RUDOLPH WAHL, JR., AND DR. KURT WAHL, partners in the business firm of Rudolph Wahl & Co.

, Plaintiffs-Appellants, v. DONALDSON, SIMS & CO.,

Defendants-Appellees.

Gibbs & Kincaid for Appellants.

Simplicio del Rosario for Appellees.

SYLLABUS

1. ARBITRATION; JURISDICTION; PUBLIC POLICY. — A clause in a contract providing that all matters in dispute between the parties shall be referred
to arbitrators and to them alone is contrary to public policy and can not oust the courts of jurisdiction.

DECISION

COOPER, J. :

This is an action brought by Rudolph Wahl & Co. v. Donaldson, Sims & Co., based upon a contract by which the plaintiffs leased to the defendants a
certain ship called Petrarch for the term of six months, under which contract the plaintiffs claimed that the defendants were indebted to them a balance
of $25,484.38, with interest from the 30th day of July, 1901

Suit was instituted on the 4th day of March, 1902, and service of citation was had upon the defendants on the same day.

The defendants failed to answer the complaint, and on the 18th day of April, 1902, judgment was rendered by default against the defendants in favor
of the plaintiffs for the sum of $17,892.81.

Afterwards, on the 10th day of June, 1902, the defendants made an application to the Court of First Instance for a new trial, under section 113 of the
Code of Civil Procedure, 1901. This motion for a new trial was granted by the Court of First Instance, and the judgment by default against the
defendants was set aside on the 20th day of June, 1902.
After the granting of the motion for a new trial a demurrer was made by the defendants to the complaint which presented the question of the
competency of the Court of First Instance to try the case. The objection was based upon the grounds that there was a provision contained in the
contract to the following effect:jgc:chanrobles.com.ph

"If there should arise any difference of opinion between the parties to this contract, whether it may be with reference to the principal matter or in any
detail, this difference shall be referred for arbitration to two competent persons in Hongkong, one of which shall be selected by each of the contracting
parties, with the power to call in a third party in the event of a disagreement; the majority of the opinions will be final and obligatory to the end of
compelling any payment. This award may be made a rule of the court."cralaw virtua1aw library

The question presented for our determination is whether a provision of this character is invalid as being against public policy. Agreements to refer
matters in dispute to arbitration have been regarded generally as attempts to oust the jurisdiction of the court, and are not enforced. The rule is thus
stated in Clark on Contracts, page 432:jgc:chanrobles.com.ph

"A condition in a contract that disputes arising out of it shall be referred to arbitration is good where the amount of damages sustained by a breach of
the contract is to be ascertained by specified arbitration before any right of action arises, but that it is illegal where all the matters in dispute of
whatever sort may be referred to arbitrators and to them alone. In the first case a condition precedent to the accruing of a right of action is imposed,
while in the second it is attempted to prevent any right of action accruing at all, and this can not be permitted."cralaw virtua1aw library

This seems to be the general rule in the United States, and we understand that in the civil law it is also the rule that, where there is a stipulation that
all matters in dispute are to be referred to arbitrators and to them alone, such stipulation is contract who public policy.

We reach the conclusion that the Court of First Instance should have entertained jurisdiction in this case, notwithstanding the clause providing for
arbitration above referred to.

With regard to the sufficiency of the motion to set aside the judgment by default and the order of the court in granting the same, the majority of this
court are of the opinion that there was no error in the action of the court. In this the writer does not concur.

The application of the defendants, Upon which the judgment was set aside, appears to be defective and not sufficient to have justified the setting aside
of the judgment by default.

There was no excuse whatever shown why the defendants failed to answer within the time prescribed by law. The citation was served upon the
defendants on the 4th day of March, and the judgment by default was not taken until the 18th day of April, 1902.

The application was based upon section 113 of the Code of Civil Procedure, 1901, which reads as follows:jgc:chanrobles.com.ph

"Upon such terms as may he just the court may relieve a party or his legal representative from a judgment, order, or other proceeding taken against
him through his mistake, inadvertence, surprise, or excusable neglect: Provided, That application therefor be made within a reasonable time, but in no
case exceeding six months after such judgment, order, or proceeding was taken."cralaw virtua1aw library
This seems to be a literal copy of section 473 of the Civil Code of Procedure of California, and, according to the well-known rule of construction, the
decisions of the court of California, made prior to the adoption of the statute here, should have the same weight that such decisions would have in
California.

Under the construction by the supreme court of California of the section in question, it is stated that the application should show merits, and that this
should be done with some degree of certainty and not left to surmise.

In the case of Taylor v. Randall (5 Cal., 80) an affidavit had been made to the effect that an instrument had been materially altered without showing in
any manner in what the alteration consisted. It was held that this furnished no grounds on which to base a motion to set aside the judgment.

It is said in the case Bailey v. Taffe (29 Cal., 422) that the better practice is to prepare and exhibit to the court the defendant’s answer at the hearing
of the motion.

It is also held in the case of Reidy v. Scott (53 Cal., 73) that where the affidavit shows that the defense rests upon matters which would be deemed to
be waived except for the interposition of a demurrer, the defense is merely of a technical character and the affidavit is insufficient.

The affidavit in this case states in a general way that the defendants have a counterclaim against the plaintiffs for $125,000, based upon the failure on
the part of the plaintiffs to perform the contract with regard to the Petrarch. This statement is too vague and uncertain to show merits in the defense.

After the application to set aside the judgment had been granted, instead of presenting this defense, a demurrer is presented to the petition, based
upon the purely technical grounds that under the contract the parties had agreed to settle the matters in dispute by arbitration at Hongkong. If the
answer had been prepared by the defendants and presented to the Court of First Instance at the time of the granting of the order, the Court of First
Instance must have concluded that the defense was based upon a technicality and the application must have been overruled. But, as stated before,
this view is not concurred in by the majority of the court.

The judgment of the court in sustaining the demurrer to the complaint and in holding that the Court of First Instance did not have jurisdiction on
account of the clause with reference to arbitration, was erroneous, and it will be set aside and a new trial had. The costs of this appeal is adjudged
against the appellees, the defendants. It is so ordered and adjudged.

Torres and Mapa, JJ., concur.

Arellano, C.J. and McDonough, J., did not sit in this case.

WILLARD, J., concurring, with whom concurs LADD, J. :

I agree with the result.

ARTHUR F. ALLEN, plaintiff-appellee,

vs.
THE PROVINCE OF TAYABAS, defendant-appellant.

Provincial Fiscal of Tayabas Crispin Oben for appellant.

Lawrence & Ross for appellee.

MALCOLM, J.:

On April 18, 1914, the Province of Tayabas, represented by the Director of Public Works, and Arthur F, Allen, contractor, entered into
a contract whereby the contractor agreed to construct five reenforced concrete bridges for P39,200. This contract was in the usual
form. One provision was that the bridges were to be constructed "in accordance with the said advertisements, instructions to bidders,
general conditions, plans, specifications, proposal, and this agreement." Other paragraphs of the contract concerned the method and
rate of payment for extras.

Four of the bridges were accepted by the Government and paid for. The dispute between the parties arose as to the fifth bridge, No.
53.3 and as to certain extras. As to this bridge, the Province of Tayabas paid to the contractor P4,360 on account of the contract
price thereof, but refused to pay the balance of P2,840 because plaintiff had deviated from the specifications and because the work
was defective. The province further refused to pay for certain extras. To recover the balance upon the contract was the purpose of
the contractor in bringing action for P9,685 (amended complaint), alleged to be due him by the Province of Tayabas. The common
averments of the six causes of action were: (1) Residence; (2) the contract; (3) the faithful compliance "with all the terms and
conditions of the said contract" on the part of the contractor, and completion and delivery of the bridges in question; (4) refusal of
defendant to pay plaintiff the balance due for bridge No. 53.3 for certain extras, and as damages, although frequently requested to
do so. Defendant demurred to the complaint on the ground that it did not state facts sufficient to constitute a cause of action,
because: (a) The approval of the Governor-General to the contract had not been given as contemplated by section 2 of the
Provincial Government Act (No. 83) and (b) the certificate for payment had not been accomplished by the Director of Public Works or
the district engineer as provided by section 6, of Act No. 1401, as amended. The demurrer was overruled. Thereupon defendant
answered, renewing as a special defense the grounds of the demurrer, alleging defective work on the part of the plaintiff, and
admitting a total of P2,454.78, the amount certified by the Director of Public Works and the district engineer, as due the plaintiff. The
trial court gave judgment for the plaintiff-contractor for P4,905, with legal interest from July 14, 1914, and costs. Defendant moved for
a new trial, which was denied, duly excepted and perfected a bill of exceptions to this court.

Appellant's assignments of error relate to the findings of fact and two main issues of law. We pass the facts for the moment, and two
main issues of law. We pass the facts for the moment, to discuss the legal questions.

