You are on page 1of 22

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-11897

October 31, 1964

FERNANDO A. FROILAN, plaintiff-appellee,


vs.
PAN ORIENTAL SHIPPING COMPANY, defendant-appellant,
REPUBLIC OF THE PHILIPPINES, and COMPANIA MARITIMA, intervenors-appellees.
Sycip, Salazar & Associates and Enrique Fernando & Emma Quisumbing-Fernando for
defendant-appellant.
The Government Corporate Counsel for intervenors-appellees.
Rafael Dinglasan for plaintiff-appellee.
BARRERA, J.:
On March 7, 1947, Fernando A. Froilan purchased from the Shipping Administration a boat
described as MV/FS 197 for the sum of P200, 000.00, with a down payment of P50, 000.00. To
secure payment of the unpaid balance of the purchase price, a mortgage was constituted on the
vessel in favor of the Shipping Administration in a contract which provides, among others, the
following:
In the event that the FIRST PARTY should elect to exercise its rights to rescind under the
terms of this contract, it shall have the right to take possession of the vessel herein sold in
the condition that it is at the time of rescission but in no case in a worse condition than
when originally delivered to the second party, ordinary wear and tear excepted and in
case at the time of rescission the condition of the vessel is not satisfactory to the FIRST
PARTY, it shall have the right to have the vessel reconditioned, repaired, dry-docked at
the expense of the SECOND PARTY. The same right is hereby granted to the FIRST
PARTY in case the SECOND PARTY should for any reason refuse or fail to comply with
this condition of sale and return the vessel herein sold in a condition not satisfactory to
the FIRST PARTY.
The right of rescission shall be considered as a cumulative remedy granted to the FIRST
PARTY and shall not in any way prejudice his right to demand immediate and complete
payment of the purchase price of the vessel under the terms herein provided, and to
demand and collect from the SECOND PARTY such damages caused by the noncompliance with this contract.
This contract was duly approved by the President of the Philippines.

Froilan appeared to have defaulted in spite of demands, not only in the payment of the first
installment on the unpaid balance of the purchase price and the interest thereon when they fell
due, but also failed in his express undertaking to pay the premiums on the insurance coverage of
the vessel, obliging the Shipping Administration to advance such payment to the insurance
company. Consequently, the Shipping Administration requested the Commissioner of Customs
on June 1, 1948 to refuse clearance on the vessel and the voyage thereof was ordered suspended.
Thereafter, Froilan asked for a reconsideration of the action taken by the Shipping
Administration, claiming that his failure to pay the required installments was due to the fact that
he was awaiting the decision of the President on the petition of the ship-owners for an extension
of the period of payment of the purchased vessels, which petition was favorably acted upon.
On July 3, 1948, the Shipping Administration and Froilan entered into an agreement whereby the
latter undertook to liquidate immediately all of his outstanding accounts, including the insurance
premiums, within 30 days, and have the vessel overhauled, and promised that in case of his
default, he shall "waive, any formal notice of demand and to redeliver the said vessel peaceably
and amicably without any other proceedings" (Exh. 39).
Again, Froilan failed to settle his accounts within the prescribed period, thus, the Shipping
Administration threatened to rescind the contract unless payment be immediately made. On
August 28, 1948, upon Froilan's request, the Shipping Administration agreed to release the vessel
on condition that the same would be overhauled and repaired and the accrued interest on the first
installment would be paid. The Administration also allowed the mortgagor to pay his overdue
accounts, amounting now to P48,500.00 in monthly installments, with warming that in case of
further default, it would immediately repossess the vessel and rescind the contract. Froilan failed
to pay. On January 17, 1949, the Shipping Administration required him to return the vessel or
else file a bond for P25,000.00 in five days. In a letter dated January 28, 1949, Froilan requested
that the period for filing the bond be extended to February 15, 1949, upon the express condition
and understanding that:
... . If I fail to file the required bond on the said date, February 15, 1949, to the
satisfaction of the Shipping Administration, I am willing to relinquish and I do hereby
relinquish any and all rights I have or may have on the said vessel including any
payments made thereon to the Shipping Administration, without prejudice to other rights
the Shipping Administration may have against me under the contract of sale executed in
my favor.
I wish to reiterate that if I fail to file the bond within the period I have requested, any and
all rights I have on the vessel and any payments made to the Shipping Administration
shall be considered automatically forfeited in favor of the Shipping Administration and
the ownership of the said vessel will be as it is hereby automatically transferred to the
Shipping Administration which is then hereby authorized to take immediate possession of
said vessel. (Exh. 66)
This letter of Froilan was submitted by the General Manager of the Shipping Administration to
the board of directors for proper consideration. By resolution of January 31, 1949, the petition

was granted subject specifically to the conditions set forth therein. Froilan again failed to make
good his promises. Hence, on February 18, 1949, the General Manager of the Shipping Administration wrote the Collector of Customs of Manila, advising the latter that the Shipping
Administration, by action of its board, terminated the contract with Froilan, and requesting the
suspension of the clearance of the boat effective that date (Exh. 70).
On February 21, 1949, the General Manager directed its officers, Capt. Laconico and others, to
take immediate possession of the vessel and to suspend the unloading of all cargoes on the same
until the owners thereof made the corresponding arrangement with the Shipping Administration.
Pursuant to these instructions, the boat was, not only actually repossessed, but the title thereto
was registered again in the name of the Shipping Administration, thereby re-transferring the
ownership thereof to the government.
On February 22, 1949, Pan Oriental Shipping Co., hereinafter referred to as Pan Oriental, offered
to charter said vessel FS-197 for a monthly rent of P3,000.00. Because the government was then
spending for the guarding of the boat and subsistence of the crew-members since repossession,
the Shipping Administration on April 1, 1949, accepted Pan Oriental's offer "in principle" subject
to the condition that the latter shall cause the repair of the vessel, advancing the cost of labor and
drydocking thereof, and the Shipping Administration to furnish the necessary spare parts. In
accordance with this charter contract, the vessel was delivered to the possession of Pan Oriental.
In the meantime, or on February 22, 1949, Froilan tried to explain his failure to comply with the
obligations he assumed and asked that he be given another extension up to March 15, 1949 to file
the necessary bond. Then on March 8, Froilan offered to pay all his overdue accounts. However,
as he failed to fulfill even these offers made by him in these two communications, the Shipping
Administration denied his petition for reconsideration (of the rescission of the contract) on
March 22, 1949. It should be noted that while his petition for reconsideration was denied on
March 22, it does not appear when he formally formulated his appeal. In the meantime, as
already stated, the boat has being repossessed by the Shipping Administration and the title
thereto re-registered in the name of the government, and delivered to the Pan Oriental in virtue of
the charter agreement. On June 2, 1949, Froilan protested to the President against the charter of
the vessel.
On the same date, the Executive Office advised the Administration and the Commissioner of
Customs not to dispose of the vessel in favor of another party pending final decision by the
President on the appeal of Froilan (Exhs. 93-A and 93-D). But since the vessel was already
cleared in favor of Pan Oriental prior to the receipt of the foregoing communication, and
allegedly in order to prevent its being made answerable for damages, the General Manager of the
Shipping Administration advised the Collector of Customs not to suspend the voyage of the
vessel pending final decision on the appeal of Froilan. Similar manifestation, to allow the Pan
Oriental's operation of the vessel without prejudice to whatever action the President may take in
the case, was also made by the Administration to the Executive Secretary.
On June 4, 1949, the Shipping Administration and the Pan Oriental formalized the charter
agreement and signed a bareboat contract with option to purchase, containing the following
pertinent provisions:

