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KURT WAHL, partners in the "A condition in a contract that disputes arising out of it shall be
business firm of Rudolph Wahl & Co., v. DONALDSON, SIMS & referred to arbitration is good where the amount of damages
CO., sustained by a breach of the contract is to be ascertained by
[G.R. No 1085. May 16, 1903. ] specified arbitration before any right of action arises, but that
it is illegal where all the matters in dispute of whatever sort may
1. ARBITRATION; JURISDICTION; PUBLIC POLICY. — A clause in be referred to arbitrators and to them alone. In the first case a
a contract providing that all matters in dispute between the condition precedent to the accruing of a right of action is
parties shall be referred to arbitrators and to them alone is imposed, while in the second it is attempted to prevent any
contrary to public policy and cannot oust the courts of right of action accruing at all, and this cannot be permitted
This seems to be the general rule in the United States, and we
This is an action brought by Rudolph Wahl & Co. v. Donaldson, understand that in the civil law it is also the rule that, where
Sims & Co., based upon a contract by which the plaintiffs leased there is a stipulation that all matters in dispute are to be
to the defendants a certain ship called Petrarch for the term of referred to arbitrators and to them alone, such stipulation is
six months, under which contract the plaintiffs claimed that the contract who public policy.
defendants were indebted to them a balance of $25,484.38,
We reach the conclusion that the Court of First Instance should
with interest from the 30th day of July, 1901
have entertained jurisdiction in this case, notwithstanding the
Suit was instituted on the 4th day of March, 1902, and service clause providing for arbitration above referred to.
of citation was had upon the defendants on the same day.
With regard to the sufficiency of the motion to set aside the
The defendants failed to answer the complaint, and on the 18th judgment by default and the order of the court in granting the
day of April, 1902, judgment was rendered by default against same, the majority of this court are of the opinion that there
the defendants in favor of the plaintiffs for the sum of was no error in the action of the court. In this the writer does
$17,892.81. not concur.

Afterwards, on the 10th day of June, 1902, the defendants The application of the defendants, upon which the judgment
made an application to the Court of First Instance for a new was set aside, appears to be defective and not sufficient to have
trial, under section 113 of the Code of Civil Procedure, 1901. justified the setting aside of the judgment by default.
This motion for a new trial was granted by the Court of First
There was no excuse whatever shown why the defendants
Instance, and the judgment by default against the defendants
failed to answer within the time prescribed by law. The citation
was set aside on the 20th day of June, 1902.
was served upon the defendants on the 4th day of March, and
After the granting of the motion for a new trial a demurrer was the judgment by default was not taken until the 18th day of
made by the defendants to the complaint which presented the April, 1902.
question of the competency of the Court of First Instance to try
The application was based upon section 113 of the Code of Civil
the case. The objection was based upon the grounds that there
Procedure, 1901, which reads as follows:
was a provision contained in the contract to the following
effect: "Upon such terms as may he just the court may relieve a party
or his legal representative from a judgment, order, or other
"If there should arise any difference of opinion between the proceeding taken against him through his mistake,
parties to this contract, whether it may be with reference to the inadvertence, surprise, or excusable neglect: Provided, That
principal matter or in any detail, this difference shall be referred application therefor be made within a reasonable time, but in
for arbitration to two competent persons in Hongkong, one of no case exceeding six months after such judgment, order, or
which shall be selected by each of the contracting parties, with proceeding was taken."
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 This seems to be a literal copy of section 473 of the Civil Code
end of compelling any payment. This award may be made a rule of Procedure of California, and, according to the well-known
of the court." rule of construction, the decisions of the court of California,
made prior to the adoption of the statute here, should have the
The question presented for our determination is whether a same weight that such decisions would have in California.
provision of this character is invalid as being against public
policy. Agreements to refer matters in dispute to arbitration Under the construction by the Supreme Court of California of
have been regarded generally as attempts to oust the the section in question, it is stated that the application should
jurisdiction of the court, and are not enforced. The rule is thus show merits, and that this should be done with some degree of
stated in Clark on Contracts, page 432: certainty and not left to surmise.
In the case of Taylor v. Randall (5 Cal., 80) an affidavit had been Four of the bridges were accepted by the Government and paid
made to the effect that an instrument had been materially for. The dispute between the parties arose as to the fifth bridge,
altered without showing in any manner in what the alteration No. 53.3 and as to certain extras. As to this bridge, the Province
consisted. It was held that this furnished no grounds on which of Tayabas paid to the contractor P4,360 on account of the
to base a motion to set aside the judgment. contract price thereof, but refused to pay the balance of P2,840
because plaintiff had deviated from the specifications and
It is said in the case Bailey v. Taffe (29 Cal., 422) that the better
because the work was defective. The province further refused
practice is to prepare and exhibit to the court the defendant’s
to pay for certain extras. To recover the balance upon the
answer at the hearing of the motion.
contract was the purpose of the contractor in bringing action
It is also held in the case of Reidy v. Scott (53 Cal., 73) that for P9,685 (amended complaint), alleged to be due him by the
where the affidavit shows that the defense rests upon matters Province of Tayabas. The common averments of the six causes
which would be deemed to be waived except for the of action were: (1) Residence; (2) the contract; (3) the faithful
interposition of a demurrer, the defense is merely of a technical compliance "with all the terms and conditions of the said
character and the affidavit is insufficient. contract" on the part of the contractor, and completion and
delivery of the bridges in question; (4) refusal of defendant to
The affidavit in this case states in a general way that the pay plaintiff the balance due for bridge No. 53.3 for certain
defendants have a counterclaim against the plaintiffs for extras, and as damages, although frequently requested to do
$125,000, based upon the failure on the part of the plaintiffs to so. Defendant demurred to the complaint on the ground that it
perform the contract with regard to the Petrarch. This did not state facts sufficient to constitute a cause of action,
statement is too vague and uncertain to show merits in the because: (a) The approval of the Governor-General to the
defense. contract had not been given as contemplated by section 2 of
the Provincial Government Act (No. 83) and (b) the certificate
After the application to set aside the judgment had been
for payment had not been accomplished by the Director of
granted, instead of presenting this defense, a demurrer is
Public Works or the district engineer as provided by section 6,
presented to the petition, based upon the purely technical
of Act No. 1401, as amended. The demurrer was overruled.
grounds that under the contract the parties had agreed to
Thereupon defendant answered, renewing as a special defense
settle the matters in dispute by arbitration at Hongkong. If the
the grounds of the demurrer, alleging defective work on the
answer had been prepared by the defendants and presented to
part of the plaintiff, and admitting a total of P2,454.78, the
the Court of First Instance at the time of the granting of the
amount certified by the Director of Public Works and the
order, the Court of First Instance must have concluded that the
district engineer, as due the plaintiff. The trial court gave
defense was based upon a technicality and the application must
judgment for the plaintiff-contractor for P4,905, with legal
have been overruled. But, as stated before, this view is not
interest from July 14, 1914, and costs. Defendant moved for a
concurred in by the majority of the court.
new trial, which was denied, duly excepted and perfected a bill
The judgment of the court in sustaining the demurrer to the of exceptions to this court.
complaint and in holding that the Court of First Instance did not
Appellant's assignments of error relate to the findings of fact
have jurisdiction on account of the clause with reference to
and two main issues of law. We pass the facts for the moment,
arbitration, was erroneous, and it will be set aside and a new
and two main issues of law. We pass the facts for the moment,
trial had. The costs of this appeal is adjudged against the
to discuss the legal questions.
appellees, the defendants. It is so ordered and adjudged.
