H.B. ZACHRY COMPANY INTERNATIONAL, PETITIONER, VS. HON. COURT OF APPEALS AND VINNEL-BELVOIR CORPORATION, RESPONDENTS.

Challenged in these petitions for review, which were ordered
consolidated on 9 December 1992,^[1] is
the decision of the Court of Appeals in CA-G.R. SP No. 24174,^[2]
promulgated on 1 July 1992, the dispositive portion of which reads:

“WHEREFORE, premises considered, this Petition for Certiorari
and Prohibition is hereby granted in so far as it prayed for the dissolution of
the writ of preliminary attachment inasmuch as it was issued prior to the
service of summons and a copy of the complaint on petitioner. The writ of preliminary attachment issued by
respondent Court on March 21, 1990 is hereby ordered lifted and dissolved as
having been issued in grave abuse of discretion by respondent Court.

With respect to the issue of whether or not parties should submit
the instant dispute [to] arbitration, We hereby order public respondent to
conduct a hearing for the determination of the proper interpretation of the
provisions of the Subcontract Agreement.

No pronouncement as to costs.”^[3]

and its 2 September 1992 Resolution^[4]
which denied the motion for partial reconsideration of H.B. Zachry Company
International (hereinafter Zachry) and the motion for
reconsideration of Vinnel-Belvoir Corporation (hereinafter VBC).

The pleadings of the parties and the challenged decision disclose
the following material facts:

On 17 July 1987, VBC entered into a written Subcontract Agreement^[5]
with Zachry, a foreign corporation. The
latter had been engaged by the United States Navy to design and construct 264
Family Housing Units at the US Naval Base at Subic, Zambales. Under the agreement, specifically under
Section 3 on Payment, VBC was to perform all the
construction work on the housing project and would be paid “for the
performance of the work the sum of Six Million Four Hundred Sixty-eight
Thousand U.S. Dollars (U.S.$6,468,000.00), subject to additions and deductions
for changes as hereinafter provided.” This “lump sum price is based
on CONTRACTOR’S proposal, dated 21 May 1987 (including drawings), submitted to
OWNER for Alternate Design-Apartments.” It was also provided “that
substantial differences between the proposal and the final drawings and
Specification approved by the OWNER may be grounds for an equitable adjustment
in price and/or time of performance if requested by either party in accordance
with Section 6 [on] Changes.”^[6]
Section 27 of the agreement reads:

“Section 27.     DISPUTES
PROCEDURE.

A. In case of any dispute, except those that
are specifically provided for in this SUBCONTRACT, between the SUBCONTRACTOR
and the CONTRACTOR, the SUBCONTRACTOR agrees to be bound to the CONTRACTOR to
the same extent that the CONTRACTOR is bound to the OWNER by the terms of the
GENERAL CONTRACT and by any and all decisions or determinations made thereunder
by the party or boards so authorized in the GENERAL CONTRACT. The SUBCONTRACTOR, on items or issues
relating or attributable to the SUBCONTRACTOR, also agrees to be bound to the
CONTRACTOR to the same extent that the CONTRACTOR is bound to the OWNER by the
final decision of a court of competent jurisdiction, whether or not the
SUBCONTRACTOR is a party to such proceeding. If such a dispute is prosecuted or
defended by the CONTRACTOR against the OWNER under the terms of the
GENERAL CONTRACT or in court action, the SUBCONTRACTOR agrees to furnish all
documents, statements, witnesses and other information required by the
CONTRACTOR for such purpose. It is
expressly understood that as to any and all work done and agreed to be done by
the CONTRACTOR and as to any and all materials, equipment or services furnished
or agreed to be furnished by the SUBCONTRACTOR, and as to any and all damages
incurred by the SUBCONTRACTOR in connection with this SUBCONTRACT, the
CONTRACTOR shall not be liable to the SUBCONTRACTOR to any greater extent than
the OWNER is liable to and pays the CONTRACTOR for the use and benefit of the
SUBCONTRACTOR for such claims, except those claims arising from acts of the
CONTRACTOR. No dispute shall interfere
with the progress of the WORK and the SUBCONTRACTOR agrees to proceed with his
WORK as directed, despite any disputes it may have with the CONTRACTOR, the
OWNER, or other parties.