The first contention of appellant is that the Province of Tayabas is not obligated to pay the contractor anything because the contract
was not approved by the Governor-General. This position is absolutely untenable. The law in force when the contract entered into
and when the action was tried, section 2, Act No. 83, as amended by Act No. 1600, made the approval of the Governor-General a
prerequisite only to the purchase and conveyance of real estate by a province. The grammatical construction of the English text,
which is controlling, makes this perfectly clear. Moreover, the law now in force (Administrative Code of 1917, section 2068) has
removed any possibility of doubt and has at the same time revealed legislative intention, by placing the requirement for the
Governor-General's approval of transfers of real estate by provinces in a section separate and distinct from the section of the Code
giving the corporate powers of provinces.

The remaining legal issue merits more extended consideration. Appellant's contention is that the certificate by the district engineer
and the Director of Public Works must be obtained before suit can be brought on a contract; that the findings of these officials are
conclusive; and that the complaint must contain an averment to this effect. Appellee's reply must contain an averment to this effect.
Appellee's reply is that neither the law nor the contract requires the submission to arbitration of disputes between the Government
and the contractor, and that a mere administrative procedure incident to payment has been established.

Act No. 1401, as amended by Act No. 1752, was in force when this action was instituted. The same provisions are now found in
slightly altered phraseology in section 1917-1923 of the Administrative Code of 1917. The law gives a district engineer supervision
over all contacts connected with public works, which exceed the estimated cost of P500. Section 6 of Act No. 1401, as amended by
section 3 of Act No. 1752, reads:

No payments, partial or final, shall be made on any public works without a certificate on the vouchers therefor to the effect
that the work for which payment is contemplated has been accomplished, inspected, and accepted. Such certificate for
work under the supervision of the district engineer shall be signed by him or his duly authorized representative. For work
not under his supervision such certificate shall be signed by the provincial treasurer.

Section 1922 of the Administrative Code of 1917, reads:

No payment, partial or final, shall be made on any public work of construction or repair without a certificate on the voucher
therefor to the effect that the work for which payment is contemplated has been accomplished in accordance with the terms
of the contract and has been duly inspected and accepted. Such certificate shall be signed by a duly authorized
representative of the Director of Public Works having full knowledge of the facts in the case.

Contractors are of course bound to take notice of the provisions of the law relating to contracts. Statutory requirements cannot be
departed from for the accommodation of either party to a contract. As a matter of acts, in the present instance, this obligation is
intensified in so far as the contractor is concerned for the instructions to bidders contains this clause: "The contractor shall comply
with all existing or future laws, the municipal or provincial building ordinances and regulations in so far as the same are binding upon
or affect the parties hereto, the work, or those engaged thereon." (No. 23).

The instructions to bidders, a part of the contract, under the heading of "Payments," also contains the following:

51. Payments will be made monthly, based upon the estimates of work satisfactorily completed and accepted by the
Director during the preceding month. Upon such estimates the Province of Tayabas, P.I. shall pay to the contractor a sum
equal to ninety (90) per cent thereof up to and until such time as the total work shall have been completed or the contract
canceled, as herein provided.

52. The acceptance of the work from time to time for the purpose of making partial payments, shall not be considered as a
final acceptance of the work in question.

53. Whenever the contract, in the opinion of the Director, shall be completely performed on the part of the contractor, the
Director shall proceed promptly to measure the work and shall make out and certify the final estimates and acceptance for
the same. The province shall then, excepting for cause herein specified, pay to the contractor promptly after the execution
of said certificate the remainder which shall be found due, excepting therefrom such sum or sums as may be lawfully
retained under any of the provisions of this contract; Provided, That nothing herein contained shall be construed to waive
the right of the Director, hereby reserved, to reject the whole or any portion of the aforesaid work should the same be found
to have been constructed in violation of any of the conditions or covenant of this contract.

Both the law and the contract provide in mandatory language for a certificate of acceptance by the Director of Public Works or his
representative before any payment shall be made on any public work for the Government.

Contracts of this character, giving into the hands of a third person or of the purchaser the power of acceptance or non-acceptance,
are not unusual. Courts have frequently upheld them. The law regards the parties as competent to contract in this manner. Municipal
and provincial contracts, being on the same footing as those of natural persons, may not be breached with impunity. That mutuality
exists in undoubted. The party who deliberately enters into such an agreement, whether wisely or unwisely, must abide by it. The
public corporation, in the absence of a showing of fraud or concealment, is estopped by the approval of its officer who is authorized
to accept the work, from contesting the contractor's right to the contract price. (City of Omaha vs. Hammond [1876], 94 U.S., 98; City
Street Improvement Co. vs. City of Marysville, [1909], 155 cal., 419.) Likewise, the contractor must not only deliver a product with
which the party of the second party ought to be satisfied, but with which he must be satisfied, or he is not bound to accept it. The rule
is well-settled that in the absence of fraud or of such gross mistake as would necessarily imply bad faith, contractors with public
corporations are concluded by the decisions of engineers or like officers where the contract contains such a stipulation. The public
corporation can rely on the provision in a contract that performance by the other party shall be approved by or satisfactory to it, or a
particular officer, board or committee. (Second Nat. Bank vs. Pan-American Bridge Co. [1910], 183 Fed., 391, reviewing Federal
decisions; Silsby Manuf'g Co. vs. Town of Chico [1885], 24 Fed., 893; 23 L.R.A. [1910], 322, Notes.)

A leading example is the case of Sweeney vs. United States ([1883], 109 U.S., 618), in which a contractor sought to recover from the
United States the price of wall built by him around the National Cemetery. The contract provided that the wall shall be received and
become the property of the United States after the officer or civil engineer, to be designated by the Government to inspect the work,
should certify that it was in all respects such as the contractor agreed to construct. The officer designated for that purpose refused to
so certify on the ground that neither the material nor the workmanship was such as the contract required. As the officer exercised an
honest judgment in making his inspection and as there was on his part neither fraud nor such grave mistake as implied bad faith, it
was adjudged that the contractor had no cause of action on the contract against the United States.

The old common law rule required a strict or literal performance of contracts. The modern rule sanctions a substantial performance
of contractual relations. The law now looks to the spirit of the contract and not to its letter. Even though a plaintiff is not entirely free
from fault or omission, the courts will not turn him away if he has in good faith mad substantial performance. Of course the terms of
the contract may be such that the contract has agreed that the another shall have the absolute and unreviewable right to reject the
article or work if not satisfied with it; in such case the contractor shall abide by his word. But when the terms, or the nature of the
contract, or the circumstances are such as to make it doubtful, whether the contractor has made any such unwise agreement, the
courts will ordinarily construe the contract as an "agreement to do the thing in such way as reasonably ought to satisfy the
defendant." (Parlin & Orendorff Co. vs. City of Greenville [1904], 127 Fed., 55; Swain vs. Seamens [1870], 9 Wall., 254.) Thus, it has
been held that the provision of a contract to perform work for the city requiring the contractor to obtain the certificate of the city
engineer that the work has been done in accordance with the contract and the approval of such work by certain boards or
committees, before he is entitled to payment therefor, does not deprive him of the right to recover for the work, if it has been done in
substantial conformity to the contract, because the city's officers arbitrarily or unreasonably refuse the certificate and approval called
for. (City of Elizabeth vs.Fitzgerald [1902], 200 U.S., 611.)

Substantial performance and the unfounded refusal of the certificate of approval can be proved in various ways. Thus, acceptance
and occupancy of the building by the owner amounts to an acknowledgment that the work has been performed substantially as
required by the contract. (Campbell and Go-Tauco vs. Behn, Meyer & co. [1904], 3 Phil., 590 affirmed on appeal to the United States
Supreme Court [1905], 200 U.S., 611.) Other circumstances, as partial payment, also show acquiescence on the part of purchaser.

Appellee speaks of the provisions of the law and the portions of the contract in questions as possibly constituting an arbitration
agreement. We deem these provisions to be more correctly labeled a condition precedent to the contractor's right to obtain payment;
the condition is for the satisfaction of the Government. Nevertheless, considered as species of abitration, it was a convenient and
proper method, duly agreed upon between the parties, to determine questions that would necessarily arise in the performance of the
contract, about which men might honestly differ. It would be highly improper, for courts out of untoward jealousy of their jurisdiction.
The New York theory of refusal to uphold such agreements, because of the opinion that they violate the spirit of the laws creating the
courts, is hardly agreed to by more progressive jurisdictions. (See U.S. Asphalt Refining Co. vs. Trinidad Lake Petroleum Co. [1915],
222 Fed., 1006.) Unless the agreement is such as absolutely to close the doors of the courts against the parties, which agreement
would be void (Wahl and Wahl vs. Donaldson, Sims & Co. [1903], 2 Phil., 301), courts will look with favor upon such amicable
arrrangements and will only with great reluctance interfere to anticipate or nullify the action of the arbitrator. For instance, a policy of
fire insurance, contained a clause providing that in the event of a loss under the policy, unless the company shall deny all liability, as
a condition precedent to the bringing of any suit by the insured upon the policy, the latter should first submit the question of liability
and indemnity to arbitration. Such a condition, the Supreme Court of the Philippines held in Chang vs. Royal Exchange Assurance
Corporation of London ([1907], 8 Phil., 399), is a valid one in law, and unless it be first complied with, no action can be brought.

