Wahl v Donaldson (1903) – Cooper, J.
 Rule proviided above is the rule in the US which shall also
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 Ptrarch
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.
 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
 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
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
prvent any right of action accruing at
all, and this cannot be permitted
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.
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