G.R. No. 198226. July 18, 2014.

*
ABOITIZ TRANSPORT SYSTEM CORPORATION and ABOITIZ SHIPPING CORPORATION,
petitioners,  vs.CARLOS A. GOTHONG LINES, INC. and VICTOR S. CHIONGBIAN,
respondents.
G.R. No. 198228. July 18, 2014.*
ABOITIZ TRANSPORT SYSTEM CORPORATION, petitioner,  vs.  CARLOS A. GOTHONG
LINES, INC. and VICTOR S. CHIONGBIAN, respondents.

Civil Law; Alternative Dispute Resolution; Arbitration; Disputes do not go to arbitration unless and until
the parties have agreed to abide by the arbitrator’s decision.—In Gonzales v. Climax Mining, Ltd., 512 SCRA
148 (2007), the Court explained that “[d]isputes do not go to arbitration unless and until the parties have
agreed to abide by the arbitrator’s decision. Necessarily, a contract is required for arbitration to take place
and to be binding.”  Furthermore, in Del

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* SECOND DIVISION.

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A. Gothong Lines, Inc.

Monte Corporation-USA v. Court of Appeals, 351 SCRA 373 (2001), the Court stated that “[t]he
provision to submit to arbitration any dispute arising therefrom and the relationship of the parties is part of
that contract. As a rule, contracts are respected as the law between the contracting parties and produce
effect as between them, their assigns and heirs.” Succinctly put, only those parties who have agreed to
submit a controversy to arbitration who, as against each other, may be compelled to submit to arbitration.

PETITIONS for review on certiorari of the orders of the Regional Trial Court of Cebu City, Br. 20.
The facts are stated in the opinion of the Court.
  Sycip, Salazar, Hernandez & Gatmaitan for petitioners.
  Mijares and Partners Law Office for respondent CAGLI.
  Espedido and Famador Law Firm for respondent Chiongbian.

PERLAS-BERNABE, J.:
Assailed in these petitions for review on  certiorari[1]  are the Orders dated August 13, 2010,
[2]  April 15, 2011,[3]  and July 6, 2011[4]  of the Regional Trial Court of Cebu City, Branch 20
(RTC) in Civil Case No. CEB-34951, which confirmed the notice of dismissal filed by respondent
Carlos A. Gothong Lines, Inc. (CAGLI) and, consequently, dismissed the case without prejudice,
denied petitioners Aboitiz Transport System Corporation (ATSC) and Aboitiz Shipping
Corporation’s (ASC) motion for reconsideration, and deemed ATSC’s motion

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[1] Rollo (G.R. No. 198226), pp. 24-50; Rollo(G.R. No. 198228), pp. 19-42.

[2] Rollo (G.R. No. 198226), p. 7; Rollo (G.R. No. 198228), p. 675. Penned by Presiding Judge Bienvenido
R. Saniel, Jr.
 [3] Rollo (G.R. No. 198226), pp. 8-11; Rollo(G.R. No. 198228), pp. 710-713.
[4] Rollo (G.R. No. 198226), p. 725; Rollo (G.R. No. 198228), p. 48.

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to exclude respondent Victor S. Chiongbian (respondent Chiongbian) from arbitration moot and
academic, respectively.
The Facts
ASC, CAGLI, and William Lines, Inc. (WLI), principally owned by the Aboitiz, Gothong, and
Chiongbian families, respectively, entered into an Agreement[5]  dated January 8, 1996, which
was signed by Jon Ramon Aboitiz for ASC, Benjamin D. Gothong (Gothong) for CAGLI, and
respondent Chiongbian for WLI. In the said Agreement, ASC and CAGLI agreed to transfer their
shipping assets to WLI in exchange for the latter’s shares of capital stock. The parties likewise
agreed that WLI would run the merged shipping business and be renamed “WG&A, Inc.”
Pertinently, Section 11.06 of the Agreement provides that all disputes arising out of or in
connection with the Agreement shall be finally settled by arbitration in accordance with Republic
Act No. (RA) 876, otherwise known as “The Arbitration Law,”[6] and that each of the parties shall
appoint one arbitrator, and the three arbitrators would then appoint the fourth arbitrator who
shall act as Chairman.
Among the attachments to the Agreement was a letter[7]dated January 8, 1996 written by
respondent Chiongbian and addressed to Gothong, stating that WLI committed to acquire from
CAGLI’s inventory certain spare parts and materials not exceeding P400 Million. In this relation,
a valuation of CAGLI’s inventory was conducted wherein it was shown that 

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[5] Rollo (G.R. No. 198226), pp. 76-109; Rollo(G.R. No. 198228), pp. 61-95.