What then are the remedies of the contractor? In the first place he has his administrative remedy, which is to complete the work
substantially according to the contract and ask for the approval of the proper official. If such officer refuse or culpably neglect to
perform a ministerial duty, such as making out the warrant, it is possible that mandamus will lie to coerce the officer. A stipulation
requiring the approval of some one as a condition to a recovery by the contractor would not bar the party of his remedies by action at
law. The right to redress in the courts where substantial compliance with the terms of a contract are set forth, and where the proof
discloses the withholding of the certificate by an officer for insufficient reasons, should not be taken away by inference or anything
short of a district agreement to waive it. (Aetna Indemnity Co. vs. Waters [1909], 110 Md., 673.) As a condition precedent to action by
the courts, fraud or bad faith on the part of the responsible Government official, or arbitrary or unreasonable refusal of the certificate
or approval must be alleged and proved.

To concentrate our facts and legal principles — we find the contractor supported by one expert insisting that the work and the
materials actually conform to the specifications; and we have this as resolutely denied by competent Government engineers. We find
substantial performance of the contract not proved to the satisfaction of the Government's technical adviser, but proved to the
satisfaction of the trial court. Ordinarily, we would not review the facts unless the findings of the trial court are plainly and manifestly
contrary to the proof. But here it was incumbent on the trial court to take about the same view of the findings of the Government's
engineers as the appellate court would take of the findings of the trial court, or that any court would take of the findings of customs
boards, assessors, and the like. In order to set aside the action of the Director of Public Works or his authorized representative, fraud
or bad faith on the part of these engineers must be established. Has this been proved? The judge in the course of his decision
incidentally remarked: "It may as well be said here that there appears to have been a great deal of ill-feeling between plaintiff and the
engineer in charge of this construction." Is this observation in connection with the testimony of the plaintiff and of one engineer
sufficient to demonstrate fraud or bad faith? We think not. In other words we believe that the contractor cannot maintain an action for
the stipulated price when the engineer has in good faith, in pursuance of the contract, withheld his certificate. The decision of the
responsible engineer cannot be subjected to the revisory power of the courts without doing violence to the terms of the contract and
the law.

The Province of Tayabas, having accepted bridge No. 53.2, should of course pay the balance due, or P2,840. It should not be
permitted to deduct the cost of the test of the bridge, P900.12, for this is a legal question for resolution by the courts, and the
contract contains no such stipulation. (See Ripley vs. U.S. [1912], 223 U.S., 695.) But the findings of the Government engineers on
all the other points covered by causes of action 2, 3, 4, 5 and 6 are deemed to be conclusive, fraud or bad faith not having been
proved. Thus, we have P2,840, plus P269.10, plus P214.80, plus P6, plus P25, or P3,354.90 due plaintiff.

One point made by appellant is that the demurrer to the complaint was improperly overruled. An elementary principle of pleading
heretofore approved by this court in Government of Philippine Islands vs. Inchausti & Co. ([1913], 24 Phil., 315) is brought to our
notice, namely: "If the plaintiff's right of action depends upon a condition precedent he must allege and prove the fulfillment of the
condition or a legal excuse for its non-fulfillment. And if he omits such allegation, his declaration, complaint, or petition, will be bad on
demurrer." Undoubtedly, the complaint should have alleged either the performance of the condition precedent, approval by the
Director of Public Works or the District Engineer, or a good and sufficient excuse for not obtaining it. It is possible that if sitting in first
instance, we would so hold with defendant, but on appeal such a backward sweep would avail nothing but delay. Moreover, the
complaint contains the general averment that the plaintiff fully and faithfully complied with all the terms and conditions of the said
contract, while some months subsequent to the filing of the complaint but previous to the trial, the defendant accepted the bridge. A
failure to allege a condition precedent or a legal reason for dispensing with it may be cured by the issues tendered by the answer
and the proof. (Donegan vs. Houston [1907], 5 Cal. App., 626.)

To summarize, we are of opinion and so hold that the law makes the approval of the Governor-General a prerequisite only to the
purchase or conveyance of real property by a province; that the provisions of the law and the form of the contract, usually followed in
this jurisdiction, providing for the certificate of approval by the Director of Public Works or his representative, are in the nature of a
condition precedent, which must be alleged and proved, and that this certificate is conclusive in the absence of a showing of fraud or
bad faith.

Judgment shall be modified so that the plaintiff shall recover from the defendant P3,354.90 with legal interest thereon from July 14,
1914, until paid, without special finding as to costs in either instance. So ordered.

Torres, Johnson and Fisher, JJ., concur.

Carson and Street, JJ., concur in the result.
KAY B. CHANG, ET AL., Plaintiffs-Appellees, v. ROYAL EXCHANGE ASSURANCE CORPORATION OF LONDON, Defendant-Appellant.

Del-Pan, Ortigas & Fisher, for Appellant.

John W. Sleeper, for Appellees.

SYLLABUS

1. FIRE INSURANCE; CONDITION PRECEDENT. — policy of fire insurance contained a clause providing that in the event of a loss under the policy,
unless the company should deny all liability, as a condition precedent to the bringing of any suit by the insured upon the policy the latter should first
submit the question of liability and indemnity to arbitration. Such a condition is a valid one in law, and unless it be first complied with no action can be
brought.

2. ID.; ID.; WAIVER. — If in the course of the settlement of a loss. however, the action of the company or its agents amounts to a refusal to pay, the
company will be deemed to have waived the condition precedent with reference to arbitration and a suit upon the policy will lie.

DECISION

WILLARD, J. :

The arbitration clause in the fire policy in question in this case is in part as follows: jgc:chanrobles.com.ph

"If a disagreement should at any time arise between the corporation and the assured . . . respect of any loss or damage alleged to have been caused
by fire, every such disagreement, when it may occur (unless the corporation shall deny liability by reason of fraud or breach of any of the conditions, or
because the claimant has by some other means waived his rights under the policy), shall be referred to the arbitration of some person to be selected
by agreement of both parties . . . And by virtue of these presents it is hereby expressly declared to be a condition of this policy, and an essential
element of the contract between the corporation and the insured that unless the corporation shall demand exemption from liability by reason of fraud,
breach of conditions, or waiver, as stated, the assured, or claimant, shall have no right to commence suit or other proceedings before any court
whatever upon this policy until the amount of the loss or damage shall have been referred, investigated, and determined as above provided, and then
only for the amount awarded, and the obtaining of such an award shall be a condition precedent to the institution of any suit upon this policy and to
the liability and obligation of the corporation to pay or satisfy any claim or demand based upon this policy." cralaw virtua1aw library

The conditions contained in this clause of the policy are valid, and no action can be maintained by the assured unless as award has been made or
sought, or unless the company has denied liability on some of the grounds stated therein. (Hamilton v. Liverpool, London and Globe Insurance
Company, 136 U.S., 242.) The duty of asking a submission to arbitration does not rest exclusively upon the company. If it takes no action in that
respect it is the duty of the assured to do so, and to ask that arbitrators be appointed for the purpose of determining the amount of the loss, in
accordance with the provisions of this policy. The company may, however, by its conduct, waive the provisions of this clause relating to arbitration. In
fact, this is expressly stated in the policy itself, as will be seen from the quotation above made, and the principal question in this case is whether there
has been such waiver or not.

Simple silence of the company is not sufficient. If it remains passive, it is the duty of the assured to take affirmative action to secure arbitration.
Neither will the failure of the company to return proofs of loss, or its failure to point out defects therein, amount to a waiver of the arbitration clause.
These acts may amount to a waiver of the clause requiring the furnishing of proofs of loss, but such an action can not constitute proof that the
company has refused to pay the policy because the defendant has failed to comply with the terms and conditions thereof.

It is claimed, however, by the plaintiffs and appellees, that affirmative action was taken by the company indicating its purpose not to pay anything to
the insured.