III. CHARTER HIRE, TIME OF PAYMENT. The CHARTERER shall pay to the owner
a monthly charter hire of THREE THOUSAND (P3,000.00) PESOS from date of
delivery of the vessel, payable in advance on or before the 5th of every current month
until the return of the vessel to OWNER or purchase of the vessel by CHARTERER.
XII. RIGHT OF OPTION TO PURCHASE. The right of option to purchase the vessel
at the price of P150,000.00 plus the amount expended for its present repairs is hereby
granted to the CHARTERER within 120 days from the execution of this Contract, unless
otherwise extended by the OWNER. This right shall be deemed exercised only if, before
the expiration of the said period, or its extension by the OWNER the CHARTERER
completes the payment, including any amount paid as Charter hire, of a total sum of not
less than twenty-five percentum (25%) of said price of the vessel.
The period of option may be extended by the OWNER without in any way affecting the
other provisions, stipulations, and terms of this contract.
If, for any reason whatsoever, the CHARTERER fails to exercise its option to purchase
within the period stipulated, or within the extension thereof by the OWNER, its right of
option to purchase shall be deemed terminated, without prejudice to the continuance of
the Charter Party provisions of this contract. The right to dispose of the vessel or
terminate the Charter Party at its discretion is reserved to the OWNER.
XIII. TRANSFER OF OWNERSHIP OF THE VESSEL. After the CHARTERER has
exercised his right of option as provided in the preceding paragraph (XII), the vessel shall
be deemed conditionally sold to the purchaser, but the ownership thereof shall not be
deemed transferred unless and until all the price of the vessel, together with the interests
thereon, and any other obligation due and payable to the OWNER under this contract,
have been fully paid by the CHARTERER.
xxx

xxx

xxx

XXI. APPROVAL OF THE PRESIDENT. This contract shall take effect only upon
approval of His Excellency, the President.
On September 6, 1949, the Cabinet revoked the cancellation of Froilan's contract of sale and
restored to him all his rights thereunder, on condition that he would give not less than P10,000.00
to settle partially his overdue accounts and that reimbursement of the expenses incurred for the
repair and drydocking of the vessel performed by Pan Oriental was to be made in accordance
with future adjustment between him and the Shipping Administration (Exh. I). Later, pursuant to
this reservation, Froilan's request to the Executive Secretary that the Administration advance the
payment of the expenses incurred by Pan Oriental in the drydocking and repair of the vessel, was
granted on condition that Froilan assume to pay the same and file a bond to cover said
undertaking (Exh. 111).
On September 7, 1949, the formal bareboat charter with option to purchase filed on June 4, 1949,
in favor of the Pan Oriental was returned to the General Manager of the Shipping Administration

without action (not disapproval), only because of the Cabinet resolution of September 6, 1949
restoring Froilan to his rights under the conditions set forth therein, namely, the payment of
P10,000.00 to settle partially his overdue accounts and the filing of a bond to guarantee the
reimbursement of the expenses incurred by the Pan Oriental in the drydocking and repair of the
vessel. But Froilan again failed to comply with these conditions. And so the Cabinet, considering
Froilan's consistent failure to comply with his obligations, including those imposed in the
resolution of September 6, 1949, resolved to reconsider said previous resolution restoring him to
his previous rights. And, in a letter dated December 3, 1949, the Executive Secretary authorized
the Administration to continue its charter contract with Pan Oriental in respect to FS-197 and
enforce whatever rights it may still have under the original contract with Froilan (Exh. 188).
Froilan, for his part, petitioned anew for a reconsideration of this action of the Cabinet, claiming
that other ship purchasers, including the President-Treasurer of the Pan Oriental himself, had also
defaulted in payment and yet no action to rescind their contracts had been taken against them. He
also offered to make a cash partial payment of P10,000.00 on his overdue accounts and
reimburse Pan Oriental of all its necessary expense on the vessel. Pan Oriental, however, not
only expressed its unwillingness to relinquish possession of the vessel, but also tendered the sum
of P15,000.00 which, together with its alleged expenses already made on the vessel, cover 25%
of the cost of the vessel, as provided in the option granted in the bareboat contract (Exh. 122).
This amount was accepted by the Administration as deposit, subject to the final determination of
Froilan's appeal by the President. The Executive Secretary was also informed of the exercise by
Pan Oriental of said option to purchase.
On August 25, 1950, the Cabinet resolved once more to restore Froilan to his rights under the
original contract of sale, on condition that he shall pay the sum of P10,000.00 upon delivery of
the vessel to him, said amount to be credited to his outstanding accounts; that he shall continue
paying the remaining installments due, and that he shall assume the expenses incurred for the
repair and drydocking of the vessel (Exh. 134). Pan Oriental protested to this restoration of
Froilan's rights under the contract of sale, for the reason that when the vessel was delivered to it,
the Shipping Administration had authority to dispose of the said property, Froilan having already
relinquished whatever rights he may have thereon. Froilan paid the required cash of P10,000.00,
and as Pan Oriental refused to surrender possession of the vessel, he filed an action for replevin
in the Court of First Instance of Manila (Civil Case No. 13196) to recover possession thereof and
to have him declared the rightful owner of said property.
Upon plaintiff's filing a bond of P400,000.00, the court ordered the seizure of the vessel from
Pan Oriental and its delivery to the plaintiff. Pan Oriental tried to question the validity of this
order in a petition for certiorari filed in this Court (G.R. No. L-4577), but the same was
dismissed for lack of merit by resolution of February 22, 1951. Defendant accordingly filed an
answer, denying the averments of the complaint.
The Republic of the Philippines, having been allowed to intervene in the proceeding, also prayed
for the possession of the vessel in order that the chattel mortgage constituted thereon may be
foreclosed. Defendant Pan Oriental resisted said intervention, claiming to have a better right to
the possession of the vessel by reason of a valid and subsisting contract in its favor, and of its
right of retention, in view of the expenses it had incurred for the repair of the said vessel. As