B. If at any time any controversy should arise
between the CONTRACTOR and the SUBCONTRACTOR, with respect to any matter or
thing involved in, related to or arising out of this SUBCONTRACT, which
controversy is not controlled or determined by subparagraph 27.A. above or
other provisions in this SUBCONTRACT, then said controversy shall be decided as
follows:

1. The SUBCONTRACTOR shall be conclusively
bound and abide by the CONTRACTOR’S written decision respecting said
controversy, unless the SUBCONTRACTOR shall commence arbitration proceedings as
hereinafter provided within thirty (30) days following receipt of such written
decision.

2. If the SUBCONTRACTOR decides to appeal from
the written decision of the CONTRACTOR, then the controversy shall be decided
by arbitration in accordance with the then current rules of the Construction
Industry Arbitration Rules of the American Arbitration Association, and the
arbitration decision shall be final and binding on both parties; provided,
however, that proceedings before the American Arbitration Association shall be
commenced by the SUBCONTRACTOR not later than thirty (30) days following the
CONTRACTOR’S written decision pursuant to subparagraph 27.B.1 above. If the SUBCONTRACTOR does not file a demand
for arbitration with the American Arbitration Association and CONTRACTOR within
this thirty (30) day period, then the CONTRACTOR’S written decision is final
and binding.

3. This agreement
to arbitrate shall be specifically enforceable.”^[7]

When VBC had almost completed the project, Zachry complained of
the quality of work, making it a reason for its decision to take over the
management of the project, which paragraph c, Section 7 of the Subcontract Agreement
authorized. However, prior to such
take-over, the parties executed on 18 December 1989 a Supplemental Agreement,^[8]
pertinent portions of which read as follows:

“2. All funds
for progress as computed by the schedule of prices under the subcontract will
be retained by ZACHRY to insure sufficiency of funds to finish the lump sum
project as scoped by the subcontract. However, one month after the date of this agreement, when ZACHRY shall
have determined the cost to complete the subcontract, ZACHRY shall as
appropriate, release to VBC the corresponding portion of the amounts retained.

x x x

7. All costs
incurred by ZACHRY chargeable to VBC under the subcontract from the date of the
takeover to complete the scope of the subcontract will be to the account of VBC
and/or its sureties. Zachry will advise
both VBC and its sureties on a periodic basis as to progress and accumulated
costs.

x x x

9. VBC will be
invited to participate in negotiations with the Navy in Change Orders
concerning its scope of work. VBC will
accept as final, without recourse against ZACHRY the Navy’s decision regarding
its interest in these Change Orders or modifications.”

In accordance with the above conditions,
VBC submitted to Zachry on 10 January 1990 a detailed computation of the cost
to complete the subcontract on the housing project. According to VBC’s computation, there remains a balance of
$1,103,000.00 due in its favor as of 18 January 1990. This amount includes the sum of $200,000.00 allegedly withheld by
Zachry and the labor escalation adjustment granted earlier by the US Navy in
the amount of $282,000.00 due VBC. Zachry, however, not only refused to acknowledge the indebtedness but
continually failed to submit to VBC a statement of accumulated costs, as a
result of which VBC was prevented from checking the accuracy of the said
costs. On 2 March 1990, VBC wrote
Zachry a letter demanding compliance with its obligations.^[9]
Zachry still failed to do so. VBC made
representations to pursue its claim, including a formal claim with the
Officer-in-Charge of Construction, NAVFAC Contracts, Southwest Pacific,^[10]
which also failed.

Hence, on 20 March 1990, VBC filed a Complaint^[11]
with the Regional Trial Court (RTC) of Makati against Zachry for the collection
of the payments due it with a prayer for a writ of preliminary attachment over
Zachry’s bank account in Subic Base and over the remaining thirty-one
undelivered housing units which were to be turned over to the US Navy by Zachry
on 30 March 1990. The case was docketed
as Civil Case No. 90-772 and was raffled to Branch 142 of the said court
presided over by Judge Salvador P. de Guzman, Jr. Paragraph 2 of the Complaint alleges that defendant Zachry
“is a foreign corporation with address at 527 Longwood Street, San
Antonio, Texas, U.S.A. and has some of its officers working at U.S. Naval Base,
Subic Bay, Zambales where it may be served with summons.”

On 21 March 1990, the trial court issued an order granting the
application for the issuance of the writ of preliminary attachment and fixing
the attachment bond at P24,266,000.00.^[12] VBC
put up the required bond and on 26 March 1990, the trial court issued the writ
of attachment,^[13]
which was served, together with the summons, a copy of the complaint with
annexes, the bond, and a copy of the order of attachment, on 27 March 1990 in
the manner described in the Sheriff’s Partial Return^[14]
of 29 March 1990:

“upon defendant H.B. Zachry Company (International)
at its field office in U.S. Naval Base, Subic Bay, Zambales thru Ruby Apostol
who acknowledged receipt thereof. Mr.
James M. Cupit, defendant’s authorized officer was in their Manila office at
the time of service.”

