Republic Planters Bank v. Agana, Sr.
REITERATIONFacts
The Antecedents: Private respondents Robes-Francisco Realty and Development Corporation and Adalia F. Robes filed an action for specific performance against petitioner Republic Planters Bank (RPB) to compel RPB to redeem 800 preferred shares of stock with a face value of P8,000.00 and to pay 1% quarterly interest thereon as quarterly dividend, as stipulated in the stock certificates. The shares were issued as part of the proceeds of a P120,000.00 loan secured by the Corporation from RPB on September 18, 1961. The terms and conditions of the preferred stock included the right to receive a quarterly dividend of 1% and the option for the Corporation to redeem the shares after two years from the date of issue. Procedural History: Private respondents filed their complaint on January 31, 1979, demanding redemption and payment of dividends. RPB filed a Motion to Dismiss, which was denied. RPB filed its Answer, and after the parties submitted their memoranda, the trial court rendered a decision in favor of private respondents, ordering RPB to pay the face value of the shares plus 1% quarterly interest until full payment. The trial court ruled that the shares were "interest bearing stocks" and that the redemption was allowed by the stock certificates, deeming any prohibition by the Central Bank as an impairment of the obligation of contracts and RPB as being in estoppel. The court also held that the prescriptive period was interrupted by extrajudicial demands. The Petition: RPB filed a petition for certiorari, arguing that the trial court committed grave abuse of discretion in ordering the redemption and payment of interests, disregarding Central Bank directives, and failing to consider that the complaint does not state a cause of action and that the claim is barred by prescription or laches.
Issue(s)
Whether the trial court committed grave abuse of discretion in ordering the petitioner to pay respondent Adalia F. Robes the amount of P8,213.69 as interests from 1961 to 1979 on her preferred shares. Whether the trial court committed grave abuse of discretion in ordering the petitioner to redeem respondent Adalia F. Robes' preferred shares for P8,000.00, and whether the trial court committed grave abuse of discretion in disregarding the order of the Central Bank to petitioner to desist from redeeming its preferred shares and from paying dividends thereon. Whether the trial court erred in not holding that the claim of respondent Adalia F. Robes is barred by prescription or laches. Whether the trial court erred in not holding that the complaint does not state a cause of action.
Ruling
The petition is meritorious. The challenged decision of the respondent judge is set aside, and the complaint against the petitioner is dismissed.
Ratio Decidendi
On the issue of payment of dividends: The Supreme Court disagreed with the trial court's observation that the preferred shares were "interest bearing stocks" entitling the holders to dividends as a matter of right. The Court clarified that under both the old Corporation Law and the present Corporation Code, dividends can only be declared from surplus profits or unrestricted retained earnings, and their declaration is generally at the discretion of the board of directors. The Court emphasized that payment of dividends is not a matter of right but of consensus, and "interest bearing stocks" are only legal when construed as requiring payment of interest as dividends from net earnings or surplus. Thus, compelling the petitioner to pay dividends without basis was also considered grave abuse of discretion. On the issue of redemption of preferred shares: The Supreme Court held that while the stock certificate allowed redemption, the option was clearly vested in the petitioner bank, making it an "optional" redemption. The word "may" in the terms and conditions denotes discretion, not a mandatory effect. Therefore, the stockholder cannot compel the corporation to redeem its stock. Furthermore, the Court ruled that the redemption could not be allowed because the Central Bank, in a directive dated January 31, 1973, prohibited RPB from redeeming any preferred share due to its chronic reserve deficiency. This directive, issued by the Central Bank Governor, was considered an exercise of police power to preserve the bank's status and prevent financial ruin, which is superior to private rights and the constitutional guaranty of non-impairment of obligations of contract. The Court found that the respondent judge committed grave abuse of discretion in compelling the redemption despite these considerations. On the issue of prescription and laches: The Court ruled that the claim of private respondents was barred by prescription and laches. Article 1144 of the New Civil Code provides a ten-year prescriptive period for actions founded upon a written contract. The letter-demand was made on January 5, 1979, almost eighteen years after the receipt of the stock certificate in 1961. This delay, coupled with the fact that the letter-demand was not formally offered in evidence, indicated an unreasonable neglect to assert their rights. Laches, defined as the failure to assert a right within a reasonable time, was also found to be present, as private respondents should have inquired about the redemption after the stipulated two-year period had passed, instead of waiting sixteen additional years. The Court noted that the petitioner could not have foreseen its financial difficulties in 1961, and had private respondents been vigilant, redemption might have occurred when the bank was financially stable. There was no ratio provided for the issue of whether the complaint states a cause of action. Therefore, no ratio is provided.
Main Doctrine
A banking institution's redemption of its preferred shares, even if contractually allowed, may be prohibited by the Central Bank under its police power to protect depositors and creditors, overriding the non-impairment clause of contracts. Furthermore, claims for redemption and dividends on preferred shares are subject to prescription and laches, especially when asserted after an unreasonable delay.