Wahl v Donaldson (1903) – Cooper, J.

Plaintiff: Rudolph Wahl, Jr., Dr. Kurt Wahl

Defendant: Donaldson, Sims, & Co.
Concept: Arbitration clause

Brief facts:
A contract was entered into between Wahl and Donaldson for the purpose of lease of a
ship and a stipulation in said contract provides that conflicts shall be submitted before
arbitrators in HK. A complaint for sum of money was filed before the CFI. CFI first
decided in favor of Wahl, but upon application, the judgment by default was set aside.
The CFI in granting such motion to set aside judgment, upheld the validity of the
arbitration clause. The SC however reversed the CFI and declared the clause contrary to
public policy.
Doctrine:A condition in a contract that disputes arising out of it shall be referred to
arbitration is good where the amount of damages sustained by a breach of the contract
is to be ascertained by specified arbitration before any right of action arises, but that it is
illegal where all the matters in dispute of whatever sort may be referred to arbitrators
and to them alone. In the first case a condition precedent to the accrual of a right of
action is imposed, while in the second it is attempted to prevent any right of action
accruing at all, and this can not be permitted.

Facts:
 Wahl and Donaldson entered into a contract by which Wahl leased to the
defendants a certain ship called Petrarch for the term of 6 months
 Wahl then claimed that Donaldosn is still indebted to them (Wahl) a balance of $
25, 484.38 with interest. Wahl then insituted a suit on 4th day of March, 1902
 Donaldson failed to answer the complaint. Consequently, a judgment by default
was rendered in favor of Wahl wherein Donaldson was asked to pay Wahl the
sum of $17, 892.81 18th day of April, 1902
 After almost 2 months, Donaldson made an application to the CFI for a new trial
which was granted and eventually set aside the judgment by default.
 After the grant of motion for new trial, a demurrer was made by Donaldson to
the complaint which presented the question of the competency of the CFI to try
the case basing this argument on a provision in the subject contract
o Contract provides that in case of conflict, the difference shall be referred
for arbitration to 2 competent persons in HK
o "If there should arise any difference of opinion between the parties to this contract,
whether it may be with reference to the principal matter or in any detail, this
difference shall be referred for arbitration to two competent persons in Hongkong,
one of which shall be selected by each of the contracting parties, with the power to
call in a third party in the event of a disagreement; the majority of the opinions will
be final and obligatory to the end of compelling any payment. This award may be
made a rule of the court."cralaw virtua1aw library

Issue: WON the provision is invalid as being against public policy (Yes)
Ratio:
 A condition in a contract that disputes arising out of it shall be referred to
arbitration is
o Valid – where the amount of damages sustained by a breach of the
contract is to be ascertained by specified arbitration before any right of
action arises
 Ratio for validity – it is a condition precedent to the accrual of a
right of action
o Illegal – where all the matters in dispute of whatever sort may be referred
to arbitratiors and to them alone
 Ratio for invalidity – it is attempted to prevent any right of action
accruing at all, and this cannot be permitted
 Rule proviided above is the rule in the US which shall also be applicable in our
jurisdiction because our Code of Civil Procedure, which is the law applicable in
the case at bar, is copied from the Civil Code of Procedure of California
 Moreover, the CFI erred in granting the motion for new trial.
o The general rule for grant of the said motion is that the application should
show merits, and that this should be done with some degree of certainty
and not left to surmise.
o In the case at bar, the affidavit submitted by Donaldson merely states that
they have a counterclaim against Wahl based upon the failure on the part
of the plaintiffs (Wahl) to perform the contract with regard to the
Petrarch. The SC finds such statement too vague and uncertain to show
merits in the defense.
o Also, after the application to set aside the judgment had been granted, a
demurrer was submitted based upon a purely technical ground that
under the contract the parties had agreed to settle the matters in dispute
by arbitration at HK. Such is not meritorious.

Disposition: CFI decision set aside. Order for new trial issued.

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

ARTHUR F. ALLEN v. THE PROVINCE OF TAYABAS

G.R. No. L-12283, July 25, 1918, EN BANC (MALCOLM, J.)

FACTS:

Province of Tayabas and Arthur F, Allen (Allen) entered into a contract

whereby the contractor agreed to construct five reinforced concrete bridges.
One provision of the contract 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”.

Four of the bridges were accepted by the Government and paid for.
The dispute between the parties arose as to the fifth bridge. As to this
bridge, the Province of Tayabas partially paid but refused to pay the balance
because Allen had deviated from the specifications and because the work
was defective.

Allen filed an action to recover the balance refused to be paid by

Province of Tayabas. While the latter, on its defense, alleged defective work
on the part of the Allen, and that the contract was not approved by the
Governor-General under Act No. 1600.

The trial court ruled in favor of Allen holding that the law which
makes the approval of the Governor-General a prerequisite only to the
purchase or conveyance of real property by a province.

