Rural Bank of Lipa City, et.

al,
v.
Court of Appeals
G.R. No. 124535
September 28, 2001

Facts:

This dispute involves the transfers of shares of stocks of Spouses Villanueva in the
petitioner Bank, wherein the shares were liquidated and converted to treasury shares as a result
of non-payment of a separate and distinct debt owed by the said spouses to the bank. After the
conversion of the said shares, the Bank subsequently held a stockholder’s meeting to elect new
directors, without giving notice to Spouses Villanueva. It was argued that reason for such
deliberate intent not to give notice was that the Spouses Villanueva were no longer considered
as shareholders of the bank, thus not entitled to notice and any voting rights. As remedy, the
Spouses filed for annulment of the election, with preliminary injunction, to which the SEC ruled
in their favor, enjoining the newly- elected officers from taking their office. Since the annual
stockholder’s meeting was upcoming, the petitioner Bank filed a petition for Certiorari with the
Supreme Court, hence this petition.

Issue: Whether or not there was a valid transfer of the shares by Spouses Villanueva to petitioner
Bank, which deprived them of their stocks and accompanying rights to such stocks.

Ruling: No.

There was no valid transfer of stock as the Spouses Villanueva are still in possession of
the Certificates of Stock evidencing their stockholdings, and as already held by the Court, the
non-delivery of the stock certificate does not make the transfer of the shares of stock effective.
For a valid transfer of stocks, there must be strict compliance with the mode of transfer
prescribed by law. The requirements are: (a) There must be delivery of the stock certificate; (b)
The certificate must be endorsed by the owner or his attorney-in-fact or other persons legally
authorized to make the transfer; and (c) To be valid against third parties, the transfer must be
recorded in the books of the corporation. As it is, compliance with any of these requisites has not
been clearly and sufficiently shown. While the assignment may be valid and binding on the
petitioners and private respondents, it does not necessarily make the transfer effective.
Consequently, the petitioners, as mere assignees, cannot enjoy the status of a stockholder,
cannot vote nor be voted for, and will not be entitled to dividends, insofar as the assigned shares
are concerned.