The property insured, consisting of a stock of goods, was entirely destroyed by a fire on the 11th day of March, 1905. On the same day the plaintiffs
notified the agent of the defendant of the loss and within fifteen days thereafter presented to the company a detailed statement of the articles which
had been destroyed and of their value. Plaintiffs were notified by the company that this proof was insufficient and that they must obtain the sworn
certificates of two merchants to the truth of their statement. This was done within a few days. Plaintiffs were again notified that their proof was
insufficient. Various interviews were had between the agent of the defendant and the plaintiff Chang and the plaintiffs’ lawyer between the latter part
of March and the 21st of June, 1905. During this time the plaintiffs furnished additional evidence relating to the justice of their claim and were told that
their proofs were still insufficient. No indication was made by the company’s agent as to what other proofs should be furnished, he offering, however,
at one of the interview to settle the claim for 3,000 pesos. This offer was refused by the plaintiffs. In the final interview on June 21, between the
company’s agent and the counsel for the plaintiffs, the former said: jgc:chanrobles.com.ph

"I can not go on with your case, Mr. Sleeper; I have not enough proof.

"Q. What did Mr. Sleeper state?

"A. I think, so far as I can remember, that he said he wanted to bring the matter to a basis, but I would not say so to the court." cralaw virtua1aw library

This action was commenced on the 24th of June, 1905. The plaintiffs at no time requested the appointment of arbitrators. After the suit had been
commenced, and on the same day, the defendant requested in writing that arbitrators be appointed in accordance with the terms of the policy. This
was the first communication in writing which the defendant made to the plaintiffs after the loss.

Under all the circumstances in the case, we think that the statement made by the company’s agent on the 21st day of June amounted to a denial of
liability on the ground that proper proofs of loss had not been presented and that, therefore, there had been a failure of the assured to comply with
one of the terms of the policy. The delay of the company in taking any affirmative action between the 11th day of March and the 21st day of June; its
repeated statements that the proofs were insufficient without indicating in any way what other proofs should be furnished, and its final statement that
it could go no further with the case, was sufficient evidence to show that it did not intend to pay. This view is somewhat confirmed by what took place
afterwards before the arbitrators, both of whom were appointed by the defendant in accordance with the terms of the policy. At the first meeting of
these arbitrators the defendant objected to any award being made upon the ground that the proof of loss which had been furnished was sworn to
before a notary public and not before the municipal judge, as required by the provisions of the Code of Commerce.
In the case of The Phenix Insurance Company v. Stocks (149 Ill., 319) the company wrote two letters to the insured, in the first of which they said: jgc:chanrobles.com.ph

"The circumstances under which this fire occurred are such that we do not feel justified in extending to you any measure of grace, in considering your
claim, which you may not fairly demand under the terms of the policy. There is at least one fact that looks very peculiar, and until our minds are
relieved of the doubts which we have come to receive in regard to the integrity of this loss, we shall offer you no benefits that you may not demand
under a strict construction of the policy." cralaw virtua1aw library

In the other letter the company said: jgc:chanrobles.com.ph

"Replying to your letter of August 23d, received this morning, we beg to say that our views of this matter have been fully expressed in our previous
correspondence, and have nothing at this time to add." cralaw virtua1aw library

The court said (p. 334): jgc:chanrobles.com.ph

"The mere silence of the company would not amount to a waiver of its right to insist upon the condition [as to arbitration], but when it placed its
determination upon the grounds stated in the correspondence, which were such as could not be submitted to arbitration under the provisions of the
policy, it must be held to have waived the condition requiring arbitration (German Ins. Co. v. Gueck, 130 Ill., 345), and especially is this so where the
assured would be misled to their prejudice into bringing suit upon the policy without first having obtained an award. The company was not bound to
speak at all., but when asked in effect, what its determination was, if it answered, good faith required that it should disclose the true ground of its
defense."cralaw virtua1aw library

It is apparent in the case at bar that the counsel for the plaintiffs sought the interview of June 21 for the express purpose of finding out what the
decision of the company was, and after receiving the answer which has been heretofore quoted, the plaintiffs were fully justified in bringing the action
at once, without seeking any arbitration.

Judgment was entered in the court below in favor of the plaintiffs for the sum of 5,265 pesos and 25 centavos, with interest from the 24th of June,
1905, and costs. It is claimed by the appellant that the finding of the court below as to the amount of the loss is not justified by the evidence. A great
many witnesses were presented by each side, but the only persons who had any real knowledge as to the amount of stock in the store at the time of
the fire, and as to its value, were the plaintiff Chang and his clerk. They testified that it was worth more than 10,000 pesos, the amount named in the
policy. No one of the witnesses for the defendant fixed the value of the stock then on hand at more than 500 pesos. The arbitrators appointed by the
defendant found that the value was 2,106 pesos. The defendant’s agent testified that during negotiations he offered to settle for 3,000 pesos. That the
plaintiff (Chang) was carrying on a business of some importance was proved at the trial by the introduction of the records of the customs in Cebu, by
which it appeared that between the month of July, 1904, and February, 1905, he had imported through the custom-house goods which with the duty
added were of the value of 4,758 dollars and 48 cents, money of the United States, and the plaintiff, Chang, testified that he had no hand at the time
of the fire a large amount of property, products of the country, which were not imported through the customs.

In view of all the evidence in the case, we can not say that it preponderates against the finding of the judge below as to the amount of the loss.

The judgment of the court below is hereby affirmed, with the costs of this instance against the Appellant.

Torres, Johnson, and Tracey, JJ., concur.

Separate Opinions

ARELLANO, C.J., dissenting: chanrob1es virtual 1aw library

All the steps taken by Kay B. Chang and his attorney, in order to reach an extrajudicial agreement and avoid a litigation with the "Royal Exchange
Assurance Corporation of London," were of a private nature, or, as it is stated in the judgment appealed from, "trying to reach an agreement and
settlement of the loss." (Bill of exceptions, p. 15.)

The representative of the insurance company having replied to the attorney of the insured, "I can not go on with your case, Mr. Sleeper; I have not
enough proof," the bringing of an action became imperative. The proper procedure will be found in the provisions of articles 404 to 411 of the Code of
Commerce, among which attention is called to article 405, which reads: jgc:chanrobles.com.ph

"The insured must prove the loss suffered, proving the existence of the goods before the fire occurred" — to article 406 which provides that —

"The appraisement of the damage cause by the first shall be made by experts in the manner established in the policy, . . ." —

and to article 407, according to which —

"The experts shall decide: jgc:chanrobles.com.ph

"(1) The cause of the fire.

"(2) The true value of the goods insured . . .

"(3) The value of the same goods after the fire, and everything else which may be submitted to their judgment.

As it is seen, the above are the principal precepts on which the insured must rely from the time the underwriter refuses to come to an amicable
settlement or extrajudicial agreement. There is no law in force which contains such a provision as that which the judgment appealed from sets forth in
the manner of a rule in the following words: jgc:chanrobles.com.ph

"It is a duty incumbent on said defendant company to return, within a reasonable period of time after the presentation of the claim and proof of the
loss, said proof of the loss together with a clear and itemized statement of the reasons why they are not considered sufficient and satisfactory.
Noncompliance with this duty, or failure to notify the assured with reasonable time, amounts to a waiver on the part of the insurance company to
require the presentation of other proof, and is also equivalent to a denial of the loss or responsibility, and, consequently, under the arbitration clause of
said policy, there is nothing left for its submission to arbitration." (Bill of exceptions, pp. 19 and 20.)

The insured complied with the first part of article 404, by informing the underwriter of the fire. Not so with the second part of the same, concerning the
statement to be filed with the municipal judge or justice of the peace, in accordance with the proposed change inserted in the preamble (Exposicion de
Motivos) of the Code of Commerce of the Philippine Islands (p. 8). Aside from this, since all the steps taken to come to an agreement of a private
nature had been ended by the words addressed to Mr. Sleeper, and since a legal suit had already been commenced, nothing contained in the above-
quoted precepts bear any relation to the matter in controversy. Instead of presuming on the part of the underwriter an implicit waiver of the stipulation
agreed upon under the policy, it was necessary to make a finding of fact or of law, which should explain the manifest neglect of the procedure required
by the above-named articles of the Code of Commerce now in force. Unless this neglect is properly justified, the infringement of the general provisions
of law on the subject of this litigation becomes self-evident.

