'Submitting' to guards doesn't work?

I acidentally became a thief when I visted the temple rector in moondarks. I hadn't been in a temple store before, so didn't recognise his title as a shop keeper, and he attacked e, making me think he was a hostile monster of sorts.. who I couldn't kill. So I stole his stuff.

Now, guards call me varlot and wish to arrest me- I thought if I went along with it, I could stop the whole thing, but when I choose submit, nothing happens. So the guards keep calling me a varlot (although I can just press Esc when the convo come up and walk away)

This also happens at the Dorhal courthouse. You come out and talk to them not having done anything they give you the same message as Grace got.