Mondragon Leisure and Resorts Corporation vs. Court of Appeals

A debtor cannot be exempted from liability on the ground of fortuitous event when the contract expressly allocates the risk of such events to the debtor, and when the event (such as an economic crisis or business closure) is not unforeseeable or unavoidable.

Mondragon International Philippines, Inc. (MIPI), Mondragon Securities Corporation (MSC), and petitioner Mondragon Leisure and Resorts Corporation entered into a lease agreement with Clark Development Corporation (CDC) to develop the Mimosa Leisure Estate. To finance the project, petitioner obtained a syndicated term loan of US$20M from respondent banks on June 30, 1997, executing an Omnibus Loan and Security Agreement. The loan was secured by a pledge of US$20M worth of MIPI shares and an assignment of petitioner's leasehold rights over the project. Petitioner fully availed of the loan on July 3, 1997, and regularly paid monthly interest until October 1998, after which payments ceased.

• The Loan Agreement: On June 30, 1997, petitioner entered into an Omnibus Loan and Security Agreement with respondent banks for a US$20M syndicated term loan, amended on January 19, 1999. The proceeds were released through advances evidenced by promissory notes, payable within a six-year period inclusive of a grace period.
• The Collateral: To secure repayment, petitioner pledged US$20M worth of MIPI shares and assigned its leasehold rights over the Mimosa Leisure Estate project, including all related agreements and benefits.
• Default: Petitioner fully availed the loan on July 3, 1997, and paid monthly interest until October 1998. Thereafter, payments ceased. Respondent banks sent written notices of default and acceleration on January 6 and February 5, 1999, demanding payment within a specified period; otherwise, the outstanding loan would be declared due and demandable.
• Foreclosure Action: On August 27, 1999, respondents filed Civil Case No. 9527 for the foreclosure of petitioner's leasehold rights.
• Prior Action: Prior to the foreclosure, respondent UCPB had filed a separate action for foreclosure of mortgage and/or collection docketed as Civil Case No. 9510, based on a different Omnibus Credit and Security Agreement executed on November 23, 1995.

• Defective Certification of Non-Forum Shopping: Petitioner argued that the verification and certificate of non-forum shopping were defective because there was no proof of the signatories' authority to file the complaint. The UCPB resolution presented before the Court of Appeals merely authorized representation in pending proceedings, not the initiation of new suits.
• Forum Shopping: Petitioner claimed that respondent UCPB engaged in forum shopping by instituting Civil Case No. 9510 prior to the present action.
• Prematurity/Lack of Cause of Action: Petitioner maintained that the obligation was not yet due and demandable because the Omnibus Agreement allowed a full six-year term. Even if some installments were missed, petitioner was not in default because respondents failed to give the written notice of default required under the agreement, having merely sent collection and demand letters.
• Fortuitous Event: Petitioner averred that the default provisions were rendered inapplicable by fortuitous events—namely, the Asian economic crisis and the closure of the Mimosa Regency Casino, which was petitioner’s primary source of revenue.

• Authority of Signatories: Respondents countered that the issue of the signatories' authority was never raised in the motion to dismiss or the motion for reconsideration before the trial court, and thus could not be raised for the first time on appeal. The signatories explicitly stated they were authorized by their respective boards of directors.
• No Forum Shopping: Respondents argued that Civil Case No. 9510 was based on a separate and distinct 1995 Omnibus Credit and Security Agreement, and involved different parties, as Asian Bank and Far East Bank were not parties to that prior case.
• Valid Default: Respondents asserted that under the Omnibus Agreement, failure to pay interest at stated maturity constituted an event of default. The January 6 and February 5, 1999 letters served as valid written notices of default and acceleration, complying with the notice requirement.

• Certification of Non-Forum Shopping: Whether the certificate of non-forum shopping was defective due to the lack of authority of the signatories.
• Forum Shopping: Whether respondent UCPB engaged in forum shopping by filing Civil Case No. 9510 prior to filing Civil Case No. 9527.
• Cause of Action and Default: Whether respondents have a cause of action against petitioner, considering petitioner's claim that the obligation was not yet due, no valid notice of default was given, and a fortuitous event rendered the default provisions inapplicable.

