G.R. No.

164538 August 9, 2010

METROPOLITAN BANK and TRUST COMPANY, Petitioner,

vs.
ROGELIO REYNADO and JOSE C. ADRANDEA,** Respondents.

DECISION

DEL CASTILLO, J.:

"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. Since a criminal offense
like estafa is committed against the State, the private offended party may not waive or extinguish the criminal liability
that the law imposes for the commission of the crime."1

This Petition for Review on Certiorari under Rule 45 of the Rules of Court seeks the reversal of the Court of Appeals’
(CA’s) Decision2 dated October 21, 2002 in CA-G.R. SP No. 58548 and its further Resolution3 dated July 12, 2004
denying petitioner’s Motion for Reconsideration.4

Factual Antecedents

On January 31, 1997, petitioner Metropolitan Bank and Trust Company charged respondents before the Office of
the City Prosecutor of Manila with the crime of estafa under Article 315, paragraph 1(b) of the Revised Penal Code.
In the affidavit5 of petitioner’s audit officer, Antonio Ivan S. Aguirre, it was alleged that the special audit conducted on
the cash and lending operations of its Port Area branch uncovered anomalous/fraudulent transactions perpetrated
by respondents in connivance with client Universal Converter Philippines, Inc. (Universal); that respondents were
the only voting members of the branch’s credit committee authorized to extend credit accommodation to clients up
to ₱200,000.00; that through the so-called Bills Purchase Transaction, Universal, which has a paid-up capital of only
₱125,000.00 and actual maintaining balance of ₱5,000.00, was able to make withdrawals totaling
₱81,652,000.006 against uncleared regional checks deposited in its account at petitioner’s Port Area branch; that,
consequently, Universal was able to utilize petitioner’s funds even before the seven-day clearing period for regional
checks expired; that Universal’s withdrawals against uncleared regional check deposits were without prior approval
of petitioner’s head office; that the uncleared checks were later dishonored by the drawee bank for the reason
"Account Closed"; and, that respondents acted with fraud, deceit, and abuse of confidence.

In their defense, respondents denied responsibility in the anomalous transactions with Universal and claimed that
they only intended to help the Port Area branch solicit and increase its deposit accounts and daily transactions.

Meanwhile, on February 26, 1997, petitioner and Universal entered into a Debt Settlement Agreement7 whereby the
latter acknowledged its indebtedness to the former in the total amount of ₱50,990,976.278 as of February 4, 1997
and undertook to pay the same in bi-monthly amortizations in the sum of ₱300,000.00 starting January 15, 1997,
covered by postdated checks, "plus balloon payment of the remaining principal balance and interest and other
charges, if any, on December 31, 2001."9

Findings of the Prosecutor

Following the requisite preliminary investigation, Assistant City Prosecutor Winnie M. Edad (Prosecutor Edad) in her
Resolution10 dated July 10, 1997 found petitioner’s evidence insufficient to hold respondents liable for estafa.
According to Prosecutor Edad:

The execution of the Debt Settlement Agreement puts complainant bank in estoppel to argue that the liability is
criminal. Since the agreement was made even before the filing of this case, the relations between the parties [have]
change[d], novation has set in and prevented the incipience of any criminal liability on the part of respondents.11

Thus, Prosecutor Edad recommended the dismissal of the case:

WHEREFORE, for insufficiency of evidence, it is respectfully recommended that the case be dismissed.12

On December 9, 1997, petitioner appealed the Resolution of Prosecutor Edad to the Department of Justice (DOJ)
by means of a Petition for Review.13

Ruling of the Department of Justice

On June 22, 1998, the DOJ dismissed the petition ratiocinating that:

It is evident that your client based on the same transaction chose to file estafa only against its employees and treat
with kid gloves its big time client Universal who was the one who benefited from this transaction and instead, agreed
that it should be paid on installment basis.

To allow your client to make the choice is to make an unwarranted classification under the law which will result in
grave injustice against herein respondents. Thus, if your client agreed that no estafa was committed in this
transaction with Universal who was the principal player and beneficiary of this transaction[,] more so with herein
respondents whose liabilities are based only on conspiracy with Universal.