counterclaim, defendant demanded of the intervenor to comply with the latter's obligation to
deliver the vessel pursuant to the provisions of the charter contract.
Thereafter, and upon plaintiff's presenting proof that he had made payment to the intervenor
Republic of the Philippines, of the sum of P162,576.96, covering the insurance premiums,
unpaid balance of the purchase price of the vessel and interest thereon, the lower court by order
of February 8, 1952, dismissed the complaint in intervention on the ground that the claim or
demand therein had already been released. Said dismissal, however, was made without prejudice
to the determination of defendant's right, and that the release and cancellation of the chattel
mortgage did not "prejudge the question involved between the plaintiff and the defendant which
is still the subject of determination in this case."
In view of the dismissal of its complaint, intervenor Republic of the Philippines also moved for
the dismissal of defendant's counterclaims against it, which was granted by the court. On appeal
by Pan Oriental to this Court (G.R. No. L-6060), said order was reversed and the case remanded
to the lower court for further proceedings.
Subsequently, Compaia Maritima, as purchaser of the vessel from Froilan, was allowed to
intervene in the proceedings (in the lower court), said intervenor taking common cause with the
plaintiff Froilan. In its answer to the complaint in intervention, defendant set up a counterclaim
for damages in the sum of P50,000.00, alleging that plaintiff secured the Cabinet resolutions and
the writ of replevin, resulting in its deprivation of possession of the, vessel, at the instigation and
inducement of Compaia Maritima. This counterclaim was denied by both plaintiff and
intervenor Maritima.
On September 28, 1956, the lower court rendered a decision upholding Froilan's (and Compaia
Maritima's) right to the ownership and possession of the FS-197. It was ruled that Froilan's
violations of the conditions of the contract of sale in his favor did not automatically deprive him
of his right of ownership of the vessel, which passed to him upon execution of the contract, but
merely gave rise to the Shipping Administration's right either to foreclose the mortgage or
rescind the contract by court action. As the Shipping Administration failed to avail itself of any
of these remedies, Froilan's right of ownership remained unaffected. And the subsequent
resolutions of the Cabinet, restoring him to his rights under the said contract, reaffirmed the
same. The charter contract between the Shipping Administration and defendant was declared null
and void, not only because the former could not have legally bound the vessel, but also due to the
fact that said agreement has not been perfected for lack of approval by the President of the
Philippines. And, even assuming that the said charter contract was valid, the lower court held
that, as the owner (Republic of the Philippines) under the same agreement was given the right to
terminate the charter or dispose of the vessel anytime, the action of the Cabinet in cancelling or
withdrawing the rescission of Froilan's contract, had the effect of terminating the charter
agreement with the defendant. The court also dismissed (1) defendant's counterclaims against
plaintiff Froilan and intervenor Compaia Maritima, on the ground that it (defendant) was a
possessor in bad faith, and consequently, not entitled to damages; (2) plaintiff's counterclaims
against defendant, for the reason that the same should have been directed against intervenor
Republic of the Philippines; and (3) defendant's counterclaims said intervenor Republic, on the
ground that the order dismissing the complaint in intervention had already become final and it

was materially impossible for the latter to secure possession of the vessel. From this decision,
Pan Oriental brought the instant appeal.
Contrary to appellant's contention, the ruling of the lower court that under the contract of sale
with mortgage, ownership of the vessel passed to Froilan, upon delivery of the property to the
latter, must be sustained. It is to be noted that unlike in the charter contract where it was
specifically prescribed that ownership of the vessel shall be transferred to the vendee only upon
full payment of the purchase price, no similar provision appears in the contract of sale in favor of
Froilan. In the absence of stipulation to the contrary, the ownership of the thing sold passes to the
vendee upon the actual or constructive delivery thereof (Art. 1477, new Civil Code). It is for this
reason that Froilan was able to constitute a mortgage on the vessel in favor of the Administration,
to secure payment of the unpaid balance of the purchase price.
There is no gainsaying the fact that there was continuous violation by Froilan of the terms of said
contract of sale. The records conclusively show that notwithstanding the numerous opportunities
given him, Froilan had been remiss in the fulfillment of his obligations thereunder. Nevertheless,
the lower court upheld his allegation that the Administration may not legally rescind the contract
without filing the corresponding complaint in court.
Under Article 11911 of the Civil Code, in case of reciprocal obligations, the power to rescind the
contract where a party incurs in default, is impliedly given to the injured party. Appellee
maintains however, that the law contemplates of rescission of contract by judicial action and not
a unilateral act by the injured party; consequently, the action of the Shipping Administration
contravenes said provision of the law. This is not entirely correct, because there is also nothing in
the law that prohibits the parties from entering into agreement that violation of the terms of the
contract would cause cancellation thereof, even without court intervention. In other words, it is
not always necessary for the injured party to resort to court for rescission of the contract. As
already held2judicial action is needed where there, is absence of special provision in the contract
granting to a party the right of rescission.
In the instant case, while it may be true that the contract of sale did not expressly give to the
mortgagee the right to cancel the agreement it was, nevertheless, provided therein that said party
may rescind the contract as it may see fit in case of breach of the terms thereof by the mortgagor.
Taking into account the promises, waivers and representations made by Froilan, to the extent that
he agreed to the automatic transfer of ownership of the vessel to the Administration, should he
fall to fulfill what was incumbent upon him, which did happen, the rescission of the contract
without judicial action is proper.
The next question to be determined is whether there had been a valid and enforceable charter
contract in favor of appellant Pan Oriental, and what was the effect thereon of the subsequent
restoration to Froilan by the Cabinet, of his rights under the original contract of sale with
mortgage.
It is not disputed that appellant Pan Oriental took possession of the vessel in question after it had
been repossessed by the Shipping Administration and title thereto reacquired by the government,
and operated the same from June 2, 1949 after it had repaired the vessel until it was dispossessed

of the property on February 3, 1951, in virtue of a bareboat charter contract entered into between
said company and the Shipping Administration. In the same agreement, appellant as charterer,
was given the option to purchase the vessel, which may be exercised upon payment of a certain
amount within a specified period. The President and Treasurer of the appellant company,
tendered the stipulated initial payment on January 16, 1950. Appellant now contends that having
exercised the option, the subsequent Cabinet resolutions restoring Froilan's rights on the vessel
violated its existing rights over the same property. To the contention of plaintiff Froilan that the
charter contract never became effective because it never received presidential approval, as
required therein, Pan Oriental answers that the letter of the Executive Secretary dated December
3, 1949 (Exh. 118), authorizing the Shipping Administration to continue its charter contract with
appellant, satisfies such requirement (of presidential approval). It is to be noted, however, that
said letter was signed by the Executive Secretary only and not under authority of the President.
The same, therefore, cannot be considered to have attached unto the charter contract the required
consent of the Chief Executive for its validity.
Upon the other hand, the Cabinet resolutions purporting to restore Froilan to his former rights
under the deed of sale, cannot also be considered as an act of the President which is specifically
required in all contracts relating to these vessels (Executive Order No. 31, series of 1946).
Actions of the Cabinet are merely recommendatory or advisory in character. Unless afterwards
specifically adopted by the President as his own executive act, they cannot be considered as
equivalent to the act of approval of the President expressly required in cases involving
disposition of these vessels.
In the circumstances of this case, therefore, the resulting situation is that neither Froilan nor the
Pan Oriental holds a valid contract over the vessel. However, since the intervenor Shipping
Administration, representing the government practically ratified its proposed contract with
Froilan by receiving the full consideration of the sale to the latter, for which reason the complaint
in intervention was dismissed as to Froilan, and since Pan Oriental has no capacity to question
this actuation of the Shipping Administration because it had no valid contract in its favor, the
decision of the lower court adjudicating the vessel to FroiIan and its successor Compaia
Maritima, must be sustained. Nevertheless, under the circumstances already adverted to, Pan
Oriental cannot be considered a possessor in bad faith until after the institution of the instant
case. However, since it is not disputed that said appellant made useful and necessary expenses on
the vessel, appellant is entitled to the refund of such expenses with the right to retain the vessel
until he has been reimbursed therefor (Art. 546, Civil Code). As it is by the concerted acts of
defendants and intervenor Republic of the Philippines that appellant was deprived of the
possession of the vessel over which appellant had a lien for his expenses, appellees Froilan,
Compaia Maritima, and the Republic of the Philippines3are declared liable for the
reimbursement to appellant of its legitimate expenses, as allowed by law, with legal interest from
the time of disbursement.
Modified in this manner, the decision appealed from is affirmed, without costs. Case is remanded
to the lower court for further proceedings in the matter of expenses. So ordered.

Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L., Paredes, Bengzon, J.P., and Zaldivar,
JJ., concur.
Dizon, Regala and Makalintal, JJ., took no part.

Footnotes
1

ART. 1191. The power to rescind obligations is implied in reciprocal ones in case one of
the obligors should not comply with what is incumbent upon him. The injured party may
choose between the fulfillment and the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission, even after he had chosen fulfillment,
if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the
fixing of a period.
2

De la Rama Steamship Co. v. Tan, G.R. No. L-8784, May 21, 1956.

Although the complaint in intervention by the Republic of the Philippines was dismissed
by order of the court of February 8, 1952, such dismissal was held not to preclude the
determination of defendant's rights (G.R. No. L- 6060, Froilan v. Pan Oriental Shipping,
Sept. 30, 1954), and intervenor may be held liable for defendant's counterclaim.
The Lawphil Project - Arellano Law Foundation

Republic of the Philippines


SUPREME COURT
Manila
EN BANC
G.R. No. L-9791

April 28, 1958

FERNANDO A. FROILAN, plaintiff-appellant,


vs.
PAN ORIENTAL SHIPPING Co., defendant and appellee;
COMPANIA MARITIMA, intervenor-appellee;
LOURDES REYES VDA. DE CAGUIAT, Commissioner-appellee.

Rafael Dinglasan, Enrique Caguiat and Quisumbing and Associates for appellant.
Luis A. Jose for appellee.
PARAS, C. J.:
On February 3, 1951, the plaintiff filed a complaint, in the Court of First Instance of Manila
against the defendant, Pan Oriental Shipping Co., for the delivery of a ship known as FS-197. On
August 6, 1952, the Compania Maritima filed a complaint in intervention, alleging that it is in
possession of and the one operating the ship, having purchased it from the plaintiff. On
September 4, 1952, the defendant filed an amended answer to the complaint and to the complaint
in intervention, setting up counterclaims against the plaintiff and the intervenor. On April 7,
1954, the defendant filed a motion for reference to a commissioner of the issues of fact involved
in its counterclaims. After an opposition had been filed by the plaintiff and the intervenor, the
motion for reference was denied. However, upon ex-parte motion of the defendant, the lower
court in its order of September 3, 1954, Appointed Enrique Caguiat as commissioner to examine
the accounts involved in the counterclaims. The latter did not notify the plaintiff and the
intervenor or their attorneys about the meeting time and place of the parties as regards the
examinations of the accounts. On December 1, 1954, the commissioner filed a motion for
approval of his fees to which the plaintiff and the intervenor filed their answer alleging that there
was no showing whatsoever as to the time, nature and extent of the commissioner's services; that
the amount charged is excessive; and that as provided by rules of Court No. 34, section 13, the
compensation of the commissioner shall be taxed as costs against the defeated party and the
court not having as yet made any pronouncement on the point, "the motion is premature". The
motion was accordingly held in abeyance. On December 21, 1954, the commissioner filed a
motion for reconsideration without notice of hearing to the plaintiff and the intervenor. The court
in its order of July 29, 1950, granted ex-parte the aforesaid motion and ordered that the amount
of P4,670 be paid by the plaintiff and the intervenor in equal shares, as compensation for services
rendered by the commissioner. Plaintiff Froilan appeals from the said, order.
The appellant assails the validity of the commissioner's proceedings in the examination of the
accounts in question, on the ground said proceedings were held without notice to and in the
absence of the appellant and the intervenor. It is noteworthy, however, that the order of the lower
court appointing the appellee as commissioner solely directed the latter to "examine the long
accounts involved in the defendant's first, second and third counterclaims alleged in its answer to
the complaint in intervention of the Compania Maritima and the amended answer to the
complaint of appellant Fernando A. Froilan, dated September 4, 1954." For such purpose, and in
the absence of a judicial directive to hold hearings, the commissioner did, not need the presence
of the parties. Section 3, Rule 34, of the Rules of Court, speaking of the authority that may be
granted to a commissioner, provides that the recorder may specify or limit the powers of the
commissioner, and may direct him to report only upon particular issues, to do or perform
particular acts, or to receive and report evidence only and may fix the date for beginning and
closing the hearings and for the filing of his report." Under this reglementary provision, the
commissioner may be required to perform only a particular task, such as the examination of
records of account without hearings, specially when unnecessary.

The next criticism made by the appellant is that the appellee did not personally, make the
examination of the accounts in question and prepare the corresponding report, and that his
service consisted merely of what the appellee termed "reviewing Mr. Estanislao's work". While
personal attention was perhaps preferable or even desirable, the same is not essential or required.
The paramount consideration is that the commissioner assumes full responsibility for whatever is
submitted to the court.
In granting, however, appellee's motion for reconsideration filed on December 21, 1954, and
ordering the appellant and the intervenor to pay P4,670 in shares, without notice and hearing, the
lower court irregularly. In view of the fact that the appellant and the intervenor had previously
registered their stand that there was no showing as to the alleged service rendered by the
appellee, that the compensation sought was excessive, and that the approval and payment of the
commisioner's fees were premature, a hearing became indispensable.
Wherefore, the order appealed from is hereby reversed and the lower court is ordered to set the
incident in question for hearing. So ordered without pronouncement as to costs.
Bengzon, C.J., Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L.
and Endencia, JJ., concur.
Felix, J., concurs in the result.

Republic of the Philippines


SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-50900 April 9, 1985
COMPAIA MARITIMA, Petitioner, vs. COURT OF APPEALS and PAN ORIENTAL
SHIPPING CO., Respondents.
G.R. No. L-51438 April 9, 1985
REPUBLIC OF THE PHILIPPINES (BOARD OF LlQUIDATORS), Petitioner, vs. COURT
OF APPEALS and PAN ORIENTAL SHIPPING CO., Respondents.
G.R. No. L-51463 April 9, 1985
PAN ORIENTAL SHIPPING CO., Petitioner, vs. COURT OF APPEALS, COMPAIA
MARITIMA and THE REPUBLIC OF THE PHILIPPINES (BOARD OF
LIQUIDATORS), Respondents.

