Navigating Sequestration: Why Court Approval Is Mandatory for Disposing of Assets in the Philippines

The sequestration of assets is a powerful tool in the Philippine government's campaign to recover ill-gotten wealth. But what happens when the sequestering agency itself wants to sell those assets? In Republic v. Sandiganbayan (G.R. No. 118661, January 22, 2007), the Supreme Court laid down a clear rule: sequestered property is in the custody of the law, and no one—not even the Presidential Commission on Good Government (PCGG)—can dispose of it without court approval.

The Origins of the Dispute

The case traces back to the coconut levy fund, a collection of taxes imposed on coconut farmers under various presidential decrees in the 1970s. Over time, portions of this fund were used to acquire shares in major corporations, including a significant block of San Miguel Corporation (SMC) shares held by fourteen corporations known as the "CIIF Holding Companies."

After the 1986 EDSA Revolution, the PCGG sequestered these SMC shares as part of its mandate to recover ill-gotten wealth. The shares became the subject of Civil Case No. 0033 before the Sandiganbayan, where the government sought to recover them from former President Marcos and his alleged cronies.

The Compromise Agreement and the Attempted Sale

In 1990, the SMC group and the UCPB group—the parties claiming ownership of the shares—entered into a Compromise Agreement. Part of this agreement involved transferring 5.5 million SMC shares to the PCGG as an "arbitration fee" to be held in trust for the Comprehensive Agrarian Reform Program (CARP).

The PCGG imposed a condition: the agreement would only take effect upon approval by the Sandiganbayan. The parties accepted this condition. However, the Sandiganbayan never approved the Compromise Agreement, and the parties later withdrew their petition for approval.

In 1994, the PCGG entered into a Stock Purchase Agreement with the Government Service Insurance System (GSIS), selling the 5.5 million shares—which had grown through stock dividends and splits—for P1.452 billion. The PCGG asked the Sandiganbayan to approve the sale and lift the sequestration. The Sandiganbayan refused.

The Issue Before the Supreme Court

The central question was whether the Sandiganbayan committed grave abuse of discretion in refusing to approve the PCGG-GSIS Stock Purchase Agreement and in declining to lift the sequestration over the shares.

The Ruling: Sequestered Assets Are in Custodia Legis

The Supreme Court ruled in favor of the Sandiganbayan, holding that the graft court acted within its sound discretion. The Court emphasized several key points:

First, the subject shares were sequestered and remained so. The PCGG itself admitted this fact. The sequestered character of the original shares necessarily attached to the dividends and fruits accruing on them.

Second, the shares were property in custodia legis—in the custody of the law. Their ownership was still being litigated in Civil Case No. 0033. Any transfer of ownership could not be of a permanent character that would alter their sequestered status.

Third, the PCGG's right to dispose of the "arbitration fee" shares depended entirely on the enforceability of the Compromise Agreement. The Court noted that in the related case of San Miguel Corporation v. Sandiganbayan, it had already ruled that the Compromise Agreement fell within the Sandiganbayan's jurisdiction. The PCGG itself had made the Sandiganbayan's approval a condition precedent to the agreement's implementation.

The Court found no grave abuse of discretion—no whimsical, despotic, or unreasoning action—on the part of the Sandiganbayan. The graft court had valid reasons for its refusal, including the pendency of related cases before the Supreme Court.

Practical Takeaways

• Sequestration is a continuing restriction. Once assets are sequestered, they remain under the control of the court, and the sequestering agency cannot unilaterally dispose of them.
• Fruits follow the tree. Stock dividends and other fruits of sequestered shares are equally sequestered and subject to the same restrictions.
• Court approval is non-negotiable. Any transaction involving sequestered assets requires prior approval from the Sandiganbayan or the appropriate court.
• Conditions precedent matter. If a party imposes court approval as a condition for a transaction, that condition must be satisfied before the transaction becomes effective.
• Custodia legis protects all parties. The rule prevents any party from claiming good-faith status over assets that remain subject to litigation.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.