G.R. No. L-6650. January 31, 1955

The Compañia General de Tabacos de Filipinas, hereafter referred to as
TABACALERA is a sociedad anonima organized under the laws of Spain, and
authorized to do business in the Philippines. In the year 1927 high executive
officers of TABACALERA organized the Central Azucarera de Tarlac, hereafter
referred to as AZUCARERA, as a corporation under the laws of the Philippines. Of
its 16,000 shares of stock originally subscribed, 13,000 shares were subscribed
by TABACALERA, 2,000 shares by its high executive officials and the remaining
1,000 by other persons. Since its organization AZUCARERA continuously and up to
the present has been managed by TABACALERA, and in 1943, Lorenzo Correa, then
Assistant Manager of TABACALERA was the President of AZUCARERA.

On November 15, 1928, AZUCARERA issued for sale to the public, first mortgage
bonds in denomination of 1,000.00 each, payable to bearer on or before November
15, 1943, with interest at the rate of eight per centum (8%) per annum payable
semi-annually as per interest coupons attached to the bond certificates. Under
said mortgage bonds, TABACALERA was appointed the trustee of all bondholders.
Among the bondholders were Francisco Javier de Pitarque y Elio with 8 bonds;
Isabel Maria de Ynchausti with 29 bonds; Maria Elia de Ynchausti with 23 bonds;
and Ana Maria de Pitarque y de Ynchausti with 18 bonds, all with a total value
of P78,000.00.

In April, 1943, AZUCARERA decided to call in all its bonds then outstanding,
amounting to 2,500 with a total value of P2,500,000.00. Because it was not then
in a position financially to effect the redemption, it decided to borrow the
necessary amount of 2,500,000.00 from the Bank of Taiwan. At that time there was
a trust mortgage of its properties in the amount of P4,000,000.00 in favor of
TABACALERA; there was also a second mortgage on all its properties in the amount
of P5,000,000.00 also in favor of TABACALERA. These two mortgages were cancelled
thereby enabling AZUCARERA to mortgage the same properties in favor of the Bank
of Taiwan to secure the loan of P2,500,000.00 given to it.

The corresponding notice of redemption was published in two Manila dailies,
the Tribune and La Vanguardia, to the effect that the principal and interest
will be paid by the trustee (Tabacalera) at its office in Manila “on or after
May 15, 1943, against surrender of the bonds and attached interest coupons”.
Pursuant to said notice numerous bondholders presented their bonds for payment
and were paid; and according to the record 717 bonds valued at P717,000.00 held
by the TABACALERA were also redeemed and paid by the trustee.

On July 22, 1943, Gregorio Araneta Inc., hereafter referred to as ARANETA
INC., representing itself as the duly authorized attorney-in-fact or agent of
bondholders Francisco Javier de Pitarque y Elio, Maria de Ynchausti, Maria Elia
de Ynchausti and Ana Maria de Pitarque y de Ynchausti, then all residing in
Spain, applied for payment according to the plaintiffs TABACALERA and AZUCARERA
of the principal and interest of the bonds owned by its principals. According to
ARANETA INC., however, it never applied for payment but was notified and was
even pressed to present the bonds of its principals for payment. Anyway, Jose
Araneta, then President of ARANETA INC., filed with the AZUCARERA the following
affidavit:

“I, JOSE ARANETA, President of the Gregorio Araneta, Inc., and the latter as
attorney-in-fact of Da. Maria Elia de Ynchausti, D. Francisco Javier de Pitarque
y Elio, Da. Maria Isabel de Ynchausti, and Da. Ana Maria de Pitarque y de
Ynchausti, do hereby declare and swear:-

That under date of July 3, 1943, the said Gregorio Araneta, Inc. wrote a
letter to the Bank of the Philippine Islands of the following tenor:

‘Muy Srs. Nuestros:

Les agradeceriamos a Vds. nos manden los certificados de los siguientes bonos
que estan depositados en su poder para que podamos presentarlos para su cobro a
las companies correspondientes, viz:

Casino Español

Cert. No. 499 por 20 obligaciones a/n de D.a Maria Isabel de
Ynchausti
Cert. No. 499 por 20 obligaciones a/n de D.a Maria Isabel de
Ynchausti
Cert. No. 497 por 20 obligaciones a/n de D.a Maria Elia de
Ynchausti
Cert. No. 640 por 10 obligaciones a/n de D. Francisco Javier de
Pitarque y Elio
Cert. No. 573 por 10 obligaciones a/n de D.a Ana Maria de
Pitarque y de Ynchausti

Central Azucarera de Tarlac

23 Bonos Nos. 511/4, 3232, 3234, 3236/7, 3242/3, 3246/52, 3255/61 a nombre de
D.a Isabel de Ynchausti de Pitarque.
23 Bonos Nos. 3203/4, 3206, 3206,
3208/9, 3211/3, 3215/8, 3220/1, 3223/4, 3228, 3230, 516/20, a nombre de D.a
Maria Elia de Ynchausti.
8 Bonos Nos. 508/9, 1846, 1849, 1851, 1853, 5746,
2748, a nombre D. Francisco Javier de Pitarque y Elio.
10 Bonos Nos. 510,
2739, 2741/4, 3965, 3969/70 a nombre de D.a Ana Maria de Pitarque y de
Ynchausti.’