MELENCIO-HERRERA, J.:
The above-entitled three (3) cases stemmed from the Decision of this Court, dated October
31, 1964, entitled "Fernando A. Froilan vs. Pan-Oriental Shipping Co., et al. 1 and our four
(4) subsequent Resolutions of August 27, 1965, November 23, 1966, December 16, 1966, and
January 5, 1967, respectively.
chanroblesvirtualawlibrary

chanrobles virtual law library

The antecedental background is narrated in the aforestated Decision, the pertinent


portions of which read:
chanrobles virtual law library

On March 7, 1947, Fernando A. Froilan purchased from the Shipping Administration a


boat described as MV/FS-197 for the sum of P200,000.00, with a down payment of
P50,000.00. To secure payment of the unpaid balance of the purchase price, a mortgage was
constituted on the vessel in favor of the Shipping Administration ....
chanroblesvirtualawlibrary chanrobles virtual law library

xxx xxx xxx

chanrobles virtual law library

Th(e) contract was duly approved by the President of the Philippines.

chanroblesvirtualawlibrary

chanrobles virtual law library

Froilan appeared to have defaulted in spite of demands, not only in the payment of the first
installment on the unpaid balance of the purchase price and the interest thereon when they
fell due, but also failed in his express undertaking to pay the premiums on the insurance
coverage of the vessel obliging the Shipping Administration to advance such payment to the
insurance company. ...
Subsequently, FROILAN appeared to have still incurred a series of defaults
notwithstanding reconsiderations granted, so much so that:
On February 21, 1949, the General Manager (of the Shipping Administration) directed its
officers ... to take immediate possession of the vessel and to suspend the unloading of all
cargoes on the same until the owners thereof made the corresponding arrangement with
the Shipping Administration. Pursuant to these instructions, the boat was, not only actually
repossessed, but the title thereto was registered again in the name of the Shipping
Administration, thereby re-transferring the ownership thereof to the government.
On February 22, 1949, Pan Oriental Shipping Co., hereinafter referred to as Pan Oriental,
offered to charter said vessel FS-197 for a monthly rent of P3,000.00. Because the
government was then spending for the guarding of the boat and subsistence of the crew
members since repossession, the Slopping Administration on April 1, 1949, accepted Pan
Oriental's offer "in principle" subject to the condition that the latter shag cause the repair
of the vessel advancing the cost of labor and drydocking thereof, and the Shipping
Administration to furnish the necessary spare parts. In accordance with this charter
contract, the vessel was delivered to the possession of Pan Oriental.

In the meantime, or on February 22, 1949, Froilan tried to explain his failure to comply
with the obligations he assumed and asked that he be given another extension up to March
15, 1949 to file the necessary bond. Then on March 8, Froilan offered to pay all his overdue
accounts. However, as he failed to fulfill even these offers made by him in these two
communications, the Shipping Administration denied his petition for reconsideration (of
the rescission of the contract) on March 22, 1949. It should be noted that while his petition
for reconsideration was denied on March 22, it does not appear when he formally
formulated his appeal. In the meantime, as already stated, the boat has been repossessed by
the Shipping Administration and the title thereto re-registered in the name of the
government, and delivered to the Pan Oriental in virtue of the charter agreement. On June
2, 1949, Froilan protested to the President against the charter of the vessel.
chanroblesvirtualawlibrary

xxx xxx xxx

chanrobles virtual law library

chanrobles virtual law library

On June 4, 1949, the Shipping Administration and the Pan Oriental formalized the charter
agreement and signed a bareboat contract with option to purchase, containing the
following pertinent provisions:
chanrobles virtual law library

III. CHARTER HIRE, TIME OF PAYMENT. - The CHARTERER shall pay to the owner a
monthly charter hire of THREE THOUSAND (P3,000.00) PESOS from date of delivery of
the vessel, payable in advance on or before the 5th of every current month until the return
of the vessel to OWNER or purchase of the vessel by CHARTERER.
chanroblesvirtualawlibrary

chanrobles virtual law library

IV. RIGHT OF OPTION TO PURCHASE.- The right of option to purchase the vessel at
the price of P150,000.00 plus the amount expended for its present repairs is hereby granted
to the CHARTERER within 120 days from the execution of this Contract, unless otherwise
extended by the OWNER. This right shall be deemed exercised only if, before the
expiration of the said period, or its extension by the OWNER, the CHARTERER completes
the payment, including any amount paid as Charter hire, of a total sum of not less than
twenty-five percentum (25%) of said price of the vessel.
chanroblesvirtualawlibrary

chanrobles virtual law library

The period of option may be extended by the OWNER without in any way affecting the
other provisions, stipulations, and terms of this contract.
chanroblesvirtualawlibrary

chanrobles virtual law library

If, for any reason whatsoever, the CHARTERER fails to exercise its option to purchase
within the period stipulated, or within the extension thereof by the OWNER, its right of
option to purchase shall be deemed terminated, without prejudice to the continuance of the
Charter Party provisions of this contract. The right to dispose of the vessel or terminate the
Charter Party at its discretion is reserved to the OWNER.
chanroblesvirtualawlibrary

chanrobles virtual law library

XIII. TRANSFER OF OWNERSHIP OF THE VESSEL. - After the CHARTERER has


exercised his right of option as provided in the preceding paragraph (XII), the vessel shall
be deemed conditionally sold to the purchaser, but the ownership thereof shag not be
deemed transferred unless and until all the price of the vessel, together with the interest
thereon, and any other obligation due and payable to the OWNER under this contract,
have been fully paid by the CHARTERER.
chanrobles virtual law library

xxx xxx xxx

chanrobles virtual law library

XXI. APPROVAL OF THE PRESIDENT. - This contract shall take effect only upon
approval of His Excellency, the President.
chanroblesvirtualawlibrary

chanrobles virtual law library

On September 6, 1949, the Cabinet revoked the cancellation of Froilan's contract of sale
and restored to him all his rights thereunder, on condition that he would give not less than
P1,000.00 to settle partially as overdue accounts and that reimbursement of the expenses
incurred for the repair and drydocking of the vessel performed by Pan Oriental was to be
made in accordance with future adjustment between him and the Shipping Administration
(Exh. I). Later, pursuant to this reservation, Froilan's request to the Executive Secretary
that the Administration advance the payment of the expenses incurred by Pan Oriental in
the drydocking and repair of the vessel, was granted on condition that Froilan assume to
pay the same and file a bond to cover said undertaking (EXH. III).
chanroblesvirtualawlibrary

chanrobles virtual law library

On September 7, 1949, the formal bareboat charter with option to purchase filed on June 4,
1949, in favor of the Pan Oriental was returned to the General Manager of the Shipping
Administration without action (not disapproval), only because of the Cabinet resolution of
September 6, 1949 restoring Froilan to his rights under the conditions set forth therein,
namely, the payment of P10,000.00 to settle partially his overdue accounts and the filing of
a bond to guarantee the reimbursement of the expenses incurred by the Pan Oriental in the
drydocking and repair of the vessel But Froilan again failed to comply with these
conditions. And so the Cabinet, considering Froilan's consistent failure to comply with his
obligations, including those imposed in the resolution of September 6, 1949, resolved to
reconsider said previous resolution restoring him to his previous rights. And, in a letter
dated December 3, 1949, the Executive Secretary authorized the Administration to continue
its charter contract with Pan Oriental in respect to FS-197 and enforce whatever rights it
may still have under the original contract with Froilan (Exh. 188).
chanroblesvirtualawlibrary

xxx xxx xxx

chanrobles virtual law library

chanrobles virtual law library

On August 25, 1950, the Cabinet resolved once more to restore Froilan to his rights under
the original contract of sale, on condition that he shall pay the sum of P10,000.00 upon
delivery of the vessel to him, said amount to be credited to his outstanding accounts; that
he shall continue paying the remaining installments due, and that he shall assume the
expenses incurred for the repair and drydocking of the vessel (Exh. 134). Pan Oriental
protested to this restoration of Froilan's rights under the contract of sale, for the reason
that when the vessel was delivered to it, the Shipping Administration had authority to
dispose of the said property, Froilan having already relinquished whatever rights he may
have thereon. Froilan paid the required cash of P10,000.00, and as Pan Oriental refused to
surrender possession of the vessel, he filed an action for replevin in the Court of First
Instance of Manila (Civil Case No. 13196) to recover possession thereof and to have him
declared the rightful owner of said property.
chanroblesvirtualawlibrary

