A. CHAN LINTE, PLAINTIFF AND APPELLANT, VS. LAW UNION AND ROCK INSURANCE CO., LTD., DEFENDANT AND APPELLEE. A. CHAN LINTE, PLAINTIFF AND APPELLANT, VS. TOKYO MARINE INSURANCE CO…

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 25th 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 that 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 22d 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.”

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 total 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 policies, by each of which the property in question was
insured to the value of P5,000 against 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 & 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 recovery 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, as 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 difference it “shall be submitted to
arbitrators, indifferently chosen, whose award, or that of their
umpire, shall be conclusive.”

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 on 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 & 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 pubic
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 ir 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
& 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 settlement 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:

“4.
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, Avancena, Villamor, and Romualdez, JJ., concur.