The first contention of appellant is that the Province of Tayabas
is not obligated to pay the contractor anything because the
G.R. No. L-12283 July 25, 1918 contract was not approved by the Governor-General. This
position is absolutely untenable. The law in force when the
On April 18, 1914, the Province of Tayabas, represented by the contract entered into and when the action was tried, section 2,
Director of Public Works, and Arthur F, Allen, contractor, Act No. 83, as amended by Act No. 1600, made the approval of
entered into a contract whereby the contractor agreed to the Governor-General a prerequisite only to the purchase and
construct five reenforced concrete bridges for P39,200. This conveyance of real estate by a province. The grammatical
contract was in the usual form. One provision was that the construction of the English text, which is controlling, makes this
bridges were to be constructed "in accordance with the said perfectly clear. Moreover, the law now in force (Administrative
advertisements, instructions to bidders, general conditions, Code of 1917, section 2068) has removed any possibility of
plans, specifications, proposal, and this agreement." Other doubt and has at the same time revealed legislative intention,
paragraphs of the contract concerned the method and rate of by placing the requirement for the Governor-General's
payment for extras. approval of transfers of real estate by provinces in a section
separate and distinct from the section of the Code giving the 51. Payments will be made monthly, based upon the estimates
corporate powers of provinces. of work satisfactorily completed and accepted by the Director
during the preceding month. Upon such estimates the Province
The remaining legal issue merits more extended consideration.
of Tayabas, P.I. shall pay to the contractor a sum equal to ninety
Appellant's contention is that the certificate by the district
(90) per cent thereof up to and until such time as the total work
engineer and the Director of Public Works must be obtained
shall have been completed or the contract canceled, as herein
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 52. The acceptance of the work from time to time for the
contain an averment to this effect. Appellee's reply is that purpose of making partial payments, shall not be considered as
neither the law nor the contract requires the submission to a final acceptance of the work in question.
arbitration of disputes between the Government and the
53. Whenever the contract, in the opinion of the Director, shall
contractor, and that a mere administrative procedure incident
be completely performed on the part of the contractor, the
to payment has been established.
Director shall proceed promptly to measure the work and shall
Act No. 1401, as amended by Act No. 1752, was in force when make out and certify the final estimates and acceptance for the
this action was instituted. The same provisions are now found same. The province shall then, excepting for cause herein
in slightly altered phraseology in section 1917-1923 of the specified, pay to the contractor promptly after the execution of
Administrative Code of 1917. The law gives a district engineer said certificate the remainder which shall be found due,
supervision over all contacts connected with public works, excepting therefrom such sum or sums as may be lawfully
which exceed the estimated cost of P500. Section 6 of Act No. retained under any of the provisions of this contract; Provided,
1401, as amended by section 3 of Act No. 1752, reads: That nothing herein contained shall be construed to waive the
right of the Director, hereby reserved, to reject the whole or
No payments, partial or final, shall be made on any public works
any portion of the aforesaid work should the same be found to
without a certificate on the vouchers therefor to the effect that
have been constructed in violation of any of the conditions or
the work for which payment is contemplated has been
covenant of this contract.
accomplished, inspected, and accepted. Such certificate for
work under the supervision of the district engineer shall be Both the law and the contract provide in mandatory language
signed by him or his duly authorized representative. For work for a certificate of acceptance by the Director of Public Works
not under his supervision such certificate shall be signed by the or his representative before any payment shall be made on any
provincial treasurer. public work for the Government.

Section 1922 of the Administrative Code of 1917, reads: Contracts of this character, giving into the hands of a third
person or of the purchaser the power of acceptance or non-
No payment, partial or final, shall be made on any public work
acceptance, are not unusual. Courts have frequently upheld
of construction or repair without a certificate on the voucher
them. The law regards the parties as competent to contract in
therefor to the effect that the work for which payment is
this manner. Municipal and provincial contracts, being on the
contemplated has been accomplished in accordance with the
same footing as those of natural persons, may not be breached
terms of the contract and has been duly inspected and
with impunity. That mutuality exists in undoubted. The party
accepted. Such certificate shall be signed by a duly authorized
who deliberately enters into such an agreement, whether
representative of the Director of Public Works having full
wisely or unwisely, must abide by it. The public corporation, in
knowledge of the facts in the case.
the absence of a showing of fraud or concealment, is estopped
Contractors are of course bound to take notice of the provisions by the approval of its officer who is authorized to accept the
of the law relating to contracts. Statutory requirements cannot work, from contesting the contractor's right to the contract
be departed from for the accommodation of either party to a price. (City of Omaha vs. Hammond [1876], 94 U.S., 98; City
contract. As a matter of acts, in the present instance, this Street Improvement Co. vs. City of Marysville, [1909], 155 cal.,
obligation is intensified in so far as the contractor is concerned 419.) Likewise, the contractor must not only deliver a product
for the instructions to bidders contains this clause: "The with which the party of the second party ought to be satisfied,
contractor shall comply with all existing or future laws, the but with which he must be satisfied, or he is not bound to
municipal or provincial building ordinances and regulations in accept it. The rule is well-settled that in the absence of fraud or
so far as the same are binding upon or affect the parties hereto, of such gross mistake as would necessarily imply bad faith,
the work, or those engaged thereon." (No. 23). contractors with public corporations are concluded by the
decisions of engineers or like officers where the contract
The instructions to bidders, a part of the contract, under the contains such a stipulation. The public corporation can rely on
heading of "Payments," also contains the following: 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 affirmed on appeal to the United States Supreme Court [1905],
Bridge Co. [1910], 183 Fed., 391, reviewing Federal decisions; 200 U.S., 611.) Other circumstances, as partial payment, also
Silsby Manuf'g Co. vs. Town of Chico [1885], 24 Fed., 893; 23 show acquiescence on the part of purchaser.
L.R.A. [1910], 322, Notes.)
Appellee speaks of the provisions of the law and the portions of
A leading example is the case of Sweeney vs. United States the contract in questions as possibly constituting an arbitration
([1883], 109 U.S., 618), in which a contractor sought to recover agreement. We deem these provisions to be more correctly
from the United States the price of wall built by him around the labeled a condition precedent to the contractor's right to
National Cemetery. The contract provided that the wall shall be obtain payment; the condition is for the satisfaction of the
received and become the property of the United States after Government. Nevertheless, considered as species of abitration,
the officer or civil engineer, to be designated by the it was a convenient and proper method, duly agreed upon
Government to inspect the work, should certify that it was in all between the parties, to determine questions that would
respects such as the contractor agreed to construct. The officer necessarily arise in the performance of the contract, about
designated for that purpose refused to so certify on the ground which men might honestly differ. It would be highly improper,
that neither the material nor the workmanship was such as the for courts out of untoward jealousy of their jurisdiction. The
contract required. As the officer exercised an honest judgment New York theory of refusal to uphold such agreements,
in making his inspection and as there was on his part neither because of the opinion that they violate the spirit of the laws
fraud nor such grave mistake as implied bad faith, it was creating the courts, is hardly agreed to by more progressive
adjudged that the contractor had no cause of action on the jurisdictions. (See U.S. Asphalt Refining Co. vs. Trinidad Lake
contract against the United States. Petroleum Co. [1915], 222 Fed., 1006.) Unless the agreement is
such as absolutely to close the doors of the courts against the
The old common law rule required a strict or literal
parties, which agreement would be void (Wahl and
performance of contracts. The modern rule sanctions a
Wahl vs. Donaldson, Sims & Co. [1903], 2 Phil., 301), courts will
substantial performance of contractual relations. The law now
look with favor upon such amicable arrrangements and will only
looks to the spirit of the contract and not to its letter. Even
with great reluctance interfere to anticipate or nullify the action
though a plaintiff is not entirely free from fault or omission, the
of the arbitrator. For instance, a policy of fire insurance,
courts will not turn him away if he has in good faith mad
contained a clause providing that in the event of a loss under
substantial performance. Of course the terms of the contract
the policy, unless the company shall deny all liability, as a
may be such that the contract has agreed that the another shall
condition precedent to the bringing of any suit by the insured
have the absolute and unreviewable right to reject the article
upon the policy, the latter should first submit the question of
or work if not satisfied with it; in such case the contractor shall
liability and indemnity to arbitration. Such a condition, the
abide by his word. But when the terms, or the nature of the
Supreme Court of the Philippines held in Chang vs. Royal
contract, or the circumstances are such as to make it doubtful,
Exchange Assurance Corporation of London ([1907], 8 Phil.,
whether the contractor has made any such unwise agreement,
399), is a valid one in law, and unless it be first complied with,
the courts will ordinarily construe the contract as an
no action can be brought.