chanrobles virtual law library

Upon plaintiff's filing a bond of P400,000.00, the court ordered the seizure of the vessel
from Pan Oriental and its delivery to the plaintiff. Pan Oriental tried to question the

validity of this order in a petition for certiorari filed in this Court (G.R. No. L-4577), but
the same was dismissed for lack of merit by resolution of February 22, 1951. Defendant
accordingly filed an answer, denying the averments of the complaint.
chanroblesvirtualawlibrary

chanrobles virtual law library

The Republic of the Philippines, having been allowed to intervene in the proceeding, also
prayed for the possession of the vessel in order that the chattel mortgage constituted
thereon may be foreclosed. Defendant Pari Oriental resisted said intervention, claiming to
have a better right to the possession of the vessel by reason of a valid and subsisting
contract in its favor, and of its right of retention, in view of the expenses it had incurred for
the repair of the said vessel. As counterclaim, defendant demanded of the intervenor to
comply with the latter's obligation to deliver the vessel pursuant to the provisions of the
charter contract.
chanroblesvirtualawlibrary

xxx xxx xxx

chanrobles virtual law library

chanrobles virtual law library

Subsequently, Compaia Maritima, as purchaser of the vessel from Froilan, was allowed to
intervene in the proceedings (in the lower court), said intervenor taking common cause
with the plaintiff Froilan. In its answer to the complaint in intervention, defendant set-up a
counterclaim for damages in the sum of P50,000.00, alleging that plaintiff secured the
Cabinet resolutions and the writ of replevin, resulting in its deprivation of possession of the
vessel, at the instigation and inducement of Compania Maritima. This counterclaim was
denied by both plaintiff and intervenor Maritima.
chanroblesvirtualawlibrary

chanrobles virtual law library

On September 28, 1956, the lower court rendered a decision upholding Froilan's (and
Compaia Maritima's) right to the ownership and possession of the FS-197.
chanroblesvirtualawlibrary

xxx xxx xxx

chanrobles virtual law library

chanrobles virtual law library

It is not disputed that appellant Pan Oriental took possession of the vessel in question after
it had been repossessed by the Shipping Administration and title thereto reacquired by the
government, and operated the same from June 2, 1949 after it had repaired the vessel until it
was dispossessed of the property on February 3, 1951, in virtue of a bareboat charter
contract entered into between said company and the Shipping Administration. In the same
agreement, appellant as charterer, was given the option to purchase the vessel, which may
be exercised upon payment of a certain amount within a specified period. The President
and Treasurer of the appellant company, tendered the stipulated initial payment on
January 16, l950. Appellant now contends that having exercised the option, the subsequent
Cabinet resolutions restoring Froilan's rights on the vessel, violated its existing rights over
the same property. To the contention of plaintiff Froffan that the charter contract never
became effective because it never received presidential approval as required therein, Pan
Oriental answers that the letter of the Executive Secretary dated December 3, 1949 (Exh.
118), authorizing the Shipping Administration to continue its charter contract with
appellant, satisfies such requirement (of presidential approval). It is to be noted, however,
that said letter was signed by the Executive Secretary only and not under authority of the
President. The same, therefore, cannot be considered to have attached unto the charter
contract the required consent of the Chief Executive for its validity.
chanroblesvirtualawlibrary

chanrobles virtual law library

xxx xxx xxx

chanrobles virtual law library

(Emphasis supplied)
This Court then held:
In the circumstances of this case, therefore, the resulting situation is that neither Froilan
nor the Pan Oriental holds a valid contract over the vessel. However, since the intervenor
Shipping Administration, representing the government practically ratified its proposed
contract with Froilan by receiving the full consideration of the sale to the latter, for which
reason the complaint in intervention was dismissed as to Froilan, and since Pan Oriental
has no capacity to question this actuation of the Shipping Administration because it had no
valid contract in its favor, the of the lower court adjudicating the vessel to Froilan and its
successor Maritima, must be sus Nevertheless, under the already adverted to, Pan Oriental
cannot be considered as in bad faith until after the institution of the case. However, since it
is not disputed that said made useful and necessary expenses on the vessel, appellant is
entitled to the refund of such expenses with the light to retain the vessel until he has been
reimbursed therefor (Art. 546, Civil Code). As it is by the concerted acts of defendants and
intervenor Republic of the Philippines that appellant was deprived of the possession of the
vessel over which appellant had a lien for his expenses, appellees Froilan, Compaia
Maritima, and the Republic of the Philippines are declared liable for the reimbursement to
appellant of its legitimate expenses, as allowed by law, with legal interest from the time of
disbursement.
Modified in this manner, the decision appealed from is affirmed, without costs. Case is
remanded to the lower court for further proceedings in the matter of expenses. So ordered.
(Emphasis supplied).
On August 27, 1965, this Court, in resolving a Motion for Reconsideration filed by
FROILAN and MARITIMA, ruled:
In G.R. No. L-11897 (Fernando A. Froilan vs. Pan Oriental Shipping Co.); before us are (1)
a motion, filed by appellant Pan Oriental to reconsider the ruling made in this case
sustaining Froilan's right to ownership and possession of the vessel FS-197, and holding
that there was never a perfected contract between said movant and the intervenor Republic
of the Philippines; and (2) a motion by plaintiff-appellee Fernando A. Froilan, and
intervenor-appellee Compaia Maritima, for reconsideration of the decision insofar as it
declared said movants, together with intervenor Republic of the Philippines, liable for
reimbursement to appellant Pan Oriental of the latter's legitimate necessary expenses made
on the vessel in question.
chanroblesvirtualawlibrary chanrobles virtual law library

1. .Appellant Pan Oriental's Motion must be denied.

chanroblesvirtualawlibrary

chanrobles virtual law library

It may be remembered that in the instant case, the alleged approval of the charter contract
or permission to proceed with said contract was given by the Executive Secretary in his
own name and not under the authority of the President.
chanroblesvirtualawlibrary

chanrobles virtual law library

xxx xxx xxx

chanrobles virtual law library

2. Anent, appellant's motion, considering that the writ of replevin, by virtue of which
appellant Pan Oriental was divested of possession of the vessel FS-197, was issued by the
lower court on February 8, 1951 at the instance of plaintiff Froilan and with the
cooperation of intervenor Republic of the Philippines, which accepted the payment
tendered by him (Froilan) notwithstanding its previous dealings with Pan Oriental; and
whereas, the intervenor Compaia Maritima acquired the same property only on
December 1, 1951, it is clear that only plaintiff Froilan and the intervenor Republic of the
Philippines may be held responsible for the deprivation of defendant of its right to the
retention of the property until fully reimbursed of the necessary expenditure made on the
vessel. For this reason, Froilan and the Republic of the Philippines are declared jointly and
severally liable, not only for reimbursement to Pan Oriental of the legitimate necessary
expenses incurred on the vessel but also for payment of legal interest thereon, computed from
the date of the defendant's dispossession of the property. However, as defendant was in actual
possession of the vessel from April 1, 1949 to February 7, 1951, it must be required to pay
reasonable rental for the use thereof, at the rate of P3,000.00 a month - the same rate
specified as rental in the imperfected charter contract - which shall be deductible from
whatever may be due and owing the said party by way of reimbursable necessary expenses and
interest. This rental shall commence from the time defendant Pan Oriental actually
operated the vessel, which date shall be determined by the lower court.
chanroblesvirtualawlibrary

