[ G. R No. 3567, August 20, 1907 ] KAY B. CHANG ET AL., PLAINTIFFS AND APPELLEES, VS.

ROYAL EXCHANGE ASSURANCE CORPORATION OF LONDON, DEFENDANT AND APPELLANT. DECISION WILLARD, J.: The arbitration clause in the fire policy in question in this case is in part as follows: "If a disagreement should at any time arise between the corporation and the assured * * * in 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." The conditions contained in this clause of the policy are valid, and no action can be maintained by the assured unless an award has been made or sought, or unless the company has denied liability on some of the grounds stated therein. (Hamilton vs. 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 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 interviews 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 . "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.' 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 bad 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 Phoenix Insurance Company vs. Stocks (149 111., 319) the company wrote two letters to the insured, in the first of which they said: "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."

In the other letter the company said: "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." 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],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. vs, 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. 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 the 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 on 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.

DISSENTING

ARELLANO, C. J.: 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: "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 fire shall be made by experts in the manner established in the policy, * * * " and to article 407, according to which "The experts shall decide: "(1) The causes 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 "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 on personal property, factories, or stores, requires, as its "First and essential condition, the existence 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 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," etc. The compliance with this special provision is compulsory under article 1255 of the Civil Code. The insured might he 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 construction 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." 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 the 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 paragraphs 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. 12283, July 25, 1918 ] ARTHUR F. ALLEN, PLAINTIFF AND APPELLEE, VS. THE PROVINCE OF TAYABAS, DEFENDANT AND APPELLANT. DECISION 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 ^9,685 (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, 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 was 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 issud 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 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 sections 1917-1923 of the Administrative Code of 1917. The law gives a district engineer supervision over all contracts connected with public works, which exceed the estimated cost of 1*500. 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 fact, 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 this 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 covenants 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 small 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 nonacceptance, 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 is 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 part 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 Manufg 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 a 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 made substantial performance. Of course the terms of the contract may be such that the contractor has agreed that 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], 114 Fed., 547.) 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 acknowledgement 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 Courts [1905], 200 U. S., 611.) Other circumstances, as partial payment, also show acquiescence on the part of the 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 a species of arbitration, 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 to annul laws or agreements which seek to oust the courts 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 arrangements 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 distinct 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 principleswe 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. 53.3, 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 fulfilment of the condition or a legal excuse for its nonfulfilment. 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 Jegal 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.

Republic of the Philippines SUPREME COURT Manila EN BANC 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.

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, Avancea, Villamor and Romualdez, JJ., concur. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-9090 September 10, 1957

EASTBOARD NAVIGATION, LTD., plaintiff-appellant, vs. JUAN YSMAEL and COMPANY, INC., defendant-appellant. Ross, Selph, Carrascoso & Janda and Delfin L. Gonzales for the plaintiff and appellant. Claro M. Recto for the defendant and appellant.

