G.R. No. 118661 . February 7, 2012.
Republic of the Philippines, Petitioner, vs. Sandiganbayan (First Division), Eduardo M. Cojuangco, Jr., Philippine Coconut Producers Federation, Inc., Maria Clara L. Lobregat, and The Corporate Secretary of the San Miguel Corporation, Respondents.

FACTS

This case involves the disposition of sequestered San Miguel Corporation (SMC) shares allegedly acquired using public coconut levy funds. The funds were collected from coconut farmers under various statutes. The Philippine Coconut Authority (PCA), using these levy funds, acquired a controlling interest in the First United Bank, which was later renamed United Coconut Planters Bank (UCPB). Subsequently, UCPB used its resources to purchase a substantial block of SMC shares. The Presidential Commission on Good Government (PCGG) sequestered these SMC shares. In 1994, certain corporations claiming ownership over portions of these sequestered shares filed a joint petition for approval of a compromise agreement in Sandiganbayan Civil Case No. 0102. The Sandiganbayan issued an order approving the compromise, which effectively released a portion of the sequestered SMC shares to the settling corporations.
The Republic, through the PCGG, filed this petition for certiorari, challenging the Sandiganbayan’s order. The Republic argued that the compromise agreement was void as it disposed of assets that are prima facie public in nature, given that the SMC shares were acquired using the coconut levy funds. The Republic contended that the Sandiganbayan acted with grave abuse of discretion in approving the compromise without first determining the true ownership of the funds used to purchase the shares, which is a prejudicial question that must be resolved in the main ill-gotten wealth case.

ISSUE

Whether the Sandiganbayan committed grave abuse of discretion in approving the compromise agreement over the sequestered SMC shares without a prior final determination that the coconut levy funds used to acquire them are private, not public, funds.

RULING

Yes, the Sandiganbayan committed grave abuse of discretion. The legal logic is anchored on the established nature of the coconut levy funds. In a supervening line of cases, notably Republic v. COCOFED, the Supreme Court had definitively ruled that the coconut levy funds are not only affected with public interest but are prima facie public funds, having been exacted pursuant to the state’s taxing power. Consequently, all assets acquired using these funds, including the subject SMC shares, are prima facie public in character. The Sandiganbayan’s approval of the compromise agreement effectively disposed of these assets based on a claim of private ownership, which directly contravenes the Court’s prior pronouncements on the public nature of the fund.
The compromise was therefore void for being contrary to law and public policy. The Sandiganbayan’s order bypassed the essential requirement of first settling the fundamental issue of ownership in the main case. By approving the agreement, it pre-emptively adjudicated the shares as private property without the requisite final adjudication, thereby depriving the State of its right to recover potentially ill-gotten wealth. This constituted a capricious and whimsical exercise of judgment amounting to grave abuse of discretion. The Court set aside the Sandiganbayan’s order and remanded the case for proceedings consistent with the declaration that the coconut levy funds and assets acquired therefrom are public in character.