"agreement to do the thing in such way as reasonably ought to
satisfy the defendant." (Parlin & Orendorff Co. vs. City of What then are the remedies of the contractor? In the first place
Greenville [1904], 127 Fed., 55; Swain vs. Seamens [1870], 9 he has his administrative remedy, which is to complete the
Wall., 254.) Thus, it has been held that the provision of a work substantially according to the contract and ask for the
contract to perform work for the city requiring the contractor approval of the proper official. If such officer refuse or culpably
to obtain the certificate of the city engineer that the work has neglect to perform a ministerial duty, such as making out the
been done in accordance with the contract and the approval of warrant, it is possible that mandamus will lie to coerce the
such work by certain boards or committees, before he is officer. A stipulation requiring the approval of some one as a
entitled to payment therefor, does not deprive him of the right condition to a recovery by the contractor would not bar the
to recover for the work, if it has been done in substantial party of his remedies by action at law. The right to redress in
conformity to the contract, because the city's officers arbitrarily the courts where substantial compliance with the terms of a
or unreasonably refuse the certificate and approval called for. contract are set forth, and where the proof discloses the
(City of Elizabeth vs.Fitzgerald [1902], 200 U.S., 611.) withholding of the certificate by an officer for insufficient
reasons, should not be taken away by inference or anything
Substantial performance and the unfounded refusal of the
short of a district agreement to waive it. (Aetna Indemnity
certificate of approval can be proved in various ways. Thus,
Co. vs. Waters [1909], 110 Md., 673.) As a condition precedent
acceptance and occupancy of the building by the owner
to action by the courts, fraud or bad faith on the part of the
amounts to an acknowledgment that the work has been
responsible Government official, or arbitrary or unreasonable
performed substantially as required by the contract. (Campbell
refusal of the certificate or approval must be alleged and
and Go-Tauco vs. Behn, Meyer & co. [1904], 3 Phil., 590
To concentrate our facts and legal principles — we find the we would so hold with defendant, but on appeal such a
contractor supported by one expert insisting that the work and backward sweep would avail nothing but delay. Moreover, the
the materials actually conform to the specifications; and we complaint contains the general averment that the plaintiff fully
have this as resolutely denied by competent Government and faithfully complied with all the terms and conditions of the
engineers. We find substantial performance of the contract not said contract, while some months subsequent to the filing of
proved to the satisfaction of the Government's technical the complaint but previous to the trial, the defendant accepted
adviser, but proved to the satisfaction of the trial court. the bridge. A failure to allege a condition precedent or a legal
Ordinarily, we would not review the facts unless the findings of reason for dispensing with it may be cured by the issues
the trial court are plainly and manifestly contrary to the proof. tendered by the answer and the proof. (Donegan vs. Houston
But here it was incumbent on the trial court to take about the [1907], 5 Cal. App., 626.)
same view of the findings of the Government's engineers as the
To summarize, we are of opinion and so hold that the law
appellate court would take of the findings of the trial court, or
makes the approval of the Governor-General a prerequisite
that any court would take of the findings of customs boards,
only to the purchase or conveyance of real property by a
assessors, and the like. In order to set aside the action of the
province; that the provisions of the law and the form of the
Director of Public Works or his authorized representative, fraud
contract, usually followed in this jurisdiction, providing for the
or bad faith on the part of these engineers must be established.
certificate of approval by the Director of Public Works or his
Has this been proved? The judge in the course of his decision
representative, are in the nature of a condition precedent,
incidentally remarked: "It may as well be said here that there
which must be alleged and proved, and that this certificate is
appears to have been a great deal of ill-feeling between plaintiff
conclusive in the absence of a showing of fraud or bad faith.
and the engineer in charge of this construction." Is this
observation in connection with the testimony of the plaintiff Judgment shall be modified so that the plaintiff shall recover
and of one engineer sufficient to demonstrate fraud or bad from the defendant P3,354.90 with legal interest thereon from
faith? We think not. In other words we believe that the July 14, 1914, until paid, without special finding as to costs in
contractor cannot maintain an action for the stipulated price either instance. So ordered.
when the engineer has in good faith, in pursuance of the
contract, withheld his certificate. The decision of the KAY B. CHANG, ET AL., v. ROYAL EXCHANGE ASSURANCE
responsible engineer cannot be subjected to the revisory CORPORATION OF LONDON,
power of the courts without doing violence to the terms of the [G.R. No. L-3567. August 20, 1907. ]
contract and the law.
The Province of Tayabas, having accepted bridge No. 53.2, insurance contained a clause providing that in the event of a
should of course pay the balance due, or P2,840. It should not loss under the policy, unless the company should deny all
be permitted to deduct the cost of the test of the bridge, liability, as a condition precedent to the bringing of any suit by
P900.12, for this is a legal question for resolution by the courts, the insured upon the policy the latter should first submit the
and the contract contains no such stipulation. (See question of liability and indemnity to arbitration. Such a
Ripley vs. U.S. [1912], 223 U.S., 695.) But the findings of the condition is a valid one in law, and unless it be first complied
Government engineers on all the other points covered by with no action can be brought.
causes of action 2, 3, 4, 5 and 6 are deemed to be conclusive,
2. ID.; ID.; WAIVER. — If in the course of the settlement of a
fraud or bad faith not having been proved. Thus, we have
loss. however, the action of the company or its agents amounts
P2,840, plus P269.10, plus P214.80, plus P6, plus P25, or
to a refusal to pay, the company will be deemed to have waived
P3,354.90 due plaintiff.
the condition precedent with reference to arbitration and a suit
One point made by appellant is that the demurrer to the upon the policy will lie.