BAUTISTA ANGELO, J.: This is an appeal from a decision of the Court of First Instance of Manila ordering defendant to pay to plaintiff the sum of $53,037.89 as awarded by board of arbitrators on June 20, 1950 and confirmed by the District Court of New York, U.S.A. on August 15, 1950, with the legal interest thereon from December 5, 1950 until its payment, and the costs of suit. The facts involved in this case which are necessary to be considered in this appeal are stated by the trial court in its decision which we find to be substantially correct. They are: "On July 25, 1949, Atkins, Kroll & Co., Inc., Manila, wrote defendant Juan Ysmael & Co., Inc., (letter of Toronto, Canada, owners of the S/S Eastwater, 'have accepted your terms of payment and are agreed to charter the S/S Eastwater to Juan Ysmael & Co., Inc., Manila, (to load cargo of scrap iron in the Philippines for Buenos Aires)under the following terms and conditions: . . (10) Clause Paramount: Terms and conditions for this Charter Party not explicitly or otherwise stated in this letter of confirmation are to be as per general conditions of regular Charter Party form. Will you kindly signify confirmation of the above terms by signing the original and four copies of this letter? A formal copy of the Charter Party document will be forwarded to you within a few days. Atkins, Kroll & Co., Inc., Manila, acting solely as agents for and in behalf of the owners of the S/S Eastwater by cable or letter to all parties concerned and that the cargo will go forward as scheduled in a satisfactory manner,' Defendant signed said letter thus, 'For Charter Party: Juan Ysmael & Co., Inc., K. H. Hemady, President.' On the same date, July 25, 1949, charter party agreement (Exhibit A) was executed containing, besides the regular charter party printed from a typewritten clause reading: 'Clauses Nos. 16 to 31 inclusive and U.S.A. Clause Paramount, war Risks Clauses 1 and 2, Now Jason Clause and Both-to-Blame Collision Clauses, as attached, to be considered as fully incorporated herein and to form part of this Charter Party.' Clause No. 29 reads as follows: "It is mutually agreed that should any dispute arise between Owners and Charterers, the matter in dispute shall be referred to three persons at New York for arbitration, one to be appointed by each of the parties hereto, and the third by the two so chosen; their decision or that of any two of them, shall be final, and for the purpose of enforcing any award, this agreement may be made a rule of the Court. The arbitrators shall be commercial men. should the two so chosen not be able to agree who the third arbitrator should be, then the New York Produce Exchange is to appoint such third arbiter, The amount in dispute shall be placed in escrow at New York subject to the decision of the arbitrators." On September 8, 1949, Atkins, Kroll & Co., Inc., Manila again wrote defendant company as follows (letter Exhibit 3): "We are today in receipt of the following cable instructions from our principals the Eastboard Navigation Ltd., regarding the release of your scrap iron loaded at Manila; 'Re Yours sixth release bladings against full payment of freight and by Irving Trust New York fifteen thousand dollars covering possible demurrage to be settled in accordance with the ruling of arbitration board New York please have Ysmael immediately their arbitrator' "In order to facilitate your negotiations of your document with the Bank of America we shall appreciate very much your putting up a guarantee by Irving Trust New York for the sum of US $15,000.00 and to nominate the name of your arbitrator immediately." On October 1, 1949, the Bank of America, Manila Office wrote defendant company (letter Exhibit 3-A) as follows:

"In accordance with verbal instructions of your President, Mr. K. H. Hemady your draft for $76,354.55 and attached documents were airmailed this morning to the above bank together with the relative bills of lading which were surrendered to us by Atkins Kroll & Co., Inc., for account and by order of Eastboard Navigation, Ltd. of Toronto. "The documents, which were sent for collection, covered the third and last under the assignment made to you by Mr. Hector Corvera under the terms of the subject credit and cover:"1wphl.nt xxx xxx xxx

'Deposit account Demurrage under Arbitration - $15,000.1wphl.nt xxx xxx xxx

"We have requested the Irving Trust Company to advise us by cable when the above amounts have been paid. In the event of non-payment, we have requested that they deliver the bills of lading to the Eastboard Navigation Ltd., under advice. "We expect to be able to report to you on the above-described collection sometime next week." On December 3, 1949, defendant Company wrote the Bank of America (Manila)(letter Exhibit 3-B) as follows: "Please transmit by telegraphic transfer to Irving Trust Company, New York, the amount of Ten Thousand Dollars ($10,000), for the account of Eastboard Navigation Ltd., Toronto, Canada, to be held as deposit for demurrage due the SS Eastwater, together with the $15,000 previously remitted to them. The amount shall be held pending result of the arbitration of the dispute between this Company and Eastboard Navigation." The dispute mentioned in its preceding letter having arisen, under date of April 5, 1950, the defendant cabled Attys. Manning, Harnish and Holinger of New York City as follows: 'Through recommendation of Mr. Morris Lipsett we request you kindly present our case before Arbitration Board re charter vessel S/S Eastwater Writing" (Exhibit 2). And in its letter Exhibit 2-B of the same date to said attorneys, defendant confirmed its request as follows: "Our good friend, Mr. Morris E. Lipsett Pacific Corporation, 80 Wall Street New York, has highly recommended your law firm to us to present our case to arbitration in a case we have with the Eastboard Navigation Co., Inc., in connection with our charter of their vessel the S/S Eastwater. May we, therefore, request you to act as such attorney for us, and you may bill us accordingly for your services in matter. "We have already spent a considerable sum of this case, not to mention the inconvenience it has caused us, and we are most anxious to the matter be terminated as soon as possible. "Pertinent papers and documents regarding the matter have been turned over to Mr. Lipsett, and we have requested him to turn those over to you for your purposes. Should you, however, need further information regarding the matters, or should you need our assistance at this end, please fee to ask us."

