Republic vs. Sandiganbayan

G.R. No. 142476
The Republic of the Philippines sought to release escrow funds from an unauthorized PCGG aircraft sale to settle a U.S. court judgment, with the Supreme Court ruling in favor of releasing funds to avoid unjust enrichment.
sale of aircraft unauthorized agreement void

Case Summary (G.R. No. 142476)

Factual Background

The sequestered chattel was an Avions Dassault-Breguet Falcon 50 jet, Model 1982, Certificate of Registration No. RP-C754. The aircraft had been leased by United Coconut Chemicals, Inc. (Unichem) from Faysound Ltd., a United States corporation. The lease lapsed in 1987 and the aircraft should have been returned to Faysound Ltd. at that time. The complaint in Civil Case No. 0033 did not show that Eduardo M. Cojuangco, Jr. or any co-defendant claimed ownership or interest in the Falcon jet. Only the shares of Cojuangco in Unichem were sequestered; Unichem itself was not sequestered. No party, including the lessor Faysound Ltd., challenged the legality of the PCGG's sequestration of the aircraft before the Sandiganbayan.

PCGG Motion to Sell and Judicial Reaction

On March 20, 1989 the Presidential Commission on Good Government (PCGG) filed a motion with the Sandiganbayan for authority to sell the sequestered aircraft, alleging rapid deterioration. The Sandiganbayan denied the motion in its May 18, 1989 Resolution, finding no prima facie justification for seizure from the lessee. The PCGG sought relief from this Court by filing a petition for certiorari (G.R. No. 88336), and on June 6, 1989 the Supreme Court issued a temporary restraining order directing the Sandiganbayan to cease enforcing its May 18, 1989 Resolution. The TRO was issued to preserve the status quo while the question whether the airplane was lawfully sequestered remained pending.

Sale of the Aircraft and Escrow Deposit

Relying on the Supreme Court TRO, the PCGG proceeded to sell the Falcon jet on September 28, 1989 to Walter Fuller Aircraft, Inc. for US$7,138,168.65. The proceeds were deposited in escrow with the Philippine National Bank. The sale was effected without the sanction of the Sandiganbayan. After further proceedings, the Supreme Court en banc dismissed the PCGG's petition in G.R. No. 88336 on December 26, 1990, holding that the decision to sell the aircraft required the sanction of the Sandiganbayan and ordering the PCGG to deposit the proceeds in a special time deposit with the PNB for the account of the Sandiganbayan in escrow for the person or persons lawfully entitled thereto.

Foreign Court Proceedings and Money Judgment

While domestic proceedings were pending, Faysound Ltd. filed an action in the United States District Court for the Eastern District of Arkansas (No. LR-C-89-834) and obtained summary judgment on October 29, 1990 vesting title to the Falcon jet in Faysound Ltd. free and clear of encumbrances. Walter Fuller Aircraft, Inc., deprived of the aircraft, sued the Republic and the PCGG in the United States District Court for the Northern District of Texas, Dallas Division (No. CA3-90-2785-R). On December 2, 1993 that court entered judgment against the Republic and PCGG, jointly and severally, in the amount of $14,928,457.29 with specified pre-judgment and post-judgment interest.

Settlement Agreement and Movements to Withdraw Escrow

To settle the Texas judgment, the PCGG entered into an agreement with Walter Fuller Aircraft, Inc. on October 14, 1996, under which the Republic agreed to pay Fuller $11,000,000 on October 15, 1996 and $3,000,000 in equal monthly installments beginning November 15, 1996 and ending October 15, 1997. On April 13, 1998 the PCGG filed with the Sandiganbayan an ex parte motion to withdraw the escrowed funds and direct the PNB to release the funds to the Bureau of the Treasury for transmission to Walter Fuller Aircraft, Inc. The PNB certificate of time deposit dated July 28, 1999 reflected an escrow balance of US$8,568,905.55 for the account of the Sandiganbayan in trust for the beneficial owner.

Sandiganbayan Resolutions Denying Release

On September 3, 1999 the Sandiganbayan denied the PCGG's motion to release the Falcon jet escrow account. The court reasoned that the person lawfully entitled to the escrow deposit had not been determined, that the motion contravened the Supreme Court's prior ruling requiring deposit with the PNB, and that authenticated copies of the deed of sale and the compromise agreement had not been produced. The Sandiganbayan denied a motion for reconsideration in its February 17, 2000 Resolution. The Sandiganbayan did not file a comment in the present certiorari petition.

Issues Presented and Petitioner’s Contentions

The principal issue is whether the Republic may withdraw funds deposited from the sale of an erroneously sequestered aircraft and ordered by the Supreme Court to be held in escrow pending determination of the lawful claimant. Republic of the Philippines contended that the aircraft was erroneously sequestered because title remained with Faysound Ltd.; that the sale by the PCGG was void for lack of Sandiganbayan sanction; that the settlement agreement with Walter Fuller Aircraft, Inc. was likewise void; and that the Republic was not bound by the unauthorized acts of the PCGG. The Republic nevertheless did not disclaim a willingness to satisfy its financial obligation under the settlement and sought release of the escrow to enable transmittal to Fuller to avoid interest accrual and diplomatic pressure. The Republic relied on precedents holding that unauthorized acts by government officials are not acts of the State and that PCGG members may be civilly liable for acts beyond their authority, citing Chavez v. Sandiganbayan, 193 SCRA 282, and Director of Bureau of Communications v. Aligaen, 33 SCRA 368.

Court’s Findings as to Authority, Liability and Equitable Duty

The Court found that the PCGG sold the aircraft without the requisite judicial sanction of the Sandiganbayan, consistent with this Court’s prior pronouncement in G.R. No. 88336 that the decision to sell required Sandiganbayan approval and that a sale without such approval constituted an invalid disposition. The Court further concluded that, although the sale and the subsequent agreement were void and therefore could not bind the Republic, equitable considerations and the rights of third parties required relief. The Court observed that the Sandiganbayan had failed for more than a decade to determine who was lawfully entitled to the escrow deposit, and that retaining the escrowed funds indefinitely would amount to unjust enrichment of the Republic to the prejudice of Walter Fuller Aircraft, Inc., whose claims had been adjudicated in foreign courts and who had obtained a judgment in the Texas proceedings.

Disposition and Directives

The Supreme Court granted the petition for certiorari and mandamus. The challenged Resolutions of the Sandiganbayan dated September 3, 1999 and February 17, 2000 were reversed and set aside. The Sandiganbayan was directed to order the release of the subject escrow account to the P

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