The return further states:

“That on March 28, 1990, the undersigned sheriff went to the
office of defendant H.B. Zachry Company (International) at c/o A.M. Oreta &
Co. at 5th Floor, Ermita Building, Arquiza corner Alhambra streets, Ermita,
Manila to serve the Court’s processes but was informed by Atty. Felix Lobiro of
A.M. Oreta & Co., that defendant H.B. Zachry Company has its own office at
Room 600, 6th Floor of the same building (Ermita Building). However, said defendant’s office was closed
and defendant company (ZACHRY) only holds office during Mondays and Tuesdays of
the week as per information gathered from the adjacent office.”

On 27 March 1990, VBC filed an Amended Complaint^[15]
in Civil Case No. 90-772 to implead as additional defendants the US Navy
Treasury Office-Subic Naval Base and Captain A.L. Wynn, an officer of the US
Navy, against whom VBC prayed for a restraining order or preliminary injunction
to restrain the latter from preparing the treasury warrant checks to be paid to
Zachry and the former from signing the said checks and to restrain both from
making any further payments to Zachry. It also amended paragraph 2 on the status and circumstances of Zachry as
follows:

“2. Defendant, H.B. Zachry Co. (International) x
x x is a foreign corporation with address at 527 Longwood Street, San Antonio,
Texas, U.S.A. and may be served with summons
and all other legal processes at the
following addresses: a)
H.B. Zachry Company (International), U.S. Naval Base, Subic Bay, Zambales; and
b) H.B. Zachry Company (International) c/o A.M.
Oreta & Co., 5th Floor Ermita Building,
Arquiza corner Alhambra Streets, Ermita, Manila,
through its authorized officer James C. Cupit.”^[16]

On 6 April 1990, Zachry filed a motion to dismiss the complaint^[17]
on the ground of lack of jurisdiction over its person because the summons was
not validly served on it. It alleges
that it is a foreign corporation duly licensed on 13 November 1989 by the
Securities and Exchange Commission to do business in the Philippines^[18]
and, pursuant to Section 128 of the Corporation Code of the Philippines, had
appointed Atty. Lucas Nunag^[19] as
its resident agent on whom any summons and legal processes against it may be
served. Atty. Nunag’s address is at the
10th Floor, Shell House, 156 Valero St., Makati, Metro Manila.

Summons and a copy of the Amended Complaint were served on 24
April 1990 on Zachry through Atty. Nunag as shown in the sheriff’s return dated
24 April 1990.^[20]

On 26 April 1990, VBC filed a Manifestation^[21]
to inform the court of the above service of summons on Zachry which it claimed
rendered moot and academic the motion to dismiss.

On 24 May 1990, Zachry filed an Omnibus Motion^[22]
(a) to dismiss the complaint for lack of jurisdiction over its person since the
subsequent service of summons did not cure the jurisdictional defect it earlier
pointed out and, in the alternative, to dismiss the case or suspend the
proceedings therein for failure of the
plaintiff to submit the controversy in question to arbitration as provided for in
its contract with Zachry; and (b) to dissolve the writ of attachment of 26
March 1990 “for having been issued without jurisdiction, having been
issued prior to the service of summons.” The arbitration provision
referred to is Section 27.B of the Subcontract Agreement quoted earlier. In support of its alternative prayer for the
suspension of proceedings, it
cited Section 7 of R.A. No. 876, otherwise known as the Arbitration Act which
provides:

“SEC. 7. Stay of Civil Action — If any suit or
proceeding be brought upon an issue, arising out of an agreement providing for
the arbitration thereof, the Court in which such suit or proceeding is pending,
upon being satisfied that the issue involved in such suit or proceeding is
referable to arbitration, shall stay the action or proceeding until an
arbitration has been had in accordance with the terms of the agreement. x x x”

This provision is almost identical with
Section 3 of the United States Arbitration Act.