On May 23, 1959, Messrs, Manning, Harnisch, and Holinger, acting as attorneys for defendant Juan Ismael & Co., Inc., executed for plaintiff Eastboard Navigation Ltd., arbitration agreement (Exhibit B) which reads: "We, the undersigned, hereby mutually covenant and agree to submit, and hereby do submit to Charles L. Lambert, Richard Nathan and Donald E. Simmons, as Arbitrators, for their adjudication and award, a controversy existing between us relating to the liability if any, of the undersigned, Juan Ysmael & Co., Inc., charterers to the undersigned, Eastboard Navigation, Ltd., owners of the S/S Eastwater , for demurrage, discharging expenses, wharfage, extra meals agency fees, crew overtime and miscellaneous expenses under charter party of the S/S Eastwater dated July 25th, 1949. "And we mutually covenant and promise that the award to be made by said Arbitrators or by a majority of them, shall be well and faithfully kept and observed by us, and by each of us. "And it is hereby further mutually agreed that a judgment the United States District Court for the Southern District of New York shall be rendered upon the award made pursuant to this submission.1wphl.nt "WITNESS, our hands this 23rd day of May, 1950."1wphl.nt Pursuant to said arbitration agreement, the three arbitrators in New York City passed upon the difference between the plaintiff and the defendant after having heard and received evidence submitted by both sides,' ands rendered their arbitration decision (Exhibit C). This arbitration decision was presented by plaintiff to the U.S District Court, Southern District of New York, for confirmation, (Admiralty No. A165-362) and said Court confirmed the said arbitration decision in its Order and Final Decree of August 15, 1950, (Exhibit D) ordering that the aforesaid award of arbitrators be and the same hereby is in all respects confirmed', and "that the said movant, Eastboard Navigation, Ltd., recover of and from the said respondent Juan Ysmael & Company, Inc., the sum of $53,037.89, with interest thereon from the 20th day of June, 1950, amounting to $488.24, together the movant's cost taxed in the sum of $40.00 and amounting in all to the sum of $53,566.13 with interest thereon until paid.' Plaintiff brought this action to enforce the aforesaid "Order and Final Decree" pursuant to Section 48, Rule 39 of the Rules of Court which, among others, provides "In case of a judgment is presumptive evidence of a right as between the parties and their successors in interest by a subsequent title; but the judgment may be repelled by evidence of a want of jurisdiction, want of notice to the party, collusion, fraud or clear mistake of law or fact." Defendant, in its answer, set up the defense that said judgment cannot been forced in this jurisdiction because. (a) when the New York District Court acted on the case it did not have jurisdiction over the person of defendant; and (b) the proceeding where said judgment was rendered was summary, there was no trial on the merits and defendant did not give its consent thereto. Defendant contends that judgment does come with the purview of Section 48, of the Rules of Court. During the hearing, the parties agreed as to the following facts. That defendant is a corporation the stock of which is held as follows: Magdalena Hemady, 8,459 shares; K. H. Hemady, 6,939 shares; Felipe Ysmael, 770 shares; Carlos Komel Ysmael, 830 shares; Juan Ysmael y Cortes, 1 share; and Gabriel Ysmael, 1 share or a total

