G.R. Nos. L-10367-68. April 25, 1961
MARY MCD. BACHRACH, PLAINTIFF AND APPELLANT, VS. PHILIPPINE TRUST CO. AND LA ORDEN DE PP. BENEDICTINOS DE LAS ISLAS FILIPINAS, DEFENDANTS AND APPELLEES.
DIZON, J.:
referred to as La Orden, a Corporation sole, organized and existing under the
laws of the Philippines, offered for sale a series of bonds numbered from 1 to
900, of a par value of P500.00 each, Philippine currency. They were to mature
serially from 2 to 15 years (from 1930 to 1943), each to bear interest at the
rate of 8% per annum, payable semi-annually, upon presentation of the
corresponding interest coupon attached to each bond, as they became due.
Appellant Bachrach bought forty (40) of the bonds numbered 211 to 230 (with
maturity date on Jan. 1, 1936) and numbered 788 to 807 (with maturity date on
Jan. 1, 1943), all numbers inclusive.
Appellants Staffords also purchased similar bonds, described as follows:
MATURITY DATE Jan. 1, 1941 Jan. 1, 1942 Jan. 1, 1943 Jan. 1, 1948
To guarantee the payment of the principal and interest of the bonds La Orden
executed on Jan. 1, 1928 a Mortgage-Deed of Trust (Exhibit A) in favor of
appellee Philippine Trust Co., a domestic corporation, as Trustee for the
benefit of the bondholders, on certain real properties belonging to it, all
situated in the City of Manila.
As La Orden defaulted in the payment of the principal and interests due on
the bonds, fourteen bond-holders—appellants herein amongst them—owning more than
25% in amount of the bonds then outstanding, thru Atty. Alva J. Hill, took steps
to collect payment due and further made a written request to the Philippine
Trust Co. to make a formal demand upon La Orden for the payment of all accrued
interests. The demand was made but in spite of several extensions granted to La
Orden the latter was not able to meet its obligation. For this reason Atty. Hill
requested the Philippine Trust Co. to bring suit. As a result, the
latter—hereinafter referred to as the Trustee—on behalf of the bondholders and
pursuant to the authority granted to it in the deed of trust already referred
to, instituted an action against La Orden (Civil Case No. 58809 of the Court of
First Instance of Manila) on February 20, 1941 for the payment of the value of
the outstanding bonds and interests due thereon, praying at the same time for
the appointment of a Receiver for the mortgaged properties. As in its answer to
the complaint La Orden agreed to the appointment of a Receiver, the court
granted the petition on March 13, 1941, and thereafter the Receiver appointed by
the Court took possession of all the mortgaged properties. All the bondholders
were notified of this action. Atty. Alva J. Hill acknowledged receipt of the
notice in behalf of his clients and further expressed hope that the plan of the
Receiver to make payment to the bondholders would materialize soon, and thanked
the Trustee for what it had done in the premises.
Upon several orders of the Court dated April 22, and May 6, 1941 and July 24
and September 11, 1941, the Receiver—with the help of the Trustee and La
Orden—tried to sell the mortgaged properties but all their efforts were in
vain.
Upon the outbreak of the last World War, the properties remained in the
possession of the Receiver. Efforts exerted at that time to sell them also
failed until June, 1944 when Juan Pellicer Co., Inc. offered to buy them for the
sum of P900,000.00. This offer having been accepted by the parties, the same was
approved by the Court. After the Trustee, had received the purchase price—part
of which, namely, the sum of P475,592.00 in Japanese military notes,—in full
payment of the outstanding bonds, their interests due and other pending
obligations, he executed the corresponding deed of cancellation of the mortgage
on July 21, 1944. Notice of such payment was published in the newspaper
“Tribune” on July 13, August 1 and August 8, 1944 by the Trustee, informing the
bondholders that all bonds and interests thereon were due and payable at its
office any day during office hours, but while some bondholders collected the
value of, and the interests due on their bonds, appellants failed to do the
same. On or about August 1, 1944 the Receiver submitted to the Court its report
relative to the sale of the mortgaged properties, the delivery of the sum of
P900.000.00 to the Trustee—part of it in payment of the bonds, interests due
thereon and all other pending obligations—and the discharge or cancellation of
the mortgage. It was filed together with a petition, with the conformity of all
the parties to the case, for its approval, and it was so approved by the Court
on August 8, 1944.
Upon liberation Executive Order No. 49 was promulgated invalidating all
deposits made during the war in Japanese military notes. Subsequently, Mary McD.
