Republic vs. Sandiganbayan

A sale of sequestered property by the PCGG without the approval of the Sandiganbayan is void, and any settlement agreement arising from such void sale is likewise a nullity that cannot bind the Republic; however, the Republic must return the proceeds of the void sale held in escrow to the buyer to avoid unjust enrichment, since the buyer was deprived of the property by a court order restoring it to its true owner.

The Presidential Commission on Good Government (PCGG) filed Civil Case No. 0033 before the Sandiganbayan on July 31, 1987, for reconveyance, reversion, accounting, restitution, and damages against Eduardo Cojuangco, Jr. and 60 other defendants. On the strength of this complaint, the PCGG issued sequestration orders covering various assets, including a Falcon 50 jet aircraft registered as RP-C754. The aircraft had been leased by United Coconut Chemicals Inc. (Unichem) from Faysound Ltd., a U.S. company, and the lease had lapsed in 1987. Neither Cojuangco nor any defendant in Civil Case No. 0033 claimed ownership or interest in the aircraft, and Unichem itself was not sequestered—only Cojuangco's shares in Unichem were. The PCGG's administrative authority to dispose of sequestered assets is limited and requires the sanction of the Sandiganbayan, as established in prior jurisprudence.

On July 31, 1987, the Republic of the Philippines and the PCGG filed Civil Case No. 0033 before the Sandiganbayan for reconveyance, reversion, accounting, restitution, and damages against Eduardo Cojuangco, Jr. and 60 other defendants. Pursuant to this complaint, the PCGG issued sequestration orders covering various assets, including a Falcon 50 jet aircraft (Manufacturer's Serial No. 082, Certificate of Registration No. RP-C754). The aircraft had been leased by United Coconut Chemicals Inc. (Unichem) from Faysound Ltd., a U.S. company, and the lease lapsed in 1987, at which time the aircraft should have been returned to Faysound. Neither Cojuangco nor any defendant in Civil Case No. 0033 claimed ownership or interest in the aircraft. Unichem itself was not sequestered; only Cojuangco's shares in Unichem were. No one, not even Faysound Ltd., came forward to question before the Sandiganbayan the legality of the PCGG's sequestration of the aircraft.

On March 20, 1989, two years after the lease expired, the PCGG filed a motion with the Sandiganbayan for authority to sell the sequestered aircraft on the ground that it was fast deteriorating. The Sandiganbayan denied the motion on May 18, 1989, finding no justification for the seizure from the lessee. The PCGG elevated the matter to the Supreme Court via a petition for certiorari (G.R. No. 88336), and on June 6, 1989, the Court issued a temporary restraining order directing the Sandiganbayan to cease and desist from enforcing its resolution. Relying on this TRO, the PCGG, on September 28, 1989, sold the aircraft to Walter Fuller Aircraft Sales, Inc. (Fuller Aircraft), a U.S. corporation, for US$7,138,168.65, which was deposited in escrow with the PNB. The sale was without authority from the Sandiganbayan.

On December 26, 1990, the Supreme Court en banc dismissed the PCGG's petition in G.R. No. 88336, holding that the decision to sell the aircraft is not within the limited administrative powers of the PCGG but requires the sanction of the Sandiganbayan. The Court ordered the PCGG to deposit the proceeds of the sale under a special time deposit with the PNB for the account of the Sandiganbayan in escrow for the person or persons who may be adjudged lawfully entitled thereto. As of July 28, 1999, the escrow deposit amounted to US$8,568,905.55.

Meanwhile, Faysound Ltd. filed an action in the District Court of Arkansas to recover the Falcon jet from Fuller Aircraft. On October 29, 1990, that court ordered that title to the aircraft be returned to Faysound Ltd. Fuller Aircraft, having been deprived of the aircraft, then sued the Republic and the PCGG for breach of warranty with damages in the District Court of Texas, Dallas Division. On December 2, 1993, the Texas court rendered judgment against the Republic and PCGG, jointly and severally, in the amount of US$14,928,457.29, including pre-judgment interest and post-judgment interest at the legal rate. On October 14, 1996, the PCGG entered into a settlement agreement with Fuller Aircraft providing for payment of US$11 million on October 15, 1996, and US$3 million in equal monthly installments from November 15, 1996 to October 15, 1997.