[6] Entitled “AN ACT TO AUTHORIZE THE MAKING OF ARBITRATION AND SUBMISSION AGREEMENTS, TO PROVIDE FOR
THE APPOINTMENT OF ARBITRATORS AND THE PROCEDURE FOR ARBITRATION IN CIVIL CONTROVERSIES, AND FOR OTHER
PURPOSES.”
[7] Rollo (G.R. No. 198226), pp. 120-121; Rollo (G.R. No. 198228), pp. 105-106.

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the same amounted to P514 Million.[8]  Thereafter, WLI received inventory valued at P558.89
Million, but only paid CAGLI the amount of P400 Million as agreed upon in the Agreement.
[9]  Dissatisfied, CAGLI sent to WLI various letters in 2001, demanding that the latter pay or
return the inventory that it received in excess of P400 Million.[10]
Sometime in 2002, the Chiongbian and Gothong families decided to sell their respective
interests in WLI/WG&A to the Aboitiz family. This resulted in the execution of a Share Purchase
Agreement[11]  whereby Aboitiz Equity Ventures (AEV) agreed to purchase and acquire the
WLI/WG&A shares of the Chiongbian and Gothong families. Thereafter, the corporate name of
WLI/WG&A was changed to ATSC.[12]
Six (6) years later, or in 2008, CAGLI sent a letter[13]dated February 14, 2008 to ATSC
demanding that the latter pay the excess inventory it delivered to WLI amounting
to P158,399,700.00. CAGLI likewise demanded AEV and respondent Chiongbian that they refer
their dispute to arbitration.[14] In response, AEV countered that the excess inventory had already
been returned to CAGLI and that it should not be included in the dispute, considering that it is
an entity separate and distinct from ATSC.[15] Thus, CAGLI was constrained 

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[8] Rollo (G.R. No. 198226), p. 29.

[9] Id., at p. 30.
[10] Id.
[11] Rollo (G.R. No. 198226), pp. 515-527; Rollo(G.R. No. 198228), pp. 500-512.
[12] Rollo (G.R. No. 198226), p. 32.
[13] Rollo (G.R. No. 198226), pp. 579-580; Rollo(G.R. No. 198228), pp. 514-515.
[14] See letter dated April 15, 2008. Rollo (G.R. No. 198226), pp. 581-584; Rollo (G.R. No. 198228), pp. 566-
569.
[15] See letter dated October 16, 2008. Rollo(G.R. No. 198226), pp. 597-598; Rollo (G.R. No. 198228), pp.
582-583.

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to file a complaint[16] before the RTC against Chiongbian, ATSC, ASC, and AEV to compel them
to submit to arbitration.
For their part, ATSC and AEV moved for the dismissal of the case, contending that CAGLI did
not have a cause of action for arbitration since its claim had already been paid or otherwise,
extinguished, and, in any event, said action had already prescribed.[17]
The RTC Proceedings
In an Order[18] dated December 4, 2009, the RTC dismissed the complaint only with respect to
AEV for lack of cause of action,[19] but not as to the other defendants. Thereafter, the RTC issued
an Order[20] dated February 26, 2010, directing CAGLI, respondent Chiongbian, ATSC, and ASC
to proceed to arbitration, and accordingly, the parties appointed their respective arbitrators, with
ATSC and ASC doing so only on an ad cautelam basis.[21]

