H.B. Zachry Company International v. Court of Appeals
REITERATIONFacts
1. The Antecedents: Vinnel-Belvoir Corporation (VBC) and H.B. Zachry Company International (Zachry) entered into a Subcontract Agreement for the construction of housing units at the US Naval Base in Subic, Zambales, with Zachry as the prime contractor and VBC as a subcontractor. Disputes arose regarding the quality of VBC's work and payments due, leading to a Supplemental Agreement executed on December 18, 1989, to address cost retentions and completion of the project. VBC claimed a balance of $1,103,000.00 due, including withheld funds and an escalation adjustment, but Zachry refused to acknowledge the debt and failed to provide statements of accumulated costs, and VBC's attempts to resolve the issue through direct communication and with the US Navy proved unsuccessful. 2. Procedural History: On March 20, 1990, VBC filed a complaint against Zachry with the Regional Trial Court (RTC) of Makati, seeking collection of payments and a writ of preliminary attachment, which the RTC granted on March 21, 1990, with the writ issued and served on March 27, 1990, along with summons and the complaint; VBC later amended its complaint to include US Navy officials. Zachry moved to dismiss, arguing lack of jurisdiction due to improper summons service and seeking suspension of proceedings due to an arbitration clause in the subcontract, but the RTC denied both Zachry's motion to dismiss and its subsequent motion for reconsideration. Zachry then filed a petition for certiorari and prohibition with the Court of Appeals, which dissolved the writ of preliminary attachment, finding it issued in grave abuse of discretion, and ordered the RTC to conduct a hearing on the interpretation of the arbitration clause, with both parties' motions for reconsideration subsequently denied by the Court of Appeals. 3. The Petition: These consolidated petitions for review challenge the Court of Appeals' decision, with Zachry in G.R. No. 106989 reiterating its arguments for arbitration and dismissal, and VBC in G.R. No. 107124 arguing that the writ of preliminary attachment was validly issued prior to summons service, citing Davao Light & Power Co. vs. Court of Appeals, and that arbitration is not required due to Zachry's alleged fraudulent actions and the nature of the dispute concerning payment under Section 3 of the Subcontract Agreement, not Section 27.B on arbitration. The Supreme Court, in its decision, reinstated the RTC orders denying the motion to dismiss, declared the initial service of the writ of attachment invalid but allowed it to be served anew, and found that the trial court correctly denied the motion to dismiss, deferring the arbitration issue to trial on the merits.
Issue(s)
Whether the issuance of the writ of preliminary attachment prior to the service of summons and a copy of the amended complaint on the respondent is valid. 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.
Ruling
The Supreme Court granted the petition in G.R. No. 107124 (VBC) and denied the petition in G.R. No. 106989 (Zachry). The challenged Decision of the Court of Appeals and its Resolution were set aside. The orders of the RTC denying Zachry's motion to dismiss were reinstated. However, the service of the writ of preliminary attachment on March 26, 1990, was declared invalid, and the writ may be served anew.
Ratio Decidendi
On the validity of the writ of preliminary attachment: The Court held that the Court of Appeals erred in declaring the writ of attachment null and void on the ground of grave abuse of discretion. The Court clarified that the order granting the application for the writ was issued on March 21, 1990, and the writ itself was issued on March 26, 1990. The Court reiterated the ruling in Davao Light & Power Co. vs. Court of Appeals that a writ of preliminary attachment may be issued ex parte at the commencement of an action, even before jurisdiction over the person of the defendant is acquired. This is because the issuance of the writ is distinct from its enforcement. The trial court has the power to issue the writ upon commencement of the action, but its enforcement requires prior or simultaneous valid service of summons and a copy of the complaint. The Court found that while the issuance of the writ was valid, its enforcement on March 27, 1990, was invalid because the service of summons on that date was not validly made upon Zachry, a foreign corporation that had designated a resident agent. Valid service of summons was only made on April 24, 1990, upon the designated resident agent. Therefore, the levy on attachment made on April 27, 1990, was invalid, but the writ itself could be served anew. On the issue of arbitration: The Court found that the trial court correctly denied Zachry's motion to dismiss based on the arbitration clause. The Court of Appeals itself noted that Section 27.B of the Subcontract Agreement was ambiguous regarding which controversies were subject to arbitration, as it excluded controversies controlled or determined by Section 27.A or other provisions of the subcontract. The Court agreed that the ambiguity meant the ground for dismissal was not indubitable, justifying the trial court's discretion to defer the resolution of the motion until trial. The Court emphasized that VBC's cause of action was based on Section 3 (Payment) and the Supplemental Agreement, which were not clearly covered by the arbitration clause. Therefore, the trial court's denial of the motion to dismiss was proper, and it should proceed to hear the case on the merits to determine the proper interpretation of the subcontract provisions.
Main Doctrine
A writ of preliminary attachment may be issued ex parte at the commencement of an action, even before jurisdiction over the person of the defendant is acquired. However, the enforcement or levy on property pursuant to the writ cannot be validly effected unless preceded or contemporaneously accompanied by valid service of summons and a copy of the complaint on the defendant.