[G.R. No. 124535.

September 28, 2001]

THE RURAL BANK OF LIPA CITY, INC., THE OFFICERS AND DIRECTORS, BERNARDO
BAUTISTA, JAIME CUSTODIO, OCTAVIO KATIGBAK, FRANCISCO CUSTODIO, and
JUANITA BAUTISTA OF THE RURAL BANK OF LIPA CITY, INC., petitioners,
vs.
HONORABLE COURT OF APPEALS, HONORABLE COMMISSION EN BANC, SECURITIES
AND EXCHANGE COMMISSION, HONORABLE ENRIQUE L. FLORES, JR., in his capacity
as Hearing Officer, REYNALDO VILLANUEVA, SR., AVELINA M. VILLANUEVA, CATALINO
VILLANUEVA, ANDRES GONZALES, AURORA LACERNA, CELSO LAYGO, EDGARDO
REYES, ALEJANDRA TONOGAN and ELENA USI, respondents.
FACTS:
This is a petition for review on certiorari against the decision of the CA. Reynaldo
Villanueva, respondent, is a stockholder of the Bank who executed a Deed of
Assignment wherein he assigned a total of 10,467 sharesin favor of the stockholders
of the Bank represented by its directors Bernardo Bautista, Jaime Custodio and
Octavio Katigbak. They acknowledged their indebtedness to the Bank in the amount
of P4,000,000.00, and stipulated that said debt will be paid out of the proceeds of
the sale of their real property described in the Agreement. At a meeting of the
Board, the spouses assured that the debt shall be paid on or before December 31,
1993. Failure to do so would amount to the Bank being entitled to liquidate their
shareholdings together with other collaterals if such shareholdings are insufficient.
They failed to settle their obligation which prompted the bank on demanding for the
surrender of all the stock certificates and delivery of sufficient collateral to secure
their debt amounting to 3,346,898.54 pesos. This was ignored and as such, the
bank converted such shares of stock unto treasury stocks. The spouses questioned
the legality of such. They were no longer invited to participate in the election of the
new directors and set of officers in the following year which they also questioned.
They filed with the SEC a petition for annulment of the stockholders meeting and
election of directors and officers. They argued that it was conducted against the bylaws and there was no notice sent to them. Their motion was initially denied but
was allowed upon MR as they were still stockholders entitled to notice of the annual
stockholders meeting. A writ of PI was issued against the new directors and officers
from acting as such. The Villanuevas then filed an Omnibus motion to restrain the
election of 1995 which the SEC granted. The petitioners filed certiorari with the SEC
en banc. The SEC en banc upheld the order of the SEC Hearing Officer. On appeal,
the CA affirmed the decision stating that For an effective transfer of shares of stock,
the mode and manner of transfer as prescribed by law should be followed. Private
respondents are still presumed to be the owners of the shares and to be
stockholders of the Rural Bank.
ISSUE:
W/N the CA erred in upholding the decision of the SEC
HELD:
The Court of Appeals did not err or abuse its discretion in affirming the order of the
SEC en banc, which in turn upheld the order of the SEC Hearing Officer, for the said
rulings were in accordance with law and jurisprudence. There must be strict
compliance with the mode of transfer prescribed by law as stated in Section 63 of
the Corporation Code. 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.
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. Parenthetically, the private
respondents cannot, as yet, be deprived of their rights as stockholders, until and
unless the issue of ownership and transfer of the shares in question is resolved with
finality.