G.R. No.

198226               July 18, 2014

ABOITIZ TRANSPORT SYSTEM CORPORATION and ABOITIZ SHIPPING CORPORATION, Petitioners,

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G.R. No. 198228

ABOITIZ TRANSPORT SYSTEM CORPORATION, Petitioner,

Facts:

ASC, CAGLI, and William Lines, Inc. (WLI), principally owned by the Aboitiz, Gothong, and Chiongbian families,
respectively, entered into an Agreement 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,"... 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.
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. CAGLI sent a letterdated 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.
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.
Thus, CAGLI was constrained to file a complaint before the RTC against Chiongbian, ATSC, ASC, and AEV to
compel them to submit to arbitration.
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.
RTC dismissed the complaint only with respect to AEV for lack of cause of action but not as to the other
defendants. Thereafter, the RTC issued an Order 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.
Issues:

1. WON the RTC was correct in confirming CAGLI’s notice of dismissal and, consequently, dismissing the case
without prejudice
2. WON respondent Chiongbian should be excluded from the arbitration proceedings.

Ruling:

Granted the petition, reversed and set aside the RTC ruling in Civil Case No CEB-34951 and reinstated with
modification excluding Victor S. Chiongbian from the arbitration proceedings on Februray 26, 2010.

1. No, RTC was incorrect in confirming the notice of dismissal and to have dismissed the complaint
without prejudice. 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 Order34 dated February 26, 2010. Undeniably, such Order partakes of a judgment on the
merits of the complaint for the enforcement ofthe arbitration agreement.

At this point, although no responsive pleading had been filed by ATS C, 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 137 of Rule 17 of the Rules of Court when 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.1âwph

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 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. Ifthe 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 merelya summary remedy to enforce the agreement to arbitrate and the duty
of the court is not to resolve the merits of the parties’ claims but only to determine if they should proceed to arbitration
or not.

2. Yes, he should be excluded. 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 Appeals,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 effectas 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 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.