As to the invalidity of the writ of attachment, Zachry avails of
the decision in Sievert vs. Court of Appeals^[23]
wherein this Court said:

“Attachment is an ancillary remedy. It is not sought for its own sake but rather to enable the
attaching party to realize upon relief sought and expected to be granted in the
main or principal action. A court which has not acquired
jurisdiction over the person of the defendant, cannot bind that defendant
whether in the main case or in any ancillary proceeding such as attachment
proceedings. The service of a petition
for preliminary attachment without the prior or simultaneous service of summons
and a copy of the complaint in the main case — and that is what happened in
this case — does not of course confer jurisdiction upon the issuing court over
the person of the defendant.”^[24]

VBC opposed the Omnibus Motion. Pleadings related to the Omnibus Motion were subsequently filed.^[25]

In its Order of 19 September 1990,^[26] the
trial court resolved the Omnibus Motion and the related incidents by declaring
that “the merits of the case can only [be] reached after due presentation
of evidence.” Hence, it denied the motion and directed the defendants to
file their answer within the period provided by law.

On 8 October 1990, Zachry filed a motion for the reconsideration^[27]
of the above order assailing the court’s inaction on the second and third
issues raised in its Omnibus Motion, viz., the necessity of arbitration
and the invalidity of the writ of attachment. VBC opposed the motion.^[28] On 9
January 1991, the court issued an order denying the motion for reconsideration
by ruling that the writ of preliminary attachment was regularly issued and that
the violations of the Subcontract Agreement can be “tranced [sic] only
after the case is heard on the merits.”

Dissatisfied with the denial, Zachry filed with the Court of
Appeals on 14 February 1991 a petition for certiorari and prohibition,^[29]
which was docketed as CA-G.R. SP No. 24174. Zachry contends therein that:

1. The proceedings before respondent trial
court should be suspended, pending submission of the dispute to arbitration
pursuant to Section 27-B of the Subcontract Agreement;

2. Alternatively, the complaint should be
dismissed, pending arbitration pursuant to Section 27-B of the Subcontract
Agreement;

3. As a third alternative, the complaint
should be dismissed, because the dispute has been resolved with finality under
Section 27-B of the Subcontract Agreement; and

4. The writ of preliminary attachment should be
dissolved, as having been outside, or in excess of respondent court’s
jurisdiction, having been issued prior to the service of summons on petitioner.

It then prays that
(a) the orders of the trial court of 19 September 1990 and 9 January 1991 be
annulled for having been issued without or in excess of jurisdiction or with
grave abuse of discretion; and (b) the trial court be directed to immediately
suspend the proceedings in Civil Case No. 90-772 pending arbitration
proceedings in accordance with the terms of Section 27.B of the Subcontract
Agreement or, alternatively, to dismiss the amended complaint and dissolve the
writ of attachment. It also prays for
the issuance of a temporary restraining order and a writ of preliminary
injunction to restrain the trial court from proceeding further in Civil Case
No. 90-772.

On 18 February 1991, the Court of Appeals issued a temporary
restraining order.^[30]

On 1 July 1991, the Court of Appeals promulgated the challenged
decision^[31]
dissolving the writ of preliminary attachment issued by the trial court and ordering
it to conduct a hearing to determine the proper interpretation of the
provisions of the Subcontract Agreement. As to the writ of attachment, the Court of Appeals held that summons was
served on Zachry only on 24 April 1990; hence, applying Sievert vs. Court of Appeals,^[32] the trial court “had no
authority yet to act coercively against the defendant” when it issued the
writ of attachment on 21 March 1990. As
to arbitration, it ruled:

“We are of the reasoned opinion that
unlike in the factual situation in the cases cited by petitioner, the contract
involved in the case at bar is, with respect to its arbitration clause, vogue
[sic] and uncertain. Section 27.B which
is the provision upon which petitioner anchors its claims is ambiguous in its
terminology when it states that ‘if at anytime any controversy should arise
between the contractor and the subcontractor x x x which controversy is not
controlled or determined by Section 27.A above or other provision of this
subcontract x x x.’ This provision states that only when a controversy arises
between the contractor and the subcontractor which is not covered by Section
27.A or any provision of the Subcontract Agreement will the parties submit to
arbitration. As to what controversies
fall under Section 27.B, it is not clear from a mere perusal of the
provisions. It is therefore not correct
for petitioner to say that any and all dispute arising between the contracting
parties should be resolved by arbitration prior to a filing of a suit in
court.”^[33]

VBC and Zachry filed a motion for reconsideration and a partial
motion for reconsideration, respectively.^[34] The
former urged the Court of Appeals to consider the decision of this Court of 29
November 1991 in Davao Light &
Power Co. vs. Court of
Appeals^[35] wherein this Court ruled that a
writ of preliminary attachment may be issued ex-parte prior to the service of summons and a copy of the
complaint on the defendants. On the
other hand, Zachry insists that “[t]here is nothing ‘vague’ or ‘ambiguous
about’” the provision on dispute procedures set forth in Subsections 27.B.1 to
27.B.3 of the Subcontract Agreement.