Although the requirements of articles 409 and 410 are of an adjective nature (Which do not certainly correspond with any of the judicial proceedings of
the old Spanish Code of Civil Procedure), those of articles 404 to 408 and 411 are substantive, and constitute the essential elements on which an
action for the exercise of the right arising from the insurance contract should be based. This contract being a fire insurance personal property,
factories, or stores, requires, as its —

"First and essential condition, the exercise of a real and certain subject-matter, not only at the time of the signing of the same, but likewise at the time
of the fire, it being also essential that said subject-matter shall not have suffered, during the stated period, any change or alteration in the nature or
place designated in the policy; and this doctrine is based on the very nature of the insurance contract, whose object is the prevention of loss, and not
the securing of profit . . ." [Preamble (Exposicion de Motivos) of the Code of Commerce. ]

Besides the general provisions of law governing the contract, the policy embodies a special requirement, compulsory for both the insured and the
underwriter, in order that the actual loss suffered at the time of the fire might be the basis for the institution of an action arising from the contract. And
this is the arbitration agreed upon — "as an essential element of the contract between the corporation and the insured, that unless the corporation
shall demand exemption from liability by reason of fraud, breach of the conditions, or waiver, as stated (waiver by claimant), the assured, or claimant,
shall have no right to commerce suit or other proceedings before any court whatever upon this policy until the amount of the loss or damage shall been
referred, investigated, and determined as above provided, and then only for the amount awarded, and the obtaining of such an award shall be a
condition precedent to the institution of any suit upon this policy and to the liability and obligation of the corporation to pay or satisfy any claim or
demand based upon this policy, "etc.

The compliance with this special provision is compulsory under article 1255 of the Civil Code.

The insured might be excused from submitting his claim to arbitration in case of an express refusal of the underwriter to heed the former’s demand to
carry out that essential condition of the contract. Yet, the writer of this dissenting opinion does not hold the insured exempt from compliance with this
special condition, because of the more or less correct constitute which he might give to the action of the underwriter in regard to his claim, neither
because of this phrase, "I can not go on with your case, Mr. Sleeper; I have not enough proof," nor because of this other one, "I think, as far as I can
remember, that he said he wanted to bring the matter to a basis." cralaw virtua1aw library

Such is the opinion of the writer in regard to the first question brought before us by the appeal.

With reference to the second question, or the amount in controversy, if the contention that the bringing of the suit without first complying with that
condition be right, the writer does not see any reason why the amount of the judgment shall be 5,265 pesos and 25 centavos, and not 10,000 pesos,
the sum stipulated in the policy and demanded in the complaint.

Nor is he of the opinion that such obligation, once take subject of a litigation, should consist of the sum awarded by the arbitrators appointed by the
underwriter, because the case has never been submitted to arbitration, as stipulated in the insurance contract.

As the judgment appealed from does not specify facts sufficient to justify a decision for the amount adjudged, I am of the opinion that the case should
be returned to the trial court, in order that expert witnesses may furnish the evidence mentioned in paragraph 2 and 3 of article 407 of the Code of
Commerce; the proof stated in paragraph 1 of said article not being necessary in view of the fact that both the insured and the underwriter have come
to an understanding as to the cause of the fire.

G.R. No. L-16398 December 14, 1921

A. CHAN LINTE, plaintiff-appellant,

vs.

LAW UNION AND ROCK INSURANCE CO., LTD., defendant-appellee.

A. CHAN LINTE, plaintiff-appellant,

vs.

TOKYO MARINE INSURANCE CO., LTD., defendant-appellee.

A. CHAN LINTE, plaintiff-appellant,

vs.

THE CHINE FIRE INSURANCE CO., LTD., defendant-appellee.

Crossfield & O'Brien for appellant.

Fisher & DeWitt for appellees.

JOHNS, J.:

The plaintiff is a resident adult of the Philippine Islands, and the defendants are fire insurance companies duly licensed to do business here.

Plaintiff alleges that he was the owner of 30,992.50 kilos of hemp stored in the warehouse in Calbayog, Province of Samar, Philippine Islands, which on
the 25 of March, 1916, he requested the defendant Law Union and Rock Insurance Co., Ltd., to insure against loss by fire in the sum of P5,000, and
upon the date it issued its policy No. 1,787,379 in favor of the plaintiff against such loss until 4 o'clock p.m., of the 22nd of March, 1917, and that the
policy was delivered to the plaintiff in consideration of which he paid the company a premium of P87.50. that in consideration of other previous
payments, the policy was renewed from time to time and continued in force and effect to and including March 22, 1919; that during the life of the
policy the hemp was destroyed by fire in the bodega where it was insured; that its value was P21,296.27; that he at once notified the defendant of the
loss, and in all other respects complied with the terms and conditions of the policy, and made a demand for the payment of the full amount of the
insurance. That defendant refused and still refuses to pay the same or any part thereof, and plaintiff prays for judgment for P5,000, with interest and
costs.

In his amended complaint he alleges that after the commencement of the action, the defendant requested that its liability should be submitted to
arbitration, in accord with the provisions of the policy, and that "plaintiff acceded to the requirement made by said defendant as aforesaid, but not that
the award of arbitration should be conclusive or final, or deprive the courts of jurisdiction, and by agreement of both plaintiff and defendant Frank B.
Ingersoll was named sole arbitrator, and both parties informally presented evidence before him and he made return of arbitration to the effect that said
plaintiff had only seven bales of hemp destroyed in the fire of April 10, 1918, as hereinbefore set forth, with which return the said plaintiff is
dissatisfied, and comes to this court for proper action under this amended complaint."1awphil.net

For answer the defendant alleges that, claiming a loss under the policy, the plaintiff made a claim against the defendant for P5,000, that a difference
arose between them as to the amount of the alleged loss, and that, under the terms of the policy, an arbitrator was agreed upon and selected by the
mutual consent of both parties, for the purpose of deciding the alleged difference; that on December 28, 1918, the arbitrator found that only seven
bales of hemp of the grade "ovillo" were destroyed.

For supplemental answer to the amended complaint, the defendant further alleges that on July 8, 1919, the arbitrator filed a supplemental report and
award wherein he finds from the evidence submitted that the local value of the seven bales of plaintiff's hemp destroyed by fire on April 10, 1918, was
P608.34; that in addition to the defendant's policy, the same property was covered by two other fire insurance polices, by each of which the property
in question was insured to the value of P5,000 against the loss; that defendant has offered and is now willing to pay plaintiff its one-third of the loss in
full satisfaction of its liability.

xxx xxx xxx

The other insurance companies are Tokyo Marine Insurance Co., Ltd., and the Chine Fire Insurance Co., Ltd., defendants and appellees.

After the filing of the amended complaint, both parties agreed upon Frank B. Ingersoll as arbitrator, and submitted to him the evidence pro and con.
His first finding was made on December 28, 1918, and on July 8, 1919, he filed a supplemental report in which he found the value of the property
destroyed to be P608.34.

It was stipulated "that the arbitration clauses of the policies of insurance issued by the Law Union and Rock Insurance Co., Ltd., and the Chine Fire
Insurance Co., Ltd., are in terms as follows, to wit:

"If any difference arises as to the amount of any loss or damage, such difference shall independently of all other questions be referred to the decision
of an arbitrator, to be appointed in writing by the parties in difference, or, if they cannot agree upon a single arbitrator, to the decision of two
disinterested persons as arbitrators, of whom one shall be appointed in writing by each of the parties within two calendar months after having been
required so to do in writing by the other party. In case either party shall refuse or fail to appoint an arbitrator within two calendar months after receipt
of notice in writing requiring appointment, the other party shall be at liberty to appoint a sole arbitrator; and in case of disagreement between the
arbitrators, the difference shall be referred to the decision of an umpire who shall have been appointed by them in writing before entering on the
reference and who shall sit with the arbitrators and preside at their meetings. The death of any party shall not revoke or affect the authority or powers
of the arbitrator, arbitrators or umpire respectively; and in the event of the death of an arbitrator or umpire, another shall in each case be appointed in
his stead by the party or arbitrators (as the case may be), by whom the arbitrator or umpire so dying was appointed. The costs of the reference and of
the award shall be in the discretion of the arbitrator, arbitrators or umpire making the award. And it is hereby expressly stipulated and declared that it
shall be a condition precedent to any right of action or suit upon this policy that the award by such arbitrator, arbitrators or umpire of the amount of
the loss or damage if disputed shall be first obtained."

That the arbitration clause in the policy issued by the Tokyo Marine Insurance Company, Limited, is as follows, to wit:

If any difference shall arise with respect to any claim for loss or damage by fire and no fraud be suspected, and the Company does not elect to rebuild,
repair, reinstate or replace same, such difference shall be submitted to arbitrators, indifferently chosen, whose award, or that of their umpire, shall be
conclusive.

Any liability arising out of the fire should be borne by the defendants in equal parts; that each of them has offered in writing to pay the plaintiff its one-
third of the amount of the plaintiff's loss, as ascertained by the arbitrator.

It is understood that in making this stipulation plaintiff shall not be deemed to have waived his right to contend, as a matter of law or fact, that the
award of the arbitrator is not conclusive upon him and that the arbitrator was without authority to supplement or amend his findings after having once
rendered decision; and that defendants have not waived their right to contend that such arbitration is conclusive, and that no evidence of the amount
of the loss alleged to have been suffered by plaintiff should be considered, but that his right to recover is limited to the amount of damage found by
the arbitrator to have been suffered by him.

