G.R. No. 51765. March 3, 1997.

REPUBLIC PLANTERS BANK, petitioner, vs. HON. ENRIQUE A. AGANA, SR., as

Presiding Judge, Court of First Instance of Rizal, Branch XXVIII, Pasay City,
ROBESFRANCISCO REALTY & DEVELOPMENT CORPORATION and ADALIA
F. ROBES, respondents.
*

Corporation Law; Shares of Stock; Preferred Shares of Stock;Words and Phrases; A

preferred share of stock is one which entitles the holder thereof to certain preferences over the
holders of common stock.Before passing upon the merits of this petition, it may be
pertinent to provide an overview on the nature of preferred shares and the redemption
thereof, considering that these issues lie at the heart of the dispute. A preferred share of
stock, on one hand, is one which entitles the holder thereof to certain preferences over the
holders of common stock. The preferences are designed to induce persons to subscribe for
shares of a corporation. Preferred shares take a multiplicity of forms. The most common
forms may be classi_______________
*

FIRST DIVISION.

SUPREMECOURTREPORTSANNOTATED
RepublicPlantersBankvs.Agana,Sr.
fied into two: (1) preferred shares as to assets; and (2) preferred shares as to dividends.
The former is a share which gives the holder thereof preference in the distribution of the
assets of the corporation in case of liquidation; the latter is a share the holder of which is
entitled to receive dividends on said share to the extent agreed upon before any dividends at
all are paid to the holders of common stock. There is no guaranty, however, that the share
will receive any dividends.
Same; Same; Same; Preferences granted to preferred stockholders do not give them a
lien upon the property of the corporation nor make them creditors of the corporation, the
right of the former being always subordinate to the latter; 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.Thus, the declaration
of dividends is dependent upon the availability of surplus profit or unrestricted retained
earnings, as the case may be. Preferences granted to preferred stockholders, moreover, do
not give them a lien upon the property of the corporation nor make them creditors of the
corporation, the right of the former being always subordinate to the latter. Dividends are
thus payable only when there are profits earned by the corporation and as a general rule,
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.
Same; Same; Same; Redeemable Shares; Words and Phrases;Redeemable shares are
shares usually preferred, which by their terms are redeemable at a fixed date, or at the option
of either issuing corporation, or the stockholder, or both at a certain redemption price;
Redemption may not be made where the corporation is insolvent or if such redemption will
cause insolvency or inability of the corporation to meet its debts as they mature.
Redeemable shares, on the other hand, are shares usually preferred, which by their terms
are redeemable at a fixed date, or at the option of either issuing corporation, or the
stockholder, or both at a certain redemption price. A redemption by the corporation of its

stock is, in a sense, a repurchase of it for cancellation. The present Code allows redemption
of shares even if there are no unrestricted retained earnings on the books of the
corporation. This is a new provision which in effect
3

VOL.269,MARCH3,1997
RepublicPlantersBankvs.Agana,Sr.
qualifies the general rule that the corporation cannot purchase its own shares except
out of current retained earnings. However, while redeemable shares may be redeemed
regardless of the existence of unrestricted retained earnings, this is subject to the condition
that the corporation has, after such redemption, assets in its books to cover debts and
liabilities inclusive of capital stock. Redemption, therefore, may not be made where the
corporation is insolvent or if such redemption will cause insolvency or inability of the
corporation to meet its debts as they mature.
Same; Same; Same; Same; Statutory Construction; It is settled doctrine in statutory
construction that the word may denotes discretion, and cannot be construed as having a
mandatory effect.What respondent judge failed to recognize was that while the stock
certificate does allow redemption, the option to do so was clearly vested in the petitioner
bank. The redemption therefore is clearly the type known as optional. Thus, except as
otherwise provided in the stock certificate, the redemption rests entirely with the
corporation and the stockholder is without right to either compel or refuse the redemption
of its stock. Furthermore, the terms and conditions set forth therein use the word may. It
is a settled doctrine in statutory construction that the word may denotes discretion, and
cannot be construed as having a mandatory effect. We fail to see how respondent judge can
ignore what, in his words, are the very wordings of the terms and conditions in said stock
certificates and construe what is clearly a mere option to be his legal basis for compelling
the petitioner to redeem the shares in question.
Same; Same; Same; Same; Banks and Banking; A directive issued by the Central Bank
Governor obviously meant to preserve the status quo and to prevent the financial ruin of a
banking institution, limiting the exercise of a right granted by law to a corporate entity, may
be considered as an exercise of police power.The redemption of said shares cannot be
allowed. As pointed out by the petitioner, the Central Bank made a finding that said
petitioner has been suffering from chronic reserve deficiency, and that such finding resulted
in a directive, issued on January 31, 1973 by then Gov. G.S. Licaros of the Central Bank, to
the President and Acting Chairman of the Board of the petitioner bank prohibiting the
latter from redeeming any preferred share, on the ground that said redemption would
reduce the assets of the Bank to the prejudice of its depositors and creditors. Redemption of
preferred shares was prohibited for a just and valid reason. The directive issued by the
Central Bank Governor
4