That under date of July 6, 1943, the Bank of the Philippine Islands, in reply
to the Above mentioned letter of Gregorio Araneta Inc., answered as follows:

‘Muy Sres. Nuestros:

En contestacion a su atenta carta de fecha 3 del presente mes, mucho sentimos
no poder remitirles, como nos piden, los titulos de los bonos u obligaciones del
Casino Español del Manila y de la Central Azucarera de Tarlac que se detallan en
su carta y que obraban en nuestro poder en calidad de deposito en custodia, en
razon a que, por orden de fecha 29 de Diciembre de 1941 del anterior Alto
Comisionado de los Estados Unidos de America en Filipinas, tales titulos
tuvieron que ser entregados por este Banco al mencionado funcionario.

Deplorando el inconveniente que nos priva del placer de complacerles, nos
reiteramos de Vds. attos. Y ss. ss.,

PEDRO J. CAMPOS
Presidente’

That for the reasons alleged in the letter of the Bank of the Philippine
Islands, the said Gregorio Araneta, Inc. is not in a position to produce the
above-mentioned certificates of bonds of Casino Español and the Central
Azucarera de Tarlac;

FURTHER, affiant sayeth not.

(Sgd.) JOSE ARANETA”

Because of the non-presentation of the bonds of its principals, AZUCARERA and
TABACALERA refused to make payment of the amounts of said bonds and interest,
and required ARANETA INC. to specify that it was applying for payment of the
principal and interest of the bonds, and that it would undertake to indemnify
plaintiffs for any damage that might be caused them if in the future they should
be called upon to make a second payment of the same bonds. Complying with this
requirement ARANETA INC. sent a letter to the TABACALERA dated January 23, 1943,
which is quoted below:

“GREGORIO ARANETA, INCORPORATED
4 th Floor, Samanillo
Bldg.
Manila

Manila, 23 de Julio de 1943

Compañia Gral. de Tabacos de Filipinas
Marques de Comillas
Manila

Muy Srs. Nuestros:

La presente tiene por objecto informarles que tan pronto como el Banco de las
Islas Filipinas nos pueda remitir las obligaciones de la Central Azucarera de
Tarlac anotadas en el adjunto affidavit, nos comprometemos a entregar las
mismas.

Deseamos tambien hacer constar que asumimos la responsabilidad de reembolsar
a Vds. de cualquiera duplicidad de pago en que pueda incurrir a causa de la no
presentacion de dichas obligaciones.

De Vds. attos, y ss., ss.,

GREGORIO ARANETA, INCORPORATED
Apoderados de los
Sres:
Maria Isabel de Ynchausti
Maria Elia de Ynchausti
Francisco
Javier de Pitarque y Elio
Ana Maria de Pitarque y de Ynchausti
Isabel de
Ynchausti de Pitarque

Por:

(Fdo.) Jose Araneta
Presidente.”

 

With this letter or undertaking TABACALERA paid the value of the bonds and
interest belonging to the four principals of ARANETA INC. including six other
bonds in the name of Isabel de Ynchausti and eight other bonds with interest
coupons attached thereto in the name of Ana Maria de Ynchausti which were in the
Philippines, in the form of and by means of checks issued by TABACALERA in favor
of ARANETA INC. on account of each co-principal, drawn on the Bank of Taiwan,
dated August 7, 1943. ARANETA INC. received the abovementioned checks for its
principals in payment of the principal and interest of the bonds owned by said
principal, and deposited them in the Bank of the Philippine Islands in separate
accounts.