On November 6, 1919, "it is hereby stipulated and agreed that the above entitled causes be and they are hereby submitted to the court upon the
evidence taken at the trial and the depositions taken in Samar before the justice of the peace of the municipality of Calbayog, and by him transmitted
to the clerk of this court; provided, that nothing herein contained shall be construed as a waiver of the contention of defendants that the award of the
arbitrator is conclusive, and that no evidence of the amount of the loss other than such award should be considered."
After the testimony was taken, the trial court rendered judgment against each of the defendants for P202.78, and that plaintiff should pay the costs of
the action, from which he appealed, claiming that the court erred in holding that the decision of the arbitrator is conclusive or in any way binding on
the plaintiff; that the arbitrator's decision is in the main supported by the evidence; and that it erred in not awarding judgment for the plaintiff, is
prayed for in his complaint.

It will be noted that the policies of the Law Union and Rock Insurance Co., Ltd., and The Chine Fire Insurance Co., Ltd., provide for arbitration and
expressly stipulated "that it shall be a condition precedent to any right of action or suit upon this policy that the award by such arbitrator, arbitrators or
umpire of the amount of the loss or damage if disputed shall be first obtained," and that the action was brought without making any effort to adjust the
loss by arbitration. The policy of Tokyo Marine Insurance Co., Ltd., provides that in the event of a different it "shall be submitted to arbitrators,
indifferently chosen, whose award, or that of their umpire, shall be conclusive."1awphil.net

After the action was brought, and upon the request of the defendant, an arbitrator was chosen to whom the evidence of the loss was submitted. On
December 28, 1918, he found that only seven bales of hemp of the grade "ovillo" were destroyed, but did not then make any finding as to its value.
July 8, 1919, he made and filed a supplemental report in which he found that the value of the hemp destroyed by the fire of April 10, 1918, was
P608.34.

The plaintiff contends; First, that the arbitration clauses are null and void as against public policy; second, that the award of the arbitrator of December
28, 1918, without finding the value of the property destroyed, was final, and that on July 8, 1919, he had no authority to make a supplemental finding
as to the value of the property; and, third, that upon the evidence the court should have found for the plaintiff. Upon the first point he cites the case of
Wahl and Wahl vs. Donaldson, Sims and Co. (2 Phil., 301), which apparently sustains his contention. That case holds that "a clause in a contract
providing that all matters in dispute between the parties shall be referred to arbitrators and to them alone is contrary to public policy and cannot oust
the courts of jurisdiction."

In Chang vs. Royal Exchange Assurance Corporation of London (8 Phil., 399), agreement was very similar to the one here with the two defendants
above quoted, and it was there held that such a condition for arbitration is valid, and that, unless there was an effort to comply, no action could be
maintained.

In Allen vs. Province of Tayabas (38 Phil., 356), it is said:

. . . It would be highly improper for courts out of untoward jealousy to annul laws or agreements which seek to oust the courts of their jurisdiction. . . .
Unless the agreement is such as absolutely to close the doors of the courts against the parties, which agreement would be void. (Wahl and Wahl vs.
Donaldson, Sims and Co. [1903], 2 Phil., 301), courts will look with favor upon such amicable arrangements and will only with great reluctance
interfere to anticipate or nullify the action of the arbitrator. . . .

In the instant case, it will be noted that sometime after the action was commenced and upon the request of the defendants, the plaintiff agreed to
arbitrate under the terms and provisions of the policies; that the parties mutually agreed upon an arbitrator; and that each appeared before him and
offered his or its evidence upon the questions in dispute. There is no claim or pretense that the proceedings were not honestly and fairly conducted.
Having formally agreed and submitted to an arbitration after the action was commenced, it may well be doubted whether the plaintiff can at this time
question the validity of the proceedings, except upon the ground of fraud or mistake.

Ruling Case Law, vol. 2, p. 359, says that when the subject-matter of a pending suit is submitted to arbitration without rule of court "there is a conflict
among the authorities as to whether or not the mere submission effects a discontinuance of the action. The majority rule is that the parties themselves
show an intent to discontinue the pending suit by substituting another tribunal, so that a submission furnishes ground for a discontinuance."

On page 352 of the same volume, it is said:

Arbitration as a method of settling disputes and controversies is recognized at common law. The award of the arbitrators is binding on the parties, but,
in the absence of statute, the successful party can only enforce his rights thereunder by a suit at law. Thus the only gain by a common law arbitration
is the substitution of the definite findings of the award as the basis of a suit, in the place of the former unsettled rights of the parties. In an action on
the award the award itself is conclusive evidence of all matters therein contained, provided the arbitrators have not exceeded the powers delegated to
them by the agreement of submission. The courts regard matters submitted as concluded by the award, and in an action thereon they will not review
the merits of the arbitrators' findings.

Corpus Juris, vol. 5, p. 16, says:

The statement of controversies by arbitration is an ancient practice at common law. In its broad sense it is a substitution, by consent of parties, of
another tribunal for the tribunals provided by the ordinary processes of law; a domestic tribunal, as contradistinguished from a regularly organized
court proceeding according to the course of the common law, depending upon the voluntary act of the parties disputant in the selection of judges of
their own choice. Its object is the final disposition, in a speedy and inexpensive way, of the matters involved, so that they may not become the subject
of future litigation between the parties.

On page 20, it is said:

APPROVED METHOD OF SETTLEMENT; FAVORED BY CONSTRUCTION.

— Although arbitration was recognized at the common law as a mode of adjusting matters in dispute, especially such as concerned personal chattels
and personal wrongs, yet, from efforts perceptible in the earlier cases to construe arbitration proceedings and awards so as to defeat them, it would
seem that they were not originally favored by the courts. This hostility, however, has long since disappeared, and, by reason of the fact that the
proceeding represents a method of the parties' own choice and furnishes a more expeditious and less expensive means of settling controversies than
the ordinary course of regular judicial proceedings, it is the policy of the law to favor arbitration. Therefore every reasonable intendment will be
indulged to give effect to such proceedings, and in favor of the regularity and integrity of the arbitrators' acts.

On page 43, it is said:

Where a contract contains a stipulation, not that all questions arising thereunder, whether as to the validity or effect of such contract, or otherwise,
shall be submitted to arbitration, but that the decision of arbitrators on a certain question or questions, such as the quantity, quality, or price of
materials or workmanship, the value of work, the amount of loss or damage, or the like, shall be a condition precedent to the right of action on the
contract itself, no fixed sum being stated in the contract, such stipulation will be enforced, because the parties to a contract have a right to adopt
whatever method they see fit for determining such questions, and until the method adopted has been pursued, or some sufficient reason given for not
pursuing it, no action can be brought on the contract. "Freedom to contract for arbitration to this extent," it has been said, "imports no invasion of the
province of the courts, and there is no ground upon which a right so essential to the convenient transaction of modern business affairs can be denied,"
nor is such agreement objectionable as being against public policy. In order to give effect to such an agreement it must of course appear that the
matter proposed to be referred is a difference, within the meaning of the agreement.

In the instant case, there was no dispute about the policy of insurance or the fire. The only real difference was the amount of the loss which plaintiff
sustained, and that was the only question submitted to arbitration. In December, the arbitrator found the amount of plaintiff's hemp which was
destroyed, but did not find its value.
Hence the award on the question submitted was not complete or final. In the finding of the actual value of the hemp, there was no change or revision
of any previous finding. It was simply the completion by the arbitrator of an unfinished work. No formal notice was served on the arbitrator, and he
was not removed or discharged, and until such time as his duties were fully performed, or he was discharged, he would have the legal right to
complete his award. The plaintiff, having agreed to arbitration after the action was commenced and submitted his proof to the arbitrator, in the
absence of fraud or mistake, is estopped and bound by the award. Where a plaintiff has commenced an action to recover upon an insurance policy, and
then voluntarily submits the amount of his loss to arbitration, he cannot ignore or nullify the award and treat it as void upon the ground that he is
dissatisfied with the decision.

Judgment is affirmed, with costs to the appellee. So ordered.

Araullo, C.J., Johnson, Street, Malcolm, Avanceña, Villamor and Romualdez, JJ., concur.

G.R. No. 96283 February 25, 1992

CHUNG FU INDUSTRIES (PHILIPPINES) INC., its Directors and Officers namely: HUANG KUO-CHANG, HUANG AN-CHUNG,
JAMES J.R. CHEN, TRISTAN A. CATINDIG, VICENTE B. AMADOR, ROCK A.C. HUANG, JEM S.C. HUANG, MARIA TERESA
SOLIVEN and VIRGILIO M. DEL ROSARIO, petitioners,

vs.