Equivocally, there is no estafa in the instant case as it was not clearly shown how respondents misappropriated the
₱53,873,500.00 which Universal owed your client after its checks deposited with Metrobank were dishonored.
Moreover, fraud is not present considering that the Executive Committee and the Credit Committee of Metrobank
were duly notified of these transactions which they approved. Further, no damage was caused to your client as it
agreed [to] the settlement [with] Universal.14

A Motion for Reconsideration15 was filed by petitioner, but the same was denied on March 1, 2000 by then Acting
Secretary of Justice Artemio G. Tuquero.16

Aggrieved, petitioner went to the CA by filing a Petition for Certiorari & Mandamus.17

Ruling of the Court of Appeals

By Decision18 of October 21, 2002, the CA affirmed the twin resolutions of the Secretary of Justice. Citing
jurisprudence19 wherein we ruled that while novation does not extinguish criminal liability, it may prevent the rise of
such liability as long as it occurs prior to the filing of the criminal information in court.20 Hence, according to the CA,
"[j]ust as Universal cannot be held responsible under the bills purchase transactions on account of novation, private
respondents, who acted in complicity with the former, cannot be made liable [for] the same transactions."21 The CA
added that "[s]ince the dismissal of the complaint is founded on legal ground, public respondents may not be
compelled by mandamus to file an information in court."22

Incidentally, the CA totally ignored the Comment23 of the Office of the Solicitor General (OSG) where the latter,
despite being the statutory counsel of public respondent DOJ, agreed with petitioner that the DOJ erred in
dismissing the complaint. It alleged that where novation does not extinguish criminal liability for estafa neither does
restitution negate the offense already committed.24

Additionally, the OSG, in sharing the views of petitioner contended that failure to implead other responsible
individuals in the complaint does not warrant its dismissal, suggesting that the proper remedy is to cause their
inclusion in the information.25 This notwithstanding, however, the CA disposed of the petition as follows:

WHEREFORE, the petition is DENIED due course and, accordingly, DISMISSED. Consequently, the resolutions
dated June 22, 1998 and March 1, 2000 of the Secretary of Justice are AFFIRMED.

SO ORDERED.26

Hence, this instant petition before the Court.

On November 8, 2004, we required27 respondents to file Comment, not a motion to dismiss, on the petition within 10
days from notice. The OSG filed a Manifestation and Motion in Lieu of Comment28 while respondent Jose C.
Adraneda (Adraneda) submitted his Comment29 on the petition. The Secretary of Justice failed to file the required
comment on the OSG’s Manifestation and Motion in Lieu of Comment and respondent Rogelio Reynado (Reynado)
did not submit any. For which reason, we issued a show cause order30 on July 19, 2006. Their persistent non-
compliance with our directives constrained us to resolve that they had waived the filing of comment and to impose a
fine of ₱1,000.00 on Reynado. Upon submission of the required memorandum by petitioner and Adraneda, the
instant petition was submitted for resolution.

Issues

Petitioner presented the following main arguments for our consideration:

1. Novation and undertaking to pay the amount embezzled do not extinguish criminal liability.

2. It is the duty of the public prosecutor to implead all persons who appear criminally liable for the offense
charged.

Petitioner persistently insists that the execution of the Debt Settlement Agreement with Universal did not absolve
private respondents from criminal liability for estafa. Petitioner submits that the settlement affects only the civil
obligation of Universal but did not extinguish the criminal liability of the respondents. Petitioner thus faults the CA in
sustaining the DOJ which in turn affirmed the finding of Prosecutor Edad for committing apparent error in the
appreciation and the application of the law on novation. By petitioner’s claim, citing Metropolitan Bank and Trust Co.
v. Tonda,31 the "negotiations pertain [to] and affect only the civil aspect of the case but [do] not preclude prosecution
for the offense already committed."32

In his Comment, Adraneda denies being a privy to the anomalous transactions and passes on the sole responsibility
to his co-respondent Reynado as the latter was able to conceal the pertinent documents being the head of
petitioner’s Port Area branch. Nonetheless, he contends that because of the Debt Settlement Agreement, they
cannot be held liable for estafa.

The OSG, for its part, instead of contesting the arguments of petitioner, even prayed before the CA to give due
course to the petition contending that DOJ indeed erred in dismissing the complaint for estafa.

