JOSEFINA RUIZ DE LUZURIAGA BLANCO, ET AL., PLAINTIFFS AND APPELLANTS VS. COMPAÑIA GRAL. DE TABACOS DE FILIPINAS AND CENTRAL AZUCARERA DE TARLAC, DEFENDANTS AND APPELLEES.

Appellant Josefina Ruiz de Luzuriaga Blanco is the widow, and the other
Appellants, except Claudio R. de Luzuriaga-who is the attorney-in-fact of some
of them-are the children of Eugenio Mas Fernandez who died in Barcelona, Spain,
in May, 1933, leaving, among other properties, some bonds of Central Azucarera
de Bais which he had deposited with and entrusted to the care and administration
of the Compania Gral. de Tabacos de Filipinas-hereinafter referred to as
Tabacalera. After his death Tabacalera remained in charge of his estate in the
Philippines- including the bonds aforesaid-the account having been transferred
in the corporate books in the name of “Herederos de Eugenio Mas”. Subsequently,
said bonds were redeemed and the proceed thereof were invested by Tabacalera,
as stated hereinafter, in the purchase of bonds issued by Central Azucarera de
Tarlac-hereafter referred to as the Central.

It appears that on November 15, 1928 the Central issued for sale to the
public, debenture bonds of Pl,000 each, payable on or before November 15, 1943,
with interest thereon at the rate of 8% per annum, payable semiannually as per
interest coupons attached to the bond certificates. Their issuance was in
accordance with the trust indenture entitled “Escritura de Hipoteca
Fideicomisaria” now marked as Exhibit “1”. Among the purchasers thereof were
Tabacalera itself which purchased 717 bonds; Tabacalera’s affiliate, Tabacalera
Insurance Company, which purchased 55 bonds; “Tabacalera Caja de Prevision del
Personal de la Tabacalera”, another affiliate of Tabacalera, which purchased 58
bonds; Antonio V. Correa, Vice Director of Tabacalera, who purchased 19 bonds;
Federico Perez “Jefe Comercial” of Tabacalera, who purchased 37 bonds, and
Manuel Perez Rosales, a Director of Tabacalera, who purchased 5 bonds.

On November 21, 1933, appellants purchased 70, and on December 6 of the same
year they again purchased 45 of the bonds above-mentioned issued by the Central.
Of the 115 bonds thus purchased by appellants, 41 were redeemed prior to January
1, 1942, leaving 74 bonds, with a total par value, exclusive of interest, of
P74,000.00, still outstanding or unredeemed. When the second world war broke out
in the Pacific area these 74 bonds were still deposited with Tabacalera against
deposit receipts (Exhibits F and G) reading as follows:

“Hemos recibido de Srs. Herederos de Don Eugenio Mas-A Disposicion de los
Mismos-Para Su Custodia y Cobro de Dividendos O Intereses Setenta Obligaciones
de la Central Azucarera de Tarlac-Segun Detalle al Dorso.

‘Los expresados valores seran entregados a la presentation de este resguardo
al depositante o a la persona o personas que el haya designado en el acto de
constituir el deposito, mediante recibo del interesado o de su apoderado, al
dorso del mismo.

“Se advierte que la Compañia no responde de los casos de fuerza mayor.

Manila, 21 de Noviembre de 1933.

V. o. B. o.
Cia. Gral. de Tabacos de Filipinas
El Admor. Gral.
Por
Delacion:

(Fdo.) C. Davies
(Fdo.) G. Galiana
Cajero

(Fdo.) R. Descals
Contador”

(EXHIBIT F)

“Hemos recibido de los SRES. HEREDEROS DE DON EUGENIO MAS – A Disposicion de
los mismos-Para Su Custodia y Cobro de Dividendos O INTERESES CUARENTA Y CINCO
OBLIGACIONES DE LA CENTRAL AZUCARERA DE TARLAC-SEGUN DETALLE AL DORSO.

“Los expresados valores seran entregados a la presentacion de este resguardo
al depositante o a la persona o personas que el haya designado en el acto de
eonstituir el deposito, mediante recibo del interesado o de su apoderado, al
dorso del mismo.