• Certification of Non-Forum Shopping: The issue regarding the signatories' authority was not passed upon, having been raised for the first time on appeal. Issues not raised in the trial court cannot be raised for the first time in appellate proceedings.
• Forum Shopping: Forum shopping was not established because the elements of litis pendentia were absent. Civil Case No. 9510 involved a different contract (the 1995 Omnibus Credit and Security Agreement) and different parties (Asian Bank and Far East Bank were not parties to Civil Case No. 9510).
• Cause of Action and Default: A cause of action existed. Under Section 6.01(a) of the Omnibus Agreement, failure to pay interest at stated maturity constitutes an event of default. The January 6 and February 5, 1999 letters served as valid written notices communicating the respondents' choice of remedy—acceleration of the loan—pursuant to Article 1201 of the Civil Code and Section 6.02 of the Agreement. The defense of fortuitous event was rejected because the Asian financial crisis and the closure of the casino are not unforeseeable or unavoidable events under Article 1174 of the Civil Code; they are inherent business risks. Furthermore, the contract expressly stipulated that force majeure would in no way affect the borrower's obligation to make payments, bringing the case within the exceptions to the general rule on fortuitous events.

• Fortuitous Event (Caso Fortuito) — To exempt the obligor from liability for breach of an obligation by reason of a fortuitous event, the following requisites must concur: (a) the cause of the breach must be independent of the will of the debtor; (b) the event must be either unforeseeable or unavoidable; (c) the event must render it impossible for the debtor to fulfill the obligation in a normal manner; and (d) the debtor must be free from any participation in, or aggravation of, the injury to the creditor. Economic crises and business closures do not qualify, as risks are inherent and foreseeable in business ventures.
• Exceptions to Fortuitous Event — A debtor remains liable despite a fortuitous event when: (1) the law expressly specifies liability; (2) the parties otherwise declare so by stipulation; or (3) the nature of the obligation requires the assumption of risks. In this case, the second and third exceptions applied: the contract expressly stipulated that force majeure would not affect payment obligations, and business loans inherently require the assumption of economic risks.
• Forum Shopping and Litis Pendentia — Forum shopping exists when actions involve the same transactions, essential facts, causes of action, subject matter, and issues, such that a final judgment in one would amount to res judicata in the other. The test is the presence of the elements of litis pendentia: (a) identity of parties representing the same interests; (b) identity of rights asserted and relief prayed for, founded on the same facts; and (c) identity of the cases such that judgment in one would amount to res judicata in the other.

• "Every business venture involves risks. Risks are not unforeseeable; they are inherent in business."
• "Under the law, these exceptions are: (1) when the law expressly so specifies; (2) when it is otherwise declared by the parties; and (3) when the nature of the obligation requires the assumption of risks."
• "The choice shall produce no effect except from the time it has been communicated. This is the reason why a written notice is required under Section 6.02 of the Omnibus Agreement."

• Lim v. Queensland Tokyo Commodities, Inc., G.R. No. 136031, 4 January 2002 — Followed. Issues not raised in the trial court cannot be raised for the first time on appeal.
• Tirona v. Alejo, G.R. No. 129313, 10 October 2001 — Followed. Laid down the test for forum shopping based on the presence of litis pendentia or res judicata.
• Republic v. Carmel Development, Inc., G.R. No. 142572, 20 February 2002 — Followed. Enumerated the requisites for the dismissal of an action on the ground of litis pendentia.
• Huibonhoa v. Court of Appeals, G.R. Nos. 95897 and 102604, 14 December 1999 — Followed. Enumerated the requisites for a fortuitous event exempting an obligor from liability.

• Article 1174, Civil Code — Governs fortuitous events and expressly provides the exceptions where a debtor remains liable despite a fortuitous event: when the law specifies, when stipulated by the parties, or when the nature of the obligation requires the assumption of risk. Applied to hold petitioner liable, as the contract stipulated force majeure would not affect payment, and business risks are assumed by nature of the obligation.
• Article 1201, Civil Code — Provides that the choice in alternative obligations produces no effect except from the time it has been communicated. Applied to validate the written notices sent by respondents, which communicated their choice to accelerate the loan.
• Section 6.01 and 6.02, Part B, Omnibus Loan and Security Agreement — Defined events of default (including failure to pay interest) and the consequences of default (acceleration, foreclosure, etc. upon written notice). Applied to establish that petitioner was in default and respondents properly exercised their remedy of acceleration.
• Section 7.13, Part A, Omnibus Loan and Security Agreement — Force majeure clause expressly stipulating that force majeure or similar occurrences beyond the lenders' control shall in no way affect the borrower's obligation to make payments. Applied to defeat petitioner's defense of fortuitous event.

Davide, Jr., C.J. (Chairman), Ynares-Santiago, Carpio, and Azcuna, JJ.