Since the Province of Tayabas’ Motion for New trial was denied, it
elevated the case to the Supreme Court contending 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. On the other hand, Allen contends that neither the law nor the
contract requires the submission to arbitration of disputes between the
Government and the contractor.

ISSUE:

Whether or not, the certification of the district engineer and the

Director of Public Works which must be obtained first before a suit can be
brought on a contract constitutes an arbitration agreement

HELD:

Judgment AFFIRMED with modification as to amount.

The Certification of the district engineer and the Director of Public

Works is not an arbitration agreement but a condition precedent before a
contractor can recover from a contract, nevertheless, Allen is entitled to
recover even without such Certificate on the ground of substantial
performance.

Act No. 1401, as amended by Act No. 1752, was in force when this
action was instituted. The same provisions are now found in slightly altered
phraseology in section 1917-1923 of the Administrative Code of 1917. The
law gives the district engineer supervision over all contacts connected with
public works, which exceed the estimated cost of P500.
 Allen 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 labelled a condition precedent to
the contractor's right to obtain payment; the condition is for the satisfaction
of the Government.

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

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.

However, 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.

Substantial performance and the unfounded refusal of the certificate

of approval can be proved in various ways. Thus, acceptance and occupancy
of the building by the owner amounts to an acknowledgment that the work
has been performed substantially as required by the contract. Other
circumstances, as partial payment, also show acquiescence on the part of
purchaser.

Moreover, it has been held that, 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 non-fulfilment. 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.
However, the complaint contains the general averment that the Allen 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 Province of Tayabas 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.
 Accordingly, the Province of Tayabas having accepted bridge should,
of course, pay the balance due.

Chung Fu Industries (Phils) v. Court of Appeals

FACTS:
- May 17, 1989: petitioner Chung Fu Industries and private respondents Roblecor Philippines
forged a construction agreement wherein Roblecor committed to construct and finish on
Dec. 31, 1989, Chung Fu’s industrial/factory complex in Tanawan, Cavite in consideration of
P42M
- It was stipulated also that in the event of disputes, the parties will be subjected to an
arbitration resolution, wherein the arbitrator will be chosen by both parties
- Apart from the construction agreement, the parties also entered into ancillary contracts for
the construction of a dormitory and support facilities with a contract price of 3, 875, 285.00
to be completed on or before October 31, 1989 and the other dated Aug. 12, 1989 for the
installation of electrical, water and hydrant systems at the plant site, priced at 12.1M and
requiring completion thereof one month after civil works have been finished
- However, Roblecor failed to complete the work despite the extension allowed by Chung Fu
- Subsequently, Chung Fu had to take over the construction when it had become evident that
Roblecor was not in a position to fulfill the obligation
- Claiming an unsatisfied account of P10, 500, 000 and unpaid progress billings of P 2, 370,
179.23, Roblecor filed a petition for Compulsory Arbitration with prayer for TRO before
respondent RTC , pursuant to the arbitration clause in the construction agreement
- Chung Fu moved to dismiss the petition and further prayed for the quashing of the
restraining order
- Subsequent negotiations between the parties eventually led to the formulation of an
arbitration agreement which includes that the “decision of the arbitrator shall be final and
unappealable, therefore, there shall be no further judicial recourse if either party disagrees
with the whole or any part of the arbitrator’s award”
- RTC approved the arbitration agreement and Asuncion was appointed as the sole arbitrator
- Arbitrator ruled in favor of the contractor Roblecor
- Chung Fu moved to remand the case for further hearing and asked for a reconsideration of
the judgment award claiming that Asuncion committed 12 instances of grave error by
disregarding the provisions of the parties’ contract
- RTC denied Chung Fu’s Motion to Remand and approved Roblecor’s Motion for Confirmation
of Award
- Chung Fu elevated the case to CA which denied the petition
- Hence, this petition to the Supreme Court

ISSUES:
1. WON the subject arbitration award is beyond the ambit of the court’s power of judicial
review
2. WON respondent court committed grave abuse of discretion

HELD/RATIO:
- No
- It’s stated explicitly under Art. 2044 of the Civil Code that the finality of the
arbitrator’s award is not absolute and without exceptions
- Where the conditions described in Arts. 2038, 2039 and 2040 applicable to both
compromises and arbitrations are obtaining, the arbitrators’ award may be annulled
or rescinded.
- Additionally, Sections 24 and 25 of the Arbitration Law provide grounds for vacating,
Modifying or rescinding an arbitrator’s award.
 - Even decisions of administrative agencies which are declared “final” by law are not
exempt from judicial review when so warranted
- SC finds that Chung Fu has 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 responded 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
- Yes
- The refusal to look into the merits of the case, despite prima facie showing of the
existence of grounds warranting judicial review effectively deprived Chung Fu of
their opportunity to prove or substantiate their allegations. Such constitutes grave
abuse of discretion.
- Likewise, the Court of Appeals 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

DECISION: petition granted. Case remanded to the court of origin for further hearing

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