COURT OF APPEALS, HON. FRANCISCO X. VELEZ (Presiding Judge, Regional Trail Court of Makati [Branch 57]) and
ROBLECOR PHILIPPINES, INC., respondents.

ROMERO, J.:

This is a special civil action for certiorari seeking to annul the Resolutions of the Court of Appeals* dated October 22, 1990 and
December 3, 1990 upholding the Orders of July 31, 1990 and August 23, 1990 of the Regional Trial Court of Makati, Branch 57, in
Civil Case No. 90-1335. Respondent Court of Appeals affirmed the ruling of the trial court that herein petitioners, after submitting
themselves for arbitration and agreeing to the terms and conditions thereof, providing that the arbitration award shall be final and
unappealable, are precluded from seeking judicial review of subject arbitration award.
It appears that on May 17, 1989, petitioner Chung Fu Industries (Philippines) (Chung Fu for brevity) and private respondent Roblecor
Philippines, Inc. (Roblecor for short) forged a construction agreement 1 whereby respondent contractor committed to construct and
finish on December 31, 1989, petitioner corporation's industrial/factory complex in Tanawan, Tanza, Cavite for and in consideration
of P42,000,000.00. In the event of disputes arising from the performance of subject contract, it was stipulated therein that the
issue(s) shall be submitted for resolution before a single arbitrator chosen by both parties.

Apart from the aforesaid construction agreement, Chung Fu and Roblecor entered into two (2) other ancillary contracts, to wit: one
dated June 23, 1989, for the construction of a dormitory and support facilities with a contract price of P3,875,285.00, to be
completed on or before October 31, 1989; 2 and the other dated August 12, 1989, for the installation of electrical, water and hydrant
systems at the plant site, commanding a price of P12.1 million and requiring completion thereof one month after civil works have
been finished. 3

However, respondent Roblecor failed to complete the work despite the extension of time allowed it by Chung Fu. Subsequently, the
latter had to take over the construction when it had become evident that Roblecor was not in a position to fulfill its obligation.

Claiming an unsatisfied account of P10,500,000.00 and unpaid progress billings of P2,370,179.23, Roblecor on May 18, 1990, filed
a petition for Compulsory Arbitration with prayer for Temporary Restraining Order before respondent Regional Trial Court, pursuant
to the arbitration clause in the construction agreement. Chung Fu moved to dismiss the petition and further prayed for the quashing
of the restraining order.

Subsequent negotiations between the parties eventually led to the formulation of an arbitration agreement which, among others,
provides:

2. The parties mutually agree that the arbitration shall proceed in accordance with the following terms and
conditions: —

xxx xxx xxx

d. The parties mutually agree that they will abide by the decision of the arbitrator including any
amount that may be awarded to either party as compensation, consequential damage and/or
interest thereon;

e. The parties mutually agree that the decision of the arbitrator shall be final and unappealable.
Therefore, there shall be no further judicial recourse if either party disagrees with the whole or
any part of the arbitrator's award.

f. As an exception to sub-paragraph (e) above, the parties mutually agree that either party is
entitled to seek judicial assistance for purposes of enforcing the arbitrator's award;

xxx xxx xxx 4

(Emphasis supplied)

Respondent Regional Trial Court approved the arbitration agreement thru its Order of May 30, 1990. Thereafter, Engr. Willardo
Asuncion was appointed as the sole arbitrator.

On June 30, 1990, Arbitrator Asuncion ordered petitioners to immediately pay respondent contractor, the sum of P16,108,801.00. He
further declared the award as final and unappealable, pursuant to the Arbitration Agreement precluding judicial review of the award.

Consequently, Roblecor moved for the confirmation of said award. On the other hand, Chung Fu moved to remand the case for
further hearing and asked for a reconsideration of the judgment award claiming that Arbitrator Asuncion committed twelve (12)
instances of grave error by disregarding the provisions of the parties' contract.

Respondent lower court denied Chung Fu's Motion to Remand thus compelling it to seek reconsideration therefrom but to no avail.
The trial court granted Roblecor's Motion for Confirmation of Award and accordingly, entered judgment in conformity therewith.
Moreover, it granted the motion for the issuance of a writ of execution filed by respondent.

Chung Fu elevated the case via a petition for certiorari to respondent Court of Appeals. On October 22,1990 the assailed resolution
was issued. The respondent appellate court concurred with the findings and conclusions of respondent trial court resolving that
Chung Fu and its officers, as signatories to the Arbitration Agreement are bound to observe the stipulations thereof providing for the
finality of the award and precluding any appeal therefrom.

A motion for reconsideration of said resolution was filed by petitioner, but it was similarly denied by respondent Court of Appeals thru
its questioned resolution of December 3, 1990.

Hence, the instant petition anchored on the following grounds:

 First

Respondents Court of Appeals and trial Judge gravely abused their discretion and/or exceeded their jurisdiction,
as well as denied due process and substantial justice to petitioners, — (a) by refusing to exercise their judicial
authority and legal duty to review the arbitration award, and (b) by declaring that petitioners are estopped from
questioning the arbitration award allegedly in view of the stipulations in the parties' arbitration agreement that "the
decision of the arbitrator shall be final and unappealable" and that "there shall be no further judicial recourse if
either party disagrees with the whole or any part of the arbitrator's award."

Second

Respondent Court of Appeals and trial Judge gravely abused their discretion and/or exceeded their jurisdiction, as
well as denied due process and substantial justice to petitioner, by not vacating and annulling the award dated 30
June 1990 of the Arbitrator, on the ground that the Arbitrator grossly departed from the terms of the parties'
contracts and misapplied the law, and thereby exceeded the authority and power delegated to him. (Rollo, p. 17)

Allow us to take a leaf from history and briefly trace the evolution of arbitration as a mode of dispute settlement.

Because conflict is inherent in human society, much effort has been expended by men and institutions in devising ways of resolving
the same. With the progress of civilization, physical combat has been ruled out and instead, more specific means have been
evolved, such as recourse to the good offices of a disinterested third party, whether this be a court or a private individual or
individuals.

Legal history discloses that "the early judges called upon to solve private conflicts were primarily the arbiters, persons not specially
trained but in whose morality, probity and good sense the parties in conflict reposed full trust. Thus, in Republican
Rome, arbiter and judge (judex) were synonymous. The magistrate or praetor, after noting down the conflicting claims of litigants,
and clarifying the issues, referred them for decision to a private person designated by the parties, by common agreement, or
selected by them from an apposite listing (the album judicium) or else by having the arbiter chosen by lot. The judges proper, as
specially trained state officials endowed with own power and jurisdiction, and taking cognizance of litigations from beginning to end,
only appeared under the Empire, by the so-called cognitio extra ordinem." 5

Such means of referring a dispute to a third party has also long been an accepted alternative to litigation at common law. 6

Sparse though the law and jurisprudence may be on the subject of arbitration in the Philippines, it was nonetheless recognized in the
Spanish Civil Code; specifically, the provisions on compromises made applicable to arbitrations under Articles 1820 and
1821.7 Although said provisions were repealed by implication with the repeal of the Spanish Law of Civil Procedure, 8 these and
additional ones were reinstated in the present Civil Code. 9

Arbitration found a fertile field in the resolution of labor-management disputes in the Philippines. Although early on, Commonwealth
Act 103 (1936) provided for compulsory arbitration as the state policy to be administered by the Court of Industrial Relations, in time
such a modality gave way to voluntary arbitration. While not completely supplanting compulsory arbitration which until today is
practiced by government officials, the Industrial Peace Act which was passed in 1953 as Republic Act No. 875, favored the policy of
free collective bargaining, in general, and resort to grievance procedure, in particular, as the preferred mode of settling disputes in
industry. It was accepted and enunciated more explicitly in the Labor Code, which was passed on November 1, 1974 as Presidential
Decree No. 442, with the amendments later introduced by Republic Act No. 6715 (1989).

Whether utilized in business transactions or in employer-employee relations, arbitration was gaining wide acceptance. A consensual
process, it was preferred to orders imposed by government upon the disputants. Moreover, court litigations tended to be time-
consuming, costly, and inflexible due to their scrupulous observance of the due process of law doctrine and their strict adherence to
rules of evidence.

As early as the 1920's, this Court declared:

In the Philippines fortunately, the attitude of the courts toward arbitration agreements is slowly crystallizing into
definite and workable form. . . . The rule now is that unless the agreement is such as absolutely to close the doors
of the courts against the parties, which agreement would be void, the courts will look with favor upon such
amicable arrangements and will only with great reluctance interfere to anticipate or nullify the action of the
arbitrator. 10

That there was a growing need for a law regulating arbitration in general was acknowledged when Republic Act No. 876 (1953),
otherwise known as the Arbitration Law, was passed. "Said Act was obviously adopted to
supplement — not to supplant — the New Civil Code on arbitration. It expressly declares that "the provisions of chapters one and
two, Title XIV, Book IV of the Civil Code shall remain in force." 11
In recognition of the pressing need for an arbitral machinery for the early and expeditious settlement of disputes in the construction
industry, a Construction Industry Arbitration Commission (CIAC) was created by Executive Order No. 1008, enacted on February 4,
1985.