SUPREMECOURTREPORTSANNOTATED
RepublicPlantersBankvs.Agana,Sr.
was obviously meant to preserve the status quo, and to prevent the financial ruin of a
banking institution that would have resulted in adverse repercussions, not only to its
depositors and creditors, but also to the banking industry as a whole. The directive, in
limiting the exercise of a right granted by law to a corporate entity, may thus be considered
as an exercise of police power. The respondent judge insists that the directive constitutes an
impairment of the obligation of contracts. It has, however, been settled that the
Constitutional guaranty of non-impairment of obligations of contract is limited by the

exercise of the police power of the state, the reason being that public welfare is superior to
private rights.
Same; Same; Same; Interest bearing stocks, on which the corporation agrees
absolutely to pay interest before dividends are paid to common stockholders, is legal only
when construed as requiring payment of interest as dividends from net earnings or surplus
only. Both Sec. 16 of the Corporation Law and Sec. 43 of the present Corporation Code
prohibit the issuance of any stock dividend without the approval of stockholders,
representing not less than two-thirds (2/3) of the outstanding capital stock at a regular or
special meeting duly called for the purpose. These provisions underscore the fact that
payment of dividends to a stockholder is not a matter of right but a matter of consensus.
Furthermore, interest bearing stocks, on which the corporation agrees absolutely to pay
interest before dividends are paid to common stockholders, is legal only when construed as
requiring payment of interest as dividends from net earnings or surplus only. Clearly, the
respondent judge, in compelling the petitioner to redeem the shares in question and to pay
the corresponding dividends, committed grave abuse of discretion amounting to lack or
excess of jurisdiction in ignoring both the terms and conditions specified in the stock
certificate, as well as the clear mandate of the law.
Action; Prescription; A right of action that is founded upon a written contract prescribes
in ten (10) years.Anent the issue of prescription, this Court so holds that the claim of
private respondent is already barred by prescription as well as laches. Art. 1144 of the New
Civil Code provides that a right of action that is founded upon a written contract prescribes
in ten (10) years. The letter-demand made by the private respondents to the petitioner was
made only on January 5, 1979, or almost eighteen years after receipt of the written contract
in the form of the stock certificate. As noted earlier, this letter-demand, significantly, was
not formally offered in evidence,
5

VOL.269,MARCH3,1997
RepublicPlantersBankvs.Agana,Sr.
nor were any other evidence of demand presented. Therefore, we conclude that the only
time the private respondents saw it fit to assert their rights, if any, to the preferred shares
of stock, was after the lapse of almost eighteen years. The same clearly indicates that the
right of the private respondents to any relief under the law has already prescribed.
Same; Laches, Defined; Words and Phrases.Moreover, the claim of the private
respondents is also barred by laches. Laches has been defined as the failure or neglect, for
an unreasonable length of time, to do that which by exercising due diligence could or should
have been done earlier; it is negligence or omission to assert a right within a reasonable
time, warranting a presumption that the party entitled to assert it either has abandoned it
or declined to assert it.

SPECIAL CIVIL ACTION in the Supreme Court. Certiorari.

The facts are stated in the opinion of the Court.
The Chief Legal Counsel and Dorado, Sarmen,Sayson,
Tan and Associates for petitioner.
Rodrigo P. Villaroman and Roberto V. Miranda for private respondents.
HERMOSISIMA, JR., J.:

This is a petition for certiorari seeking the annulment of the Decision of the then
Court of First Instance of Rizal for having been rendered in grave abuse of
discretion. Private respondents Robes-Francisco Realty and Development
Corporation (hereafter, the Corporation) and Adalia F. Robes filed in the court a
quo, an action for specific performance to compel petitioner 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 owing them under the terms and conditions of the
certificates of stock.
1

_______________
1

Promulgated on September 7, 1979 in Civil Case No. 6965-P, penned by District Judge Enrique A.