In its Resolution of 2 September 1992,^[36]
the Court of Appeals denied the above motions of the parties.

Hence, these petitions which were given due course in this Court’s
Resolution of 8 March 1993.^[37]

In G.R. No. 106989, petitioner Zachry reiterates all the issues
it raised before the Court of Appeals, except that regarding the validity of
the writ of attachment which was decided in its favor.

In G.R. No. 107124, petitioner VBC raises the following issues:

“A. WHETHER THE ISSUANCE OF THE WRIT OF
PRELIMINARY ATTACHMENT PRIOR TO THE SERVICE OF THE SUMMONS AND A COPY OF THE
AMENDED COMPLAINT ON THE RESPONDENT IS VALID.

B. WHETHER RESORT TO ARBITRATION PRIOR TO
FILING A SUIT IN COURT IS REQUIRED BY THE SUBCONTRACT AGREEMENT UNDER THE FACTS
OBTAINING IN THE PRESENT CASES.”

As to the first issue, VBC takes refuge in the ruling in Davao Light & Power Co.
vs. Court of Appeals^[38] and argues that the issuance of the
writ of attachment on 21 March 1990, although before the service of the
summons, was valid. Its issuance and implementation are two different and separate
things; the first is not affected by any defect in the implementation which may
be corrected. Moreover, assuming arguendo that the initial service of summons was defective, it was cured by the
numerous pleadings thereafter filed. Finally, whatever doubts existed on the effectiveness of the implementation of the writ was erased by its
re-service on the resident agent of Zachry.

As to the issue on arbitration, VBC maintains that arbitration is
not required under the facts obtaining in the present case because the
applicable provision of the Subcontract Agreement is Section 3 on Payment and
not Section 27.B on Arbitration. Zachry’s fraudulent actuations and gross violation of the Subcontract
Agreement render prior resort to arbitration futile and useless. The preliminary attachment, which was
essential to secure the interest of the petitioner, could not have been obtained
through arbitration proceedings.

Zachry, in its Comment,^[39]
contends that pursuant to the Sievert
and Davao Light rulings, the issuance of the
writ of attachment before the service of summons on Zachry’s resident agent was
invalid and that the various pleadings filed by the parties did not cure its
invalidity. It argues that the
arbitration procedure is set forth in Section 27.B of the Subcontract
Agreement. It further maintains that
pursuant to General Insurance vs.
Union Insurance,^[40] the alleged fraudulent actuations
which relate to the merits of the case may be properly addressed to the
arbitrators and that there is no merit to the claim that arbitration would be
useless since the arbitration proceeding would be presided over by an
independent and competent arbitral tribunal.

The issues in these petitions are properly defined by VBC in G.R.
No. 107124.

We find for petitioner VBC.

It was error for the Court of Appeals to declare, on the ground
of grave abuse of discretion, the nullity of the writ of attachment issued by
the trial court on 21 March 1990. In
the first place, the writ was in fact issued only on 26 March 1990 and served,
together with the summons, copy of the complaint, the Order of 21 March 1990, and
the bond, on 27 March 1990 on Zachry at its field office in Subic Bay,
Zambales, through one Ruby Apostol. What the Court of Appeals referred to as having been issued on 21 March
1990 is the order granting the application for the issuance of a writ of preliminary attachment upon
the posting of a bond of P24,266,000.00.^[41] In
the second place, even granting arguendo
that the Court of Appeals had indeed in mind the 26 March 1990 writ
of attachment, its issuance, as well as the issuance of the 21 March 1990
Order, did not suffer from any procedural or jurisdictional defect; the trial
court could validly issue both.

However, the writ of attachment cannot be validly enforced
through the levy of Zachry’s property before the court had acquired
jurisdiction over Zachry’s person either through its voluntary appearance or
the valid service of summons upon it.^[42] To
put it in another way, a distinction should be made between the issuance
and the enforcement of the writ. The trial court has unlimited power to issue the writ upon the
commencement of the action even before it acquires jurisdiction over the person
of the defendant, but enforcement thereof can only be validly done after it
shall have acquired such jurisdiction. This is the rule enunciated in Davao
Light & Power Co. vs. Court of Appeals.^[43]
In that case, this Court stated:

“The question is whether or not a writ of preliminary
attachment may issue ex parte against
a defendant before acquisition of jurisdiction of the latter’s person by
service of summons or his voluntary submission to the Court’s authority.

