Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No.

L-21549 October 22, 1924

TEODORO VEGA, plaintiff-appellee, vs. THE SAN CARLOS MILLING CO., LTD., defendant-appellant. Fisher, Dewitt, Perkins, & Brady, John R. McFie, Jr., Jesus Trinidad, and Powell & Hill for appellant. R. Nolan and Feria & La O for appellee.

The defendant company appealed from this judgment, and alleges that the lower court erred in having held itself with jurisdiction to take cognizance of and render judgment in the cause; in holding that the defendant was bound to supply cars gratuitously to the plaintiff for the cane; in not ordering the plaintiff to pay to the defendant the sum of P2,866 for the cars used by him, with illegal interest on said sum from the filing of the counterclaim, and the costs, and that said judgment is contrary to the weight of the evidence and the law. The first assignment of error is based on clause 23 of the Mill's covenants and clause 14 of the Planter's Covenant as they appear in Exhibit A, which is the same instrument as Exhibit 1. Said clauses are as follows:

ROMUALDEZ, J.: This action is for the recovery of 32,959 kilos of centrifugal sugar, or its value, P6,252, plus the payment of P500 damages and the costs. The defendants filed an answer, and set up two special defenses, the first of which is at the same time a counterclaim. The Court of First Instance of Occidental Negros that tried the case, rendered judgment, the dispositive part of which is as follows: By virtue of these considerations, the court is of opinion that with respect to the complaint, the plaintiff must be held to have a better right to the possession of the 32,959 kilos of centrifugal sugar manufactured in the defendants' central and the latter is sentenced to deliver them to the plaintiff, and in default, the selling price thereof, amounting to P5,981.06 deposited in the office of the clerk of the court. Plaintiff's claim for damages is denied, because it has not been shown that the defendant caused the plaintiff any damages. Plaintiff is absolved from defendant's counterclaim and declared not bound to pay the such claimed therein. Plaintiff is also absolved from the counterclaim of P1,000, for damages, it not having been proved that any damages were caused and suffered by defendant, since the writ of attachment issued in this case was legal and proper. Without pronouncement as to costs. So ordered.

23. That it (the Mill Party of the first part) will submit and all differences that may arise between the Mill and the Planters to the decision of arbitrators, two of whom shall be chosen by the Mill and two by the Planters, who in case of inability to agree shall select a fifth arbitrator, and to respect and abide by the decision of said arbitrators, or any three of them, as the case may be. xxx xxx xxx

14. That they (the Planters--Parties of the second part) will submit any and all differences that may arise between the parties of the first part and the parties of the second part of the decision of arbitrators, two of whom shall be chosen by the said parties of the first part and two by the said party of the second part, who in case of inability to agree, shall select a fifth arbitrator, and will respect and abide by the decision of said arbitrators, or any three of them, as the case may be. It is an admitted fact that the differences which arose between the parties, and which are the subject of the present litigation have not been submitted to the arbitration provided for in the above quoted clauses. Defendant contends that as such stipulations on arbitration are valid, they constitute a condition precedent, to which the plaintiff should have resorted before applying to the courts, as he prematurely did. The defendant is right in contending that such covenants on arbitration are valid, but they

are not for the reason a bar to judicial action, in view of the way they are expressed: An agreement to submit to arbitration, not consummated by an award, is no bar to suit at law or in equity concerning the subject matter submitted. And the rule applies both in respect of agreements to submit existing differences and agreements to submit differences which may arise in the future. (5 C. J., 42.) And in view of the terms in which the said covenants on arbitration are expressed, it cannot be held that in agreeing on this point, the parties proposed to establish the arbitration as a condition precedent to judicial action, because these clauses quoted do not create such a condition either expressly or by necessary inference. Submission as Condition Precedent to Suit. Clauses in insurance and other contracts providing for arbitration in case of disagreement are very similar, and the question whether submission to arbitration is a condition precedent to a suit upon the contract depends upon the language employed in each particular stipulation. Where by the same agreement which creates the liability, the ascertainment of certain facts by arbitrators is expressly made a condition precedent to a right of action thereon, suit cannot be brought until the award is made. But the courts generally will not construe an arbitration clause as ousting them of their jurisdiction unless such construction is inevitable, and consequently when the arbitration clause is not made a condition precedent by express words or necessary implication, it will be construed as merely collateral to the liability clause, and so no bar to an action in the courts without an award. (2 R. C. L., 362, 363.) Neither does not reciprocal covenant No. 7 of said contract Exhibit A expressly or impliedly establish the arbitration as a condition precedent. Said reciprocal covenant No. 7 reads: 7. Subject to the provisions as to arbitration, hereinbefore appearing, it is mutually agreed that the courts of the City of Iloilo shall have jurisdiction of any and all judicial proceedings that may arise out of the contractual relations herein between the party of the first and the part is of the second part.