Agana, Sr.; Rollo, pp. 57-59.

2

Branch XXVIII, Seventh Judicial District, Pasay City.

SUPREMECOURTREPORTSANNOTATED
RepublicPlantersBankvs.Agana,Sr.

The court a quo rendered judgment in favor of private respondents; hence, this
instant petition.
Herein parties debate only legal issues, no issues of fact having been raised by
them in the court a quo. For ready reference, however, the following narration of
pertinent transactions and events is in order:
On September 18, 1961, private respondent Corporation secured a loan from
petitioner in the amount of P120,000.00. As part of the proceeds of the loan,
preferred shares of stocks were issued to private respondent Corporation, through
its officers then, private respondent Adalia F. Robes and one Carlos F. Robes. In
other words, instead of giving the legal tender totaling to the full amount of the
loan, which is P120,000.00, petitioner lent such amount partially in the form of
money and partially in the form of stock certificates numbered 3204 and 3205, each
for 400 shares with a par value of P10.00 per share, or for P4,000.00 each, for a total
of P8,000.00. Said stock certificates were in the name of private respondent Adalia
F. Robes and Carlos F. Robes, who subsequently, however, endorsed his shares in
favor of Adalia F. Robes.
Said certificates of stock bear the following terms and conditions:
The Preferred Stock shall have the following rights, preferences, qualifications and
limitations, to wit:
1. 1.Of the right to receive a quarterly dividend of One Per Centum (1%), cumulative
and participating.
2. x x x
3. 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 respondents proceeded against petitioner and filed a
Complaint anchored on private respondents alleged rights to collect dividends

under the preferred shares in question and to have petitioner redeem the same
under the terms and conditions of the stock certifi7

VOL.269,MARCH3,1997
RepublicPlantersBankvs.Agana,Sr.

cates. Private respondents attached to their complaint, a letter-demand dated

January 5, 1979 which, significantly, was not formally offered in evidence.
Petitioner filed a Motion to Dismiss private respondents Complaint on the
following grounds: (1) that the trial court had no jurisdiction over the subject-matter
of the action; (2) that the action was unenforceable under substantive law; and (3)
that the action was barred by the statute of limitations and/or laches.
Petitioners Motion to Dismiss was denied by the trial court in an Order dated
March 16, 1979. Petitioner then filed its Answer on May 2, 1979. Thereafter, the
trial court gave the parties ten (10) days from July 30, 1979 to submit their
respective memoranda after the submission of which the case would be deemed
submitted for resolution.
On September 7, 1979, the trial court rendered the herein assailed decision in
favor of private respondents. In ordering petitioner to pay private respondents the
face value of the stock certificates as redemption price, plus 1% quarterly interest
thereon until full payment, the trial court ruled:
3

There being no issue of fact raised by either of the parties who filed their respective
memoranda delineating their respective contentions, a judgment on the pleadings,
conformably with an earlier order of the Court, appears to be in order.
From a further perusal of the pleadings, it appears that the provision of the stock
certificates in question to the effect that the plaintiffs shall have the right to receive a
quarterly dividend of One Per Centum (1%), cumulative and participating, clearly and
unequivocably [sic] indicates that the same are interest bearing stocks which are stocks
issued by a corporation under an agreement to pay a certain rate of interest thereon (5
Thompson, Sec. 3439). As such, plaintiffs become entitled to the payment thereof as a
matter of right without necessity of a prior declaration of dividend.
_______________
3

Dated February 12, 1979.

Rollo, p. 37.

Rollo, pp. 38-40.

Order dated July 30, 1979; Rollo, p. 43.

SUPREMECOURTREPORTSANNOTATED
RepublicPlantersBankvs.Agana,Sr.

On the question of the redemption by the defendant of said preferred shares of

stock, the very wordings of the terms and conditions in said stock certificates clearly
allows the same.
To allow the herein defendant not to redeem said preferred shares of stock and/or
pay the interest due thereon despite the clear import of said provisions by the mere
invocation of alleged Central Bank Circulars prohibiting the same is tantamount to
an impairment of the obligation of contracts enshrined in no less than the
fundamental law itself.

