G.R. No. L-10810 - Blanco vs. Compania General de Tabacos de Filipinas

Josefina Ruiz de Luzuriaga Blanco, as the appellant and widow, along with other appellants who are the children of Eugenio Mas Fernandez, bring the case.

Eugenio Mas Fernandez died in Barcelona, Spain in May 1933, having deposited bonds with the Compania Gral. de Tabacos de Filipinas (Tabacalera) for safekeeping and administration pursuant to an arrangement reflected in the corporate books under “Herederos de Eugenio Mas.”

The bonds in question were originally issued by Central Azucarera de Tarlac (Central) on November 15, 1928, as debenture bonds of ₱1,000 each with an 8% per annum interest rate, payable semiannually through attached coupons.

Their issuance was governed by the trust indenture titled “Escritura de Hipoteca Fideicomisaria” (Exhibit 1).

Various parties, including Tabacalera and its affiliates, purchased numerous bonds; notably, Tabacalera acquired 717 bonds among other purchases by its officers and associated companies.

Appellants purchased an additional 115 bonds (70 bonds on November 21, 1933 and 45 bonds on December 6, 1933), of which 41 were redeemed prior to January 1, 1942, leaving 74 bonds outstanding with a combined par value of ₱74,000.00.

These 74 bonds remained deposited with Tabacalera and were covered by deposit receipts (Exhibits F and G) that detailed the arrangement for custody and collection of dividends or interest.

On October 5, 1939, the appellants executed a power of attorney (Exhibit 4) in favor of Tabacalera, granting it broad powers to collect, sell, exchange, and otherwise dispose of the bonds without any stipulated requirement to notify the principals upon each act.

Under the terms of the trust indenture, the Central had the right to redeem the outstanding bonds on or before November 15, 1943.

On March 15, 1943, the Central notified Tabacalera of its intention to redeem the bonds; subsequent published notices in the Manila Tribune and La Vanguardia further called in the 2,500 outstanding bonds.

To finance the redemption, the Central negotiated a ₱2,500,000.00 loan with the Bank of Taiwan and, on May 15, 1943, drew a check payable to Tabacalera, which received Japanese military notes as full settlement.

Among the bonds redeemed with this transaction were all 74 of the appellants’ bonds along with numerous others held by Tabacalera, its affiliates, and its officers.

The redemption proceeded with the exchange rate set at 1.25 Japanese military note to ₱1.00, and the funds were deposited into Tabacalera’s special trust account with the Bank of Taiwan.

After receipt of the redemption check, Tabacalera deposited the funds into a special “Cuenta Fideicomisaria de la Central Azucarera de Tarlac,” and subsequently held these funds during the Japanese occupation.

Appellants later brought the action challenging the validity of the redemption process, alleging:

A fraudulent scheme by Tabacalera and the Central to redeem and pay for the bonds to the detriment of the bondholders.

That due to changed conditions (notably the Japanese occupation), Tabacalera lost its right to act as their attorney-in-fact as previously authorized.

Whether Tabacalera and the Central engaged in any fraudulent scheme or breach of trust in redeeming the bonds, thereby harming the interests of the bondholders.
Whether the act of redeeming the bonds and the subsequent surrender of the bond certificates by Tabacalera, as executed under the granted power of attorney, required the further ratification or consent of the appellants.
Whether the change in conditions brought about by the Japanese occupation invalidated or interrupted the authority of Tabacalera under the power of attorney granted by the appellants.