G.R. No. L-10367 and L-10368. April 25, 1961.
MARY MCD. BACHRACH, plaintiff-appellant, vs. PHILIPPINE TRUST CO. and LA ORDEN DE PP. BENEDICTINOS DE LA ISLAS FILIPINAS, defendants-appellees.

J. W. FERRIER, SR., etc., and HARRY E. STAFFORD, plaintiffs-appellants, vs. THE PHILIPPINE TRUST CO. and LA ORDEN DE PP. BENEDICTINOS DE LAS ISLAS FILIPINAS, defendants-appellees.

FACTS

La Orden de PP. Benedictinos issued bonds secured by a mortgage-deed of trust in favor of Philippine Trust Co. as Trustee. Appellants Bachrach and the Staffords were bondholders. La Orden defaulted. Bondholders, through counsel, requested the Trustee to demand payment and, subsequently, to file suit. The Trustee instituted an action (Civil Case No. 58809) in February 1941, resulting in the court appointing a Receiver for the mortgaged properties. Efforts to sell the properties culminated in a June 1944 sale for P900,000 to Juan Pellicer Co., Inc., approved by the court. The Trustee received the purchase price, part in Japanese military notes, and, after publishing notices in a newspaper, used the funds to pay off outstanding bonds and accrued interest. Some bondholders collected; appellants did not. The Receiver’s report and the discharge of the mortgage were approved by the court in August 1944.
After liberation, Executive Order No. 49 invalidated wartime deposits in Japanese military notes. Appellants then filed separate actions to recover the value of their bonds and interest from the Trustee and La Orden. The defendants asserted that the obligations had been fully paid through the Trustee’s actions. The trial court ruled in favor of the defendants, prompting this appeal.

ISSUE

Whether the Trustee (Philippine Trust Co.) validly discharged its duties, such that the deposit of the sale proceeds (partly in Japanese military notes) and the subsequent cancellation of the mortgage constituted full payment of appellants’ bonds, thereby releasing the defendants from further liability.

RULING

Yes. The Supreme Court affirmed the trial court’s decision, holding that the Trustee fulfilled its obligations and that payment was complete. The legal logic centers on the binding terms of the Deed of Trust and the Trustee’s compliance with court-approved procedures. The Trustee acted pursuant to its authority under the Deed and specific court orders. The sale of the mortgaged properties was court-approved, and the Trustee’s receipt of the proceeds was for the explicit purpose of paying the bonds. The publication of notices, though exceeding the strict requirements of the Deed, demonstrated the Trustee’s extra effort to inform bondholders. Appellants’ failure to collect despite notice cannot invalidate the payment.
The Court rejected appellants’ claims of negligence. The delay in initial litigation was attributable to bondholders themselves consenting to extensions for La Orden. The Trustee filed suit within a reasonable time after the formal request. The “Agreement for Credit Advances,” creating a prior lien for the Trustee’s expenses, was valid under the Deed of Trust and was court-approved, binding all bondholders. The subsequent invalidation of Japanese notes by Executive Order No. 49 did not affect the completeness of the payment transaction, which was finalized under then-prevailing circumstances with court sanction. The discharge of the mortgage was the Trustee’s mandatory duty upon payment. Therefore, no liability remained.