Mondragon Leisure and Resorts Corp. vs. Court of Appeals

Factual Background

On February 28, 1994, Mondragon International Philippines, Inc., Mondragon Securities Corporation, and Mondragon Leisure and Resorts Corporation entered a lease with Clark Development Corporation for the Mimosa Leisure Estate. To finance development, petitioner executed the Omnibus Agreement with the respondent banks for a syndicated US$20,000,000 term loan. The loan proceeds were to be advanced by promissory notes and repaid within six years from initial advance, inclusive of a one year and two quarters grace period. As security, petitioner pledged US$20,000,000 worth of MIPI shares, assigned rights in the pledged shares, and assigned leasehold rights and related project agreements.

Loan Disbursement and Default

Petitioner drew the entire syndicated loan on July 3, 1997. Petitioner paid monthly interest until October 1998 but thereafter ceased payments. The respondent banks issued written notices of default and demands for payment on January 6 and February 5, 1999. On August 27, 1999, respondents filed Civil Case No. 9527 for foreclosure of leasehold rights to recover the indebtedness.

Trial Court Proceedings

Petitioner moved to dismiss the foreclosure complaint on grounds that a condition precedent for filing had not been met, that the complaint was premature or failed to state a cause of action, that the certification of non-forum shopping was defective because UCPB had previously filed another suit, and that the respondents engaged in forum shopping. The trial court denied the motion to dismiss, finding that nonpayment of interest constituted a payment default under Section 6.01 of the Omnibus Agreement, that respondents were entitled to accelerate payment and to foreclose collaterals, that the alleged force majeure was baseless, and that the alleged forum shopping did not obtain because the parties and subject matter of Civil Case No. 9510 differed from Civil Case No. 9527. The court gave petitioner 15 days to file an answer.

Interlocutory Appeals and Relief Sought

Petitioner filed a motion for reconsideration in the trial court, which was denied. Petitioner then filed a special civil action for certiorari with the Court of Appeals, which dismissed the petition on March 12, 2002 and denied the subsequent motion for reconsideration on July 3, 2002. Petitioner elevated the matter to the Supreme Court by certiorari, urging errors in the Court of Appeals’ rulings.

Issues Presented

Petitioner framed three principal issues: (1) whether the certification of non-forum shopping and verification of the complaint were defective for lack of proof of authority of signatories; (2) whether respondents engaged in forum shopping by previously instituting Civil Case No. 9510; and (3) whether respondents had a cause of action because the loan obligation was not yet due and demandable and because the alleged defaults were excused by force majeure, specifically the Asian economic crisis and the closure of the Mimosa Regency Casino.

Parties’ Contentions

Petitioner argued that the verification and certificate of non-forum shopping were defective for lack of proof of board authorization for the signatories, that Civil Case No. 9510 established forum shopping by UCPB, and that the obligation remained within the agreed six-year term and thus was not demandable; petitioner further claimed that fortuitous events excused nonperformance. Respondents maintained that the signatories had stated they were authorized, that the verification defect was not raised below and was therefore waived, that Civil Case No. 9510 involved a different omnibus agreement and different lender parties and therefore did not amount to forum shopping, and that nonpayment of interest constituted a payment default under the Omnibus Agreement with proper written notice and acceleration having been given.

Court of Appeals and Waiver of Verification Issue

The Supreme Court agreed with respondents that the challenge to the authority of the complaint’s signatories was not raised in the trial court and therefore could not be raised for the first time on appeal. Citing precedent, the Court reiterated that issues not raised below are waived on appeal. The Court found no reversible error in the Court of Appeals’ refusal to consider the verification-authority claim.

Forum Shopping Analysis

The Court analyzed the forum shopping allegation by comparing the complaints. It found Civil Case No. 9510 arose from an Omnibus Credit and Security Agreement executed on November 23, 1995 between petitioner and UCPB, which was distinct from the Omnibus Agreement underlying Civil Case No. 9527. The Court applied the litis pendentia requisites and precedent, observing that forum shopping exists only where the same transaction, essential facts, parties or interests, causes of action, subject matter, and issues are involved such that judgment in one case would be res judicata in the other. The Court concluded that the requisite identity of parties, rights, and causes was absent and that the forum shopping claim failed.

Default, Contractual Provisions, and Notice

The Court examined the Omnibus Agreement provisions. It noted Section 2.06(a) required payment of interest on advances and that Section 6.01 designated payment default as failure to pay when due at stated maturity, by acceleration or otherwise, any amount payable under the loan documents. The Court held that nonpayment of interest constituted a valid payment default. The Court explained that Section 6.02 provided lenders with four alternative remedies, including acceleration and foreclosure, and that under Article 1201, Civil Code, a chosen remedy produced effect only upon communication. The Court found the respondent banks had complied with the written notic