G.R. No. L-6060. September 30, 1954

The factual antecedents of this case are sufficiently-recited in the brief filed by the intervenor-appellee as follows:

“1. On February 3, 1951, plaintiff-appellee,
Fernando A. Froilan, filed a complaint against the defendant-appellant,
Pan Oriental Shipping Co., alleging that he purchased from the Shipping
Com- mission the vessel FS-197 for P200,000, paying P50,000 down and
agreeing to pay the balance in installments; that 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; that for various
reasons, among them the non-payment of the installments, the Shipping
Commission took possession of said vessel and considered the contract
of sale cancelled; that 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; that he
appealed the action of the Shipping Commission to the President of the
Philippines and, in its meeting on August 25, 1950, the Cabinet
restored him to all his rights under his original contract with the
Shipping Commission; that he had repeatedly demanded from the Pan
Oriental Shipping Co. the possession of the vessel in question but the
latter refused to do so. He, therefore, 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 (Rec. on App. pp. 2-8).

“2. On
February 3, 1951, 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 (Rec. on App. p. 47).

“3.
On March 1, 1951, Pan Oriental Shipping Co. filed its answer denying
the right of Froilan to the possession of the said vessel; it alleged
that the action of the Cabinet on August 25, 1950, restoring Froilan to
his rights under his original contract with the Shipping Commission was
null and void; that, in any event, Froilan had not complied with the
conditions precedent imposed by the Cabinet for the restoration of his
rights to the vessel under the original contract; that it suffered
damages in the amount of P22,764.59 for wrongful replevin in the month
of February, 1951, and the sum of P17,651.84 a month as damages
suffered for wrongful replevin from March 1, 1951; it alleged that it
had incurred necessary and useful expenses on the vessel amounting to
P127,057.31 and claimed the right to retain said vessel until its
useful and necessary expenses had been reimbursed (Rec. on App. pp.
8-53).

“4. On November 10, 1951, after the leave of the lower
court had been obtained, the intervenor-appellee, Government of the
Republic of the Philippines, filed a complaint in intervention alleging
that Froilan had failed to pay to the Shipping Commission (which name
was later changed to Shipping Administration) the balance due on the
purchase price of the vessel in question, the interest thereon, and its
advances on insurance premium totaling P162,142.95, excluding the
dry-docking expenses incurred on said vessel by the Pan Oriental
Shipping Co.; that intervenor was entitled to the possession of the
said vessel either under the terms of the original contract as
supplemented by Froilan’s letter dated January 28, 1949, or in order
that it may cause the extrajudicial sale thereof under the Chattel
Mortgage Law. It, therefore, prayed that Froilan be ordered to deliver
the vessel in question to its authorized representative, the Board of
Liquidators; that Froilan be declared to be without any rights on said
vessel and the amounts he paid thereon forfeited or alternately, that
the said vessel be delivered to the Board of Liquidators in order that
the intervenor may have its chattel mortgage extrajudicially foreclosed
in accordance with the provisions of the Chattel Mortgage Law; and that
pending the hearing on the merits, the said vessel be delivered to it
(Rec on App. pp. 54-66).

“5. On November 29, 1951, the Pan
Oriental Shipping Co. filed an answer to the complaint in intervention
alleging that the Government of the Republic of the Philippines was
obligated to deliver the vessel in question to it by virtue of a
contract of bareboat charter with option to purchase executed on June
16, 1949, by the latter in favor of the former; it also alleged that it
had made necessary and useful expenses on the vessel and claimed the
right of retention of the vessel. It, therefore, prayed that, if the
Republic of the Philippines succeeded in obtaining possession of the
said vessel, to comply with its obligations of delivering to it (Pan
Oriental Shipping Co.) or causing its delivery by recovering it from
Froilan (Rec. on App. pp. 69-81).

“6. On November 29, 1951,
Froilan tendered to the Board of Liquidators, which was liquidating the
affairs of the Shipping Administration, a check in the amount of PI
62,576.96 in payment of his obligation to the Shipping Administration
for the said vessel as claimed in the complaint in intervention of the
Government of the Republic of the Philippines. The Board of Liquidators
issued an official report therefor stating that it was a ‘deposit
pending the issuance of an order of the Court of First Instance of
Manila’ (Rec. on App. pp. 92-93).

“7. On December 7, 1951,
the Government of the Republic of the Philippines brought the matter of
said payment and the circumstances surrounding it to the attention of
the lower court ‘in order that they may be taken into account by this
Honorable Court in connection with the questions that are now pending
before it for determination’ (Rec. on App. pp. 82-86).

