous transactions, claiming they only intended to help the branch solicit and increase deposit accounts. Respondent Adraneda specifically denied being a privy to the transactions and passed sole responsibility to co-respondent Reynado, who allegedly concealed pertinent documents as branch head.

• Novation: Petitioner argued that novation and the undertaking to pay the embezzled amount do not extinguish criminal liability. The settlement affects only the civil obligation of Universal but did not extinguish the criminal liability of the respondents.
• Duty to Implead: Petitioner maintained that it is the duty of the public prosecutor to implead all persons who appear criminally liable. The failure to implead Universal's officers should not warrant the dismissal of the complaint against respondents.

• Denial of Participation: Respondent Adraneda countered that he was not a privy to the anomalous transactions and passed the sole responsibility to his co-respondent Reynado.
• Novation as a Defense: Respondent Adraneda contended that because of the Debt Settlement Agreement executed between petitioner and Universal, respondents cannot be held liable for estafa.

• Novation and Criminal Liability: Whether the execution of the Debt Settlement Agreement precluded petitioner from holding respondents liable to stand trial for estafa under Art. 315(1)(b) of the Revised Penal Code.
• Probable Cause and Grave Abuse of Discretion: Whether the public prosecutor and the Secretary of Justice committed grave abuse of discretion in dismissing the complaint for estafa.
• Non-inclusion of Co-accused: Whether the non-inclusion of the officers of Universal in the complaint warrants the dismissal of the case against respondents.

• Novation and Criminal Liability: The execution of the Debt Settlement Agreement did not extinguish or prevent the incipience of criminal liability for estafa. Novation is not among the grounds prescribed by the Revised Penal Code for the extinguishment of criminal liability. A compromise or settlement entered into after the commission of the crime affects only the civil liability of the offender, not the criminal liability, because estafa is a public offense. Furthermore, under the principle of relativity of contracts, the agreement binds only the parties who entered into it; respondents, who are not parties, assigns, or heirs, cannot invoke the agreement to bar their prosecution for acts arising from fraud and abuse of confidence as bank officers.
• Probable Cause and Grave Abuse of Discretion: Grave abuse of discretion was committed by the prosecutor and the Secretary of Justice. The prosecutor initially found a prima facie case of estafa but erroneously reversed her finding based on novation. The DOJ further erred by requiring "hard facts and solid evidence" and making determinations on the presence of fraud and damage—matters that are evidentiary in nature and best left to a full-blown trial. Probable cause requires only a well-founded belief that a crime has been committed, demanding less than evidence sufficient for conviction.
• Non-inclusion of Co-accused: The non-inclusion of Universal's officers does not warrant the dismissal of the complaint against respondents. The discretion to determine who must be charged lies with the public prosecutor, who is mandated under Section 2, Rule 110 of the Rules of Court to file charges against all persons who appear responsible. The proper remedy for the non-inclusion of other responsible individuals is to cause their inclusion in the information, not to dismiss the complaint entirely.

• Novation in Estafa — Novation or compromise does not extinguish criminal liability for estafa, as it is a public offense that must be prosecuted by the Government on its own motion. Reimbursement of or compromise as to the amount misappropriated after the commission of the crime affects only the civil liability of the offender, not the criminal liability.
• Relativity of Contracts — Contracts take effect only between the parties, their assigns, and heirs. Contracts cannot favor or prejudice a third person, even if such third person is aware of the contract and has acted with knowledge thereof.
• Probable Cause — Probable cause is defined as such facts and circumstances that will engender a well-founded belief that a crime has been committed and that the respondent is probably guilty thereof. It does not mean "actual and positive cause" nor does it import absolute certainty. It is merely based on opinion and reasonable belief, requiring less than evidence which would justify conviction.
• Grave Abuse of Discretion by the Prosecutor — Judicial review of a prosecutor's discretion is allowed where the prosecutor has exercised discretion in an arbitrary, capricious, whimsical, or despotic manner, amounting to an evasion of a positive duty or a virtual refusal to perform a duty enjoined by law.

• "It is a hornbook doctrine in our criminal law that the criminal liability for estafa is not affected by a compromise, for it is a public offense which must be prosecuted and punished by the government on its own motion, even though complete reparation [has] been made of the damage suffered by the private offended party." — Establishes the fundamental principle that criminal liability for estafa is unaffected by civil compromises.
• "A finding of probable cause does not require an inquiry into whether there is sufficient evidence to procure a conviction. It is enough that it is believed that the act or omission complained of constitutes the offense charged." — Defines the standard of probable cause in preliminary investigations and limits the scope of the prosecutor's inquiry.

• Metropolitan Bank and Trust Co. v. Tonda, 392 Phil. 797 (2000) — Followed. Held that in estafa, reimbursement or compromise affects only the civil liability of the offender, not the criminal liability.
• Balangauan v. Court of Appeals, G.R. No. 174350, August 13, 2008 — Followed. Established that the DOJ commits grave abuse of discretion when it requires "hard facts and solid evidence" as the basis for a finding of probable cause, effectively disregarding the proper standard for preliminary investigations.
• Diongzon v. Court of Appeals, 378 Phil. 1090 (1999) — Distinguished. The Court of Appeals relied on this case to hold that novation prior to the filing of information prevents the rise of criminal liability, but the Supreme Court clarified that the settlement did not extinguish liability here because respondents were not parties to the agreement.
• Andres v. Justice Secretary Cuevas, 499 Phil. 36 (2005) — Followed. Ruled that the presence or absence of the elements of a crime is evidentiary in nature and is a matter of defense that must be passed upon after a full-blown trial on the merits.

• Article 315(1)(b), Revised Penal Code — Defines estafa with unfaithfulness or abuse of confidence, specifically the misappropriating or converting of money or property received in trust or on commission to the prejudice of another. Applied as the offense for which respondents should be charged based on the existence of probable cause.
• Article 89, Revised Penal Code — Enumerates how criminal liability is totally extinguished (death, service of sentence, amnesty, absolute pardon, prescription of crime, prescription of penalty, marriage of offended woman). Cited to emphasize that novation is not among the modes of extinguishing criminal liability.
• Article 1311, Civil Code — Stipulates that contracts take effect only between the parties, their assigns, and heirs. Applied to demonstrate that respondents, not being parties to the Debt Settlement Agreement, cannot take refuge therein to bar their prosecution.
• Section 2, Rule 110, Rules of Court — Mandates that criminal actions be commenced in the name of the People of the Philippines against all persons who appear to be responsible for the offense. Applied to show that the proper remedy for the non-inclusion of Universal's officers was their inclusion in the information, not the dismissal of the complaint.

Renato C. Corona (Chief Justice, Chairperson), Teresita J. Leonardo-De Castro, Lucas P. Bersamin, Jose Portugal Perez