complaint was improperly overruled. An elementary principle
The arbitration clause in the fire policy in question in this case
of pleading heretofore approved by this court in Government
is in part as follows:
of Philippine Islands vs. Inchausti & Co. ([1913], 24 Phil., 315) is
brought to our notice, namely: "If the plaintiff's right of action "If a disagreement should at any time arise between the
depends upon a condition precedent he must allege and prove corporation and the assured . . . respect of any loss or damage
the fulfillment of the condition or a legal excuse for its non- alleged to have been caused by fire, every such disagreement,
fulfillment. And if he omits such allegation, his declaration, when it may occur (unless the corporation shall deny liability by
complaint, or petition, will be bad on demurrer." Undoubtedly, reason of fraud or breach of any of the conditions, or because
the complaint should have alleged either the performance of the claimant has by some other means waived his rights under
the condition precedent, approval by the Director of Public the policy), shall be referred to the arbitration of some person
Works or the District Engineer, or a good and sufficient excuse to be selected by agreement of both parties . . . And by virtue
for not obtaining it. It is possible that if sitting in first instance, of these presents it is hereby expressly declared to be a
condition of this policy, and an essential element of the the plaintiff Chang and the plaintiffs’ lawyer between the latter
contract between the corporation and the insured that unless part of March and the 21st of June, 1905. During this time the
the corporation shall demand exemption from liability by plaintiffs furnished additional evidence relating to the justice of
reason of fraud, breach of conditions, or waiver, as stated, the their claim and were told that their proofs were still insufficient.
assured, or claimant, shall have no right to commence suit or No indication was made by the company’s agent as to what
other proceedings before any court whatever upon this policy other proofs should be furnished, he offering, however, at one
until the amount of the loss or damage shall have been of the interview to settle the claim for 3,000 pesos. This offer
referred, investigated, and determined as above provided, and was refused by the plaintiffs. In the final interview on June 21,
then only for the amount awarded, and the obtaining of such between the company’s agent and the counsel for the plaintiffs,
an award shall be a condition precedent to the institution of any the former said:
suit upon this policy and to the liability and obligation of the
"I cannot go on with your case, Mr. Sleeper; I have not enough
corporation to pay or satisfy any claim or demand based upon
this policy."
"Q. What did Mr. Sleeper state?
The conditions contained in this clause of the policy are valid,
and no action can be maintained by the assured unless as "A. I think, so far as I can remember, that he said he wanted to
award has been made or sought, or unless the company has bring the matter to a basis, but I would not say so to the court."
denied liability on some of the grounds stated therein.
(Hamilton v. Liverpool, London and Globe Insurance Company, This action was commenced on the 24th of June, 1905. The
136 U.S., 242.) The duty of asking a submission to arbitration plaintiffs at no time requested the appointment of arbitrators.
does not rest exclusively upon the company. If it takes no action After the suit had been commenced, and on the same day, the
in that respect it is the duty of the assured to do so, and to ask defendant requested in writing that arbitrators be appointed in
that arbitrators be appointed for the purpose of determining accordance with the terms of the policy. This was the first
the amount of the loss, in accordance with the provisions of this communication in writing which the defendant made to the
policy. The company may, however, by its conduct, waive the plaintiffs after the loss.
provisions of this clause relating to arbitration. In fact, this is
Under all the circumstances in the case, we think that the
expressly stated in the policy itself, as will be seen from the
statement made by the company’s agent on the 21st day of
quotation above made, and the principal question in this case
June amounted to a denial of liability on the ground that proper
is whether there has been such waiver or not.
proofs of loss had not been presented and that, therefore,
Simple silence of the company is not sufficient. If it remains there had been a failure of the assured to comply with one of
passive, it is the duty of the assured to take affirmative action the terms of the policy. The delay of the company in taking any
to secure arbitration. Neither will the failure of the company to affirmative action between the 11th day of March and the 21st
return proofs of loss, or its failure to point out defects therein, day of June; its repeated statements that the proofs were
amount to a waiver of the arbitration clause. These acts may insufficient without indicating in any way what other proofs
amount to a waiver of the clause requiring the furnishing of should be furnished, and its final statement that it could go no
proofs of loss, but such an action can not constitute proof that further with the case, was sufficient evidence to show that it
the company has refused to pay the policy because the did not intend to pay. This view is somewhat confirmed by what
defendant has failed to comply with the terms and conditions took place afterwards before the arbitrators, both of whom
thereof. were appointed by the defendant in accordance with the terms
of the policy. At the first meeting of these arbitrators the
It is claimed, however, by the plaintiffs and appellees, that defendant objected to any award being made upon the ground
affirmative action was taken by the company indicating its that the proof of loss which had been furnished was sworn to
purpose not to pay anything to the insured. before a notary public and not before the municipal judge, as
required by the provisions of the Code of Commerce.
The property insured, consisting of a stock of goods, was
entirely destroyed by a fire on the 11th day of March, 1905. On In the case of The Phenix Insurance Company v. Stocks (149 Ill.,
the same day the plaintiffs notified the agent of the defendant 319) the company wrote two letters to the insured, in the first
of the loss and within fifteen days thereafter presented to the of which they said:
company a detailed statement of the articles which had been
destroyed and of their value. Plaintiffs were notified by the "The circumstances under which this fire occurred are such that
company that this proof was insufficient and that they must we do not feel justified in extending to you any measure of
obtain the sworn certificates of two merchants to the truth of grace, in considering your claim, which you may not fairly
their statement. This was done within a few days. Plaintiffs demand under the terms of the policy. There is at least one fact
were again notified that their proof was insufficient. Various that looks very peculiar, and until our minds are relieved of the
interviews were had between the agent of the defendant and 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." In view of all the evidence in the case, we cannot say that it
preponderates against the finding of the judge below as to the
In the other letter the company said:
amount of the loss.
"Replying to your letter of August 23d, received this morning,
The judgment of the court below is hereby affirmed, with the
we beg to say that our views of this matter have been fully
costs of this instance against the Appellant.
expressed in our previous correspondence, and have nothing at
The court said (p. 334):
"The mere silence of the company would not amount to a
waiver of its right to insist upon the condition [as to arbitration], A. CHAN LINTE, vs. THE CHINE FIRE INSURANCE CO., LTD.,
but when it placed its determination upon the grounds stated
G.R. No. L-16398 December 14, 1921
in the correspondence, which were such as could not be
submitted to arbitration under the provisions of the policy, it The plaintiff is a resident adult of the Philippine Islands, and the
must be held to have waived the condition requiring arbitration defendants are fire insurance companies duly licensed to do
(German Ins. Co. v. Gueck, 130 Ill., 345), and especially is this so business here.
where the assured would be misled to their prejudice into
bringing suit upon the policy without first having obtained an Plaintiff alleges that he was the owner of 30,992.50 kilos of
award. The company was not bound to speak at all., but when hemp stored in the warehouse in Calbayog, Province of Samar,
asked in effect, what its determination was, if it answered, good Philippine Islands, which on the 25 of March, 1916, he
faith required that it should disclose the true ground of its requested the defendant Law Union and Rock Insurance Co.,
defense." 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
It is apparent in the case at bar that the counsel for the plaintiffs plaintiff against such loss until 4 o'clock p.m., of the 22nd of
sought the interview of June 21 for the express purpose of March, 1917, and that the policy was delivered to the plaintiff
finding out what the decision of the company was, and after in consideration of which he paid the company a premium of
receiving the answer which has been heretofore quoted, the P87.50. that in consideration of other previous payments, the
plaintiffs were fully justified in bringing the action at once, policy was renewed from time to time and continued in force
without seeking any arbitration. and effect to and including March 22, 1919; that during the life
of the policy the hemp was destroyed by fire in the bodega
Judgment was entered in the court below in favor of the
where it was insured; that its value was P21,296.27; that he at
plaintiffs for the sum of 5,265 pesos and 25 centavos, with
once notified the defendant of the loss, and in all other respects
interest from the 24th of June, 1905, and costs. It is claimed by
complied with the terms and conditions of the policy, and made
the appellant that the finding of the court below as to the
a demand for the payment of the full amount of the insurance.
amount of the loss is not justified by the evidence. A great many
That defendant refused and still refuses to pay the same or any
witnesses were presented by each side, but the only persons
part thereof, and plaintiff prays for judgment for P5,000, with
who had any real knowledge as to the amount of stock in the
interest and costs.