Given the facts of the case, the basic issue presented before this Court is 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.33

Our Ruling

We find the petition highly meritorious.

Novation not a mode of extinguishing

criminal liability for estafa; Criminal liability for estafa not affected by compromise or novation of contract.

Initially, it is best to emphasize that "novation is not one of the grounds prescribed by the Revised Penal Code for
the extinguishment of criminal liability."34

In a catena of cases, it was ruled that criminal liability for estafa is not affected by a compromise or novation of
contract. In Firaza v. People35 and Recuerdo v. People,36 this Court ruled that in a crime of estafa, reimbursement or
belated payment to the offended party of the money swindled by the accused does not extinguish the criminal
liability of the latter. We also held in People v. Moreno37 and in People v. Ladera38 that "criminal liability for estafa is
not affected by compromise or novation of contract, for it is a public offense which must be prosecuted and punished
by the Government on its own motion even though complete reparation should have been made of the damage
suffered by the offended party." Similarly in the case of Metropolitan Bank and Trust Company v. Tonda39 cited by
petitioner, we held that in a crime of estafa, reimbursement of or compromise as to the amount misappropriated,
after the commission of the crime, affects only the civil liability of the offender, and not his criminal liability.

Thus, the doctrine that evolved from the aforecited cases is that a compromise or settlement entered into after the
commission of the crime does not extinguish accused’s liability for estafa. Neither will the same bar the prosecution
of said crime. Accordingly, in such a situation, as in this case, the complaint for estafa against respondents should
not be dismissed just because petitioner entered into a Debt Settlement Agreement with Universal. Even the OSG
arrived at the same conclusion:

Contrary to the conclusion of public respondent, the Debt Settlement Agreement entered into between petitioner
and Universal Converter Philippines extinguishes merely the civil aspect of the latter’s liability as a corporate entity
but not the criminal liability of the persons who actually committed the crime of estafa against petitioner Metrobank.
x x x40

Unfortunately for petitioner, the above observation of the OSG was wittingly glossed over in the body of the assailed
Decision of the CA.

Execution of the Debt Settlement Agreement did not prevent the incipience of criminal liability.

Even if the instant case is viewed from the standpoint of the law on contracts, the disposition absolving the
respondents from criminal liability because of novation is still erroneous.

Under Article 1311 of the Civil Code, "contracts take effect only between the parties, their assigns and heirs, except
in case where the rights and obligations arising from the contract are not transmissible by their nature, or by
stipulation or by provision of law." The civil law principle of relativity of contracts provides that "contracts can only
bind the parties who entered into it, and it cannot favor or prejudice a third person, even if he is aware of such
contract and has acted with knowledge thereof."41

In the case at bar, it is beyond cavil that respondents are not parties to the agreement. The intention of the parties
thereto not to include them is evident either in the onerous or in the beneficent provisions of said agreement. They
are not assigns or heirs of either of the parties. Not being parties to the agreement, respondents cannot take refuge
therefrom to bar their anticipated trial for the crime they committed. It may do well for respondents to remember that
the criminal action commenced by petitioner had its genesis from the alleged fraud, unfaithfulness, and abuse of
confidence perpetrated by them in relation to their positions as responsible bank officers. It did not arise from a
contractual dispute or matters strictly between petitioner and Universal. This being so, respondents cannot rely on
subject settlement agreement to preclude prosecution of the offense already committed to the end of extinguishing
their criminal liability or prevent the incipience of any liability that may arise from the criminal offense. This only
demonstrates that the execution of the agreement between petitioner and Universal has no bearing on the
innocence or guilt of the respondents.

Determination of the probable cause, a function belonging to the public prosecutor; judicial review allowed where it
has been clearly established that the prosecutor committed grave abuse of discretion.

In a preliminary investigation, a public prosecutor determines whether a crime has been committed and whether
there is probable cause that the accused is guilty thereof.42 The Secretary of Justice, however, may review or modify
the resolution of the prosecutor.