“Se advierte que la Compania no responde de los cusos de fuerza mayor.

Manila, 6 de Diciembre de 1933.

V. o. B. o.
Cia. Gral. de Tabacos de Filipinas
El Admor. Gral.
Por
Delacion:

(Fdo.) G. Davies
(Fdo.) G. Galiana
Cafero

(Fdo.) R. Descals
Contador”

(EXHIBIT G)

The record further discloses that on October 5, 1939 appellants executed the
power of attorney Exhibit 4 in favor of Tabacalera, the pertinent portion of
Which reads as follows:

“……………………………………………. CONFIERE PODE
……………………………………………….
a la Compania General
de Tabacos de Filipinas y por ella a cualquiera de sus Gerentes, apoderados o
legitimos representantes para que con respecto a los valores y titttlos que las
mandantes todos juntos tienen depositados a nombre de herederos de Eugenio Mas
Fernandez en la propia Compania mandataria en Manila, cobre los cupones
intereses, dividendos, o amortizaciones de los titulos depositados; levante y
retire los valores de dichos depositos, los venda, canjee o sustituya por otros
de igual o distinta clase, compre nuevos titulos y efectue nuevos depositos, que
tambieff podra retirar cuando lo estime oportuno, iftrmando y suscribiendo los
resguardos recibos y cuantos otros documentos sean necesarios, puesto que la
entidad mandataria queda plenamente facultada para disponer sin limitacion ni
restriccion alguna de los valores depositados en la propia
Compania.”

(Exhibit 4)

Under the trust indenture Exhibit 1, in accordance with which the bonds of
the Central were issued, the 2,500 bonds still outstanding when the second world
war broke out in the Pacific area could be redeemed on or before November
15, 1943. On March 15 of said year the Central gave written notice to
Tabacalera-who was the trustee of the bondholders under the aforesaid bond
indenture-of its intention to redeem them. Aside from this notice on May 10, 11
and 12 of the same year, the required notice calling in the 2,500 outstanding
bonds was published in the corresponding issues of the Manila Tribune and of La
Vanguardia.

The evidence likewise shows that on or about April 17, 1943 the Central
negotiated a loan with the Bank of Taiwan in the sum of P2,500,000.00 for the
purpose-obviously-of having the required amount with which to redeem the
outstanding 2,500 bonds. On May 15, 1943 the Central drew a P2,500,000.00 check
against the Bank of Taiwan, payable to Tabacalera, in the latter’s capacity as
trustee of the iondholders, in full payment or discharge of the aforesaid
outstanding bonds, said trustee being under obligation to make payments to the
different owners thereof. Upon receipt of the check aforesaid Tabacalera
deposited the amount it represented with the Bank of Taiwan in a special account
entitled “Cuenta Fideicomisaria de la Central Azucarera de Tarlac.”

Pursuant to the notices published as mentioned heretofore, a total of 1,987
bonds were redeemed and paid for-with Japanese Military Notes-on May 15, 1943,
among them being the 74 bonds of appellants; 717 bonds of Tabacalera; 58 bonds
of the “Tabacalera Caja de Prevision del Personal”; 55 bonds of Tabacalera
Insurance Company; 19 bonds of Antonio V. Correa and 37 bonds of Federico Perez.
On the date of payment, according to the Ballantyne scale of values, the rate of
exchange was 1.25 Japanese military note to P1.00, Philippine currency. The
proceeds obtained from the redemption of appellants’ bonds, amounting to
P74,000.00 in Japanese military notes, were placed in the account of Tabacalera
in its capacity as depositary and trustee appointed by appellants. In fact, it
remained so deposited with Tabacalera during the whole period of the Japanese
occupation. In this connection, the lower court found-and we believe its finding
is duly supported by sufficient evidence-that during the whole period of the
Japanese occupation and until the liberation of the Philippines in 1945,
Tabacalera had sufficient funds deposited in Manila banks to cover the aforesaid
amount of P74,000.00, and that up to December 29, 1944 Tabacalera’s special
bondholders’ account with the Bank of Taiwan had more than sufficient to cover
said amount. The evidence further shows that said special account was closed on
December 29, 1944 upon demands of the Bank of Taiwan, and the money was
deposited in Tabacalera’s vaults.