The Court rules that the question must be answered in the affirmative and that consequently, the
petition for review will have to be granted.

It is incorrect to theorize that after an action or proceeding has
been commenced and jurisdiction over the person of the plaintiff has been
vested in the court, but before the acquisition
of jurisdiction over the person of the defendant (either by service of
summons or his voluntary
submission to the court’s
authority), nothing
can be validly done by the plaintiff or the court. It is wrong to assume that the validity of acts done during this
period should be dependent on, or held in suspension until, the actual
obtention of jurisdiction over the defendant’s person. The obtention by the court of jurisdiction
over the person of the defendant is one thing; quite another is the acquisition
of jurisdiction over the person of the plaintiff or over the subject-matter or
nature of the action, or the res or
object thereof.^[44]

x x x

A preliminary attachment may be defined, paraphrasing the Rules of
Court, as the provisional remedy in virtue of which a plaintiff or other proper
party may, at the commencement of the action or at any time thereafter, have
the property of the adverse party taken into the custody of the court as
security for the satisfaction of any judgment that may be recovered. It is a remedy which is purely statutory in
respect of which the law requires a strict construction of the provisions granting
it. Withal no principle, statutory or
jurisprudential, prohibits its issuance by any court before acquisition of
jurisdiction over the person of the defendant.

Rule 57 in fact speaks of the grant of the remedy ‘at the
commencement of the action or at any time thereafter.’ The phrase ‘at the
commencement of the action,’ obviously refers to the date of the filing of the
complaint — which, as above pointed out, is the date that marks ‘the
commencement of the action;’ and the reference plainly is to a time before
summons is served on the defendant, or even before summons issues. What the rule is saying quite clearly is
that after an action is properly commenced — by the filing of the complaint
and the payment of all requisite docket and other fees — the plaintiff may
apply for and obtain a writ of preliminary attachment upon fulfillment of the
pertinent requisites laid down by law, and that he may do so at any time,
either before or after service of summons on the defendant. And this indeed, has been the immemorial
practice sanctioned by the courts: for
the plaintiff or other proper party to incorporate the application for
attachment in the complaint or other appropriate pleading (counterclaim,
cross-claim, third-party claim) and for the Trial Court to issue the writ ex-parte at the commencement of the
action if it finds the application otherwise sufficient in form and substance.^[45]

x x x

It goes without saying that whatever be the acts done by the Court
prior to the acquisition of jurisdiction over the person of the defendant, as
above indicated — issuance of summons, order of attachment and writ of
attachment (and/or appointment of guardian ad litem, or
grant of authority to the plaintiff to prosecute the suit as a pauper litigant,
or amendment of the complaint by the plaintiff as a matter of right without
leave of court) — and however valid and proper they might otherwise be, these
do not and cannot bind and affect the defendant until and unless jurisdiction
over his person is eventually obtained by the court, either by service on him of
summons or other coercive process or his voluntary submission to the court’s
authority. Hence, when the sheriff or
other proper officer commences implementation of the writ of attachment, it is
essential that he serve on the defendant not only a copy of the applicant’s
affidavit and attachment bond, and of the order of attachment, as explicitly
required by Section 5 of Rule 57, but also the summons addressed to said
defendant as well as a copy of the complaint and order for appointment of
guardian ad litem, if any, as also explicitly directed by Section 3, Rule 14 of the
Rules of Court. Service of all such
documents is indispensable not only for the acquisition of jurisdiction over
the person of the defendant, but also upon considerations of fairness, to apprise
the defendant of the complaint against him, of the issuance of a writ of
preliminary attachment and the grounds therefor and thus accord him the
opportunity to prevent attachment of his property by the posting of a
counterbond in an amount equal to the plaintiff’s claim in the complaint
pursuant to Section 5 (or Section 12), Rule 57, or dissolving it by causing
dismissal of the complaint itself on any of the grounds set forth in Rule 16,
or demonstrating the insufficiency of the applicant’s affidavit or bond in
accordance with Section 13, Rule 57.^[46]

x x x

For the guidance of all concerned, the Court reiterates and
reaffirms the proposition that writs of attachment may properly issue ex parte provided that the Court is
satisfied that the relevant requisites therefor have been fulfilled by the
applicant, although it may, in it’s discretion, require prior hearing on the
application with notice to the defendant; but that levy on property pursuant to
the writ thus issued may not be validly effected unless preceded, or
contemporaneously accompanied, by service on the defendant of summons, a copy
of the complaint (and of the appointment of guardian ad litem, if
any), the application for attachment (if not incorporated in but submitted
separately from the complaint), the order of attachment, and the plaintiff’s
attachment bond.”^[47]

