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FROILAN VS PAN ORIENTAL SHIPPING

G.R. No. L-6060 , 95 PHIL 905 September 30, 1954

Facts:

Plaintiff, Fernando Froilan filed a complaint against the defendant-appellant, Pan Oriental Shipping Co., alleging that he
purchased from the Shipping Commission the vessel for P200,000, paying P50,000 down and agreeing to pay the balance
in instalments. To secure the payment of the balance of the purchase price, he executed a chattel mortgage of said
vessel in favor of the Shipping Commission. For various reasons, among them the non-payment of the installments, the
Shipping Commission tool possession of said vessel and considered the contract of sale cancelled. The Shipping
Commission chartered and delivered said vessel to the defendant-appellant Pan Oriental Shipping Co. subject to the
approval of the President of the Philippines. Plaintiff appealed the action of the Shipping Commission to the President of
the Philippines and, in its meeting the Cabinet restored him to all his rights under his original contract with the Shipping
Commission. Plaintiff had repeatedly demanded from the Pan Oriental Shipping Co. the possession of the vessel in
question but the latter refused to do so.

Plaintiff, prayed that, upon the approval of the bond accompanying his complaint, a writ of replevin be issued for the
seizure of said vessel with all its equipment and appurtenances, and that after hearing, he be adjudged to have the
rightful possession thereof . The lower court issued the writ of replevin prayed for by Froilan and by virtue thereof the
Pan Oriental Shipping Co. was divested of its possession of said vessel.

Pan Oriental protested to this restoration of Plaintiff ‘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 said authority to the property,
Plaintiff having already relinquished whatever rights he may have thereon. Plaintiff paid the required cash of P10,000.00
and as Pan Oriental refused to surrender possession of the vessel, he filed an action to recover possession thereof and
have him declared the rightful owner of said property. The Republic of the Philippines was allowed to intervene in said
civil case praying for the possession of the in order that the chattel mortgage constituted thereon may be foreclosed.

Issues:

Whether or not the Court has jurisdiction over the intervenor with regard to the counterclaim.

Discussions:

When the government enters into a contract, for the State is then deem to have divested itself of the mantle of
sovereign immunity and descended to the level of the ordinary individual. Having done so, it becomes subject to judicial
action and processes.

Rulings:

Yes. The Supreme Court held that the government impliedly allowed itself to be sued when it filed a complaint in
intervention for the purpose of asserting claim for affirmative relief against the plaintiff to the recovery of the vessel.
The immunity of the state from suits does not deprive it of the right to sue private parties in its own courts. The state as
plaintiff may avail itself of the different forms of actions open to private litigants. In short, by taking the initiative in an
action against a private party, the state surrenders its privileged position and comes down to the level of the defendant.
The latter automatically acquires, within certain limits, the right to set up whatever claims and other defenses he might
have against the state.