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 In his amended complaint he alleges that after the
more than 10,000 pesos, the amount named in the policy. No commencement of the action, the defendant requested that its
one of the witnesses for the defendant fixed the value of the liability should be submitted to arbitration, in accord with the
stock then on hand at more than 500 pesos. The arbitrators provisions of the policy, and that "plaintiff acceded to the
appointed by the defendant found that the value was 2,106 requirement made by said defendant as aforesaid, but not that
pesos. The defendant’s agent testified that during negotiations the award of arbitration should be conclusive or final, or
he offered to settle for 3,000 pesos. That the plaintiff (Chang) deprive the courts of jurisdiction, and by agreement of both
was carrying on a business of some importance was proved at plaintiff and defendant Frank B. Ingersoll was named sole
the trial by the introduction of the records of the customs in arbitrator, and both parties informally presented evidence
Cebu, by which it appeared that between the month of July, before him and he made return of arbitration to the effect that
1904, and February, 1905, he had imported through the said plaintiff had only seven bales of hemp destroyed in the fire
custom-house goods which with the duty added were of the of April 10, 1918, as hereinbefore set forth, with which return
value of 4,758 dollars and 48 cents, money of the United States, the said plaintiff is dissatisfied, and comes to this court for
and the plaintiff, Chang, testified that he had no hand at the proper action under this amended complaint."1awphil.net
time of the fire a large amount of property, products of the
country, which were not imported through the customs.
For answer the defendant alleges that, claiming a loss under the arbitrator, arbitrators or umpire respectively; and in the event
policy, the plaintiff made a claim against the defendant for of the death of an arbitrator or umpire, another shall in each
P5,000, that a difference arose between them as to the amount case be appointed in his stead by the party or arbitrators (as the
of the alleged loss, and that, under the terms of the policy, an case may be), by whom the arbitrator or umpire so dying was
arbitrator was agreed upon and selected by the mutual consent appointed. The costs of the reference and of the award shall be
of both parties, for the purpose of deciding the alleged in the discretion of the arbitrator, arbitrators or umpire making
difference; that on December 28, 1918, the arbitrator found the award. And it is hereby expressly stipulated and declared
that only seven bales of hemp of the grade "ovillo" were that it shall be a condition precedent to any right of action or
destroyed. suit upon this policy that the award by such arbitrator,
arbitrators or umpire of the amount of the loss or damage if
For supplemental answer to the amended complaint, the
disputed shall be first obtained."
defendant further alleges that on July 8, 1919, the arbitrator
filed a supplemental report and award wherein he finds from That the arbitration clause in the policy issued by the Tokyo
the evidence submitted that the local value of the seven bales Marine Insurance Company, Limited, is as follows, to wit:
of plaintiff's hemp destroyed by fire on April 10, 1918, was
If any difference shall arise with respect to any claim for loss or
P608.34; that in addition to the defendant's policy, the same
damage by fire and no fraud be suspected, and the Company
property was covered by two other fire insurance polices, by
does not elect to rebuild, repair, reinstate or replace same, such
each of which the property in question was insured to the value
difference shall be submitted to arbitrators, indifferently
of P5,000 against the loss; that defendant has offered and is
chosen, whose award, or that of their umpire, shall be
now willing to pay plaintiff its one-third of the loss in full
satisfaction of its liability.
Any liability arising out of the fire should be borne by the
xxx xxx xxx
defendants in equal parts; that each of them has offered in
The other insurance companies are Tokyo Marine Insurance writing to pay the plaintiff its one-third of the amount of the
Co., Ltd., and the Chine Fire Insurance Co., Ltd., defendants and plaintiff's loss, as ascertained by the arbitrator.
It is understood that in making this stipulation plaintiff shall not
After the filing of the amended complaint, both parties agreed be deemed to have waived his right to contend, as a matter of
upon Frank B. Ingersoll as arbitrator, and submitted to him the law or fact, that the award of the arbitrator is not conclusive
evidence pro and con. His first finding was made on December upon him and that the arbitrator was without authority to
28, 1918, and on July 8, 1919, he filed a supplemental report in supplement or amend his findings after having once rendered
which he found the value of the property destroyed to be decision; and that defendants have not waived their right to
P608.34. contend that such arbitration is conclusive, and that no
evidence of the amount of the loss alleged to have been
It was stipulated "that the arbitration clauses of the policies of
suffered by plaintiff should be considered, but that his right to
insurance issued by the Law Union and Rock Insurance Co., Ltd.,
recover is limited to the amount of damage found by the
and the Chine Fire Insurance Co., Ltd., are in terms as follows,
arbitrator to have been suffered by him.
to wit:
On November 6, 1919, "it is hereby stipulated and agreed that
"If any difference arises as to the amount of any loss or damage,
the above entitled causes be and they are hereby submitted to
such difference shall independently of all other questions be
the court upon the evidence taken at the trial and the
referred to the decision of an arbitrator, to be appointed in
depositions taken in Samar before the justice of the peace of
writing by the parties in difference, or, if they cannot agree
the municipality of Calbayog, and by him transmitted to the
upon a single arbitrator, to the decision of two disinterested
clerk of this court; provided, that nothing herein contained shall
persons as arbitrators, of whom one shall be appointed in
be construed as a waiver of the contention of defendants that
writing by each of the parties within two calendar months after
the award of the arbitrator is conclusive, and that no evidence
having been required so to do in writing by the other party. In
of the amount of the loss other than such award should be
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 After the testimony was taken, the trial court rendered
appoint a sole arbitrator; and in case of disagreement between judgment against each of the defendants for P202.78, and that
the arbitrators, the difference shall be referred to the decision plaintiff should pay the costs of the action, from which he
of an umpire who shall have been appointed by them in writing appealed, claiming that the court erred in holding that the
before entering on the reference and who shall sit with the decision of the arbitrator is conclusive or in any way binding on
arbitrators and preside at their meetings. The death of any the plaintiff; that the arbitrator's decision is in the main
party shall not revoke or affect the authority or powers of the
supported by the evidence; and that it erred in not awarding In the instant case, it will be noted that sometime after the
judgment for the plaintiff, is prayed for in his complaint. action was commenced and upon the request of the
defendants, the plaintiff agreed to arbitrate under the terms
It will be noted that the policies of the Law Union and Rock
and provisions of the policies; that the parties mutually agreed
Insurance Co., Ltd., and The Chine Fire Insurance Co., Ltd.,
upon an arbitrator; and that each appeared before him and
provide for arbitration and expressly stipulated "that it shall be
offered his or its evidence upon the questions in dispute. There
a condition precedent to any right of action or suit upon this
is no claim or pretense that the proceedings were not honestly
policy that the award by such arbitrator, arbitrators or umpire
and fairly conducted. Having formally agreed and submitted to
of the amount of the loss or damage if disputed shall be first
an arbitration after the action was commenced, it may well be
obtained," and that the action was brought without making any
doubted whether the plaintiff can at this time question the
effort to adjust the loss by arbitration. The policy of Tokyo
validity of the proceedings, except upon the ground of fraud or
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 Ruling Case Law, vol. 2, p. 359, says that when the subject-
conclusive."1awphil.net matter of a pending suit is submitted to arbitration without rule
of court "there is a conflict among the authorities as to whether
After the action was brought, and upon the request of the
or not the mere submission effects a discontinuance of the
defendant, an arbitrator was chosen to whom the evidence of
action. The majority rule is that the parties themselves show an
the loss was submitted. On December 28, 1918, he found that
intent to discontinue the pending suit by substituting another
only seven bales of hemp of the grade "ovillo" were destroyed,
tribunal, so that a submission furnishes ground for a
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, On page 352 of the same volume, it is said:
was P608.34.
