FERNANDO A. FROILAN vs. PAN ORIENTAL SHIPPING CO.

, REPUBLIC OF THE
PHILIPPINES
G.R. No. L-6060
SEPTEMBER 30, 1954
PONENTE: PARAS, C.J

DOCTRINE:
FILING OF COMPLAINT N INTERVENTION BY THE GOVERNMENT IS WAIVER OF
NONSUABILITY. — The filing by the Government of a complaint in intervention is in effect a
wavier of its right of nonsuability.|||

FACTS:
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
Commission the vessel FS-197; 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. 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 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. The lower court issued the
writ of replevin. 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 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 P162,576.96 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 Government of the Republic of the Philippines brought the
matter of said payment and the circumstance 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 not pending before it for determination". On February 3, 1952, the lower court held that
the payment by Froilan 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. The lower court dismissed the counterclaim of the Pan
Oriental Shipping Co. as prayed for by the Republic of the Philippines. Hence, this appeal.

ISSUE:
Whether or not the lower court erred in dismissing the counterclaim on the ground of alleged lack
of jurisdiction over the intervenor Republic of the Philippines.

HELD:

The other ground for dismissing the defendant's counterclaim 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 appealed order is hereby reversed and set aside and the case remanded to the lower court for
further proceedings.
UNITED STATES OF AMERICA, CAPT. JAMES E. GALLOWAY, WILLIAM I.
COLLINS and ROBERT GOHIER vs. HON. V. M. RUIZ, Presiding Judge of Branch XV,
Court of First Instance of Rizal and ELIGIO DE GUZMAN & CO., INC..
G.R. No. L-35645
May 22, 1985
PONENTE: ABAD SANTOS, J

DOCTRINE:
The traditional rule of State immunity exempts a State from being sued in the courts of another
State without its consent or waiver. This rule is a necessary consequence of the principles of
independence and equality of States. However, the rules of International Law are not petrified;
they are constantly developing and evolving. And because the activities of states have multiplied,
it has been necessary to distinguish them — between sovereign and governmental acts (jure
imperii) and private, commercial and proprietary acts (jure gestionis). The result is that State
immunity now extends only to acts jure imperii. The restrictive application of State immunity is
now the rule in the United States, the United Kingdom and other states in western Europe.|

FACTS:
The United States of America had a naval base in Subic, Zambales. The base was one of those
provided in the Military Bases Agreement between the Philippines and the United States.

Sometime in May, 1972, the United States invited the submission of bids for the following
projects:
1. Repair offender system, Alava Wharf at the U.S. Naval Station Subic Bay, Philippines.
2. Repair typhoon damage to NAS Cubi shoreline; repair typhoon damage to shoreline revetment,
NAVBASE Subic; and repair to Leyte Wharf approach, NAVBASE Subic Bay, Philippines.

Eligio de Guzman & Co., Inc. responded to the invitation and submitted bids. The company
received a letter which was signed by Wilham I. Collins, Director, Contracts Division, Naval
Facilities Engineering Command, Southwest Pacific, Department of the Navy of the United States,
who is one of the petitioners herein. The letter said that the company did not qualify to receive an
award for the projects. the company sued the United States of America and Messrs. James E.
Galloway, William I. Collins and Robert Gohier all members of the Engineering Command of the
U.S. Navy. The complaint is to order the defendants to allow the plaintiff to perform the work on
the projects and, in the event that specific performance was no longer possible, to order the
defendants to pay damages. The company also asked for the issuance of a writ of preliminary
injunction to restrain the defendants from entering into contracts with third parties for work on the
projects. The defendants entered their special appearance for the purpose only of questioning the
jurisdiction of this court over the subject matter of the complaint and the persons of defendants.

The defendants filed a motion to dismiss the complaint which included an opposition to the
issuance of the writ of preliminary injunction. The company opposed the motion. The trial court
denied the motion and issued the writ. The defendants moved twice to reconsider but to no avail.
Hence the instant petition which seeks to restrain perpetually the for lack of jurisdiction on the part
of the trial court.

ISSUE:
Whether or not the United States of America can be sued in the courts of another State without its
consent or waiver|

HELD:
The petition is highly impressed with merit.

The respondent judge recognized the restrictive doctrine of State immunity when he said in his
Order denying the defendants' (now petitioners) motion: "A distinction should be made between a
strictly governmental function of the sovereign state from its private, proprietary or non-
governmental acts." However, the respondent judge also said: "It is the Court's considered opinion
that entering into a contract for the repair of wharves or shoreline is certainly not a governmental
function although it may partake of a public nature or character.

The restrictive application of State immunity is proper only when the proceedings arise out of
commercial transactions of the foreign sovereign, its commercial activities or economic affairs.
Stated differently, a State may be said to have descended to the level of an individual and can thus
be deemed to have tacitly given its consent to be sued only when it enters into business contracts.
It does not apply where the contract relates to the exercise of its sovereign functions. In this case
the projects are an integral part of the naval base which is devoted to the defense of both the United
States and the Philippines, indisputably a function of the government of the highest order; they are
not utilized for nor dedicated to commercial or business purposes.