The expression "subject to the provisions as to arbitration, hereinbefore appearing" does not declare such to be a condition precedent. This phrase does not read "subject to the arbitration," but "subject to the provisions as to arbitration hereinbefore appearing." And, which are these "provisions as to arbitration hereinbefore appearing?" Undoubtedly clauses 23 and 14 quoted above, which do not make arbitration a condition precedent. We find no merit in the first assignment of error. The second raises the most important question in this controversy, to wit: Whether or not the defendant was obliged to supply the plaintiff which cars gratuitously for cane. The Central, of course, bound itself according to the contract exhibit A in clause 3 of the "Covenant by Mill," as follows: 3. That it will construct and thereafter maintain and operate during the term of this agreement a steam or motor railway, or both, for plantation use in transporting sugar cane, sugar and fertilizer, as near the center of the can ands as to contour of the lands will permit paying due attention to grades and curves; that it will also construct branch lines at such points as may be necessary where the present plantations are of such shape that the main line cannot run approximately through the center of said plantations, free of charge to the Planters, and will properly equip said railway with locomotives or motors and cars, and will further construct a branch line from the main railway line, mill and warehouses to the before mentioned wharf and will further construct yard accomodations near the sugar mill. All steam locomotives shall be provided which effective spark arresters. The railway shall be constructed upon suitable and properly located rightof-way, through all plantations so as to give, as far as practicable, to each plantations equal benefit thereof; said right-of-way to b two and one-half meters in width on either said from the center of track on both main line and switches and branches. By this covenant, the defendant, the defendant bound itself to construct branch lines of the railway at such points on the estate as might be necessary, but said clause No. 3 can hardly be construed to bind the defendant to

gratuitously supply the plaintiff with cars to transport cane from his fields to the branch lines agreed upon on its estate. But on March 18, 1916, the defendant company, through its manager Mr. F. J. Bell, addressed the following communication to the plaintiff: DEAR SIR: In reply to yours of March

track, the defendant would allow the free use of its cars upon said track, thus inducing the plaintiff to act in reliance on such belief, that is, to purchase such portable track, as in fact he did and laid it and used it without payment, the cars belonging to the defendant. This is an estoppel, and defendant cannot be permitted to gainsay its own acts and agreement. The defendant cannot now demand payment of the plaintiff for such use of the cars. And this is so, not because the fact of having supplied them was an act of pure liberality, to which having once started it, the defendant was forever bound, which would be unreasonable, but because the act of providing such cars was, under the circumstances of the case, of compliance of an obligation to which defendant is bound on account of having induced the plaintiff to believe, and to act and incur expenses on the strenght of this belief. The question of whether or not the plaintiff was under the necessity of first showing a cooperative spirit and conduct, does not affect the right which he thus acquired of using the cars in question gratuitously. We do not find sufficient reason to support the second assignment of error. The point raised in the third assignment of error is a consequence of the second. If the plaintiff was entitled, as we have said, to use the cars gratuitously, the defendant has no right to demand any payment from him for the use of said cars. The other assignments of error are consequences of the preceding ones. We find nothing in the record to serve as a legal and sufficient bar to plaintiff's action against the defendant for the delivery of the sugar in question, or its value. A discussion as to the retention of this deposit to apply upon what is due by reason thereof made in the judgment appealed from, is here necessary. The parties do not raise this question in the present instance. Furthermore, it has not been proven that the plaintiff owes the defendant anything by reason of such deposit. The judgment appealed from is hereby affirmed with the costs of this instance against the appellant. So ordered.

15th.

Yesterday I tried to come out to San Antonio to see you but the railway was full of cars of San Jose and I could not get by with my car. I will try again as soon as I finish shipping sugar. The steamer is expected today. I had a switch built in the big cut on San Antonio for loading your cane near the boundary of Santa Cruz. will not this sufficient? We have no another switch here and I hope you can get along with the 3 you now have. Some of the planters are now using short switches made of 16-lb. portable track. These can be placed on the main line at any place and cars run off into the field and loaded. I think one on your hacienda would repay you in one season. The rain record can wait. Sincerely yours, SAN CARLOS MILLING CO., LTD. (Sgd.) F.J. BELL "Manager" It is suggested to the plaintiff in this letter that he install a 16-lb. rail portable track switch, to be used in connection with the main line, so the cars may run on it. It is not suggested that he purchase cars, and the letter implies that the cars mentioned therein belong to the defendant. As a result of this suggestion, the plaintiff bought a portable track which cost him about P10,000, and after the track was laid, the defendant began to use it without comment or objection from the latter, nor payment of any indemnity for over four years. With this letter Exhibit D, and its conduct in regard to the same, the defendant deliberately and intentionally induced the plaintiff to believe that by the latter purchasing the said portable

Johnson, Street and Villamor, JJ., concur.