of 17,000 shares; that plaintiff, during that time material to this case, was not licensed to transact business in the Philippines; that this is the first business transaction made locally by plaintiff although previously plaintiff's vessel was chartered by the National Rice and Corn Corporation to carry rice Cargo to the Philippines, the charter party thereto being dated April 5, 1949; that the charter party Exhibit A is on approved by the Documentary Council of the Baltic and White Sea Conference and that one of its standard stipulation is a clause regarding arbitration: that K. H. Hemady, now deceased, as president and general manager of defendant, for 25, years had entered into numerous other contracts with third parties in representation of defendant all of which where ratified by its Board of Directors; that one of the arbitrators Richard Nathan was appointed by defendant corporation, another one Donald E. Simmons was appointed by plaintiff, and these two appointed a third one Charles P. Lambert; and that the defense that K. H. Hemady was not authorized by the Board of Directors of defendant corporation to enter into the arbitration agreement was raised for the first time in these proceedings, which means that it was not raised in the arbitration proceedings in New York, nor in the proceedings held to confirm the award in the U.S. District Court of the Southern District of New York. In addition this stipulation of facts, plaintiff and defendant submitted documentary evidence. The lower court rendered judgment affirming the decree of the New York District Court and ordering that it be enforced from which defendant appealed. Plaintiff likewise appealed but only on the score that the court did not declare defendant liable for the amount of the foreign exchange tax due on the judgment and for the fees it agreed to pay to its counsel for this litigation. We will discuss separately the issues involved in this joint appeal. It is plaintiff-appellant's contention that, if the decision of the lower court is affirmed, it will have to pay the foreign exchange tax on the amount awarded therein if the same is to be remitted to its home office at Ontario, Canada; that it should have been exempted from said tax had defendant paid the award immediately after it had been confirmed by the U.S. New York District Court because at that time Republic Act No. 601 had not yet been acted; and that because defendant's undue refusal to pay the same which gave risk to said tax liability, plaintiff will have to shoulder the same. This is a loss which defendant shall pay, plaintiff contends, under Article 1107 of the Old Civil Code. In the first place, there is no clear proof on record that defendant's refusal to pay the award is due to fraud or bad faith. Plaintiff failed to present any evidence in this regard. On the contrary, the stand of defendant does not seem to be entirely groundless as evidence by the several defenses it set up in its answer which give a clear perspective of the reasons why it declined to pay the award which plaintiff demands. In the second place, it would appear that, if there is any agreement to pay the instant obligation in a currency other than the Philippine currency, the same is null policy (Republic Act No. 529), and the most it could be demanded is to pay said obligation in Philippine currency to be measured in the prevailing rate of exchange at the time the obligation was incurred (section 1, Idem.) Finally in as much as the decree of New York District Court which now sought to be enforced does not specify the place where the obligation should be paid, the judgment debtor, herein defendant, may discharge the same here in Manila which is its domicile. We find therefore no valid reason for upholding the claim that defendant, should it be ordered to pay the award, pay the foreign exchange tax required by law at the time the obligation fell due. At any rate, this question would appear now to be moot for the reason that said tax has already been abolished (Republic Act No. 1394). The next issue raised by plaintiff-appellant refers to the failure of the lower court to award to it the fees which agreed to pay to its counsel in connection with the present litigation under Article 2208, sub-paragraph 5, of the new Civil Code. The alleged sub-paragraph allows a winning party to recover attorney's fees "where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff's plainly valid, just and demandable claim." From this it would appear that to the entitle plaintiff to Attorney's fee on this ground, it is necessary that it be proven that defendant acted "in gross and evident bad faith" in refusing plaintiff's claim.