Moreover, the herein defendant is considered in estoppel from taking shelter

behind a General Banking Act provision to the effect that it cannot buy its own
shares of stocks considering that the very terms and conditions in said stock
certificates allowing their redemption are its own handiwork.
As to the claim by the defendant that plaintiffs cause of action is barred by
prescription, suffice it to state that the running of the prescriptive period was
considered interrupted by the written extra-judicial demands made by the plaintiffs
from the defendant.
Aggrieved by the decision of the trial court, petitioner elevated the case before us
essentially on pure questions of law. Petitioners statement of the issues that it
submits for us to adjudicate upon, is as follows:
7

1. A.RESPONDENT JUDGE COMMITTED A GRAVE ABUSE OF

DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION
IN ORDERING PETITIONER TO PAY RESPONDENT ADALIA F. ROBES
THE AMOUNT OF P8,213.69 AS INTERESTS FROM 1961 TO 1979 ON
HER PREFERRED SHARES.
2. B.RESPONDENT JUDGE COMMITTED A GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION
IN ORDERING PETITIONER TO REDEEM RESPONDENT ADALIA F.
ROBES PREFERRED SHARES FOR P8,000.00
3. C.RESPONDENT JUDGE COMMITTED A GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION
IN DISREGARDING THE ORDER OF THE CEN
_______________
7

Decision dated September 7, 1979, pp. 2-3; Rollo, pp. 58-59.

VOL.269,MARCH3,1997
RepublicPlantersBankvs.Agana,Sr.

1. TRAL BANK TO PETITIONER TO DESIST FROM REDEEMING ITS

PREFERRED SHARES AND FROM PAYING DIVIDENDS THEREON X X
X.
2. D.THE TRIAL COURT ERRED IN NOT HOLDING
COMPLAINT DOES NOT STATE A CAUSE OF ACTION.

THAT

THE

3. E.THE TRIAL COURT ERRED IN NOT HOLDING THAT THE CLAIM OF

RESPONDENT ADALIA F. ROBES IS BARRED BY PRESCRIPTION OR
LACHES.
8

The petition is meritorious.

Before passing upon the merits of this petition, it may be pertinent to provide an
overview on the nature of preferred shares and the redemption thereof, considering
that these issues lie at the heart of the dispute.
A preferred share of stock, on one hand, is one which entitles the holder thereof
to certain preferences over the holders of common stock. The preferences are
designed to induce persons to subscribe for shares of a corporation. Preferred shares
take a multiplicity of forms. The most common forms may be classified into two: (1)
preferred shares as to assets; and (2) preferred shares as to dividends. The former is
a share which gives the holder thereof preference in the distribution of the assets of
the corporation in case of liquidation; the latter is a share the holder of which is
entitled to receive dividends on said share to the extent agreed upon before any
dividends at all are paid to the holders of common stock. There is no guaranty,
however, that the share will receive any dividends. Under the old Corporation Law
in force at the time the contract between the petitioner and the private respondents
was entered into, it was provided that no corporation shall make or declare any
dividend except from the surplus
9

10

11

_______________
8

Petition, pp. 10-11; Rollo, pp. 11-12.

DE LEON, The Corporation Code of the Philippines, p. 62 (1989 ed.)

10

Id.

11

DE LEON, p. 69, citing 2 Fletcher, p. 44.

10

10

SUPREMECOURTREPORTSANNOTATED
RepublicPlantersBankvs.Agana,Sr.

profits arising from its business, or distribute its capital stock or property other
than actual profits among its members or stockholders until after the payment of its
debts and the termination of its existence by limitation or lawful
dissolution. Similarly, the present Corporation Code provides that the board of
directors of a stock corporation may declare dividends only out of unrestricted
retained earnings. The Code, in Section 43, adopting the change made in
accounting terminology, substituted the phrase unrestricted retained earnings,
which may be a more precise term, in place of surplus profits arising from its
business in the former law. Thus, the declaration of dividends is dependent upon
the availability of surplus profit or unrestricted retained earnings, as the case may
be. Preferences granted to preferred stockholders, moreover, do not give them a lien
upon the property of the corporation nor make them creditors of the corporation, the
right of the former being always subordinate to the latter. Dividends are thus
payable only when there are profits earned by the corporation and as a general rule,
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.
Redeemable shares, on the other hand, are shares usually preferred, which by
their terms are redeemable at a fixed date, or at the option of either issuing
12

13

14

15

16

corporation, or the stockholder, or both at a certain redemption price. A redemption

by the corporation of its stock is, in a sense, a re17

_______________
12

Act No. 1459, Sec. 16, as amended.