Bachrach, now substituted by Domingo P. Dizon, Executor of her estate, on the
one hand, and J. W. Ferrier, Sr., in his capacity as Administrator of the
Intestate Estate of the deceased Marie B. Stafford, and Harry’ E. Stafford (both
now substituted by M. R. Sotelo and Charles K. Stafford, as administratrix and
administrator of the estates of the deceased spouses Marie Stafford and Harry E.
Stafford, respectively), on the other, instituted separate actions against the
Trustee (Philippine Trust Co.) and La Orden in the Court of First Instance of
Manila (Civil Cases Nos. 1103 and 11428) to recover from them the value of their
bonds, plus all interests due thereon etc.
The principal defense interposed by La Orden was that the bonds owned by
appellants as well as all interests due thereon had been fully paid. On the
other hand, the principal defense interposed by the Trustee was that, in its
aforesaid capacity, it was under obligation to receive, as in fact it did
receive from La Orden, the amount necessary to cover, for purposes of payment,
the par value of appellants’ outstanding bonds, with the accrued interests
thereon; that because said deposit constituted payment, it was its obligation,
as Trustee, to execute, as it did execute, the release and cancellation of the
Mortgage—Deed of Trust mentioned in the complaint; that its only obligation, as
Trustee, to appellants was to deliver to them the Japanese military notes which
were deposited with it on July 1, 1944 by La Orden in full payment of
appellants’ bonds and accrued interests thereon, obligation which it has always
been ready, willing and able to perform.
After a joint trial of the two eases the lower court rendered judgment
absolving “defendant in both cases * * * from all liability in connection with
the mortgaged bonds in question, with costs against the plaintiff”, from which
decision the present, appeal was taken.
Laying aside incidental issues unnecessarily raised and extensively discussed
by appellants in their brief, the fundamental question raised by them—as far as
La Orden is concerned—is whether the payment or deposit made by the latter
mentioned heretofore constitutes a valid payment and discharge of its obligation
to appellants and other bondholders. And, as far as the Trustee is concerned,
the question to be determined is whether it had committed any breach of trust or
was guilty of bad faith, negligence and/or imprudence in the performance of its
duties as Trustee, rendering it liable for damages to appellants as
bondholders.
There is no question that La Orden defaulted in the payment of the principal
and interests due on the bonds in question and of others outstanding on or about
the year 1937, and that as a result, fourteen bondholders, including appellants
herein, owning more than 25% in amount of the bonds aforesaid, after protracted
and vain attempts to collect from La Orden, requested the Trustee on February
27, 1941 to bring the matter to court. This the Trustee did, pursuant to the
provisions of Section 4, Article III of the Mortgage—Deed of Trust—according to
which, upon default and upon written request of holders of 25% in amount of the
bonds then outstanding, the Trustee shall take judicial proceedings by suit or
otherwise, as the Trustee, with the advice of counsel, shall deem to be to the
best interests of the holders of the bonds. As already stated, during the
pendency of said case (Civil Case No. 58809 of the Court of First Instance of
Manila) a Receiver was appointed; the Receiver took possession of the mortgaged
properties and was authorized to sell them so that with the proceeds of the sale
he may have the amount necessary to pay appellants’ bonds, such efforts having
been in vain until the offer made by Juan Pellicer Co., Inc. in the month of
June, 1944, was accepted by the Receiver and approved by the Court; that the
purchase price of P900,000.00 was paid by the purchaser to the Receiver and by
the latter turned over to the Trustee, part of it, in the sum of P475,592.00, in
full payment of all the outstanding bonds—including those of appellants—together
with all interests due thereon; that for this reason the Trustee had to execute
the corresponding deed of cancellation of the mortgage on July 21, 1944. Bearing
in mind that the action instituted by the Trustee was precisely for the purpose
of collecting the principal and interests due on the aforesaid bonds—including
those owned by appellants—it requires no further argument to show that, by means
of the deposit or payment thus made, the obligation of La Orden in relation to
its outstanding bonds and interests due thereon was completely satisfied and
discharged.