Since, as we have already stated, plaintiff did not present any evidence on this point, the lower court did not err in denying plaintiff's claim on this score. Coming now to the appeal of defendant, we may restate the main issues raised in its assignment of errors as follows: (a) whether or not defendant agreed to submit to compulsory arbitration its dispute with plaintiff in the charter party agreement executed between them, and, in the affirmative, whether such agreement is valid in the jurisdiction; (b) whether or not the arbitration agreement Exhibit B, is binding on defendant and, in the affirmative, whether or not the arbitration proceedings as well as the arbitrators' decision, are valid and binding on defendant; (c) whether or not, on the assumption that said proceedings and decisions are valid, the decree of the U.S. District Court, Southern District of New York, sitting as Admiralty Court, is valid and enforceable in this jurisdiction; and (d) whether or not plaintiff, being a foreign corporation without license to transact business in the Philippines, has capacity to sue in this jurisdiction. (a) it should be recalled that as a confirmation of the correspondence had between plaintiff's agents in the Philippines and defendant, prescribed by its President K. H. Hemady, the former sent a letter advising the letter that plaintiff had accepted its offer to charter plaintiff's vessel S/S Eastwater to load cargo of scrap iron in the Philippines for Buenos Aires under certain terms and conditions therein enumerated (Exhibit 1). In this letter it is stated that the terms and conditions for this charter of confirmation are to be as per general conditions of regular charter party form", a formal copy of which would be forwarded to defendant. This was done, and the form above referred to is Exhibit A which was duly signed by plaintiff, through its president, and by defendant, through its president and general manager, K. H. Hemady. This document is in printed in form with the blanks properly filled out, at the bottom of which appears a typewritten clause which states, "Clauses Nos. 16 to 31 inclusive and U. S. A. Clause Paramount, War Risks Clauses 1 and 2, Now Jason Clause and Bothto-Blame Collision Clauses, as attached, to be considered as fully incorporated herein and to form part of this Charter Party." (Emphasis supplied) Both the printed form and the typewritten sheet containing Clauses Nos. 16 to 31 inclusive, were signed by the contracting parties. Clause 29 in the typewritten form refers to the arbitration agreement, and reads as follows: 29. It is mutually agreed that should any dispute arise between Owners and the Charterers, the matter in dispute shall be referred to three persons at New York for arbitration, one to be appointed by each of the parties hereto, and the third by the two so chosen; their decision or that of any two of them shall be final, and for the purpose of enforcing any award, this agreement may be a rule of the Court. The Arbitrators shall be commercial men. Should the two so chosen not be able to agree who the third Arbitrator should be, then the New York Produce Exchange is to appoint such third Arbiter. The amount in dispute shall be placed in escrow New York, subject to the decision of the arbitrators.1wphl.nt It is now contended that while K. H. Hemady had signed Exhibit A which contains a typewritten clause at the end of the document, as well as the typewritten sheets attached thereto, wherein is embodied Clause 29 which refers to the arbitration agreement, the fact however is that Hemady signed said papers without reading the same and solely on the assumption that they merely formalized the terms and conditions already agreed upon in the letter of confirmation Exhibit 1. It is emphasized that Hemady never intended to submit any dispute that may arise out of its charter party to compulsory arbitration, much less to recognize the findings or award of the arbitrators that may be appointed by the parties as final and not subject to review by our courts. It is further contended that Hemady signed the document Exhibit A that the same would merely with its "general conditions" the terms and conditions stated in the letter of confirmation Exhibit 1, and the typewritten clause attached to the document Exhibit A, specially that which provides for foreign arbitration, refers to special conditions which were not intended by the parties nor included in the preliminary negotiation conducted between them. This stand of Hemady corroborated by the fact that when he received from his

lawyers the arbitration agreement Exhibit B, he refused to sign it because it was never dispute with plaintiff to compulsory arbitration. There are many circumstances on record which discredit this claim Of defendant-appellant. To begin with, it appears that the charter party agreement Exhibit A is one the original of which was approved by the Documentary Council of the Baltic Whit Sea Conference in 1922 and one of its standard clauses is the arbitration clause and as much as the latter, though in typewritten form, is considered as integral part of the agreement. This fact was admitted by defendant's counsel. In the second place, Hemady as it would appear, signed not only the printed portion of the charter party agreement, but the typewritten portions as well, which contains the arbitration clause, and it cannot be believed that a businessman of long experience as he was, would affix his signature to the document involving a very important transaction without knowing its contents and would do only on the assumption that it contained mere formalized statements of the terms and conditions of the letter of confirmation Exhibit 1. Moreover, if Hemady did not intend to submit his dispute with plaintiff to arbitration Messrs. Manning, Harnisch and Holinger as lawyer to represent defendant corporation in the arbitration proceedings to be held in New York? (Exhibits 2 and 2-B) Why did he instruct the Bank of America on two different occasions to transmit to the Irving Trust Company of New York the total sum of $25,000 to be "held pending result of the arbitration of the dispute between this company (Ysmael) and Eastboard Navigation, Ltd.?" (Exhibit 3-B) If defendant corporation did not really intend to submit its dispute with the plaintiff to arbitration the logical step it should have taken would be to repudiate the act of its President Hemady, but far from doing so, it approved and ratified it by subsequent that it was agreeable to said arbitration. b) The claim that the arbitration proceedings conducted in New York as well as the award of the arbitrators cannot bind defendant corporation for the reason that the same were without its authority or contrary to its instructions is also untenable. It is true that when defendant's counsel sent the document Exhibit B to its President K. H. Hemady for his signature, the latter returned it but that defendant's counsel nevertheless signed the document in behalf of defendant and submitted it to the Board of Arbitrators, and this act is now alleged as one would indicate that defendant did not agree to submit the dispute to arbitrations. But there is one circumstance which justifies the action taken by defendants counsel in New York. Note that said document Exhibit B is mistakenly termed "arbitration agreement", for it is not so. A perusal thereof would show that it is a mere agreement to submit the dispute to the arbitrators for arbitration and award. Such is necessary for there could be no valid arbitration and award if the arbitrators would not know what to arbitrate and decide. The arbitration agreement is Clause 29 of the charter Party Exhibit A. The fact that Hemady returned said document Exhibit B is of no significance for such is previously given by defendant to its counsel Messrs. Manning, Harnisch and Holinger "to present our case to the arbitrators in a case we have the Eastboard Navigation Co., Ltd., in connection with our charter of their vessel the S/S Eastwater." contained in its letter dated April 5, 1950 (Exhibit 2-B). The signing of said document Exhibit B by defendant's counsel is therefore perfectly within the scope of the authority given them by defendant corporation. But defendant insists that the decision of the arbitrators is not binding upon it because (1) none of the arbitrators who acted thereon in accordance with the arbitration agreement had been appointed by defendant, and (2) even if the appointment of Attys. Manning, Harnisch and Holinger to represent defendant before the arbitration boar would be considered as an authority to submit their dispute to arbitration board is nevertheless void because it was not in accordance with the condition of said submission that the arbitrators consider only claims or awards not in excess of $25,000. The claim that none of the three arbitrators who acted on the dispute was appointed by defendant, or under its authority, is untenable, for the same is disproved by the evidence. Thus during the trial of this case and parties agreed say to certain facts which appear to be not disputed among them being that one of the