We reiterated the rule laid down in Davao
Light in the subsequent case of Cuartero vs. Court of Appeals^[48]
wherein we stated:

“It must be
emphasized that the grant of the provisional remedy of attachment practically
involves three stages: first, the court
issues the order granting the application; second, the writ of attachment
issues pursuant to the order granting the writ; and third, the writ is
implemented. For the initial two stages,
it is not necessary that jurisdiction over the person of the defendant should
first be obtained. However, once the
implementation commences, it is required that the court must have acquired
jurisdiction over the person of the defendant for without such jurisdiction,
the court has no power and authority to act in any manner against the
defendant. Any order issuing from the
Court will not bind the defendant.”

The validity then of the order granting the application for a
writ of preliminary attachment on 21 March 1990 and of the issuance of the writ
of preliminary attachment on 26 March 1990 is beyond dispute. However, the enforcement of the preliminary
attachment on 27 March 1990, although simultaneous with the service of the
summons and a copy of the complaint, did not bind Zachry because the service of
the summons was not validly made. When
a foreign corporation has designated a person to receive service of summons
pursuant to the Corporation Code, that designation is exclusive and service of
summons on any other person is inefficacious.^[49] The
valid service of summons and a copy of the amended complaint was only made upon
it on 24 April 1990, and it was only then that the trial court acquired
jurisdiction over Zachry’s person. Accordingly, the levy on attachment made by the sheriff on 27 April 1990
was invalid. However, the writ of
preliminary attachment may be validly served anew.

As to the second issue of arbitration, we find that although the
order of the trial court denying the motion to dismiss did not clearly state
so, it is evident that the trial court perceived the ground of the motion to be
not indubitable; hence, it could defer its resolution thereon until the trial
of the case. In deciding a motion to
dismiss, Section 3, Rule 16 of the Rules of Court grants the court four
options: (1) to deny the motion, (2) to grant the motion, (3) to allow
amendment of pleadings, or (4) to defer the hearing and determination of the
motion until the trial, if the ground alleged therein does not appear to be
indubitable. Under the fourth option,
the court is under no obligation to immediately hold a hearing on the motion;
it is vested with discretion to defer such hearing and the determination of the
motion until the trial of the case.^[50] The
lack of indubitability of the ground involved in Zachry’s motion to dismiss is
confirmed by the Court of Appeals when it declared:

“Section 27.B which is the provision
upon which petitioner [Zachry] anchors its claim is ambiguous in its
terminology when it states that ‘if at any time any controversy should arise
between the contractor and the subcontractor x x x which controversy is not
controlled or determined by Section 27.A above or other provisions of this
subcontract’ x x x. This provision
states that only when a controversy arises between the contractor and
subcontractor which is not covered by Section 27.A or any provision of the
Subcontract will the parties submit to arbitration. As to what controversies fall under Section 27.B, it is not clear
from a mere perusal of the provisions.”

Indeed, the parties could not even agree on what controversies
fall within Section 27.B, and, perhaps, rightly so because the said Section
27.B excludes controversies controlled or determined by Section 27.A and other
provisions of the Subcontract Agreement, which are themselves unclear. For that reason, VBC insists that its cause
of action in Civil Case No. 90-772 is based on Section 3 of the Subcontract
Agreement. It may further be emphasized
that VBC’s complaint was precipitated by Zachry’s refusal to comply with the
Supplemental Agreement. Evidently, Section 3 of the Subcontract
Agreement and the Supplemental Agreement are excluded by Section 27.B. The trial court was, therefore, correct in
denying Zachry’s motion to dismiss.

However, we cannot give our assent to the Court of Appeals’ order
directing the trial court to conduct a hearing for the determination of the
proper interpretation of the provisions of the Subcontract Agreement. It would re-open the motion to dismiss —
which, upon the trial court’s exercise of its discretion, was properly denied
for lack of indubitability of the ground invoked — and thereby unduly
interfere with the trial court’s discretion. The proper interpretation could only be done by the trial court after
presentation of evidence during trial on the merits pursuant to the tenor of
its order denying the motion to dismiss. If the trial court should find that, indeed, arbitration is in order,
then it could apply Section 7 of R.A. No. 876 which reads as follows:

“Sec. 7. Stay of civil action. — If any suit or
proceeding be brought upon an issue arising out of an agreement providing for
the arbitration thereof, the court in which such suit or proceeding is pending,
upon being satisfied that the issue involved in such suit or proceeding is
referable to arbitration, shall stay the action or proceeding until an
arbitration has been had in accordance with the terms of the agreement: Provided, That the applicant for the stay is
not in default in proceeding with such arbitration.”