“8. On
February 3, 1952, the lower court held that the payment by Froilan of
the amount of P162,576.96 on November 29, 1951, to the Board of
Liquidators constituted a payment and a discharge of Froilan’s
obligation to the Government of the Republic of the Philippines and
ordered the dismissal of the latter’s complaint in intervention. In the
same order, the lower court made it very clear that said order did not
pre-judge the question involved between Froilan and the Oriental
Shipping Co. which was also pending determination in said court (Rec.
on App. pp. 92-93). This order dismissing the complaint in
intervention, but reserving for future adjudication the controversy
between Froilan and the Pan Oriental Shipping Co. had already become
final since neither the Government of the Republic of the Philippines
nor the Pan Oriental Shipping Co. had appealed therefrom.

“9.
On May 10, 1952, the Government of the Republic of the Philippines
filed a motion to dismiss the counterclaim of the Pan Oriental Shipping
Co. against it on the ground that the purpose of said counterclaim was
to compel the Government of the Republic of the Philippines to deliver
the vessel to it (Pan Oriental Shipping Co.) in the event that the
Government of the Republic of the Philippines recovers the vessel in
question from Froilan. In view, however, of the order of the lower
court dated February 3, 1952, holding that the payment made by Froilan
to the Board of Liquidators constituted full payment of Froilan’s
obligation to the Shipping Administration, which order had already
become final, the counterclaim of the Pan Oriental Shipping Co. against
the Republic of the Philippines was no longer feasible, said
counter-claim was barred by prior judgment and stated no cause of
action. It was also alleged that movant was not subject to the
jurisdiction of the court in connection with the counterclaim. (Rec. on
App. pp. 94-97). This motion was opposed by the Pan Oriental Shipping
Co. in its written opposition dated June 4, 1952 (Rec on App. pp.
19-104).

“10. In an order dated July 1, 1952, the lower court
dismissed the counterclaim of the Pan Oriental Shipping Co. as prayed
for by the Republic of the Philippines (Rec. on App. pp. 104r-106).

“11.
It is from this order of the lower court dismissing its counter- claim
against the Government of the Republic of the Philippines that Pan
Oriental Shipping Co. has perfected the present appeal (Rec. on App. p.
107).”

The order of the Court of First Instance of Manila, dismissing the
counterclaim of the defendant Pan Oriental Shipping Co., from which the
latter hag appealed, reads as follows:

“This is a motion to dismiss the counterclaim interposed by the defendant in its answer. to the complaint in intervention.

“The counterclaim states as follows:

‘COUNTERCLAIM

‘As counterclaim against the intervenor Republic of the Philippines, the defendant alleges:

‘1. That the defendant reproduces herein all the pertinent allegations of the foregoing answer to the complaint in intervention

‘2.
That, as shown by the allegations of the foregoing answer to the
complaint in intervention, the defendant Pan Oriental Shipping Company
is entitled to the possession of the vessel and the intervenor Republic
of the Philippines is bound under the contract of charter with option
to purchase it entered into with the defendant to deliver that
possession to the defendant—whether it actually has the said possession
or it does not have that possession from the plaintiff Fernando A.
Froilan and deliver the same to the defendant; 43. That,
notwithstanding demand, the intervenor Republic of the Philippines has
not to date complied with its obligation of delivering or causing the
delivery of the vessel to the defendant Pan Oriental Shipping Company.

‘RELIEF

‘WHEREFORE, the defendant respectfully prays that
judgment be rendered ordering the intervenor Republic of the
Philippines alternatively to deliver to the defendants the possession
of the said vessel, or to comply with its obligation to the defendant
or causing the delivery to the latter of the said vessel by recovering
the same from plaintiff, with costs.

‘The defendant prays for such other remedy as the Court may deem just and equitable in the premises.”

“The ground of the motion to dismiss are (a) That the cause of action is barred by prior judgment; (b) That the counterclaim states no cause of action; and (c)
That this Honorable Court has no jurisdiction over the intervenor
government of the Republic of the Philippines in connection with the
counterclaim of the defendant Pan Oriental Shipping Co.

“The
intervenor contends that the complaint in intervention having been
dismissed and no appeal having been taken, the dismissal of said
complaint is tantamount to a judgment.

“The complaint in
intervention did not contain any claim whatsoever against the defendant
Pan Oriental Shipping Co.; hence, the counterclaim has no foundation.