"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 and should be held for trial."43 Generally, a
public prosecutor is afforded a wide latitude of discretion in the conduct of a preliminary investigation. By way of
exception, however, judicial review is allowed where respondent has clearly established that the prosecutor
committed grave abuse of discretion that is, when he has exercised his discretion "in an arbitrary, capricious,
whimsical or despotic manner by reason of passion or personal hostility, patent and gross enough as to amount to
an evasion of a positive duty or virtual refusal to perform a duty enjoined by law."44 Tested against these guidelines,
we find that this case falls under the exception rather than the general rule.
A close scrutiny of the substance of Prosecutor Edad’s Resolution dated July 10, 1997 readily reveals that were it
not for the Debt Settlement Agreement, there was indeed probable cause to indict respondents for the crime
charged. From her own assessment of the Complaint-Affidavit of petitioner’s auditor, her preliminary finding is that
"Ordinarily, the offense of estafa has been sufficiently established."45 Interestingly, she suddenly changed tack and
declared that the agreement altered the relation of the parties and that novation had set in preventing the incipience
of any criminal liability on respondents. In light of the jurisprudence herein earlier discussed, the prosecutor should
not have gone that far and executed an apparent somersault. Compounding further the error, the DOJ in dismissing
petitioner’s petition, ruled out estafa contrary to the findings of the prosecutor. Pertinent portion of the ruling reads:

Equivocally, there is no estafa in the instant case as it was not clearly shown how respondents misappropriated the
₱53,873,500.00 which Universal owed your client after its checks deposited with Metrobank were dishonored.
Moreover, fraud is not present considering that the Executive Committee and the Credit Committee of Metrobank
were duly notified of these transactions which they approved. Further, no damage was caused to your client as it
agreed [to] the settlement [with] Universal.46

The findings of the Secretary of Justice in sustaining the dismissal of the Complaint are matters of defense best left
to the trial court’s deliberation and contemplation after conducting the trial of the criminal case. To emphasize, a
preliminary investigation for the purpose of determining the existence of probable cause is "not a part of the trial. A
full and exhaustive presentation of the parties’ evidence is not required, but only such as may engender a well-
grounded belief that an offense has been committed and that the accused is probably guilty thereof."47 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."48 So we held
in Balangauan v. Court of Appeals:49

Applying the foregoing disquisition to the present petition, the reasons of DOJ for affirming the dismissal of the
criminal complaints for estafa and/or qualified estafa are determinative of whether or not it committed grave abuse of
discretion amounting to lack or excess of jurisdiction. In requiring "hard facts and solid evidence" as the basis for a
finding of probable cause to hold petitioners Bernyl and Katherene liable to stand trial for the crime complained of,
the DOJ disregards the definition of probable cause – that it is a reasonable ground of presumption that a matter is,
or may be, well-founded, such a state of facts in the mind of the prosecutor as would lead a person of ordinary
caution and prudence to believe, or entertain an honest or strong suspicion, that a thing is so. The term does not
mean "actual and positive cause" nor does it import absolute certainty. It is merely based on opinion and reasonable
belief; that is, the belief that the act or omission complained of constitutes the offense charged. While probable
cause demands more than "bare suspicion," it requires "less than evidence which would justify conviction." Herein,
the DOJ reasoned as if no evidence was actually presented by respondent HSBC when in fact the records of the
case were teeming; or it discounted the value of such substantiation when in fact the evidence presented was
adequate to excite in a reasonable mind the probability that petitioners Bernyl and Katherene committed the crime/s
complained of. In so doing, the DOJ whimsically and capriciously exercised its discretion, amounting to grave abuse
of discretion, which rendered its resolutions amenable to correction and annulment by the extraordinary remedy
of certiorari.

In the case at bar, as analyzed by the prosecutor, a prima facie case of estafa exists against respondents. As
perused by her, the facts as presented in the Complaint-Affidavit of the auditor are reasonable enough to excite her
belief that respondents are guilty of the crime complained of. In Andres v. Justice Secretary Cuevas50 we had
occasion to rule that the "presence or absence of the elements of the crime is evidentiary in nature and is a matter
of defense that may be passed upon after a full-blown trial on the merits."51

Thus confronted with the issue on whether the public prosecutor and the Secretary of Justice committed grave
abuse of discretion in disposing of the case of petitioner, given the sufficiency of evidence on hand, we do not
hesitate to rule in the affirmative. We have previously ruled that grave abuse of discretion may arise when a lower
court or tribunal violates and contravenes the Constitution, the law or existing jurisprudence.

