G.R. No. 106989 & 107124 May 10, 1994
H.B. ZACHRY COMPANY INTERNATIONAL, petitioner, vs. HON. COURT OF APPEALS and VINNEL-BELVOIR CORPORATION, respondents. / VINNEL-BELVOIR CORPORATION, petitioner, vs. THE COURT OF APPEALS and H.B. ZACHRY COMPANY INTERNATIONAL, respondents.

FACTS

On July 17, 1987, Vinnel-Belvoir Corporation (VBC) entered into a Subcontract Agreement with H.B. Zachry Company International (Zachry), a foreign corporation, for the construction of housing units at the US Naval Base in Subic, Zambales. The agreement contained a disputes procedure (Section 27) requiring arbitration for controversies not controlled by other provisions. When VBC nearly completed the project, Zachry complained about the quality of work and took over the project’s management. The parties executed a Supplemental Agreement on December 18, 1989. VBC later claimed a balance of $1,103,000 was due from Zachry, which Zachry refused to pay. After failed demands, VBC filed a Complaint for collection with a prayer for a writ of preliminary attachment in the Regional Trial Court (RTC) of Makati on March 20, 1990. The RTC granted the writ on March 21, 1990, before summons was served. The writ and summons were served on Zachry at its Subic field office on March 27, 1990. VBC also filed an Amended Complaint on March 27, 1990. Zachry filed a Motion to Dismiss, arguing the trial court lacked jurisdiction due to the arbitration clause and improper service of summons. The RTC denied the motion. Zachry filed a petition for certiorari with the Court of Appeals, which ruled that the writ of preliminary attachment was issued with grave abuse of discretion because it was issued prior to service of summons and ordered it lifted. The Court of Appeals also ordered the RTC to conduct a hearing on the interpretation of the arbitration clause. Both parties filed motions for reconsideration, which were denied.

ISSUE

The primary issues were: (1) Whether the trial court acquired jurisdiction over Zachry, a foreign corporation, upon which summons was served at its project site in the Philippines; (2) Whether the issuance of the writ of preliminary attachment prior to service of summons was valid; and (3) Whether the dispute should be referred to arbitration as stipulated in the Subcontract Agreement.

RULING

The Supreme Court granted the petitions, set aside the Decision and Resolution of the Court of Appeals, and reinstated the RTC orders denying the motion to dismiss. The Court held that the trial court acquired jurisdiction over Zachry. Zachry was a foreign corporation doing business in the Philippines without a license, as it engaged in a construction contract for a housing project, which constituted a series of commercial acts. Under Section 14, Rule 14 of the Rules of Court, summons may be served upon a foreign corporation doing business in the Philippines by serving on its resident agent, or if none, on the government official designated by law, or on any of its officers or agents within the Philippines. Service at Zachry’s field office in Subic Naval Base, where it conducted its business, was valid. The Court ruled that the writ of preliminary attachment was invalidly served because it was implemented simultaneously with the service of the summons, a copy of the complaint, and other court processes. A writ of attachment can only be validly implemented after the court has acquired jurisdiction over the defendant, which occurs upon valid service of summons. Since the writ was served concurrently with the summons, the service of the writ was premature and invalid. However, the invalidity of the service did not nullify the writ itself; it could be served anew after jurisdiction was acquired. On the arbitration issue, the Court found that the disputes procedure in the Subcontract Agreement was not a simple arbitration clause. Section 27.A bound the subcontractor (VBC) to the contractor (Zachry) to the same extent Zachry was bound to the Owner (US Navy) under the General Contract and to decisions made thereunder. Section 27.B provided for arbitration only if the controversy was not controlled by Section 27.A or other provisions. The Court ruled that the trial court should determine whether the instant dispute fell under Section 27.A or Section 27.B. If under 27.A, the case could proceed in court; if under 27.B, arbitration might be required. This determination involved a factual question requiring a hearing. The Court of Appeals correctly ordered a hearing on this issue, but the Supreme Court modified this by directing the trial court to proceed with the hearing on the merits, during which it could also resolve the applicability of the arbitration clause.