But appellants contend that the Trustee, in receiving and accepting the
deposit aforesaid, was acting as an agent of La Orden and not theirs. This is
untenable. As already stated, the action for collection was authorized by the
Deed of Trust and was instituted on behalf and for the benefit of the
bondholders. Whatever may be the law in other jurisdictions regarding the
matter, the fact is that under the Deed of Trust Exhibit A the Trustee not only
had the right but the duty to institute the aforesaid action on behalf and for
the benefit of the bondholders after default on the part of La Orden and after
receiving the required request from bondholders who owned at least 25%, in
amount, of the bonds. Consequently, when the proceeds obtained from the sale of
the mortgaged properties—duly authorized and approved by the court—was paid to
the Receiver and forthwith delivered to the Trustee, the inescapable conclusion
can be no other than that La Orden had fully complied with its obligation to pay
the bonds. It must be borne in mind furthermore that all the proceedings
relative to this sale and deposit with the Trustee of the amount necessary to
effect full payment of all outstanding bonds were approved by the court, with
the conformity of the parties to the case. The latter, therefore, are now
precluded from contesting the validity and legal effectiveness thereof. It is
therefore obvious that the ownership of the money deposited with the Trustee was
vested in the bondholders from the moment of its deposit, and from this it
necessarily follows that when the deposit was voided by Executive Order No. 49,
the loss had to be borne by the bondholders pursuant to the principle of res
perit domino suo.
With respect to the liability for damages demanded from the Trustee,
appellants claim that the latter had made no valid tender of payment to them;
that, by not filing suit earlier; by allowing the constitution on the mortgaged
properties of a lien superior to that of the bondholders; by improvidently
executing a deed of cancellation of mortgage, and by its failure to actually
effect payment to the bondholders with the amount deposited with it, the Trustee
was guilty of bad faith and/or negligence, and so must be made to suffer the
damages resulting from the invalidation of the amount deposited. All these
contentions, in our opinion, are without merits.
Even assuming that a tender of payment to the bondholders was necessary, it
appears that under the Deed of Trust, the obligation of the Trustee, after the
deposit had been made, was to hold the same to the credit of the bondholders and
to deliver the money so deposited to said bondholders upon presentation of the
bonds and interest-coupons attached thereto. Undoubtedly, to comply with this
duty, the Trustee in this case published a notice in the “Tribune” of July 13,
August 1 and August 8, 1944, informing all bondholders that they could come to
its office any day during office hours to receive payment of the principal and
interests due on their bonds. In fact, some bondholders did appear and collect,
but appellants failed to do the same. This notice was published in accordance
with the procedure laid down in Section 4, Article I of the Deed of Trust,
albeit it was not required by the provisions of Section 5 of the same
Article—which were the provisions applicable to the case. This clearly shows
that the Trustee had practically gone out of its way to protect the interests of
the bondholders, more specifically, to enable them to collect the amount they
were entitled to.
The alleged constitution of a lien on the mortgaged properties superior to
that of the bondholders, as evidenced by the “Agreement for Credit Advances”
(Exhibits Y & 8) appears to have been approved by the court as shown on page
3 of the exhibit itself. The advances secured by the alleged, superior lien were
made by the Trustee in accordance with Section 1, Article V of the Deed of
Trust, according to which the Trustee was entitled to be reimbursed for all
proper outlays, liabilities and expenses made in connection with the performance
of its duties as Trustee and to a reasonable compensation for its services, and
such expenses or advances shall be deemed secured by the indenture and “shall be
paid out of any moneys coming into the possession of the Trustee and prior to
any payment of, or on account of, the interest or principal of the bonds secured
thereunder and prior to any other claims hereby secured”. This provision of the
Deed of Trust is, of course, binding on all those who purchased the bonds.
In connection with the failure of the Trustee to take prompt court action
against La Orden, it appears that whatever delay there was in the filing of the
suit against the latter was due, in great measure, to the bondholders themselves
who had consented to give La Orden repeated extensions of time within which to
meet its obligation. Had the Trustee unreasonably delayed the filing of the
action after it had been requested to bring suit by the bondholders who owned at
least 25%, in amount, of the outstanding bonds, it could have been different,
but in this case there is no question that the suit was brought within a
reasonable time after the request or demand to that effect was made.
As far as the release of the mortgage is concerned, appellant’s contention is
absolutely without merits. It was the duty of the Trustee to give the said
discharge upon payment of the value of the bonds and interests due thereon at
the time.
In view of the conclusions we have arrived at regarding the main questions
involved in ths appeal, we deem it unnecessary to consider the others which, at
any rate, are already indirectly resolved by what has been said heretofore.
Wherefore, the decision appealed from is hereby affirmed, with
costs.
Bengzon, Acting C.J., Padilla, Bautista Angelo, Labrador,
Concepcion, Reyes, J.B.L., Barrera, and Paredes, JJ.,
concur.