Mr. Pythagoras P. Brion, Sr.

October 8, 1981 Mr. Pythagoras P. Brion, Sr. 58 Derby Street, White Plains Quezon City Sir : This has reference to your letter dated August 3, 1981 requesting the opinion of this Commission on why the Philippine Savings Bank does not declare dividends for the last six years. The letter of Atty. Antonio V. Viray, Senior Vice President and Corporate Secretary of the said bank, xerox copy of which attached thereto, cited the expansion program of the bank as justification for not declaring dividends. We took note of the above-mentioned letter of Mr. A. Viray and concur with the statement thereat regarding the general rule on declaration of dividends. It is "a well settled doctrine that whether or not dividend shall be paid, and the amount of the distribution at any time, is primarily to be determined in the honest discretion of the directors" (Ballantine p. 552). Relative to your query, Section 43 of the New Corporation Code expressly states that "stock corporations are prohibited from retaining surplus profits in excess of one hundred (100%) percent of their paid-in capital stock." The rationale behind this restriction is to compel corporations with sufficient surplus profits to declare dividends. However, said provision allows three exceptions thereto, one of which is "when justified by definite corporate expansion projects or programs approved by the board of directors." Apparently, the reasons given by Philippine Savings Bank for non-declaration of dividends fall within this exception. In view thereof, this Commission believes that the policy of your bank relative to the declaration of dividends is in accordance with the pertinent provisions of the Corporation Code. Very truly yours, (SGD.) ROSARIO N. LOPEZ Associate Commissioner