G.R. Nos. 26216 and 26217, March 5, 1927
MONICO PUENTEBELLA, ET AL., plaintiffs-appellants, vs. NEGROS COAL CO., LTD., ET AL., defendants-appellants.

FACTS

The plaintiffs (Puentebella and Ferrer groups) entered into contracts with the defendants (Negros Coal Co., Ltd. and Hijos de I. de la Rama & Co., represented by Esteban de la Rama). Under these contracts, the plaintiffs bound themselves to plant sugar cane, and the defendants promised to construct a sugar central and mill the cane. The plaintiffs complied by planting cane, but the defendants failed to complete the central in time for the 1921 milling season, causing the plaintiffs’ cane to be lost. The plaintiffs sued for damages and cancellation of the contracts. The defendants argued they were prevented by force majeure, that the plaintiffs refused to mill their cane later, and that the plaintiffs failed to mitigate damages. They also filed counterclaims for damages and for foreclosure of mortgages executed by the plaintiffs to secure loans. The trial court ruled partially in favor of both parties, awarding damages to the plaintiffs but also ordering them to pay their mortgage debts. Both parties appealed.

ISSUE

1. Whether the arbitration clause in the contract (requiring submission of all differences to arbitrators whose decision the parties shall “abide by”) is valid and a condition precedent to filing a court action.
2. Whether the defendant Esteban de la Rama can be held personally liable for damages.
3. Whether the defendants were obligated to mill the cane in 1921 and are liable for damages for failing to do so.
4. Whether the damages awarded were proper.

RULING

1. The arbitration clause is void and not a condition precedent. The clause in paragraph 17 of the contract provided that the parties shall submit all differences to arbitrators and shall “respect and abide by” their decision. The Supreme Court held that this clause did not merely require arbitration before court action; it attempted to make the arbitrators’ decision final and to oust the courts of their jurisdiction. Such an agreement is contrary to public policy and is not binding. Therefore, the plaintiffs’ failure to arbitrate did not bar their court action.
2. Esteban de la Rama can be held personally liable. The Negros Coal Co., Ltd. had been dissolved, and De la Rama, as the successor in interest who took over its rights and obligations, was the proper party. Furthermore, the losses were attributable to his own misleading representations and failure to fulfill promises.
3. The defendants were obligated to mill the cane in 1921 and are liable for damages. The Court affirmed the trial court’s findings of fact, which were supported by evidence, that the defendants were contractually bound to complete the central and mill the cane for the 1921 season and that their failure to do so constituted a breach causing the plaintiffs’ losses.
4. The damages awarded were proper. The Court found no error in the trial court’s assessment of damages, which was based on the evidence presented.

DISPOSITIVE PORTION:
The judgment of the trial court was AFFIRMED in all respects. No costs were awarded.