Arbitration as a method of settling disputes and controversies
The plaintiff contends; First, that the arbitration clauses are null is recognized at common law. The award of the arbitrators is
and void as against public policy; second, that the award of the binding on the parties, but, in the absence of statute, the
arbitrator of December 28, 1918, without finding the value of successful party can only enforce his rights thereunder by a suit
the property destroyed, was final, and that on July 8, 1919, he at law. Thus the only gain by a common law arbitration is the
had no authority to make a supplemental finding as to the value substitution of the definite findings of the award as the basis of
of the property; and, third, that upon the evidence the court a suit, in the place of the former unsettled rights of the parties.
should have found for the plaintiff. Upon the first point he cites In an action on the award the award itself is conclusive evidence
the case of Wahl and Wahl vs. Donaldson, Sims and Co. (2 Phil., of all matters therein contained, provided the arbitrators have
301), which apparently sustains his contention. That case holds not exceeded the powers delegated to them by the agreement
that "a clause in a contract providing that all matters in dispute of submission. The courts regard matters submitted as
between the parties shall be referred to arbitrators and to them concluded by the award, and in an action thereon they will not
alone is contrary to public policy and cannot oust the courts of review the merits of the arbitrators' findings.
Corpus Juris, vol. 5, p. 16, says:
In Chang vs. Royal Exchange Assurance Corporation of London
The statement of controversies by arbitration is an ancient
(8 Phil., 399), agreement was very similar to the one here with
practice at common law. In its broad sense it is a substitution,
the two defendants above quoted, and it was there held that
by consent of parties, of another tribunal for the tribunals
such a condition for arbitration is valid, and that, unless there
provided by the ordinary processes of law; a domestic tribunal,
was an effort to comply, no action could be maintained.
as contradistinguished from a regularly organized court
In Allen vs. Province of Tayabas (38 Phil., 356), it is said: proceeding according to the course of the common law,
depending upon the voluntary act of the parties disputant in
. . . It would be highly improper for courts out of untoward
the selection of judges of their own choice. Its object is the final
jealousy to annul laws or agreements which seek to oust the
disposition, in a speedy and inexpensive way, of the matters
courts of their jurisdiction. . . . Unless the agreement is such as
involved, so that they may not become the subject of future
absolutely to close the doors of the courts against the parties,
litigation between the parties.
which agreement would be void. (Wahl and
Wahl vs. Donaldson, Sims and Co. [1903], 2 Phil., 301), courts On page 20, it is said:
will look with favor upon such amicable arrangements and will
only with great reluctance interfere to anticipate or nullify the
action of the arbitrator. . . .
— Although arbitration was recognized at the common law as estopped and bound by the award. Where a plaintiff has
a mode of adjusting matters in dispute, especially such as commenced an action to recover upon an insurance policy, and
concerned personal chattels and personal wrongs, yet, from then voluntarily submits the amount of his loss to arbitration,
efforts perceptible in the earlier cases to construe arbitration he cannot ignore or nullify the award and treat it as void upon
proceedings and awards so as to defeat them, it would seem the ground that he is dissatisfied with the decision.
that they were not originally favored by the courts. This
Judgment is affirmed, with costs to the appellee. So ordered.
hostility, however, has long since disappeared, and, by reason
of the fact that the proceeding represents a method of the CHUNG FU INDUSTRIES (PHILIPPINES) INC., its Directors and
parties' own choice and furnishes a more expeditious and less Officers namely: HUANG KUO-CHANG, HUANG AN-CHUNG,
expensive means of settling controversies than the ordinary JAMES J.R. CHEN, TRISTAN A. CATINDIG, VICENTE B. AMADOR,
course of regular judicial proceedings, it is the policy of the law ROCK A.C. HUANG, JEM S.C. HUANG, MARIA TERESA SOLIVEN
to favor arbitration. Therefore every reasonable intendment and VIRGILIO M. DEL ROSARIO, vs. COURT OF APPEALS, HON.
will be indulged to give effect to such proceedings, and in favor FRANCISCO X. VELEZ (Presiding Judge, Regional Trail Court of
of the regularity and integrity of the arbitrators' acts. Makati [Branch 57]) and ROBLECOR PHILIPPINES, INC.,
On page 43, it is said: G.R. No. 96283 February 25, 1992
Where a contract contains a stipulation, not that all questions This is a special civil action for certiorari seeking to annul the
arising thereunder, whether as to the validity or effect of such Resolutions of the Court of Appeals* dated October 22, 1990
contract, or otherwise, shall be submitted to arbitration, but and December 3, 1990 upholding the Orders of July 31, 1990
that the decision of arbitrators on a certain question or and August 23, 1990 of the Regional Trial Court of Makati,
questions, such as the quantity, quality, or price of materials or Branch 57, in Civil Case No. 90-1335. Respondent Court of
workmanship, the value of work, the amount of loss or damage, Appeals affirmed the ruling of the trial court that herein
or the like, shall be a condition precedent to the right of action petitioners, after submitting themselves for arbitration and
on the contract itself, no fixed sum being stated in the contract, agreeing to the terms and conditions thereof, providing that
such stipulation will be enforced, because the parties to a the arbitration award shall be final and unappealable, are
contract have a right to adopt whatever method they see fit for precluded from seeking judicial review of subject arbitration
determining such questions, and until the method adopted has award.
been pursued, or some sufficient reason given for not pursuing
it, no action can be brought on the contract. "Freedom to It appears that on May 17, 1989, petitioner Chung Fu Industries
contract for arbitration to this extent," it has been said, (Philippines) (Chung Fu for brevity) and private respondent
"imports no invasion of the province of the courts, and there is Roblecor Philippines, Inc. (Roblecor for short) forged a
no ground upon which a right so essential to the convenient construction agreement 1 whereby respondent contractor
transaction of modern business affairs can be denied," nor is committed to construct and finish on December 31, 1989,
such agreement objectionable as being against public policy. In petitioner corporation's industrial/factory complex in Tanawan,
order to give effect to such an agreement it must of course Tanza, Cavite for and in consideration of P42,000,000.00. In the
appear that the matter proposed to be referred is a difference, event of disputes arising from the performance of subject
within the meaning of the agreement. contract, it was stipulated therein that the issue(s) shall be
submitted for resolution before a single arbitrator chosen by
In the instant case, there was no dispute about the policy of both parties.