In practice nowadays, absent an agreement of the parties to resolve their disputes via a particular mode, it is the regular courts that
remain the fora to resolve such matters. However, the parties may opt for recourse to third parties, exercising their basic freedom to
"establish such stipulation, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law,
morals, good customs, public order or public policy." 12 In such a case, resort to the arbitration process may be spelled out by them
in a contract in anticipation of disputes that may arise between them. Or this may be stipulated in a submission agreement when
they are actually confronted by a dispute. Whatever be the case, such recourse to an extrajudicial means of settlement is not
intended to completely deprive the courts of jurisdiction. In fact, the early cases on arbitration carefully spelled out the prevailing
doctrine at the time, thus: ". . . a clause in a contract providing that all matters in dispute between the parties shall be referred to
arbitrators and to them alone is contrary to public policy and cannot oust the courts of Jurisdiction." 13

But certainly, the stipulation to refer all future disputes to an arbitrator or to submit an ongoing dispute to one is valid. Being part of a
contract between the parties, it is binding and enforceable in court in case one of them neglects, fails or refuses to arbitrate. Going a
step further, in the event that they declare their intention to refer their differences to arbitration first before taking court action, this
constitutes a condition precedent, such that where a suit has been instituted prematurely, the court shall suspend the same and the
parties shall be directed forthwith to proceed to arbitration. 14

A court action may likewise be proven where the arbitrator has not been selected by the parties. 15

Under present law, may the parties who agree to submit their disputes to arbitration further provide that the arbitrators' award shall
be final, unappealable and executory?

Article 2044 of the Civil Code recognizes the validity of such stipulation, thus:

Any stipulation that the arbitrators' award or decision shall be final is valid, without prejudice to Articles 2038, 2039
and 2040.

Similarly, the Construction Industry Arbitration Law provides that the arbitral award "shall be final and inappealable except on
questions of law which shall be appealable to the Supreme Court." 16

Under the original Labor Code, voluntary arbitration awards or decisions were final, unappealable and executory. "However,
voluntary arbitration awards or decisions on money claims, involving an amount exceeding One Hundred Thousand Pesos
(P100,000.00) or forty-percent (40%) of the paid-up capital of the respondent employer, whichever is lower, maybe appealed to the
National Labor Relations Commission on any of the following grounds: (a) abuse of discretion; and (b) gross incompetence." 17 It is
to be noted that the appeal in the instances cited were to be made to the National Labor Relations Commission and not to the
courts.

With the subsequent deletion of the above-cited provision from the Labor Code, the voluntary arbitrator is now mandated to render
an award or decision within twenty (20) calendar days from the date of submission of the dispute and such decision shall be final
and executory after ten (10) calendar days from receipt of the copy of the award or decision by the parties. 18

Where the parties agree that the decision of the arbitrator shall be final and unappealable as in the instant case, the pivotal inquiry is
whether subject arbitration award is indeed beyond the ambit of the court's power of judicial review.

We rule in the negative. It is stated explicitly under Art. 2044 of the Civil Code that the finality of the arbitrators' award is not absolute
and without exceptions. Where the conditions described in Articles 2038, 2039 and 2040 applicable to both compromises and
arbitrations are obtaining, the arbitrators' award may be annulled or rescinded. 19 Additionally, under Sections 24 and 25 of the
Arbitration Law, there are grounds for vacating, modifying or rescinding an arbitrator's award. 20 Thus, if and when the factual
circumstances referred to in the above-cited provisions are present, judicial review of the award is properly warranted.

What if courts refuse or neglect to inquire into the factual milieu of an arbitrator's award to determine whether it is in accordance with
law or within the scope of his authority? How may the power of judicial review be invoked?

This is where the proper remedy is certiorari under Rule 65 of the Revised Rules of Court. It is to be borne in mind, however, that
this action will lie only where a grave abuse of discretion or an act without or in excess of jurisdiction on the part of the voluntary
arbitrator is clearly shown. For "the writ of certiorari is an extra-ordinary remedy and that certiorari jurisdiction is not to be equated
with appellate jurisdiction. In a special civil action of certiorari, the Court will not engage in a review of the facts found nor even of the
law as interpreted or applied by the arbitrator unless the supposed errors of fact or of law are so patent and gross and prejudicial as
to amount to a grave abuse of discretion or an exces de pouvoir on the part of the arbitrator." 21

Even decisions of administrative agencies which are declared "final" by law are not exempt from judicial review when so warranted.
Thus, in the case of Oceanic Bic Division (FFW), et al. v. Flerida Ruth P. Romero, et al., 22 this Court had occasion to rule that:
 . . . Inspite of statutory provisions making "final" the decisions of certain administrative agencies, we have taken
cognizance of petitions questioning these decisions where want of jurisdiction, grave abuse of discretion, violation
of due process, denial of substantial justice or erroneous interpretation of the lawwere brought to our
attention . . . 23 (Emphasis ours).

It should be stressed, too, that voluntary arbitrators, by the nature of their functions, act in a quasi-judicial capacity. 24 It stands to
reason, therefore, that their decisions should not be beyond the scope of the power of judicial review of this Court.

In the case at bar, petitioners assailed the arbitral award on the following grounds, most of which allege error on the part of the
arbitrator in granting compensation for various items which apparently are disputed by said petitioners:

1. The Honorable Arbitrator committed grave error in failing to apply the terms and conditions of the Construction
Agreement, Dormitory Contract and Electrical Contract, and in using instead the "practices" in the construction
industry;

2. The Honorable Arbitrator committed grave error in granting extra compensation to Roblecor for loss of
productivity due to adverse weather conditions;

3. The Honorable Arbitrator committed grave error in granting extra compensation to Roblecor for loss due to
delayed payment of progress billings;

4. The Honorable Arbitrator committed grave error in granting extra compensation to Roblecor for loss of
productivity due to the cement crisis;

5. The Honorable Arbitrator committed grave error in granting extra compensation to Roblecor for losses allegedly
sustained on account of the failed coup d'état;

6. The Honorable Arbitrator committed grave error in granting to Roblecor the amount representing the alleged
unpaid billings of Chung Fu;

7. The Honorable Arbitrator committed grave error in granting to Roblecor the amount representing the alleged
extended overhead expenses;

8. The Honorable Arbitrator committed grave error in granting to Roblecor the amount representing expenses for
change order for site development outside the area of responsibility of Roblecor;

9. The Honorable Arbitrator committed grave error in granting to Roblecor the cost of warehouse No. 2;

10. The Honorable Arbitrator committed grave error in granting to Roblecor extra compensation for airduct change
in dimension;

11. The Honorable Arbitrator committed grave error in granting to Roblecor extra compensation for airduct
plastering; and

12. The Honorable Arbitrator committed grave error in awarding to Roblecor attorney's fees.

After closely studying the list of errors, as well as petitioners' discussion of the same in their Motion to Remand Case For Further
Hearing and Reconsideration and Opposition to Motion for Confirmation of Award, we find that petitioners have amply made out a
case where the voluntary arbitrator failed to apply the terms and provisions of the Construction Agreement which forms part of the
law applicable as between the parties, thus committing a grave abuse of discretion. Furthermore, in granting unjustified extra
compensation to respondent for several items, he exceeded his powers — all of which would have constituted ground for vacating
the award under Section 24 (d) of the Arbitration Law.

But the respondent trial court's refusal to look into the merits of the case, despite prima facie showing of the existence of grounds
warranting judicial review, effectively deprived petitioners of their opportunity to prove or substantiate their allegations. In so doing,
the trial court itself committed grave abuse of discretion. Likewise, the appellate court, in not giving due course to the petition,
committed grave abuse of discretion. Respondent courts should not shirk from exercising their power to review, where under the
applicable laws and jurisprudence, such power may be rightfully exercised; more so where the objections raised against an
arbitration award may properly constitute grounds for annulling, vacating or modifying said award under the laws on arbitration.

WHEREFORE, the petition is GRANTED. The Resolutions of the Court of Appeals dated October 22, 1990 and December 3, 1990
as well as the Orders of respondent Regional Trial Court dated July 31, 1990 and August 23, 1990, including the writ of execution
issued pursuant thereto, are hereby SET ASIDE. Accordingly, this case is REMANDED to the court of origin for further hearing on
this matter. All incidents arising therefrom are reverted to the status quo ante until such time as the trial court shall have passed upon
the merits of this case. No costs.

SO ORDERED.