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[16] See letter dated November 6, 2008. Rollo(G.R. No. 198226), pp. 602-607; Rollo (G.R. No. 198228), pp.
587-592.
[17]  See  Motion to Dismiss dated April 24, 2009.  Rollo  (G.R. No. 198226), pp. 610-614;  Rollo(G.R. No.
198228), pp. 595-599. See also Rollo (G.R. No. 198226), p. 742.
[18] Rollo (G.R. No. 198226), pp. 621-622; Rollo(G.R. No. 198228), pp. 606-607.
[19] Rollo (G.R. No. 198226), p. 742.
[20] Rollo (G.R. No. 198226), p. 634; Rollo (G.R. No. 198228), p. 7.
[21] See Compliance of CAGLI dated March 5, 2010. (Rollo [G.R. No. 198226], pp. 635-636; Rollo[G.R. No.
198228], pp. 619-620.)  SeeManifestation/Compliance  Ad Cautelam  of ASC dated March 25, 2010.
(Rollo  [G.R. No. 198226], pp. 637-638;  Rollo  [G.R. No. 198228], pp. 621-
622.) SeeManifestation/Compliance Ad Cautelam of ATSC dated March 25, 2010. (Rollo [G.R. No. 198226],
pp. 639-640; Rollo [G.R. No. 198228], pp. 623-624.) SeeCompliance of respondent Chiongbian dated April 19,
2010. (Rollo [G.R. No. 198226], pp. 641-642;Rollo [G.R. No. 198228], pp. 625-626.)
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Meanwhile, ATSC filed a Motion for Reconsideration/To Exclude[22]  dated March 25, 2010
praying that respondent Chiongbian be excluded from the arbitration proceedings since the latter
was not a party to the Agreement. Pending resolution of the said motion, CAGLI filed a Notice of
Dismissal[23] dated July 8, 2010, averring that it has decided to withdraw its complaint in view of
the fact that the opposing parties had not filed their respective responsive pleadings.
In an Order[24]  dated August 13, 2010, the RTC found CAGLI’s Notice of Dismissal
meritorious, and, thus, confirmed the same and ordered the case dismissed without prejudice.
Dissatisfied, ATSC and ASC moved for reconsideration[25] which was, however, denied in an
Order[26] dated April 15, 2011. In said Order, the RTC cited Section 1 of Rule 17 of the Rules of
Court which allows the plaintiff to file a notice of dismissal of the complaint as a matter of right
“before service of the answer or a motion for summary judgment.” It further ruled that, save for
the condition that no answer or motion for summary judgment had been priorly filed, nothing in
the rules or law expressly prohibits or restricts the right of the plaintiff to withdraw the
complaint by mere notice of dismissal at any stage of the proceedings.[27]

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[22] Rollo (G.R. No. 198226), pp. 643-646; Rollo(G.R. No. 198228), pp. 627-630.

[23] Rollo (G.R. No. 198226), pp. 682-683; Rollo(G.R. No. 198228), pp. 666-667.
[24] Rollo (G.R. No. 198226), p. 7; Rollo (G.R. No. 198228), p. 675.
[25]  See  Motion for Reconsideration dated September 20, 2010. (Rollo  [G.R. No. 198226], pp. 691-
701; Rollo [G.R. No. 198228], pp. 676-686.)
[26] Rollo (G.R. No. 198226), pp. 8-11; Rollo(G.R. No. 198228), pp. 710-713.
[27] Rollo (G.R. No. 198226), p. 9; Rollo (G.R. No. 198228), p. 711.

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Separately, the RTC issued an Order[28]  dated July 6, 2011, denying ATSC’s Motion for
Reconsideration/To Exclude, holding that the issue raised in the said motion has been rendered
moot and academic in view of the confirmation of CAGLI’s notice of dismissal.
Hence, the instant petitions.
The Issues Before the Court
The issues for the Court’s resolution are as follows: (a) whether or not the RTC was correct in
confirming CAGLI’s notice of dismissal and, consequently, dismissing the case without prejudice;
and (b) whether or not respondent Chiongbian should be excluded from the arbitration
proceedings.  
The Court’s Ruling
The petition is meritorious.

A.  Propriety of CAGLI’s Notice of Dismissal.

At the outset, the Court notes that the nature of the complaint filed by CAGLI before the RTC
is for the enforcement of an arbitration agreement, governed by Section 6 of RA 876, viz.:
Section 6. Hearing by court.—A party aggrieved by the failure, neglect or refusal of another to perform
under an agreement in writing providing for arbitration may petition the court for an order directing that
such arbitration proceed in the manner provided for in such agreement. Five days notice in writing of the
hearing of such application shall be served either personally or by registered mail upon the party in default.
The court shall

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[28] Rollo (G.R. No. 198226), p. 725; Rollo (G.R. No. 198228), p. 48.