On April 13, 1998, the PCGG filed with the Sandiganbayan an ex-parte motion to withdraw the escrow funds, seeking their release to the Bureau of Treasury for transmission to Fuller Aircraft pursuant to the settlement agreement and the U.S. court decisions. The Sandiganbayan denied the motion on September 3, 1999, on the grounds that the person lawfully entitled to the escrow deposit had not been determined, that the motion contravened the Supreme Court's ruling in G.R. No. 88336, and that copies of the deed of sale and the compromise agreement had not been duly authenticated. The Sandiganbayan denied reconsideration on February 17, 2000. The Republic then filed the instant petition for certiorari and mandamus. The Sandiganbayan failed to file a comment on the petition.

• Grave Abuse of Discretion: Petitioner Republic contended that the Sandiganbayan gravely abused its discretion when it denied the PCGG's motion to release the funds deposited in escrow with the PNB to the Bureau of Treasury for transmission to Fuller Aircraft.
• Financial Liability and Diplomatic Pressure: Petitioner alleged that for the delay in the final settlement of its financial liability under the settlement agreement with Fuller Aircraft, the Government of the Philippines must pay an interest surcharge of US$2,000.00 per day, and that it was under heavy diplomatic pressure.

• Validity of the PCGG Sale: Whether the PCGG's sale of the sequestered aircraft to Fuller Aircraft without the approval of the Sandiganbayan was valid.
• Binding Effect of the Settlement Agreement: Whether the Republic is bound by the settlement agreement entered into by the PCGG with Fuller Aircraft.
• Release of Escrow Funds: Whether the Republic may withdraw and release the escrow funds to Fuller Aircraft.

• Validity of the PCGG Sale: No. The sale was void, the PCGG having sold the aircraft without the sanction of the Sandiganbayan as required by law and prior Supreme Court ruling.
• Binding Effect of the Settlement Agreement: No. The Republic cannot be held liable under the settlement agreement, because the PCGG was not authorized to enter into such contract, and the void sale rendered the agreement a nullity.
• Release of Escrow Funds: Yes. The Republic must return the escrow deposit to Fuller Aircraft to avoid unjust enrichment, since Fuller Aircraft was deprived of the aircraft by a U.S. court order restoring it to Faysound Ltd.

• Validity of the PCGG Sale: The aircraft was erroneously sequestered. Faysound Ltd. was the owner of the Falcon jet, as admitted by the Republic itself, and neither Cojuangco nor any defendant in Civil Case No. 0033 had any interest in it. The PCGG's sale of the aircraft to Fuller Aircraft was thus patently illegal. In G.R. No. 88336, the Supreme Court had already held that "the decision to sell the aircraft is not within the limited administrative powers of the PCGG but requires the sanction of the Sandiganbayan." Without such approval, "any sale of said aircraft under the circumstances obtaining in this case would constitute a prohibited and invalid disposition by the PCGG." The sale was therefore void ab initio.

• Binding Effect of the Settlement Agreement: Because the sale of the aircraft was void, the settlement agreement between the PCGG and Fuller Aircraft was likewise a nullity. The Republic did not authorize the PCGG to enter into such contract, and even granting arguendo that the PCGG was authorized, it exceeded its authority. The Court relied on Chavez vs. Sandiganbayan, which held that the PCGG or any of its members may be held civilly liable if they did not act in good faith and within the scope of their authority, and on Director of Bureau of Communications vs. Aligaen, which held that unauthorized acts by government officials are not acts of the State. The Republic accordingly could not be bound by the terms of the agreement, and there was no cause of action against it. The Court directed the Republic to take immediate appropriate action against the PCGG personnel involved in the unauthorized sale.