insurance or the fire. The only real difference was the amount
of the loss which plaintiff sustained, and that was the only Apart from the aforesaid construction agreement, Chung Fu
question submitted to arbitration. In December, the arbitrator and Roblecor entered into two (2) other ancillary contracts, to
found the amount of plaintiff's hemp which was destroyed, but wit: one dated June 23, 1989, for the construction of a
did not find its value. dormitory and support facilities with a contract price of
P3,875,285.00, to be completed on or before October 31,
Hence the award on the question submitted was not complete 1989; 2 and the other dated August 12, 1989, for the
or final. In the finding of the actual value of the hemp, there installation of electrical, water and hydrant systems at the plant
was no change or revision of any previous finding. It was simply site, commanding a price of P12.1 million and requiring
the completion by the arbitrator of an unfinished work. No completion thereof one month after civil works have been
formal notice was served on the arbitrator, and he was not finished. 3
removed or discharged, and until such time as his duties were
fully performed, or he was discharged, he would have the legal However, respondent Roblecor failed to complete the work
right to complete his award. The plaintiff, having agreed to despite the extension of time allowed it by Chung Fu.
arbitration after the action was commenced and submitted his Subsequently, the latter had to take over the construction
proof to the arbitrator, in the absence of fraud or mistake, is
when it had become evident that Roblecor was not in a position conformity therewith. Moreover, it granted the motion for the
to fulfill its obligation. issuance of a writ of execution filed by respondent.

Claiming an unsatisfied account of P10,500,000.00 and unpaid Chung Fu elevated the case via a petition for certiorari to
progress billings of P2,370,179.23, Roblecor on May 18, 1990, respondent Court of Appeals. On October 22,1990 the assailed
filed a petition for Compulsory Arbitration with prayer for resolution was issued. The respondent appellate court
Temporary Restraining Order before respondent Regional Trial concurred with the findings and conclusions of respondent trial
Court, pursuant to the arbitration clause in the construction court resolving that Chung Fu and its officers, as signatories to
agreement. Chung Fu moved to dismiss the petition and further the Arbitration Agreement are bound to observe the
prayed for the quashing of the restraining order. stipulations thereof providing for the finality of the award and
precluding any appeal therefrom.
Subsequent negotiations between the parties eventually led to
the formulation of an arbitration agreement which, among A motion for reconsideration of said resolution was filed by
others, provides: petitioner, but it was similarly denied by respondent Court of
Appeals thru its questioned resolution of December 3, 1990.
2. The parties mutually agree that the arbitration shall proceed
in accordance with the following terms and conditions: — Hence, the instant petition anchored on the following grounds:

xxx xxx xxx First

d. The parties mutually agree that they will abide by the Respondents Court of Appeals and trial Judge gravely abused
decision of the arbitrator including any amount that may be their discretion and/or exceeded their jurisdiction, as well as
awarded to either party as compensation, consequential denied due process and substantial justice to petitioners, — (a)
damage and/or interest thereon; by refusing to exercise their judicial authority and legal duty to
review the arbitration award, and (b) by declaring that
e. The parties mutually agree that the decision of the arbitrator
petitioners are estopped from questioning the arbitration
shall be final and unappealable. Therefore, there shall be no
award allegedly in view of the stipulations in the parties'
further judicial recourse if either party disagrees with the whole
arbitration agreement that "the decision of the arbitrator shall
or any part of the arbitrator's award.
be final and unappealable" and that "there shall be no further
f. As an exception to sub-paragraph (e) above, the parties judicial recourse if either party disagrees with the whole or any
mutually agree that either party is entitled to seek judicial part of the arbitrator's award."
assistance for purposes of enforcing the arbitrator's award;
xxx xxx xxx
Respondent Court of Appeals and trial Judge gravely abused
(Emphasis supplied) their discretion and/or exceeded their jurisdiction, as well as
denied due process and substantial justice to petitioner, by not
Respondent Regional Trial Court approved the arbitration vacating and annulling the award dated 30 June 1990 of the
agreement thru its Order of May 30, 1990. Thereafter, Engr. Arbitrator, on the ground that the Arbitrator grossly departed
Willardo Asuncion was appointed as the sole arbitrator. from the terms of the parties' contracts and misapplied the law,
and thereby exceeded the authority and power delegated to
On June 30, 1990, Arbitrator Asuncion ordered petitioners to
him. (Rollo, p. 17)
immediately pay respondent contractor, the sum of
P16,108,801.00. He further declared the award as final and Allow us to take a leaf from history and briefly trace the
unappealable, pursuant to the Arbitration Agreement evolution of arbitration as a mode of dispute settlement.
precluding judicial review of the award.
Because conflict is inherent in human society, much effort has
Consequently, Roblecor moved for the confirmation of said been expended by men and institutions in devising ways of
award. On the other hand, Chung Fu moved to remand the case resolving the same. With the progress of civilization, physical
for further hearing and asked for a reconsideration of the combat has been ruled out and instead, more specific means
judgment award claiming that Arbitrator Asuncion committed have been evolved, such as recourse to the good offices of a
twelve (12) instances of grave error by disregarding the disinterested third party, whether this be a court or a private
provisions of the parties' contract. individual or individuals.
Respondent lower court denied Chung Fu's Motion to Remand Legal history discloses that "the early judges called upon to
thus compelling it to seek reconsideration therefrom but to no solve private conflicts were primarily the arbiters, persons not
avail. The trial court granted Roblecor's Motion for specially trained but in whose morality, probity and good sense
Confirmation of Award and accordingly, entered judgment in the parties in conflict reposed full trust. Thus, in Republican
Rome, arbiter and judge (judex) were synonymous. The That there was a growing need for a law regulating arbitration
magistrate or praetor, after noting down the conflicting claims in general was acknowledged when Republic Act No. 876
of litigants, and clarifying the issues, referred them for decision (1953), otherwise known as the Arbitration Law, was passed.
to a private person designated by the parties, by common "Said Act was obviously adopted to
agreement, or selected by them from an apposite listing supplement — not to supplant — the New Civil Code on
(the album judicium) or else by having the arbiter chosen by lot. arbitration. It expressly declares that "the provisions of
The judges proper, as specially trained state officials endowed chapters one and two, Title XIV, Book IV of the Civil Code shall
with own power and jurisdiction, and taking cognizance of remain in force." 11
litigations from beginning to end, only appeared under the
In recognition of the pressing need for an arbitral machinery for
Empire, by the so-called cognitio extra ordinem." 5
the early and expeditious settlement of disputes in the
Such means of referring a dispute to a third party has also long construction industry, a Construction Industry Arbitration
been an accepted alternative to litigation at common law. 6 Commission (CIAC) was created by Executive Order No. 1008,
enacted on February 4, 1985.