arbitrators who acted in New York on the case, Richard Nathan, was appointed by authority of defendant corporation, and his appears to be supported by the decision of the New York District Court. Thus, in said decision it appears that when the case was called for hearing both parties were represented by counsel who submitted documentary evidence among which (1) copy of the authorization signed by the defendant corporation empowering one Morris E, Lipsett to appoint a substitute arbitrator in its behalf, (2) copy of a letter of said Morris E. Lipsett designating Richard Nathan as arbitrator, and (3) copy of the letter of Richard Nathan accepting his appointment as arbitrator (Exhibit D). Note that Mr. Morris E. Lipsett is the same person who, according to K. H. Hemady, recommended Messrs. Manning, Harnisch and Holinger to be his lawyers in the arbitration casein New York and that because he was his good friend Hemady accepted his recommendation (Exhibit 2-B). On the strength of this evidence, we cannot therefore take seriously that contention that the person, Richard Nathan, who acted as arbitrator in behalf of respondent, did so without the authority of the latter. Of course, defendant now contends that the decision of the arbitrators can have no binding effect on it because it was rendered without first obtaining its written conformity of approval, or without its lawyer having first submitted to the matter to it for consultation, in accordance with the instruction it has given in its letter dated April 20, 1950 (Exhibit 2-C), but certainly, such instruction, if any, is preposterous under the circumstances, for to allow that to prevail would be to defeat the very purpose of the arbitration. The proceeding would be purposeless for no award can be obtained if the same should be made dependent upon the instruction or approval of any of the parties. The contention that defendant corporation has limited its agreement to arbitrate to an amount not exceeding $25,000 cannot also be sustained. Such claims is not borne out by the evidence for neither the cable nor the letter which defendant sent to its lawyers in New York contains any statement limiting their authority to represent it to disputes not exceeding $25,000. In other words, there is no evidence whatsoever in the record showing that Mr. Hemady understood, or was made to understand, that the arbitration proceeding "would be conducted solely for the purpose of friendly adjustment of disputes limited to and not exceeding the amount of $25,000." Moreover, the aforesaid deposit merely represents an estimate of the amounts that may accrue to plaintiff for demurrage pursuant to the charter agreement while the vessel was in transit from Manila to Buenos Aires and does not include any additional demurrage that may be incurred while the vessel is docked in Buenos Aires waiting for the unloading of the cargo. To sustain defendant's contention would be to defeat the purpose of the arbitration which is to settle all disputes that may arise out of the contract in connection with the voyage. It cannot therefore be pretended that the arbitrators acted beyond the scope of their authority. As a corollary to the question regarding to the existence of an arbitration agreement, defendant raises the issue that, even if it be granted that it agreed to submit its dispute with plaintiff to arbitration, said agreement is void and without effect for it amounts of removing said dispute from the jurisdiction of the courts in which the parties are domiciled or where the dispute occurred. It is true that there are authorities which hold that "a clause in contract providing that all maters 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" (Manila Electric Co. vs. Pasay Transportation Co., 57 Phil., 600, 603), however, there are authorities which favor "the more intelligent view that arbitration, as an expensive, speedy and amicable method of settling disputes, and as a means of avoiding litigation, should receive every encouragement from the courts which may be extended without contravening sound public policy or settled law"(3 Am. Jur., p. 835). Congress has officially adopted the modern view when it reproduced in the new Civil Code the provisions of the old Code on Arbitration. And only recently it approved republic Act No. 876 expressly authorizing arbitration of future disputes. Thus section 2 of said Act provides:

SEC. 2. Persons and matters subject to arbitration. Two or more Persons or Parties may submit to the arbitration of one or more arbitrators any controversy existing between them at the time of the submission and which may be the subject of an action, or the parties to any contract may in such contract agree to settle by arbitration a controversy thereafter arising between them. Such submission or contract shall be valid, enforceable and irrevocable, save upon such grounds as exist at law for the revocation of any contract.". Considering this declared policy of Congress in favor of arbitration of all kinds of arbitration of all kinds of disputes, and the fact that, according to the explanatory note of Republic Act No. 876, "to afford the public a cheap and expeditious procedure of setting not only commercial but other kinds of controversies most of the states of the American Union have adopted statutes providing for arbitration, and American businessman are reported to have enthusiastically accepted the innovation of its obvious advantages over the ordinary court procedure", we find no plausible reason for holding that the arbitration agreement in question, simply because it refers to a future dispute, is null and void as being against public policy. (Emphasis supplied.) (c) It is contended that the decision rendered by the U. S. District Court of New York sitting as an Admiralty Court, which ratified the award made by the arbitrators, has no binding effect on defendant corporation, nor can it be enforced in this jurisdiction, for the reason that when said court acted on the case it did not acquire jurisdiction over said defendant. And this claim is predicated on the alleged fact that defendant was never served with notice, summons, or process relative to the submission of the award of the arbitrators to said court, invoking in support of this contention the U. S. Arbitration Act of February 12, 1925 under which the New York District Court confirmed the arbitrators' award. But we find that the law thus invoked does not sustain defendant's pretense, for the same, in case of a non-resident, does not necessarily require that service of notice of the application for confirmation be made on the adverse party himself, it being sufficient that it be made upon his attorney (July 30, 1947, c. 392, section 1, 61 Stat. 669, p. 4 Exhibit E). This is precisely what was done in this case. Copy of the notice of submission of the award to the District Court of New York was served upon defendant's counsel who in due time of appearance and actually appeared when the case was heard. This is clearly stated in the decision of said Court (Exhibit D). It is significant that respondent's counsel never impugned the jurisdiction of the defendant nor did ever plead before it that they were bereft of authority to represent defendant. Defendant cannot therefore in this instance defeat the effect of this decision by alleging want of jurisdiction, or want of notice, as provided for in section 48, Rule 39 of our Rules of Court. (d) While plaintiff is a foreign corporation without license to transact business in the Philippines, it does not follow that it has no capacity to bring the present action. Such license is not necessary because it is in business in the Philippines. In fact, the transaction herein involved is the first business undertaken by plaintiff in the Philippines, although on a previous occasion plaintiff's vessel was chartered by the National Rice and Corn Corporation to carry rice cargo from abroad to the Philippines. These two isolated transactions do not constitute engaging in business in the Philippines within the purview of Sections 68 and 69 of the Corporation Law so as to bar plaintiff from seeking redress in our courts. (Marshall-Wells Co. vs. Henry W. Elser & Co. 49 Phil., 70; Pacific Vegetable Oil Corporation vs. Angel 0. Singson, G. R. No. L-7917, April 29, 1955.)1wphl.nt Wherefore, the decision appealed from its affirmed, without pronouncement as to costs. 1wphl.nt Bengzon, Paras, C.J., Padilla, Montemayor, Reyes, A., Labrador, Concepcion, Reyes, J.B.L., Endencia and Felix, JJ., concur.