(case no.

623)

REPUBLIC PLANTERS BANK v. AGANA

GR Number 51765
March 3, 1997
Art. III
FACTS:
On September 18, 1961, private respondent Corporation secured a loan from petitioner in
the amount of Php120,000. As part of the proceeds of the loan, preferred shares of stocks were
issued to private respondent Corporation, through its officers. In other words, instead of
giving the legal tender totaling to the full amount of the loan, petitioner lent such amount
partially in the form of money and partially in the form of stock certificates. The certificates of
stock bore the following terms and conditions:
"The Preferred Stock shall have the following rights, preferences,
qualifications and limitations, to wit:
1. Of the right to receive a quarterly dividend of One Per Centum (1%),
cumulative and participating.
xxx
2. That such preferred shares may be redeemed, by the system of drawing
lots, at any time after two (2) years from the date of issue at the option of the
Corporation. x x x."
On January 31, 1979, private respondent proceeded against the petitioner and filed a
complaint for the right to collect dividends under the preferred shares in question and to have
petitioners redeem the same under the terms and condition of the stock certificates. Petitioner
filed a motion to dismiss, but it was denied by the trial court. RTC rendered a decision in favor of
the respondents ordering the petitioner to pay the face value of the stock certificate as
redemption price plus 1% interest until full payment. The petition is elevated to the SC
essentially on pure questions of law.
ISSUE:
1. Whether the respondents have the right to collect dividends.
2. Whether the petitioners can be compelled to redeem the preferred shares.
HELD:
1. No. As a general rule, dividends are only payable when there are profits earned by
the corporation. Even if there are existing profits, the board of directors has the
discretion to determine whether or not dividends are to be declared. Shareholders, both
common and preferred, are considered risk takers who invest capital in the business and
who can look only to what is left after corporate debts and liabilities are fully paid.
There can be no dividend because of the finding of the Central Bank that the petitioner
has been suffering from chronic reserve deficiency.
2. No. While the stock certificate allows redemption, the option to do so is clearly vested
upon the petitioner bank. The redemption is clearly the type known as optional. Except
as otherwise provided in the stock certificate, redemption rests entirely with the
corporation and the stockholder is without right to compel or refuse the redemption of its
stock.

Prepared by: Cecille Diane DJ. Mangaser

(case no. 623)

Prepared by: Cecille Diane DJ. Mangaser