chanrobles virtual law library

Case is remanded to the court of origin for further proceedings on the matter of necessary
expenses, interest and rental, as directed in our decision and this resolution. (Emphasis
supplied).
On November 23, 1966, acting on a second Motion for Reconsideration filed by PAN
ORIENTAL, this Court resolved:
In case G.R. No. L-11817, Fernando A, Froilan, et al., appellees, vs. Pan Oriental Shipping
Company, appellant, the latter filed a .second motion for reconsideration, alleging that the
Resolution of this Court of August 27, 1965 denying its motion for reconsideration of
December 16, 1964 is not in accordance with law; and that the modification of the
judgment following the ex-parte motion for reconsideration of appellee Froilan is contrary
to due process.
chanroblesvirtualawlibrary

chanrobles virtual law library

Considering that foregoing motion as well as the opposition thereto by plaintiff-appellee


and intervenor-appellee Compaia Maritima, the Court RESOLVED to amend the ruling
in this case by holding intervenor-appellee Compaia Maritima, because of its actual
knowledge of the circumstances surrounding the purchase by Froilan of the vessel in
question from the Shipping Administrator, jointly and severally liable with the other
appellees, for reimbursement to appellant of the necessary expenses incurred and expended
by the latter on the said vessel, minus the amount of rentals due from the appellant for the
use thereof for the period it was actually operated by Pan Oriental. The period of actual
operation shall not include the time when the vessel was drydocked.

On December 16,1966, acting on PAN ORIENTAL's Motion for Reconsideration or


Application for Damages on account of the wrongful issuance of the Writ of Replevin, this
Court issued a Resolution as follows:
Before us again in Case G.R. No. 11897 (Fernando A. Froilan vs. Pan Oriental Shipping Co.
et al) is a motion for reconsideration or Application for damages filed by respondent Pan
Oriental Shipping Co., allegedly on account of the wrongful issuance of the writ of replevin,
pursuant to Rule 60, Section 10, in relation to Rule 57, Section 20 of the Revised Rules of
Court. Considering that by virtue of our resolution dated August 27, 1965, this case has
been ordered to be remanded to the Court of origin for further proceedings on the matter
of necessary expenses, interest and rentals, and since evidence would have to be presented if
the application for damages is allowed, the Court resolved, first, to deny the present motion
for reconsideration and, second, to refer the application to the trial court, there to be heard
and decided as prescribed by law and the Rules. (See last sentence, Section 20, Rule 57).
Pursuant thereto, the case was remanded to the Court of First Instance of Manila, Branch
VI (Civil Case No. 13196). After the evidence of the parties was received and assessed by a
Commissioner, said Court issued an Order, dated June 4, 1975, the dispositive portion of
which reads:
WHEREFORE, in view of the foregoing consideration, the Court orders the intervenor
Compaia (plaintiff Fernando A. Froilan's successor-in-interest) and intervenor Republic
of the Philippines (Board of Liquidators) jointly and severally to pay defendant Pan
Oriental Shipping Company the sum of P6,937.72 a month from the time 'it was
dispossessed on February 3, 1951' until it is paid its useful and necessary expenses; the sum
of P40,797.54 actual amount expended for the repairs and improvements prior to the
operation of the vessel on June 1, 1949 with legal interest from the time of disbursement of
said legitimate expenses. The Court also orders the intervenor Republic of the Philippines
to return the sum of P15,000.00 tendered by defendant Pan Oriental Shipping Company as
provided in the option with legal interest from January 16, 1950, the date it was paid by the
latter.
chanroblesvirtualawlibrary

chanrobles virtual law library

SO ORDERED. 2

chanrobles virtual law library

The amount of P6,937.72 ordered to be paid monthly represented the lower Court's computation
of damages of PAN ORIENTAL for deprivation of the right to retain the vessel. 3
On appeal by REPUBLIC and MARITIMA to the then Court of Appeals, judgment was
promulgated decreeing.
WHEREFORE, in the light of the foregoing pronouncements, the judgment appealed from is
hereby MODIFIED as follows:
chanrobles virtual law library

Ordering intervenors-appellants Republic and Compaia Maritima, jointly and severally, to pay
appellee Pan Oriental Shipping Company the sum of P40,797.54 with legal interest from
February 3, 1951 until fully paid but there shah be deducted therefrom the amount of P59,500.00

representing the unpaid rentals due the Republic of the Philippines; and AFFIRMED in all other
respects.
In other words, (a) the date from which interest is to be paid on the amount of P40,797.54 is from
February 3, 1951, the date of dispossession, and not from the time of disbursement and (b) the
unpaid rentals due the Republic are deductible from the amount of expenses payable to PANORIENTAL. It should be recalled that the deduction of rentals from the amount payable to PANORIENTAL by REPUBLIC was pursuant to this Court's Resolutions of August 27, 1965 and
November 23, 1966, supra,
From the foregoing Decision, the parties filed their respective Petitions for Review now before
us.
chanroblesvirtualawlibrary

chanrobles virtual law library

For clarity, the sums ordered to be paid by MARITIMA and the REPUBLIC, jointly and
severally, to PAN-ORIENTAL are: (a) the sum of P6,937.72 a month from February 3, 1951, the
date of PAN-ORIENTAL's dispossession, in the concept of damages for the deprivation of its
right to retain the vessel, it until it is paid its useful and necessary expenses"; 4 (b) the sum of
P15,000.00, representing PAN-ORIENTAL's deposit with REPUBLIC for the purchase of the
vessel, "with legal interest from January 16, 1950," the date PAN-ORIENTAL had paid the same;
5
and (c) the sum of P40,797.54 representing the expenses for repairs incurred by PANORIENTAL, "with legal interest from February 3, 1951 until fully paid," minus the amount of
P59,500.00 representing the unpaid rentals due the REPUBLIC 6 The legal rate of interest is
made payable only on the last two amounts (b) and (c).
chanroblesvirtualawlibrary

chanrobles virtual law library

REPUBLIC attributes the following errors to the Appellate Court: (1) in not holding that
compensation by operation of law took place as between REPUBLIC and PAN-ORIENTAL as of
the date of dispossession; (2) in not holding that the obligation of the REPUBLIC to pay legal
interest on the amount of useful and necessary expenses from February 3, 1951 had become stale
and ineffective; (3) in affirming the Order of the Trial Court that MARITIMA and REPUBLIC,
jointly and severally, pay to PAN-ORIENTAL the sum of P6,937.72 a month from the time it
was dispossessed of the vessel on February 3, 1951 until it is paid its useful and necessary
expenses; and (4) in not holding that the Trial Court had no jurisdiction to order the return of
P15,000.00 to PAN-ORIENTAL. MARITIMA, for its part, aside from assailing the sums it was
ordered to pay PAN-ORIENTAL, jointly and severally, with REPUBLIC, echoed the theory of
compensation and added that the question of damages on account of alleged wrongful replevin
was not a proper subject of inquiry by the Trial Court when it determined the matter of necessary
expenses, interest and rentals.
REPUBLIC's Submissions
1) REPUBLIC maintains that compensation or set-off took place between it and PANORIENTAL as of February 3, 1951, the date the latter was dispossessed of the vessel For
compensation to take place, one of the elements necessary is that the debts be liquidated. 7 In this
case, all the elements for Compensation to take place were not present on the date of
dispossession, or on February 3, 1951. The amount expended for repairs and improvements had
yet to be determined by the Trial Court pursuant to the Decision of this Court promulgated on