The present action was instituted by appellants to question the validity of
the redemption of their 74 debenture bonds as above-mentioned; the surrender of
the bond certificates by Tabacalera to the Central, and to recover from both or
either the value of said bonds. After trial upon the issues raised by appellants
in their seeond amended complaint (Rec. on Ap. pp. 1-49) and the answers thereto
filed by Tahacalera (id. pp. 78-112) and the Central (id, pp. 168-186), the
lower court rendered judgment dismissing the complaint, with costs, from which
appellants interposed the present appeal.

Disregarding some questions of secondary importance raised in appellants’
brief, their main contentions may be reduced to the following propositions:

(1) That Tabacalera-their depositary and trustee-in violation of its trust,
and the Central, entered into a fraudulent scheme to redeem the outstanding
bonds of the latter, to the detriment of the interests of the bondholders;

(2) That appellants never ratified the acts of Tabacalera and the Central
relative to the redemption aforesaid; and

(3) That because of conditions arising subsequent to the execution of the
power of attorney by appellants in favor of Tabacalera and the latter’s
appointment as trustee under the trust indenture Exhibit 1, Tahacalera had lost
the right to exercise said power and trust.

In the absence of direct evidence to support their contention regarding the
fraudulent scheme and breach of trust attributed to Tabacalera and the Central,
appellants invite our attention to the following facts: that the Central was
organized in June, 1927 by high executive officials of Tabacalera; that of its
16,000 shares, 13,000 were subscribed by Tabacalera, 2,000 by its executive
officers, and only 100 by other persons not known to be connected with
Tabacalera; that as of December 31, 1941 the Central had 70,000 shares of stock
outstanding, of which 26,302 were in the name of Tabacalera, 729 in the name of
“Caja de Prevision del Personal de la Cia. Gral. de Tabacos de Filipinas”, 557
in the name of Tabacalera Insurance Company, while 8,821 were in the name of
other persons for whom Tabacalera was the attorney-in-fact; that Tabaca-Jera was
the general manager of, and used to finance the operations of,the Central since
its organization, and that the majority of the members of the Board of Directors
of the Central had always been high officials of Tabacalera,;

It is not very hard to perceive that the above facts and circumstances,
whether singly or collectively, are not sufficient to establish the serious
charge of fraud made against Tabacalera and the Central; neither would they
justify our jumping to the conclusion that the said parties had committed fraud,
one of them committing furthermore a violation of trust.

It must be remembered that the bonds in question were escpressly made
redeemable on or before November 15,1943. To redeem them on or
before that date was evidently not only the contractual obligation but
the right of the Central. That it exercised said right six months before
November 15, 1943 was, therefore, dearly in accordance with the conditions of
the bonds. Moreover, the redemption of the bonds before November 15, 1943 could
be said to have been favorable to the bondholders themselves, bearing in mind
that the Japanese military notes in circulation at the time decreased in value
as time passed. Upon the facts of record there could have been no such
fraudulent scheme or intent. If the only bonds redeemed on May 15,1943 had been
appellants’ 74 bonds, there could have been some reason to suspect the good
faith of the Central and Tabacalera, but 010 truth of the matter regarding this
fact is that, together with appellants’ 74 bonds, many other were redeemed,
among them, 717 belonging to Tabacalera itself, 58 to “Tabacalera Caja de
Prevision del Personal”, 55 to Tabacalera Insurance Company, 19 to Antonio V.
Correa and 37 to Federico Perez, both high-ranking officers of Tabacalera. To
this we must add the consideration that the value of the Japanese military notes
alt the time,of the redemption had not yet greatly depreciated. In Aurechoechea
vs. Kabankalan Sugar, Co., Inc., (81 Phil,, 476; 46 Off. Gaz., 258), we
took judicial notice of the fact that “in October, 1943 they (the Japanese
military notes) had as much purchasing power as, if not more than,, the Victory
notes had” in April, 1945. That subsequently, the military notes first
depreciated in value and finally became worthless was something that Tabacalera
and the Central could not have foreseen nor prevented.