Sparse though the law and jurisprudence may be on the subject
of arbitration in the Philippines, it was nonetheless recognized In practice nowadays, absent an agreement of the parties to
in the Spanish Civil Code; specifically, the provisions on resolve their disputes via a particular mode, it is the regular
compromises made applicable to arbitrations under Articles courts that remain the fora to resolve such matters. However,
1820 and 1821.7 Although said provisions were repealed by the parties may opt for recourse to third parties, exercising
implication with the repeal of the Spanish Law of Civil their basic freedom to "establish such stipulation, clauses,
Procedure, 8 these and additional ones were reinstated in the terms and conditions as they may deem convenient, provided
present Civil Code. 9 they are not contrary to law, morals, good customs, public
order or public policy." 12 In such a case, resort to the
Arbitration found a fertile field in the resolution of labor-
arbitration process may be spelled out by them in a contract in
management disputes in the Philippines. Although early on,
anticipation of disputes that may arise between them. Or this
Commonwealth Act 103 (1936) provided for compulsory
may be stipulated in a submission agreement when they are
arbitration as the state policy to be administered by the Court
actually confronted by a dispute. Whatever be the case, such
of Industrial Relations, in time such a modality gave way to
recourse to an extrajudicial means of settlement is not
voluntary arbitration. While not completely supplanting
intended to completely deprive the courts of jurisdiction. In
compulsory arbitration which until today is practiced by
fact, the early cases on arbitration carefully spelled out the
government officials, the Industrial Peace Act which was passed
prevailing doctrine at the time, thus: ". . . a clause in a contract
in 1953 as Republic Act No. 875, favored the policy of free
providing that all matters in dispute between the parties shall
collective bargaining, in general, and resort to grievance
be referred to arbitrators and to them alone is contrary to
procedure, in particular, as the preferred mode of settling
public policy and cannot oust the courts of Jurisdiction." 13
disputes in industry. It was accepted and enunciated more
explicitly in the Labor Code, which was passed on November 1, But certainly, the stipulation to refer all future disputes to an
1974 as Presidential Decree No. 442, with the amendments arbitrator or to submit an ongoing dispute to one is valid. Being
later introduced by Republic Act No. 6715 (1989). part of a contract between the parties, it is binding and
enforceable in court in case one of them neglects, fails or
Whether utilized in business transactions or in employer-
refuses to arbitrate. Going a step further, in the event that they
employee relations, arbitration was gaining wide acceptance. A
declare their intention to refer their differences to arbitration
consensual process, it was preferred to orders imposed by
first before taking court action, this constitutes a condition
government upon the disputants. Moreover, court litigations
precedent, such that where a suit has been instituted
tended to be time-consuming, costly, and inflexible due to their
prematurely, the court shall suspend the same and the parties
scrupulous observance of the due process of law doctrine and
shall be directed forthwith to proceed to arbitration. 14
their strict adherence to rules of evidence.
A court action may likewise be proven where the arbitrator has
As early as the 1920's, this Court declared:
not been selected by the parties. 15
In the Philippines fortunately, the attitude of the courts toward
Under present law, may the parties who agree to submit their
arbitration agreements is slowly crystallizing into definite and
disputes to arbitration further provide that the arbitrators'
workable form. . . . The rule now is that unless the agreement
award shall be final, unappealable and executory?
is such as absolutely to close the doors of the courts against the
parties, which agreement would be void, the courts will look Article 2044 of the Civil Code recognizes the validity of such
with favor upon such amicable arrangements and will only with stipulation, thus:
great reluctance interfere to anticipate or nullify the action of
the arbitrator. 10
Any stipulation that the arbitrators' award or decision shall be review of the facts found nor even of the law as interpreted or
final is valid, without prejudice to Articles 2038, 2039 and 2040. applied by the arbitrator unless the supposed errors of fact or
of law are so patent and gross and prejudicial as to amount to
Similarly, the Construction Industry Arbitration Law provides
a grave abuse of discretion or an exces de pouvoir on the part
that the arbitral award "shall be final and inappealable except
of the arbitrator." 21
on questions of law which shall be appealable to the Supreme
Court." 16 Even decisions of administrative agencies which are declared
"final" by law are not exempt from judicial review when so
Under the original Labor Code, voluntary arbitration awards or
warranted. Thus, in the case of Oceanic Bic Division (FFW), et
decisions were final, unappealable and executory. "However,
al. v. Flerida Ruth P. Romero, et al., 22 this Court had occasion to
voluntary arbitration awards or decisions on money claims,
rule that:
involving an amount exceeding One Hundred Thousand Pesos
(P100,000.00) or forty-percent (40%) of the paid-up capital of . . . Inspite of statutory provisions making "final" the decisions
the respondent employer, whichever is lower, maybe appealed of certain administrative agencies, we have taken cognizance of
to the National Labor Relations Commission on any of the petitions questioning these decisions where want of jurisdiction,
following grounds: (a) abuse of discretion; and (b) gross grave abuse of discretion, violation of due process, denial of
incompetence." 17 It is to be noted that the appeal in the substantial justice or erroneous interpretation of the lawwere
instances cited were to be made to the National Labor Relations brought to our attention . . . 23 (Emphasis ours).
Commission and not to the courts.
It should be stressed, too, that voluntary arbitrators, by the
With the subsequent deletion of the above-cited provision nature of their functions, act in a quasi-judicial capacity. 24 It
from the Labor Code, the voluntary arbitrator is now mandated stands to reason, therefore, that their decisions should not be
to render an award or decision within twenty (20) calendar days beyond the scope of the power of judicial review of this Court.
from the date of submission of the dispute and such decision
In the case at bar, petitioners assailed the arbitral award on the
shall be final and executory after ten (10) calendar days from
following grounds, most of which allege error on the part of the
receipt of the copy of the award or decision by the parties. 18
arbitrator in granting compensation for various items which
Where the parties agree that the decision of the arbitrator shall apparently are disputed by said petitioners:
be final and unappealable as in the instant case, the pivotal
1. The Honorable Arbitrator committed grave error in failing to
inquiry is whether subject arbitration award is indeed beyond
apply the terms and conditions of the Construction Agreement,
the ambit of the court's power of judicial review.
Dormitory Contract and Electrical Contract, and in using instead
We rule in the negative. It is stated explicitly under Art. 2044 of the "practices" in the construction industry;
the Civil Code that the finality of the arbitrators' award is not
2. The Honorable Arbitrator committed grave error in granting
absolute and without exceptions. Where the conditions
extra compensation to Roblecor for loss of productivity due to
described in Articles 2038, 2039 and 2040 applicable to both
adverse weather conditions;
compromises and arbitrations are obtaining, the arbitrators'
award may be annulled or rescinded. 19 Additionally, under 3. The Honorable Arbitrator committed grave error in granting
Sections 24 and 25 of the Arbitration Law, there are grounds for extra compensation to Roblecor for loss due to delayed
vacating, modifying or rescinding an arbitrator's award. 20 Thus, payment of progress billings;
if and when the factual circumstances referred to in the above-
cited provisions are present, judicial review of the award is 4. The Honorable Arbitrator committed grave error in granting
properly warranted. extra compensation to Roblecor for loss of productivity due to
the cement crisis;
What if courts refuse or neglect to inquire into the factual
milieu of an arbitrator's award to determine whether it is in 5. The Honorable Arbitrator committed grave error in granting
accordance with law or within the scope of his authority? How extra compensation to Roblecor for losses allegedly sustained
may the power of judicial review be invoked? on account of the failed coup d'état;

This is where the proper remedy is certiorari under Rule 65 of 6. The Honorable Arbitrator committed grave error in granting
the Revised Rules of Court. It is to be borne in mind, however, to Roblecor the amount representing the alleged unpaid billings
that this action will lie only where a grave abuse of discretion of Chung Fu;
or an act without or in excess of jurisdiction on the part of the
7. The Honorable Arbitrator committed grave error in granting
voluntary arbitrator is clearly shown. For "the writ
to Roblecor the amount representing the alleged extended
of certiorari is an extra-ordinary remedy and that certiorari
overhead expenses;
jurisdiction is not to be equated with appellate jurisdiction. In a
special civil action of certiorari, the Court will not engage in a
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

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

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.