13

Effective May 1, 1980.

14

The Corporation Code, Sec. 16.

15

CAMPOS, THE CORPORATION CODE, p. 9 [1990 ed.].

16

DE LEON, p. 69 , citing SEC Opinion, February 10, 1969.

17

Id., at p. 75.

11

VOL.269,MARCH3,1997
RepublicPlantersBankvs.Agana,Sr.

11

purchase of it for cancellation. The present Code allows redemption of shares even
if there are no unrestricted retained earnings on the books of the corporation. This
is a new provision which in effect qualifies the general rule that the corporation
cannot purchase its own shares except out of current retained earnings. However,
while redeemable shares may be redeemed regardless of the existence of
unrestricted retained earnings, this is subject to the condition that the corporation
has, after such redemption, assets in its books to cover debts and liabilities inclusive
of capital stock. Redemption, therefore, may not be made where the corporation is
insolvent or if such redemption will cause insolvency or inability of the corporation
to meet its debts as they mature.
We come now to the merits of the case. The petitioner argues that it cannot be
compelled to redeem the preferred shares issued to the private respondent. We
agree. Respondent judge, in ruling that petitioner must redeem the shares in
question, stated that:
18

19

20

On the question of the redemption by the defendant of said preferred shares of stock, the
very wordings of the terms and conditions in said stock certificates clearly allows the
same.
21

What respondent judge failed to recognize was that while the stock certificate does
allow redemption, the option to do so was clearly vested in the petitioner bank. The
redemption therefore is clearly the type known as optional. Thus, except as
otherwise provided in the stock certificate, the redemption rests entirely with the
corporation and the stockholder is without right to either compel or refuse the
redemption of its stock. Furthermore, the terms and conditions set forth
22

_______________
18

Id., at p. 77.

19

CAMPOS, p. 33.

20

DE LEON, p. 76, citing SEC Opinion of January 23, 1985.

21

Decision dated September 7, 1979 in Civil Case No. 6965-P penned by Judge Enrique A. Agana, Sr.,

pp. 2-3; Rollo, pp. 58-59.

22

DE LEON, pp. 76-77, citing Section 8 of the Corporation Code.

12

12

SUPREMECOURTREPORTSANNOTATED
RepublicPlantersBankvs.Agana,Sr.

therein use the word may. It is a settled doctrine in statutory construction that the
word may denotes discretion, and cannot be construed as having a mandatory
effect. We fail to see how respondent judge can ignore what, in his words, are the
very wordings of the terms and conditions in said stock certificates and construe
what is clearly a mere option to be his legal basis for compelling the petitioner to
redeem the shares in question.
The redemption of said shares cannot be allowed. As pointed out by the
petitioner, the Central Bank made a finding that said petitioner has been suffering
from chronic reserve deficiency, and that such finding resulted in a directive, issued
on January 31, 1973 by then Gov. G.S. Licaros of the Central Bank, to the President
and Acting Chairman of the Board of the petitioner bank prohibiting the latter from
redeeming any preferred share, on the ground that said redemption would reduce
the assets of the Bank to the prejudice of its depositors and creditors. Redemption of
preferred shares was prohibited for a just and valid reason. The directive issued by
the Central Bank Governor was obviously meant to preserve the status quo, and to
prevent the financial ruin of a banking institution that would have resulted in
adverse repercussions, not only to its depositors and creditors, but also to the
banking industry as a whole. The directive, in limiting the exercise of a right
granted by law to a corporate entity, may thus be considered as an exercise of police
power. The respondent judge insists that the directive constitutes an impairment of
the obligation of contracts. It has, however, been settled that the Constitutional
guaranty of non-impairment of obligations of contract is limited by the exercise of
the police power of the state, the reason being that public welfare is superior to
private rights.
23

24

25

_______________
23

Rollo, p. 12.

24

Rollo, p. 8.

