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.

Blanco versus Compañia General de Tabacos de Filipinas

The Case

This is an action by the widow and children of Eugenio Mas Fernandez against the Compañia General de Tabacos de Filipinas, which the Court calls Tabacalera, and against the Central Azucarera de Tarlac, which the Court calls the Central. The plaintiffs question the validity of the redemption of seventy four debenture bonds that had been deposited with Tabacalera as their depositary and trustee, and they seek to recover the value of those bonds from either or both defendants. The case matters because it tests the authority of an agent and trustee to accept payment and surrender securities under a power of attorney, and because it applies the rule on payment in Japanese military notes during the occupation.

Procedural History

The plaintiffs filed their action in the Court of First Instance, raising the issues in their second amended complaint, to which Tabacalera and the Central each filed answers. After trial, the lower court rendered judgment dismissing the complaint, with costs. The plaintiffs appealed directly to the Supreme Court, which decided the appeal by affirming the judgment of the lower court.

Facts

Eugenio Mas Fernandez died in Barcelona, Spain, in May 1933, leaving among his properties certain bonds of Central Azucarera de Bais that he had deposited with Tabacalera for care and administration. After his death Tabacalera remained in charge of his estate in the Philippines, and the account was transferred in the corporate books in the name of the heirs of Eugenio Mas. The Bais bonds were later redeemed, and their proceeds were invested by Tabacalera in bonds issued by the Central.

On November 15, 1928, the Central issued debenture bonds of one thousand pesos each, payable on or before November 15, 1943, with interest at eight percent per annum, under a trust indenture. On November 21, 1933, the plaintiffs purchased seventy of these bonds, and on December 6 of the same year they purchased forty five more. Forty one were redeemed before January 1942, leaving seventy four bonds with a total par value of seventy four thousand pesos. These remained deposited with Tabacalera against deposit receipts, which stated that the securities would be delivered upon presentation of the receipt and that the company does not answer for cases of force majeure. On October 5, 1939, the plaintiffs executed a power of attorney in favor of Tabacalera authorizing it, among other things, to collect interest, dividends and amortizations, to withdraw the securities, to sell, exchange or substitute them, to buy new securities, and to dispose of the deposited securities without limitation or restriction.

On March 15, 1943, the Central gave written notice to Tabacalera, as trustee of the bondholders, of its intention to redeem the outstanding bonds, and notices were published in May 1943 in the Manila Tribune and La Vanguardia. The Central borrowed two million five hundred thousand pesos from the Bank of Taiwan and drew a check for that amount payable to Tabacalera as trustee. On May 15, 1943, one thousand nine hundred eighty seven bonds were redeemed and paid for in Japanese military notes, among them the seventy four bonds of the plaintiffs, as well as seven hundred seventeen bonds of Tabacalera itself and bonds of its affiliates and officers. The proceeds of the plaintiffs' bonds, seventy four thousand pesos in military notes, remained deposited with Tabacalera during the whole occupation, and Tabacalera had sufficient funds in Manila banks to cover that amount until the liberation.

Issues

• Whether or not Tabacalera and the Central entered into a fraudulent scheme to redeem the outstanding bonds to the detriment of the bondholders.
• Whether or not the plaintiffs ratified the acts of Tabacalera and the Central relative to the redemption.
• Whether or not Tabacalera lost the right to exercise its power and trust because of conditions arising after the execution of the power of attorney and its appointment as trustee.

Applicable Provisions

The decision does not quote any statutory provision. It construes the power of attorney executed by the plaintiffs, which provides:

CONFIERE PODER 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 titulos 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 tambien podra retirar cuando lo estime oportuno, firmando 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.

This grant of authority is the basis for holding that Tabacalera needed neither the prior consent of the plaintiffs nor notice to them in order to accept payment and surrender the bond certificates.

Ruling

On the first issue, the Court held that the facts relied upon by the plaintiffs, namely the close relationship between Tabacalera and the Central through shareholdings, management and interlocking directors, were not sufficient to establish the serious charge of fraud. The bonds were expressly made redeemable on or before November 15, 1943, so that redeeming them on or before that date was not only the contractual obligation but the right of the Central. The Court noted that many other bonds were redeemed together with those of the plaintiffs, including seven hundred seventeen belonging to Tabacalera itself, which negated any fraudulent design. It also took judicial notice that in October 1943 the Japanese military notes had as much purchasing power as, if not more than, the Victory notes had in April 1945, and that their later depreciation was something the defendants could not have foreseen nor prevented.

On the second issue, the Court held that Tabacalera had no choice but to accept payment when tendered by the Central, and that it was its duty to surrender the bond certificates. No prior consent or notice was required because the power of attorney fully authorized Tabacalera to collect amortizations, to receive payment of the value of the bonds, and to dispose of the deposited securities without limitation or restriction. The trust indenture required only publication of notices in Manila newspapers, and the power of attorney imposed no duty to notify the plaintiffs. Hence there was no violation of trust and no negligence.

On the third issue, the Court held that the power of attorney contained no provision making it inoperative upon a change of conditions, and that the Japanese occupation and the circulation of military notes did not ipso facto cancel or suspend Tabacalera's powers. The Court found that Tabacalera had not used the plaintiffs' funds, since it had sufficient funds to cover the seventy four thousand pesos throughout the occupation, and that the loan to the Central was a customary accommodation. The Court applied the rule of the Haw Pia case, quoting:

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.

Doctrine

An agent acting under a power of attorney that authorizes it to collect amortizations, to receive payment of the value of securities, and to dispose of them without limitation or restriction may validly accept payment and surrender the certificates without prior consent of, or notice to, the principal, where the instrument imposes no such duty. A charge of fraud and breach of trust must rest on clear evidence; the mere relationship of interlocking directors and shared management between the depositary and the issuing corporation does not establish a fraudulent scheme, especially where the redemption was made in accordance with the terms of the bonds and the depositary itself redeemed its own holdings. Payment in Japanese military notes that were legal tender at the time, and which later became worthless, follows the rule of the Haw Pia case, and the loss falls on the creditor.

Disposition

The Supreme Court affirmed the judgment of the lower court dismissing the complaint, with costs against the plaintiffs.

Remember This

The single line worth memorizing is that a depositary and attorney-in-fact with unlimited authority to dispose of deposited securities may accept payment and surrender them without notice to the principal, and the subsequent worthlessness of Japanese military notes is a loss the creditor must bear. Examiners use this case on the authority of agents and trustees, on fraud as a serious charge requiring clear proof, and on the Haw Pia rule on payment in Japanese military notes.