G.R. No. L-10810; November 29, 1960
JOSEFINA RUIZ DE LUZURIAGA BLANCO, ET AL., plaintiffs-appellees, vs. COMPANIA GRAL. DE TABACOS DE FILIPINAS and CENTRAL AZUCARERA DE TARLAC, defendant-appellees.

FACTS

The appellants are the widow and children of Eugenio Mas Fernandez, who died in 1933. His estate in the Philippines, including bonds of Central Azucarera de Bais, was entrusted to Compañia Gral. de Tabacos de Filipinas (Tabacalera). These bonds were later redeemed, and the proceeds were invested by Tabacalera in purchasing bonds issued by Central Azucarera de Tarlac (the Central). The appellants purchased 115 of these Central bonds in 1933, of which 74 bonds (par value P74,000) remained outstanding by the outbreak of World War II. These bonds were deposited with Tabacalera under deposit receipts (Exhibits F and G), which stated Tabacalera was not responsible for cases of force majeure. The appellants also executed a broad power of attorney (Exhibit 4) in favor of Tabacalera, authorizing it to manage the deposited securities, including collecting interest, redeeming bonds, and making new investments.
Under the trust indenture (Exhibit 1) governing the bonds, the Central could redeem the outstanding bonds on or before November 15, 1943. In March 1943, the Central notified Tabacalera (the trustee for bondholders) of its intent to redeem, and published notices in May 1943. The Central secured a loan from the Bank of Taiwan for P2,500,000 to fund the redemption. On May 15, 1943, the Central paid Tabacalera, as trustee, with a check for that amount, which Tabacalera deposited in a special account. On that date, 1,987 bonds, including the appellants’ 74 bonds, were redeemed and paid for with Japanese Military Notes. The proceeds from the appellants’ bonds were placed in their account with Tabacalera and remained deposited there throughout the Japanese occupation. The lower court found Tabacalera had sufficient funds in Manila banks to cover this amount during the occupation.
The appellants sued to challenge the validity of the redemption and surrender of their bonds, seeking to recover their value from Tabacalera and/or the Central. The trial court dismissed their complaint.

ISSUE

Whether the redemption of the appellants’ bonds by Tabacalera and the Central during the Japanese occupation was valid, and whether Tabacalera breached its trust or engaged in a fraudulent scheme to the detriment of the bondholders.

RULING

The Supreme Court affirmed the trial court’s judgment, dismissing the complaint. The Court held:
1. No Fraud or Breach of Trust: The appellants failed to provide direct evidence of a fraudulent scheme or breach of trust by Tabacalera and the Central. The fact that Tabacalera and its affiliates and officers held a majority of the Central’s bonds and shares did not, by itself, prove fraud. The Central had the contractual right to redeem the bonds under the trust indenture, and it followed the proper procedure by giving notice and securing the necessary funds. Tabacalera, acting under its broad power of attorney from the appellants, properly surrendered the bonds for redemption. There was no evidence that Tabacalera acted in bad faith or contrary to the appellants’ interests.
2. Validity of Payment in Japanese Military Notes: The payment made for the redeemed bonds was valid. Japanese Military Notes were declared legal tender at par with the Philippine Peso by the Japanese Military Administration. Therefore, the Central’s obligation to pay the bondholders was extinguished when it delivered these notes to the trustee, Tabacalera. The subsequent depreciation of the Japanese war notes was a consequence of the war, and the loss arising therefrom must be borne by the appellants, as it was a general loss suffered by all.
3. No Loss of Authority by Tabacalera: The Court found no merit in the claim that Tabacalera lost its authority under the power of attorney or trust indenture due to subsequent conditions. Tabacalera acted within the scope of its authority in handling the redemption.
The Court concluded that the redemption was legally effected and the appellants’ loss was due to the general effects of war, not any wrongful act by the appellees.