After the war, the bond certificates belonging to the four principals of
ARANETA INC. which according to the Bank of the Philippine Islands had been
delivered to the High Commissioner of the United States, presumably for
safekeeping, were returned to ARANETA INC. and they were in turn delivered to
the law firm of Ramirez & Ortigas for collection. Said law firm duly advised
the AZUCARERA that it had received the bonds in question from ARANETA INC. and
asked that the same be noted for purposes of Republic Act No. 62. AZUCARERA
through its attorneys advised Ramirez & Ortigas that said bonds not only had
already been paid in 1943 but that ARANETA INC. had undertaken to reimburse
AZUCARERA for any loss which might be sustained by it in case of double payment,
and had promised to deliver said bonds to AZUCARERA as soon as it received them
from the Bank of the Philippine Islands. Because of the refusal of ARANETA INC.
to deliver to AZUCARERA the said bonds, AZUCARERA and TABACALERA filed present
action against ARANETA INC. and its principals to recover them and for damages,
including the amount of P754.31 which was the amount of annual premium on the
surety bond filed by the AZUCARERA and P10,000.00 as attorney’s fees. After
trial, the Court of First Instance of Manila presided over by Judge Potenciano
Pecson rendered judgment in favor of the plaintiffs and against the defendants,
ordering the latter “to deliver to the plaintiffs sixty-four (64) bonds
described in paragraph IV of the complaint; and (2) ordering defendant to pay
the plaintiffs, attorney’s fees in the sum of P5,000.00 and the annual premiums
on the bond in the sum of P754.31 with interest on the latter at the rate of six
per centum per annum from the date of the filing of the complaint until fully
paid,” and dismissing the counterclaim of the defendants for lack of sufficient
and convincing evidence in support thereof. Both parties have appealed.
Plaintiffs appealed because the lower court awarded them only P5,000.00 as
attorney’s fees and because it held that in May, 1943, AZUCARERA was indebted to
the TABACALERA in the sum of P5,000.00 secured by a second mortgage. The
defendants appealed, claiming that the trial court erred in holding that ARANETA
INC. as attorney-in-fact of its co-defendants applied in 1943 for the redemption
of the 78 bonds valued at P78,000.00 in Japanese military notes; in not finding
that the payment of the said bonds had been affected through threats, duress and
moral coercion; in not holding that the TABACALERA in enabling the AZUCARERA to
redeem the bond in 1943 committed a breach of trust against the appellant
bondholders; in not holding that the defendants-appellants are now entitled to
receive the redemption price of the bonds from either TABACALERA or AZUCARERA;
in holding that appellants had acted in bad faith in refusing to surrender to
the plaintiffs the bonds in question in 1947, and adjudging them liable for
attorney’s fees as well as the annual replevin bond premium for P754.31.

As to whether or not ARANETA INC. applied for the payment of the bonds in
question, under the circumstances we are inclined to agree with the trial court
that application for payment was made. The notice issued by the AZUCARERA
published in two Manila Dailies for the redemption of its bonds was made in
general. There was no specific notice to or demand upon ARANETA INC. to present
apply for payment of the bonds owned by them. It is even doubtful whether the
AZUCARERA then knew that ARANETA INC. was acting as agent or attorney-in-fact
for any bond owner, and yet we find the affidavit made by Jose Araneta as
President of ARANETA INC. to support its claim that he could not produce and
present those bonds for payment. There is, therefore, reason to believe and to
hold that ARANETA INC. applied for payment of the bonds of its principals but
because of the refusal of AZUCARERA to pay them unless they were produced and
surrendered, the affidavit was made.

But it is claimed by ARANETA INC. that there was intimidation and duress
exercised over its president into accepting payment of the bonds; that during
the Japanese occupation the Japanese authorities had issued notifications and
proclamations to the effect that those who held Japanese military notes were
authorized to use them in making payments of all kinds and if any person
interfered with the circulation of said notes, such person refusing to receive
or accept them in payment would be severely punished; that because of Jose
Araneta’s fear that he might be punished for refusing to accept payment of the
bonds in Japanese military notes, he accepted them reluctantly and that under
those conditions his acceptance of the payment should be considered invalid as
done under duress and coercion. We have already said that ARANETA INC. applied
for payment. Applying for payment implies voluntariness which is incompatible
with alleged duress and coercion. But even if we consider the attitude of the
Japanese occupation authorities in viewing with disfavor, even hostility, any
act of rejection of payment of obligations in Japanese military notes, as
influencing creditors in accepting payment of pre-war obligations in Japanese
military notes and accepted by the creditor though in compliance with the orders
of the Japanese military occupant enjoining acceptance of said military notes
under severe penalty for non-acceptance, cannot be considered as made under
collective and general duress, because an act done pursuant to the laws or
orders of competent authorities can never be regarded as executed involuntarily,
or under duress or illegitimate constraint or compulsion that invalidates the
act. (Philippine Trust Co. vs. Luis Ma. Araneta et al., G.R. No. L-2734, March
17, 1949 [46 O.G. p. 4254].) Moreover, the undertaking of ARANETA INC. included
in its letter to TABACALERA dated July 23, 1943, that it assumed responsibility
of reimbursing TABACALERA for any damage incurred by reason of double payment of
the said bonds should the same be paid twice because they came into the hands of
third parties, far from implying any reluctance or unwillingness to accept
payment of the bonds would appear to show willingness, not to say active
interest, even desire to accept payment. Why should ARANETA INC. go out of its
way and make said undertaking? It did not have the bonds in question because
they were being kept in the United States. That would have been a good excuse
for not presenting them for payment even if actually notified and called upon to
present them. Furthermore, in the letter of ARANETA INC. to the Bank of the
Philippine Islands asking for the delivery of the bonds deposited with it, it
said that ARANETA INC. needed those bonds in order to cash them (cobro) or have
them paid. It did not say that they were being demanded by TABACALERA or
AZUCARERA. Besides, in 1943, the Japanese military notes were about at par with
the Philippine peso, perhaps slightly less in value. The trial court said that
the ratio was 1.50 military notes for one genuine Philippine peso, although in
the case of Hernaez et al., v. McGrath et al., G.R. No. L-4044, July 9, 1952,
this Tribunal held:

“The disparity in value, if any, between Japanese war notes and the
Philippine peso in February 1943 was not great, however. According to the
Ballantyne conversion table, the exchange ratio between the two currencies in
February 1943 was P1.00 to P1.10. It is to be kept in mind that this scale did
not pretend to be exact. The ratio could have been still even.”

So, there could not have been much, if any, valid objection to accepting
Japanese military notes in payment. In fact, ARANETA INC. itself was paying its
own employees in the same military currency.

As to the validity of payment during occupation of pre-war obligations in
Japanese military notes and the alleged reluctance of creditors in accepting
said payments, we have uniformly held that said payments were valid –

“Under the applicable law and uniform decisions of this Court, however, the
payment was enforceable irrespective of the attitude of the creditor. The debtor
or his successor-in-interest had the right to pay the mortgage in Japanese war
notes, which were the authorized currency in circulation, not to say the only
currency available. In other words, the payment would have released the mortgage
even if it had been tendered by the mortgagor personally and had been turned
down by the mortgagee. That was the unfortunate situation into which thousands
of prewar creditors were thrust by the war, most of them being forced to accept
Japanese military notes when these were little better than useless. Four-square
with this case is Reyes v. Zaballero, G.R. No. L-3561, May 23, 1951, in which
the debt was paid in December, 1944.” (Hernaez et al. vs. McGrath et al.,
supra.)

“When the payment was tendered and consigned by the debtors and accepted by
the creditors, the same was due and demandable, and the only currency then in
circulation was the Japanese fiat money. Not to pay their debts at that time in
the only money then in circulation, the plaintiffs would subject themselves to a
lawsuit and possible loss of their property. Certainly, they would have to
continue paying a high rate of interest.

“Payments of pre-war debts in Japanese war notes have been uniformly held
valid and effective to discharge the obligations if the contract did not specify
the currency with which the debt was to be satisfied and was silent as to the
date of maturity. On the authority of these decisions it was immaterial whether
duress or coercion, general or specific, was exerted on the creditors.”
(Gustilo et al. vs. Jagunap et al., G.R. No. L-4249, November 20,
1951)

From whatever angle we view the payment of the bonds in question, the only
legitimate conclusion is that it was valid and properly made by the plaintiffs.
The bonds were matured and due for payment and AZUCARERA was authorized to
redeem them. Even if ARANETA INC. refused to accept payment in defiance of the
notices and proclamations issued by the Japanese military occupant, plaintiffs
could have consigned the value of said bonds in court and said consignment would
have released them from its obligations.^[1]

As to the attorney’s fees in the amount of P5,000.00 awarded the plaintiffs,
we also agree with the trial court that said bonds having been duly and validly
paid in 1943, AZUCARERA had every right to their possession and ARANETA INC. was
justified in withholding them. Not only this, in its letter to TABACALERA dated
July 23, 1943, ARANETA INC. undertook and promised to deliver said bonds as soon
as it received them. Far from complying with this undertaking, it is not only
refused to give them up but directed its lawyers, RAMIREZ & ORTIGAS, to
collect their value. Under these circumstances, we believe that the trial court
was justified in awarding damages in the form of attorney’s fees. The same thing
may be said about awarding damages for the annual premiums on the surety bond
filed by plaintiffs.

As to the claim of plaintiffs that the attorney’s fees fixed by it at
P10,000.00 should not have been reduced to 5,000.00, we do not feel warranted in
disturbing the discretion of the trial court on this point.

We deem it unnecessary to discuss and pass upon the other questions raised in
the appeal.

IN VIEW OF THE FOREGOING, and finding no reversible error in the decision
appealed from, the same is hereby affirmed with costs.

Paras, C.J., Pablo, Bengzon, Reyes, Jugo, Bautista Angelo, Labrador,
Concepcion, and Reyes, J.B.L., JJ., concur.

Padilla, J., see concurring.

---

^[1] Reyes vs. Zaballero, G.R. No.
L-3561, May 23, 1951.

 

CONCURRING OPINION

PADILLA, J., concurring:

I concur in the result. I do not believe there was duress upon the defendant
corporation when on behalf of its principals it consented to the redemption of
the Central Azucarera de Tarlac bonds.