• Release of Escrow Funds: Notwithstanding the nullity of the sale and the settlement agreement, the Republic had a legal duty to return the escrow deposit—US$8,568,905.55 as of July 1999—to Fuller Aircraft through the PCGG. Fuller Aircraft had been deprived of the aircraft by the Arkansas District Court's judgment restoring title to Faysound Ltd., and no party in Civil Case No. 0033 had questioned Fuller Aircraft's right to the escrow deposit. Retention of the sale proceeds by the Republic would constitute unjust enrichment and could result in liability for keeping the amount indefinitely to the prejudice of Fuller Aircraft.

• Void Sale Doctrine — A sale of sequestered property by the PCGG without the approval of the Sandiganbayan is void, and any agreement arising from such void sale is likewise a nullity. The Court applied this doctrine to hold both the aircraft sale and the subsequent settlement agreement between the PCGG and Fuller Aircraft void, such that the Republic could not be bound by the agreement's terms.

• Unauthorized Acts of Government Officials — Unauthorized acts by government officials or officers are not acts of the State and cannot bind the government. The Court relied on Director of Bureau of Communications vs. Aligaen and Chavez vs. Sandiganbayan to establish that the PCGG's unauthorized sale and settlement agreement did not bind the Republic, and that PCGG personnel could be held civilly liable for acting outside the scope of their authority.

• Unjust Enrichment — A person who retains money or property without a legal basis to the prejudice of another may be compelled to return it. The Court applied this principle to require the Republic to release the escrow deposit to Fuller Aircraft, since Fuller had lost the aircraft through a court order restoring it to the true owner, and the Republic had no legal basis to retain the sale proceeds.

• "it is irresistibly follows that any sale of said aircraft under the circumstances obtaining in this case would constitute a prohibited and invalid disposition by the PCGG." — This passage, quoted from the Court's earlier ruling in G.R. No. 88336, establishes the controlling rule that the PCGG's sale of sequestered property without Sandiganbayan approval is void, and forms the basis for declaring both the sale and the settlement agreement nullities in the present case.

• "Moreover, inasmuch as the sale of the aircraft by the PCGG to Fuller Aircraft is void, it follows that the 'Agreement' between the PCGG and Fuller Aircraft is likewise a nullity." — This sentence articulates the ratio decidendi that a void sale renders derivative agreements void, severing the Republic from any obligation under the settlement.

• "Otherwise, petitioner may enrich itself unjustly and may be held liable for keeping the said amount indefinitely to the prejudice of Fuller Aircraft whose right to the escrow deposit has not been questioned by any party in Civil Case No. 0033." — This passage states the unjust enrichment rationale compelling the release of the escrow funds despite the nullity of the underlying sale and agreement.

• Republic vs. Sandiganbayan, 192 SCRA 743 (1990) — Controlling precedent. The Court's en banc decision in G.R. No. 88336 held that the PCGG's decision to sell sequestered aircraft requires the sanction of the Sandiganbayan, and ordered the deposit of sale proceeds in escrow. This ruling was applied to declare the PCGG's sale void in the present case.

• Chavez vs. Sandiganbayan, 193 SCRA 282 (1991) — Followed. Held that the PCGG or any of its members may be held civilly liable if they did not act in good faith and within the scope of their authority in the performance of their official duties. Applied to support the conclusion that the Republic is not bound by the PCGG's unauthorized acts and to direct the Republic to take action against responsible PCGG personnel.

• Director of Bureau of Communications vs. Aligaen, 33 SCRA 368 (1970) — Followed. Held that unauthorized acts by government officials or officers are not acts of the State. Applied to establish that the PCGG's unauthorized sale and settlement agreement did not bind the Republic.

• Section 65, 1997 Rules of Procedure (as amended) — The procedural basis for the petition for certiorari and mandamus filed by the Republic before the Supreme Court, assailing the Sandiganbayan's resolutions.

Melo (Chairman), Vitug, Panganiban, and Gonzaga-Reyes, JJ., concurred.