“The
question as to whether the Court has jurisdiction over the intervenor
with regard to the counterclaim, the Court is of the opinion that it
has no jurisdiction over said intervenor.

“It appearing,
therefore, that the grounds of the motion to dismiss are well taken,
the counterclaim of the defendant is dismissed, without pronouncement
as to costs.”

The defendant’s appeal is predicated upon the following assignments of error:

“I. The lower court erred in dismissing the counterclaim on the ground of prior judgment.

II.
The lower court erred in dismissing the counterclaim on the ground that
the counterclaim had no foundation because made to a complaint in
intervention that contained no claim against the defendant.

III.
The lower court erred in dismissing the counterclaim on the ground of
alleged lack of jurisdiction over the intervenor Republic of the
Philippines.”

We agree with appellant’s contention that its counter-claim is not
barred by prior judgment (order of February 8, 1952, dismissing the
complaint in intervention), first, because said counterclaim was filed
on November 29, 1951, before the issuance of the order invoked; and,
secondly, because in said order of February 8, the court dismissed the
complaint in intervention, “without, of course, precluding the
determination of the right of the defendant in the instant case,” and
subject to the condition that the “release and cancellation of the
chattel mortgage does not, however, prejudge the question involved
between the plaintiff and the defendant which is still the subject of
determination in this case.” It is to be noted that the first condition
referred to the right of the defendant, as distinguished from the
second condition that expressly specified the controversy between the
plaintiff and the defendant. That the first condition reserved the
right of the defendant as against the intervenor, is clearly to be
deduced from the fact that the order of February 8 mentioned the
circumstance that “the question of the expenses of dry-docking incurred
by the defendant has been included in its counterclaim against the
plaintiff,” apparently as one of the grounds for granting the motion to
dismiss the complaint in intervention.

The defendant’s failure to appeal from the order of February 8
cannot, therefore, be held as barring the defendant from proceeding
with its counterclaim, since, as already stated, said order preserved
its right as against the intervenor. Indeed, the maintenance of said
right is in consonance with Rule 30, section 2, of the Rules of Court
providing that “if a counterclaim has been pleaded by a defendant prior
to the service upon him of the plaintiff’s motion to dismiss, the
action shall not be dismissed against the defendant’s objection unless
the counterclaim can remain pending for independent adjudication by the
court,”

The lower court also erred in holding that, as the intervenor had
not made any claim against the defendant, the latter’s counterclaim had
no foundation. The complaint in intervention sought to recover
possession of the vessel in question from the plaintiff, and this claim
is logically adverse to the position assumed by the defendant that it
has a better right to said possession than the plaintiff who alleges in
his complaint that he is entitled to recover the vessel from the
defendant. At any rate a counter-claim should be judged by its own
allegations1, and not by the averments of the adverse party. It should
be recalled that the defendant’s theory is that the plaintiff had
already lost his rights under the contract with the Shipping
Administration and that, on the other hand, the defendant is relying on
the charter contract executed in its favor by the intervenor which is
bound to protect the defendant in its possession of the vessel. In
other words, the counter-claim calls for specific performance on the
part of the intervenor. As to whether this counterclaim is meritorious
is another question which is not now before us.

The other ground for dismissing the defendant’s counter-claim is
that the State is immune from suit. This is untenable, because by
filing its complaint in intervention the Government in effect waived
its right of nonsuability.

“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. The
United States Supreme Court thus explains:

‘No
direct suit can be maintained against the United States. But when an
action is brought by the United States to recover money in the hands of
a party who has a legal claim against them, it would be a very rigid
principle to deny to him the right of setting up such claim in a court
of justice, and turn him around to an application to Congress.’”
(Sinco, Philippine Political Law, Tenth Ed., pp. 36-37, citing U. S. vs. Ringgold, 8 Pet. 150, 8 L. ed. 899.)

It is however, contended for the intervenor that, if there was at
all any waiver, it was in favor of the plaintiff against whom the
complaint in intervention was directed. This contention is untenable.
As already stated, the complaint in intervention was in a sense in
derogation of the defendant’s claim over the possession of the vessel
in question.

Wherefore, the appealed order is hereby reversed and set aside and
the case remanded to the lower court for further proceedings. So
ordered, without costs.

Pablo, Padilla, Montemayor, Reyes, A., Jugo, Bautista Angelo, Concepcion, and Reyes, J.B.L., JJ., concur.