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hear the parties, and upon being satisfied that the making of the agreement or such failure to comply
therewith is not in issue, shall make an order directing the parties to proceed to arbitration in accordance
with the terms of the agreement. If the making of the agreement or default be in issue the court shall
proceed to summarily hear such issue. If the finding be that no agreement in writing providing for
arbitration was made, or that there is no default in the proceeding thereunder, the proceeding
shall be dismissed. If the finding be that a written provision for arbitration was made and there
is a default in proceeding thereunder, an order shall be made summarily directing the parties to
proceed with the arbitration in accordance with the terms thereof.
x x x x (Emphasis supplied)

In the case of  Gonzales v. Climax Mining, Ltd.  (Gonzales),[29]  the Court had instructed that
the special proceeding under the above quoted provision is the procedural mechanism for the
enforcement of the contract to arbitrate.[30] RA 876 explicitly confines the court’s authority only
to pass upon the issue of whether there is or there is no agreement in writing providing for
arbitration.  If there is such agreement, the court shall issue an order summarily
directing the parties to proceed with the arbitration in accordance with the terms
thereof; otherwise, the proceeding shall be dismissed.[31] To stress, such proceeding is
merely a summary remedy to enforce the agreement to arbitrate and the duty of the
court is not to

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[29] 541 Phil. 143; 512 SCRA 148 (2007).

[30] Id., at pp. 164-165; p. 169.
[31] Id., at p. 165; p. 168, citing La Naval Drug Corporation v. Court of Appeals, G.R. No. 103200, August
31, 1994, 236 SCRA 78, 91.
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resolve the merits of the parties’ claims but only to determine if they should proceed to
arbitration or not.[32]
In the present case, the records show that the primary relief sought for in CAGLI’s
complaint, i.e., to compel the parties to submit to arbitration,[33] had already been granted by the
RTC through its Order[34]  dated February 26, 2010. Undeniably, such Order partakes of a
judgment on the merits of the complaint for the enforcement of the arbitration agreement. 
At this point, although no responsive pleading had been filed by ATSC,[35] it is the rules on
appeal, or other proceedings after rendition of a judgment or final order — no longer those on
notice of dismissal — that come into play. Verily, upon the rendition of a judgment or final order,
[36] the period “before service of the answer or of a motion for summary judgment,” mentioned in
Section 1[37]of Rule 17 of the Rules of Court when

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[32] Id., citing Mindanao Portland Cement Corporation v. McDonough Construction Company of Florida,

126 Phil. 78, 91; 19 SCRA 808, 815 (1967).
[33] Rollo (G.R. No. 198226), pp. 606-607; Rollo(G.R. No. 198228), pp. 591-592.
[34] Rollo (G.R. No. 198226), p. 634; Rollo (G.R. No. 198228), p. 7.
[35] Once a judgment or order on the merits of the particular matter involved in the complaint has been
rendered or parties have already been prejudiced by virtue of having appeared in court to defend their
position, as in the present case, it is as though an answer or motion for summary judgment had already
been filed. (Cf. San Miguel Corp. v. Sandiganbayan, 394 Phil. 608, 648; 340 SCRA 289, 321-322 [2000].)
[36] See Leonidas v. Judge Supnet, 446 Phil. 53; 398 SCRA 38 (2003).
[37] Sec. 1. Dismissal upon notice by plaintiff.—A complaint may be dismissed by the plaintiff by filing a
notice of dismissal at any time before service of the answer or of a motion for summary judgment. Upon such
notice being filed, the court shall issue an order confirming the dismissal. Unless otherwise stated in the
notice, the dismissal is without prejudice, except that a notice operates

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a notice of dismissal may be filed by the plaintiff, no longer applies. As a consequence, a notice of
dismissal filed by the plaintiff at such judgment stage should no longer be entertained or
confirmed. 
In view of the foregoing, it was an error on the part of the RTC to have confirmed the notice of
dismissal and to have dismissed the complaint without prejudice. 

B.       Parties covered by Arbitration

           Proceedings.

