G.R. No. 158131 - Social Security System vs. Department of Justice

The petitioner is the Social Security System (SSS), a government-owned and controlled corporation mandated by Republic Act (RA) 1161, as amended by RA 8282, to provide financial benefits to private sector employees.
The respondents include the Department of Justice (DOJ), respondent Martels (Jose V. Martel and Olga S. Martel), and Systems and Encoding Corporation (SENCOR), an information technology firm.
SENCOR, through its directors (the Martels), is an employer obliged by law to remit monthly contributions to the petitioner.

In 1998, SSS filed a complaint before the Pasay City Prosecutor’s Office (docketed as I.S. No. 98-L-1534) against respondent Martels and five co-accused for SENCOR’s non-payment of contributions amounting to P6,936,435.80 for the period January 1991 to May 1997.
Respondent Martels offered to settle the obligation by assigning a parcel of land in Tagaytay City (covered by Transfer Certificate of Title No. 26340).
SSS accepted the offer “subject to the condition” that the respondents would either pay through dacion en pago (assignment of property) or settle the matter in cash within a reasonable time.
Based on this agreement, SSS withdrew the complaint while reserving the right to revive it if the settlement did not materialize, leading the Pasay City Prosecutor’s Office to dismiss the case.

In December 2001, respondent Jose V. Martel proposed an alternative settlement via computer-related services instead of the promised land.
On December 7, 2001, SSS initiated a new complaint (docketed as I.S. No. 00-L-7142) against the same respondents for non-remittance of contributions covering February 1991 to October 2000 amounting to P21,148,258.30.
Respondents argued that the earlier compromise agreement with the offer of dacion en pago constituted a novation, converting the parties’ relationship into an ordinary creditor-debtor one, thereby estopping SSS from pursuing criminal prosecution.

The Pasay City Prosecutor’s Office, through Assistant Prosecutor Artemio Puti’s Resolution dated February 28, 2001, found probable cause to indict respondent Martels for the violation of Section 22(a) and (b) in relation to Section 28(e) of RA 1161, as amended, noting that:

The criminal liability was already consummated before the respondents attempted to settle the obligation.
The dacion en pago offer failed to materialize under the agreed conditions.

On May 18, 2001, the DOJ, via Undersecretary Manuel A.J. Teehankee’s Resolution, reversed Prosecutor Puti’s findings by granting the respondents’ appeal.

The DOJ held that a compromise agreement had been reached, thus “negating” criminal liability by converting the matter into an ordinary creditor-debtor situation.
The original criminal Information was ordered to be withdrawn.

SSS’s motion for reconsideration of the DOJ’s ruling was denied on September 20, 2001.
Subsequently, SSS appealed to the Court of Appeals, which, in its Decision on October 17, 2002, affirmed the DOJ’s rulings and dismissed the petition.
SSS’s motion for reconsideration before the Court of Appeals was similarly denied in a Resolution dated May 5, 2003.

The respondents were charged under a special law designed to protect public interest, and novation does not operate to discharge criminal liability under such statutes.
SSS never agreed to settle the criminal liability, and the purported compromise (novating the relationship) was not valid.
Even partial performance or alternative settlement modes (like computer-related services) would affect only civil liability and are insufficient to negate the criminal liability incurred for non-remittance of contributions.

The primary issue is whether the concept of novation, as a civil law doctrine, can be used to abate the criminal prosecution of respondent Martels for violation of Sections 22(a) and (b) in relation to Section 28(e) of RA 1161, as amended.

Whether the parties had a pre-existing contractual relationship that could be validly replaced (or extinguished) by a new obligation constituting novation.
Whether the actions taken by respondent Martels (offering dacion en pago and suggesting alternative settlements) satisfy the requirements to invoke novation.
Whether partial compliance, such as partial payments or preparatory steps toward the dacion en pago, can transform a criminal obligation into a mere civil liability thereby preventing criminal prosecution.