With particular reference to Tabacalera, we find that, according to the
facts, it had really no choice but to accept payment of appellants’ bonds when
the same was tendered to it by the issuing Central, because the latter had both
the duty and the right to call in. its bond for redemption on or before
November 15, 1943. Upon receipt of payment it was naturally Tabacalera’s duty to
surrender the bond certificates to the Central. For the validity of thid
surrender and delivery there was no need for Tabacalera neither to obtain the
previous consent of appellants nor to notify them of the redemption after the
same had. been made because Tabacalera, as appellants’ attorney-in-fact, was
fully authorized, inter alia, not only to collect the interests, dividends or
amortizations paid upon the bonds, but also to receive payment of their value,
to sell them and with the proceeds to buy other bonds. In fact, the power of
attorney authorized Tabacalera “para disponer sin limi-tacion ni restriccion
alguna de los valores depositados” (Exh. 4). It must be stated further that the
trust indenture under which the Central issued the debenture bonds in question
provide only for notice to the bondholders by means of notices to be published
in Manila newspapers. On the other hand, the power of attorney executed by
appellants in favor of Tabacalera does not provide that the latter should give
notice to its principals of the redemption of the bonds. Consequently,
Tabacalera’s failure to notify appellants regarding of the redemption of their
bonds and the payment of their value constitutes no violation of trust nor proof
of negligence.

That Tabacalera was the trustee of the bondholders and was at the same time
general manager of the Central is of little consequence. The evidence discloses
in this action that appellants and their predecessor in interest-who resided in
the Philippines for some time and frequently visited the offices of Tabacalera
and the Central (Deposition of Eugenio Mas p. 12)-must have been fully aware of
this circumstance when they appointed Tabacalera as their depositary and
attorney-in-fact, and received interest payments and amortizations from the
latter before the war. We, therefore, fail to see how they can now complain
about this situation.

Appellants’ last important contention is that Tabacalera could no longer act
as their agent after a change of conditions had developed creating conflict of
interests between them, and that this notwithstanding, it continued to exercise
its powers as their depositary and attorney-in-fact, to their prejudice. It is
their contention that, with the occupation of the Philippines by the Japanese
armed forces, a conflict of interests arose between themselves, on the one hand,
and Tabacalera, the Central and other bondholders, on the other; that Tabacalera
and the Central, by agreeing on the redemption of the bonds, squeezed the
bondholders out of the fair value thereof by paying them with Japanese military
notes with a depreciated value; that in calling in the bonds for redemption,
Tabacalera enabled the Central to relieve itself of its prewar obligation to the
bondholders, while it subrogated itself in the place of said bondholders as
creditor of the Central by lending to the latter the big amount of money it
received from the Central in payment of the bonds redeemed on May 15, 1943.

We find appellants’ contention to be without merits. In the first place, the
power of attorney executed by them in favor of Tabacalera does not provide at
all that in case of any particular change of conditions subsequent to its
execution, the instrument shall be deemed to have become inoperative, and that
the attomey-in-fact shall no longer exercise its authority thereunder. In the
second place, we fail to see how the Japanese ^occupation and the circulation of
the Japanese military notes in the PhOippinea could have, ipso facto, amounted
to a virtual cancellation or, at least, suspension of Tabacalera’s powers as
appellants’ depositary and attorney-in-fact.