WHEREFORE, the petition
in G.R. No. 107124 is GRANTED while that in G.R. No. 106989 is DENIED for lack of merit. The challenged
Decision of 1 July 1992 and Resolution of 2 September 1992 are hereby SET ASIDE. The orders
of Branch 142 of the Regional Trial Court of Makati in Civil Case No. 90-772 of
19 September 1990 denying the motion to dismiss and of 8 October 1990 denying the motion to reconsider the
former are REINSTATED. However, the
service of the writ of preliminary attachment on 26 March 1990 is hereby
declared invalid. The writ may,
nevertheless, be served anew.

No pronouncement as to costs.

SO ORDERED.

Cruz, (Chairman), Bellosillo, Quiason, and Kapunan, JJ., concur.

---

^[1]
Rollo, G.R. No. 107124, 505.

^[2]
Id., G.R. No. 106989, 38-53; Id., 39-56. Per Associate Justice Jose C. Campos, Jr.,
concurred in by Associate Justices Segundino G. Chua and Fortunato A. Vailoces.

^[3]
Rollo, G.R. No. 107124, 56.

^[4]
Id., 58-60.

^[5]
Id., 105-125 (Annex “A” of Complaint in Civil Case No. 90-772,
RTC, Makati).

^[6]
Rollo, G.R. No. 107124, 109.

^[7]
Rollo, G.R. No. 107124, 120-121.

^[8]
Id., 126-130. (Annex
“B” of Complaint in Civil Case No. 90-772, RTC, Makati).

^[9]
Rollo, G.R. No. 107124, 131-132.

^[10]
Rollo, G.R. No. 107124, 133.

^[11]
Id., 92-102.

^[12]
Id., 136.

^[13]
Id., 137.

^[14]
Id., 138-139.

^[15]
Rollo, G.R. No. 107124, 140-153.

^[16]
Id., 140.

^[17]
Rollo, G.R. No. 107124, 194-197.

^[18]
Id., 198.

^[19]
Id., 199-200.

^[20]
Id., 203.

^[21]
Id., 204.

^[22]
Id., 206-218.

^[23]
168 SCRA 692 [1988].

^[24]
Id. at 696-697 (footnote omitted).

^[25]
Such as the Reply to the Opposition, Rejoinder to the Reply, and Sur-Rejoinder.

^[26]
Rollo, G.R. No. 107124, 260-262.

^[27]
Id., 263-269.

^[28]
Id., 270-277.

^[29]
Id., 61-68.

^[30]
Rollo, G.R. No. 107124, 91.

^[31]
Id., G.R. No. 106989, 38-53; Id., 39-56.

^[32]
Supra note 23.

^[33]
Rollo, G.R. No. 106989, 50-51; Id., G.R. No. 107124, 52-53.

^[34]
Id., G.R. No. 107124, 405-410; 411-417.

^[35]
204 SCRA 343 [1991].

^[36]
Rollo, G.R. No. 107124, 58-60.

^[37]
Id., 524.

^[38]
Supra note 35.

^[39]
Rollo, G.R. No. 107124, 443-452.

^[40]
179 SCRA 530 [1989].

^[41]
Rollo, G.R. No. 107124, 136.

^[42]
Paramount Insurance Corp. vs. Japzon, 211 SCRA 879 [1992]; Minucher vs.
Court of Appeals, 214 SCRA 242 [1992].

^[43]
Supra note 35.

^[44]
Id. at 347.

^[45]
Id. at 349-350 (citations omitted).

^[46]
Id. at 355-356 (citations omitted).

^[47]
Id. at 357.

^[48]
212 SCRA 260 [1992]. See also, Manacop vs.
Court of Appeals, 215 SCRA 773 [1992]; Master Tours and Travel Corp. vs.
Court of Appeals, 219 SCRA 321 [1993].

^[49]
See Poizat vs. Morgan, 28 Phil. 597 [1914], cited in 1 MANUEL V. MORAN COMMENTS ON THE RULES OF COURT 449 (1979
ed.).

^[50]
Mendoza vs. Court of Appeals, 201 SCRA 343 [1991].