220 Phil.

267

[ G.R. No. L-50900, April 09, 1985 ]

CONPAÑIA 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 LIQUIDATORS), 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, COMPAÑIA

MARITIMA AND THE REPUBLIC OF THE PHILIPPINES (BOARD OF LIQUIDATORS),
RESPONDENTS.

MELENCIO-HERRERA, J. [FIRST DIVISION]

FACTS:

Fernando Froilan purchased a vessel from the Shipping Administration, and the vessel was
mortgaged infavor of the Shipping Administration, with the approval of the President of the
Philippines. Froilan was unable to pay the remaining balance and follow the agreement of the
contract.

The Shipping Administration repossessed the vessel and cancelled the contract of sale with
Froilan. Froilan contested the cancellation before the President of the Philippines, and the cabinet
revoked the cancellation and restored to him all his rights, provided he follow the obligation set
by the cabinet. Froilan again defaulted and the Cabinet decided to resolve whether to reconsider
again the restoration of his rights.

Before the Cabinet revoked SA’s cancellation of the contract of sale with Froilan, the Pan
Oriental Shipping Co., offered to the Shipping Administration to charter the vessel, which the
latter agreed to and a charter agreement was created, wherein the Charterer was offered the option
to purchase the vessel. However, the charter agreement would only be approved upon the
approval of the President of the Philippines.

When Froilan, defaulted again, the Executive Secretary sent a letter to the Shipping
Administration, allowing the latter to enter into the Charter Contract with Pan Oriental. Then the
Cabinet gave another chance to Froilan, and Pan Oriental protested. The lower court found that
Froilan has a better right than Pan Oriental.

During this period, Froilan sold his rights to Compañia Maritama and was allowed to intervene in
the proceedings.

The Court then sustained the decision of the lower court, stating that “xxx 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 Froilan and its successor
Compañia 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,
Compañia 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.”

Thus the court held the Republic and Compañia Maritama to be jointly and severally liable “xxx
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. xxx”

Then Republic claims that compensation or set-off took place between it and PAN-ORIENTAL
when the latter was disposed of the vessel.

ISSUE:

Whether Compensation or Set-off took place between the REPUBLIC and PAN ORIENTAL.

HELD:

1) xxx. For compensation to take place, one of the elements necessary is that the debts be
liquidated. 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 PAN-ORIENTAL were neither due and demandable at the time of dispossession but
only after this Court had issued its Resolution of August 27, 1965.

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 since interest does not
stop accruing "until the expenses are fully paid". 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."
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.

2) Since we are holding that the obligation of REPUBLIC to pay P40,797.54 to PAN-
ORIENTAL 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:

"x x x 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. x x x"

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.

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 (PAN-ORIENTAL) of its right to
retention of the property until fully reimbursed on the necessary expenditures made on the
vessel".[11]

4) The return of P15,000.00 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 x x x ." 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. xxx