Section 2 of RA 876 specifies who may be subjected to arbitration, to wit:

 Sec. 2. Persons and matters subject to arbitration.—Two or more persons or parties may submit to the
arbitration of one or more arbitrators any controversy existing between them at the time of the submission
and which may be the subject of an action, or the parties to any contract may in such contract agree to settle
by arbitration a controversy thereafter arising between them. Such submission or contract shall be valid,
enforceable and irrevocable, save upon such grounds as exist at law for the revocation of any contract.

xxxx
In Gonzales, the Court explained that “[d]isputes do not go to arbitration unless and until the
parties have agreed to abide by the arbitrator’s decision. Necessarily, a contract is required for
arbitration to take place and to be binding.”[38]  Furthermore, in Del Monte Corporation-USA v.
Court of Ap-

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as an adjudication upon the merits when filed by a plaintiff who has once dismissed in a competent court
an action based on or including the same claim.
[38] Supra note 29 at p. 163; p. 169.

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peals,[39]  the Court stated that “[t]he provision to submit to arbitration any dispute arising
therefrom and the relationship of the parties is part of that contract. As a rule, contracts are
respected as the law between the contracting parties and produce effect as between them, their
assigns and heirs.”[40] Succinctly put, only those parties who have agreed to submit a controversy
to arbitration who, as against each other, may be compelled to submit to arbitration.
In the present case, Section 11.06 of the Agreement, which embodies the Arbitration
Agreement among the parties, provides:
All disputes arising out of or in connection with this Agreement including any issue as to this
Agreement’s validity or enforceability, which cannot be settled amicably among the parties, shall be finally
settled by arbitration in accordance with the Arbitration Law (Republic Act No. 876) by an arbitration
tribunal composed of four (4) arbitrators. Each of the parties shall appoint one (1) arbitrator, the three (3) to
appoint the fourth arbitrator who shall act as Chairman. Any award by the arbitration tribunal shall be
final and binding upon the parties and shall be enforced by judgment of the Courts of Cebu or Metro Manila.
[41]

The three parties to the Agreement and necessarily to the arbitration agreement embodied
therein are: (a) ASC, (b) CAGLI, and (c) WLI/WG&A/ATSC. Contracts, like the subject
arbitration agreement, take effect only between the parties, their assigns and heirs.
[42] Respondent Chiongbian, having

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[39] 404 Phil. 192; 351 SCRA 373 (2001).

[40] Id., at p. 202; p. 381.
[41] Rollo (G.R. No. 198226), p. 107.
[42] See Article 1311 of the Civil Code, which reads:
Art. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case
where the rights and obligations arising from the contract are not transmissible
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merely physically signed the Agreement as a representative of WLI, is not a party thereto and to
the arbitration agreement contained therein. Neither is he an assignee or an heir of any of the
parties to the arbitration agreement. Hence, respondent Chiongbian cannot be included in the
arbitration proceedings.
WHEREFORE,  the petitions are  GRANTED.  The Orders dated August 13, 2010, April 15,
2011, and July 6, 2011 of the Regional Trial Court of Cebu City, Branch 20 (RTC) in Civil Case
No. CEB-34951 are hereby REVERSED and SET ASIDE. The Order dated February 26, 2010 of
the RTC is  REINSTATED  with  MODIFICATION  excluding Victor S. Chiongbian from the
arbitration proceedings.
SO ORDERED.

Carpio (Chairperson), Brion, Del Castillo and Perez, JJ., concur.

Petitions granted, orders reversed and set aside.

Notes.—Surely, there is a need to take cognizance of the case not only to guide the bench and
the bar, but if only to strengthen arbitration as a means of dispute resolution, and uphold the
policy of the State embodied in the Alternative Dispute Resolution Act of 2004. (Tuna Processing,
Inc. vs. Philippine Kingford, Inc., 667 SCRA287 [2012])

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by their nature, or by stipulation or by provision of law. The heir is not liable beyond the value of the
property he received from the decedent.
If a contract should contain some stipulation in favor of a third person, he may demand its
fulfillment provided he communicated his acceptance to the obligor before its revocation. A mere
incidental benefit or interest of a person is not sufficient. The contracting parties must have clearly
and deliberately conferred a favor upon a third person.
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It is clear that under the law, the petitioner and the respondent should have been referred to
arbitration pursuant to the arbitration clause of the 2005 Lease Contract. (Koppel, Inc. vs. Makati
Rotary Club Foundation, Inc., 705 SCRA 142 [2013])
——o0o——