Froilan vs. Pan Oriental Shipping Co.

September 30, 1954

103 PHIL. 473

FACTS

Defendant 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, following the original
purchaser, Fernando Froilan’s, default in his payment of the unpaid balance and insurance premiums for
the said vessel.

Pan Oriental chartered said vessel and operated the same after it had repaired the vessel and paid the
stipulated initial payment, thereby exercising its option to purchase, pursuant to a bareboat charter
contract entered between said company and the Shipping Corporation.

The Cabinet resolved to restore Froilan to his rights under the original contract of sale on condition that
hes hall pay a sum of money upon delivery of the vessel tohim, that he shall continue paying the
remaining installments due, and that he shall assume the expenses incurred for the repair and by
docking of the vessel.

However, 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
said authority to the property, Froilan having already relinquished whatever rights he may have thereon.

Consequently, 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 in the CFI of Manila to recover possession thereof and
have him declared the rightful owner of said property.

Moreover, 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?

HELD

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.

It is a settled rule that 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.

In the case at bar, The state as plaintiff may avail itself of the different forms of actions open to private
litigants. The immunity of the state from suits does not deprive it of the right to sue private parties in its
own courts.
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.