As regards the alleged plan of squeezing the bondholders out of the fair
value of their bonds, suffice it to say: first, that the Central was bound by
contract, and had the right, to redeem the bonds on or before November
15, 1943; second, that Tabacalera, as appellants’ attorney-in-fact, was
authorized to accept payment of such bonds as belonged to its principals; and
lastly, that at the time of the redemption of the bonds, the Japanese military
notes were legal tender in the Philippines and their value had not yet greatly
depreciated. Appellants’ predicament, therefore, does not differ substantially
from that of creditors whose credits were virtually wiped out by payment of said
debts during the Japanese occupation, thus making the ruling in the Haw Pia case
applicable to the present. In said case the Bank of Taiwan, as the authorized
agent of the creditor, received money (payment) from the debtor and the money
thus paid-which remained deposited with said bank-became of no value. The
creditor was found not to be entitled to relief (Haw Pia vs. China
Banking Corp., 80 Phil., 604; 45 Off. Gaz., 9 supp., 229).

Appellants’ claim that Tabacalera surrogated itself in the place of the
bondholders as creditor of the Central, is inaccurate. It was the Bank of Taiwan
who, in effect, was subrogated as creditor of the Central when the latter
borrowed money from the former with which to redeem the bonds. Appellants’ claim
that Tabacalera subsequently loaned the money it had received in payment of the
bonds to the Central so that the latter may, in turn, repay its debt to the Bank
of Taiwan is not borne out by the evidence. As stated heretofore, during the
Japanese occupation and until the liberation of the Philippines in 1945,
Tabacalera not only had sufficient funds in Manila banks to cover the P74,000.00
it received in payment of appellants’ bonds, but also had, during all thai time,
more than sufficient funds to cover said amount in its special bondholders’
account with the Bank of Taiwan. This can only mean that Tabacalera had not made
use of appellants’ funds when it loaned money to the Central with which the
latter paid its indebtedness to the Bank of Taiwan. What Tabacalera did with the
amounts it received in payment of its own 717 bonds and of others belonging to
other parties is, of course, not of appellants’ concern’ at all. Upon the other
hand, that Tabacalera loaned the necessary amount to the Central for the
repayment of the Bank of Taiwan’s loan, is no indication that the two entities
had entered into a fraudulent scheme between themselves. Such accommodation was
not the first nor an isolated case, because appellants themselves claim that it
was customary for Tabacalera to finance the operations of the Central since the
tatter’s organization.

Finally, considering that what must have caused the commencement of this
action was the fact that the Japanese military notes paid to redeem applicants’
bonds became worthless after the war, we deem of particular application to this
case what was said in the Haw Pia case, as follows:

“But be that as it may, whatever might have been the intrinsic or extrinsic
worth of the Japanese war-notes which the Bank of Taiwan has received as full
satisfaction of the obligations of the appellee’s debtors to it, is of no
consequence in the present case. As we have already stated, the Japanese
war-notes were issued as legal tender at par with the Philippine peso, and
guaranteed by the Japanese Government ‘which takes full responsibility for their
usage having the correct amount to back them up (Proclamation of Jan. 8 1942).
Now that the outcome of the war has turned against Japan, the enemy banks have
light to demand from Japan, thru their States or Government, payments or
compensation in Philippine peso or U. S. dollars as the case may be, for the
loss or damage inflicted on the property by the emergency war measure taken by
the enemy. If Japan: had won the war or were the victor, the property or money
of said banks sequestrated or impounded by her might be retained by Japan and
credited to the respective State of which the owners of said banks were
nationals, as a payment on account of the sums payable by them as indemnity
under the treaties, and the said owners were to look for compensation in
Philippine pesos or U. S. dollars to their respective States. (Treaty of
Versailles and other peace treaties entered at the close of the first world war;
VI Hackworth Digest of International Law, p. 232.) And if they cannot get any or
sufficient compensation either from the enemy or from their States, because of
their insolvency or impossibility to pay, they have naturally to suffer, as
everybody else, the losses incidental to all wars.”

In the view we take of this case we deem it unnecessary to consider other
secondary points raised by appellants in their brief.

Wherefore, the appealed judgment is affirmed with costs.

Paras, C.J., Bengzon, Bautista Angelo, Labrador, Reyes, J.B.L., Barrera,
Gutierrez David, and Paredes, JJ., concur.

Judgment affirmed.