Non-inclusion of officers of Universal not a ground for the dismissal of the complaint.

The DOJ in resolving to deny petitioner’s appeal from the resolution of the prosecutor gave another ground – failure
to implead the officers of Universal. It explained:
To allow your client to make the choice is to make an unwarranted classification under the law which will result in
grave injustice against herein respondents. Thus, if your client agreed that no estafa was committed in this
transaction with Universal who was the principal player and beneficiary of this transaction[,] more so with herein
respondents whose liabilities are based only on conspiracy with Universal.52 1avvphi1

The ratiocination of the Secretary of Justice conveys the idea that if the charge against respondents rests upon the
same evidence used to charge co-accused (officers of Universal) based on the latter’s conspiratorial participation,
the non-inclusion of said co-accused in the charge should benefit the respondents.

The reasoning of the DOJ is flawed.

Suffice it to say that it is indubitably within the discretion of the prosecutor to determine who must be charged with
what crime or for what offense. Public prosecutors, not the private complainant, are the ones obliged to bring forth
before the law those who have transgressed it.

Section 2, Rule 110 of the Rules of Court53 mandates that all criminal actions must be commenced either by
complaint or information in the name of the People of the Philippines against all persons who appear to be
responsible therefor. Thus the law makes it a legal duty for prosecuting officers to file the charges against
whomsoever the evidence may show to be responsible for the offense. The proper remedy under the circumstances
where persons who ought to be charged were not included in the complaint of the private complainant is definitely
not to dismiss the complaint but to include them in the information. As the OSG correctly suggested, the proper
remedy should have been the inclusion of certain employees of Universal who were found to have been in cahoots
with respondents in defrauding petitioner. The DOJ, therefore, cannot seriously argue that because the officers of
Universal were not indicted, respondents themselves should not likewise be charged. Their non-inclusion cannot be
perversely used to justify desistance by the public prosecutor from prosecution of the criminal case just because not
all of those who are probably guilty thereof were charged.

Mandamus a proper remedy when resolution of public respondent is tainted with grave abuse of discretion.

Mandamus is a remedial measure for parties aggrieved. It shall issue when "any tribunal, corporation, board, officer
or person unlawfully neglects the performance of an act which the law specifically enjoins as a duty resulting from
an office, trust or station."54 The writ of mandamus is not available to control discretion neither may it be issued to
compel the exercise of discretion. Truly, it is a matter of discretion on the part of the prosecutor to determine which
persons appear responsible for the commission of a crime. However, the moment he finds one to be so liable it
becomes his inescapable duty to charge him therewith and to prosecute him for the same. In such a situation, the
rule loses its discretionary character and becomes mandatory. Thus, where, as in this case, despite the sufficiency
of the evidence before the prosecutor, he refuses to file the corresponding information against the person
responsible, he abuses his discretion. His act is tantamount to a deliberate refusal to perform a duty enjoined by
law. The Secretary of Justice, on the other hand, gravely abused his discretion when, despite the existence of
sufficient evidence for the crime of estafa as acknowledged by the investigating prosecutor, he completely ignored
the latter’s finding and proceeded with the questioned resolution anchored on purely evidentiary matters in utter
disregard of the concept of probable cause as pointed out in Balangauan. To be sure, findings of the Secretary of
Justice are not subject to review unless shown to have been made with grave abuse.55 The present case calls for
the application of the exception. Given the facts of this case, petitioner has clearly established that the public
prosecutor and the Secretary of Justice committed grave abuse of discretion.

WHEREFORE, the petition is GRANTED. The assailed Decision of the Court of Appeals in CA-G.R. SP No. 58548
promulgated on October 21, 2002 affirming the Resolutions dated June 22, 1998 and March 1, 2000 of the
Secretary of Justice, and its Resolution dated July 12, 2004 denying reconsideration thereon are
hereby REVERSED and SET ASIDE. The public prosecutor is ordered to file the necessary information for estafa
against the respondents.

SO ORDERED.