October 31, 1964. At the time of dispossession also, PAN-ORIENTAL was still insisting on its
right to purchase the vessel. The obligation of REPUBLIC to reimburse PAN-ORIENTAL for
expenses arose only after this Court had so ruled. Rentals for the use of the vessel by PANORIENTAL were neither due and demandable at the time of dispossession but only after this
Court had issued its Resolution of August 27, 1965.
chanroblesvirtualawlibrary

chanrobles virtual law library

More, the legal interest payable from February 3, 1951 on the sum of P40,797.54, representing
useful expenses incurred by PAN-ORIENTAL, is also still unliquidated 8 since interest does not
stop accruing "until the expenses are fully paid." 9 Thus, we find without basis REPUBLIC's
allegation that PAN- ORIENTAL's claim in the amount of P40,797.54 was extinguished by
compensation since the rentals payable by PAN-ORIENTAL amount to P59,500.00 while the
expenses reach only P40,797.54. Deducting the latter amount from the former, REPUBLIC
claims that P18,702.46 would still be owing by PAN-ORIENTAL to REPUBLIC. That argument
loses sight of the fact that to the sum of P40,797.54 will still have to be added the legal rate of
interest "from February 3, 1951 until fully paid."
chanrobles virtual law library

But although compensation by operation of law cannot take place as between REPUBLIC and
PAN-ORIENTAL, by specific pronouncement of this Court in its Resolution of November 23,
1966, supra, the rentals payable by PAN-ORIENTAL in the amount of P59,500.00 should be
deducted from the sum of useful expenses plus legal interest due, assuming that the latter amount
would still be greater. Otherwise, the corresponding adjustments can be made depending on the
totality of the respective amounts.
chanroblesvirtualawlibrary

chanrobles virtual law library

2) Since we are holding that the obligation of REPUBLIC to pay P40,797.54 to PANORIENTAL was not extinguished by compensation, the obligation of REPUBLIC to pay legal
interest on said amount has neither become stale as REPUBLIC contends. Of special note is the
fact that payment of that interest was the specific ruling of this Court in its Resolution of August
27, 1965, thus:
... For this reason, Froilan and the REPUBLIC of the Philippines are declared jointly and
severally liable, not only for reimbursement to Pan Oriental, of the legitimate necessary expenses
incurred on the vessel, but also for payment of legal interest thereon, computed from the date of
the defendant's dispossession of the property ... .
3) The amount of P6,937.72 a month ordered to be paid by REPUBLIC and MARITIMA to
PAN-ORIENTAL until the latter is paid its useful and necessary expenses is likewise in order.
That amount represents the damages for the wrongful issuance of the Writ of Replevin and was
computed as follows: P4,132.77 for loss of income by PAN-ORIENTAL plus P2,804.95 as
monthly depreciation of the vessel in lieu of the charter hire.
chanroblesvirtualawlibrary

chanrobles virtual law library

It should further be recalled that this Court, in acting on PAN- ORIENTAL's application for
damages in its Resolution of December 16, 1966, supra, did not deny the same but referred it
instead to the Trial Court "there to be heard and decided" since evidence would have to be
presented. Moreover, this Court found that PAN-ORIENTAL was "deprived of the possession of
the vessel over which (it) had a lien for these expenses" 10 and that FROILAN and REPUBLIC
"may be held responsible for the deprivation of defendant (PANORIENTAL) of its right to

retention of the property until fully reimbursed on the necessary expenditures made on the
vessel. " 11
chanrobles virtual law library

4) There return of Pl5,000.00 ordered by the Trial Court and affirmed by the Appellate Court was
but just and proper. As this Court found, that sum was tendered to REPUBLIC "which together
with its (PAN-ORIENTAL's) alleged expenses already made on the vessel, cover 25% of the cost
of the vessel, as provided in the option granted in the bareboat contract (Exhibit "C"). This
amount was accepted by the Administration as deposit ...." Since the purchase did not eventually
materialize for reasons attributable to REPUBLIC, it is but just that the deposit be returned. 12 It
is futile to allege that PAN-ORIENTAL did not plead for the return of that amount since its
prayer included other reliefs as may be just under the premises. Courts may issue such orders of
restitution as justice and equity may warrant.
MARITIMA's Position
We find no merit in MARITIMA's contention that the alleged damages on account of wrongful
replevin was barred by res judicata, and that the application for damages before the lower Court
was but a mere adoption of a different method of presenting claims already litigated. For the
records show that an application for damages for wrongful replevin was filed both before this
Court and thereafter before the Trial Court after this Tribunal specifically remanded the issue of
those damages to the Trial Court there to be heard and decided pursuant to Rule 60, Section 10 in
relation to Rule 57, Section 20. 13
chanrobles virtual law library

The matter of legal compensation which MARITIMA has also raised has been previously
discussed.
chanroblesvirtualawlibrary

chanrobles virtual law library

Parenthetically, PAN-ORIENTAL can no longer raise the alleged error of the Trial Court in
computing the necessary and useful expenses at only P40,797.54 when they should be
P87,267.30, since it did not appeal from that Court's Decision.
chanroblesvirtualawlibrary

chanrobles virtual law library

In a nutshell, we find that the appealed Decision of the Trial Court and of the then Court of
Appeals is in consonance with the Decision and Resolutions of this Court.
chanroblesvirtualawlibrary

ACCORDINGLY, the judgment appealed from is hereby affirmed. No costs.

chanrobles virtual law library

chanroblesvirtualawlibrary

chanrobles virtual law library

SO ORDERED.
Teehankee (Chairman), Plana, Relova, Gutierrez, Jr., De la Fuente and Alampay, JJ., concur.

Endnotes:
1 SCRA 276 [1964].

chanrobles virtual law library

2 Pp. 114-115, Amended Record on Appeal.


3 P. 53, Original Record on Appeal.

chanrobles virtual law library

4 Trial Court's Order on June 4, 1975.

chanrobles virtual law library

5 Ibid.
6 Decision, Court of Appeals.
7 Article 1279, Civil Code.
8 Article 1279, Civil Code.

chanrobles virtual law library

chanrobles virtual law library

chanrobles virtual law library

9 Decision, Court of Appeals.

chanrobles virtual law library

10 Decision of October 31, 1964.

chanrobles virtual law library

11 Resolution of August 27, 1965.


12 Article 1988, Civil Code.

chanrobles virtual law library

chanrobles virtual law library

13 Resolution of December 16, 1966.

chanrobles virtual law library