25

Philippine National Bank v. Remigio, G.R. No. 78508, March 21, 1994.

13

VOL.269,MARCH3,1997
RepublicPlantersBankvs.Agana,Sr.

13

The respondent judge also stated that since the stock certificate granted the private
respondents the right to receive a quarterly dividend of One Per Centum (1%)
cumulative and participating, it clearly and unequivocably (sic) indicates that the
same are interest bearing stocks or stocks issued by a corporation under an
agreement to pay a certain rate of interest thereon. As such, plaintiffs (private
respondents herein) become entitled to the payment thereof as a matter of right
without necessity of a prior declaration of dividend. There is no legal basis for this
observation. Both Sec. 16 of the Corporation Law and Sec. 43 of the present
Corporation Code prohibit the issuance of any stock dividend without the approval
of stockholders, representing not less than two-thirds (2/3) of the outstanding
capital stock at a regular or special meeting duly called for the purpose. These
provisions underscore the fact that payment of dividends to a stockholder is not a
matter of right but a matter of consensus. Furthermore, interest bearing stocks,
on which the corporation agrees absolutely to pay interest before dividends are paid
26

to common stockholders, is legal only when construed as requiring payment of

interest as dividends from net earnings or surplus only. Clearly, the respondent
judge, in compelling the petitioner to redeem the shares in question and to pay the
corresponding dividends, committed grave abuse of discretion amounting to lack or
excess of jurisdiction in ignoring both the terms and conditions specified in the stock
certificate, as well as the clear mandate of the law.
Anent the issue of prescription, this Court so holds that the claim of private
respondent is already barred by prescription as well as laches. Art. 1144 of the New
Civil Code provides that a right of action that is founded upon a written contract
prescribes in ten (10) years. The letter-demand made by the private respondents to
the petitioner was made only on January 5, 1979, or almost eighteen years after
receipt of the written contract in the form of the stock certificate. As noted ear27

_______________
26

Rollo, p. 58.

27

DE LEON, p. 62, citing Sec. 43 of the Corporation Code.

14

14

SUPREMECOURTREPORTSANNOTATED
RepublicPlantersBankvs.Agana,Sr.

lier, this letter-demand, significantly, was not formally offered in evidence, nor were
any other evidence of demand presented. Therefore, we conclude that the only time
the private respondents saw it fit to assert their rights, if any, to the preferred
shares of stock, was after the lapse of almost eighteen years. The same clearly
indicates that the right of the private respondents to any relief under the law has
already prescribed. Moreover, the claim of the private respondents is also barred by
laches. Laches has been defined as the failure or neglect, for an unreasonable length
of time, to do that which by exercising due diligence could or should have been done
earlier; it is negligence or omission to assert a right within a reasonable time,
warranting a presumption that the party entitled to assert it either has abandoned
it or declined to assert it.
Considering that the terms and conditions set forth in the stock certificate clearly
indicate that redemption of the preferred shares may be made at any time after the
lapse of two years from the date of issue, private respondents should have taken it
upon themselves, after the lapse of the said period, to inquire from the petitioner
the reason why the said shares have not been redeemed. As it is, not only two years
had lapsed, as agreed upon, but an additional sixteen years passed before the
private respondents saw it fit to demand their right. The petitioner, at the time it
issued said preferred shares to the private respondents in 1961, could not have
known that it would be suffering from chronic reserve deficiency twelve years later.
Had the private respondents been vigilant in asserting their rights, the redemption
could have been effected at a time when the petitioner bank was not suffering from
any financial crisis.
WHEREFORE, the instant petition, being impressed with merit, is hereby
GRANTED. The challenged decision of respondent judge is set aside and the
complaint against the petitioner is dismissed.
28

_______________

28

Olizon v. Court of Appeals, et al., G.R. 107075, September 1, 1994.

15

VOL.269,MARCH3,1997
TradersRoyalBankvs.CourtofAppeals

15

Costs against the private respondents.

SO ORDERED.
Bellosillo, Vitug and Kapunan, JJ., concur.
Padilla (J., Chairman), In the result.
Petition granted.
Note.Whenever a distressed corporation asks SEC for rehabilitation and
suspension of payments, preferred creditors may no longer assert such preference
but shall stand on equal footing with other creditors. (Bank of the Philippine
Islands vs. Court of Appeals, 229 SCRA 223[1994])
o0o
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