Corporate Law Case Digest: Tan v. SEC (1992) G.R. No.

95696 March 3, 1992 Lessons Applicable:

Nature of Certificate of Stock (Corporate Law) Rights to Certificate of Stock for Fully Paid Shares (Corporate Law)

FACTS:

October 1, 1979: Visayan Educational Supply Corp. As incorporator, Alfonso S. Tan had 400 shares of the capital stock at the par value of P100/share, evidenced by Certificate of Stock No. 2 o elected as President until 1982 o Board of Directors as director until April 19, 1983 January 31, 1981: incorporators Antonia Y. Young and Teresita Y. Ong, withdrew by assigning to the corp. their shares, represented by certificate of stock No. 4 and 5, they were paid 40% corporate stock-in-trade Certificate of stock No. 2 was cancelled by the corporate secretary and Patricia Aguilar by virtue of Resolution No. 1981 which was passed and approved while he was still a member of the BOD Due to the withdrawal of the 2 incorporators and in order to complete the membership of the 5 directors of the board, he sold 50 shares out of his 400 shares of capital stock to his brother Angel S. Tan Another incorporator, Alfredo B. Uy, also sold 50 of his 400 shares of capital stock to Teodora S. Tan March 27, 1981: Angel Tan was elected director and on March 27, 1981 Certificate of Stock No. 2 was cancelled and the Certificates Nos. 6 in the name of Angel S. Tan and 8 in the name of Alfonso S. Tan, Mr. Buzon were issued and delivered (stock split), signed by the newly elected fifth member of the Board, Angel S. Tan as VP, upon instruction of Alfonso S. Tan who was then the president o Alfonso S. Tan was given back Stock Certificate No. 2 for him to endorse and he deliberately withheld it for reasons of his own - so as if no delivery Certificate of Stock No. 8 was delivered to Tan Su Ching January 29, 1983: Tan Su Ching was elected as President, Tan as VP but did not sign the minutes February 27, 1983: dislodged from his position as president, he withdrew from the corporation paid with stock-in-trade corresponding to 33.3% par value of P35,000.00 April 19, 1983: Board meeting cancelled Stock Certificate Nos. 2 and 8 and minutes submitted to SEC December 3, 1983: Alfonso S. Tan filed the SEC case questioning for the first time, the cancellation of Stock Certificates Nos. 2 and 8 o No transfer, however, shall be valid, except as between the parties, until the transfer is recorded to the books of the corporation so as to show the names of the parties to the transaction, the date of the transfer, the number of the certificate or certificates and the number of shares transferred. SEC. 63. Certificate of stock and transfer of shares. The capital stock and stock and corporations shall be divided into shares for which certificates signed by the president and vice president, countersigned by the secretary or assistant secretary, and sealed with the seal of the corporation shall be issued in accordance with the by-laws. Shares of stocks so issued are personal property and may be transferred by delivery of the certificate or certificates indorsed by

the owner or his attorney-in-fact or other person legally authorized to make the transfer. No transfer, however, shall be valid, except as between the parties, until the transfer is recorded in the books of the corporation so as to show the names of the parties to the transaction, the date of the transfer, the number of the certificate or certificates and the number of shares transferred. No shares of stocks against which the corporation holds any unpaid claim shall be transferable in the books of the corporations.

SEC: held cancellation of the shares of stock - void SEC en banc: overturned - nullity of the sale of 350 shares represented under stock certification No. 8, pursuant to the "in pari delicto" doctrine.

ISSUE: W/N transfer is valid w/o delivery HELD: YES. Affirmed. Alfonso S. Tan devised the scheme of not returning the cancelled Stock Certificate No. 2 which was returned to him for his endorsement, to skim off the largesse of the corporation as shown by the trading of his Stock Certificate No. 8 for goods of the corporation valued at P2M when the par value of the same was only worth P35K He also used this scheme to renege on his indebtedness to respondent Tan Su Ching in the amount of P1 million valid transfer even if no delivery certificate of stock is not a negotiable instrument Although it is sometimes regarded as quasi-negotiable, in the sense that it may be transferred by endorsement, coupled with delivery, it is well-settled that it is non-negotiable, because the holder thereof takes it without prejudice to such rights or defenses as the registered owner/s or transferror's creditor may have under the law, except insofar as such rights or defenses are subject to the limitations imposed by the principles governing estoppel. negotiable instrument either indorsement + delivery or delivery = holder in due course = better right than real owner certificate of stock = owner better right transfer valid between parties recorded in the books - to bind others including the corporation NOTE: Although there are 4 types of transactions, only transfer is recorded in the stocks and transfer books. paper representative or tangible evidence of the stock itself and of the various interests therein not necessary to render one a stockholder in corporation since stocks were already cancelled and reported to the respondent Commission, there was no necessity to endorse All the acts required for the transferee to exercise its rights over the acquired stocks were attendant and even the corporation was protected from other parties, considering that said transfer was earlier recorded or registered in the corporate stock and transfer book

*Rights to Certificate of Stock for Fully Paid Shares? What is the doctrine? Have to check. Labels: 1992, Case Digest, Corporate Law, Corporate Law Case Digest, G.R. No. 95696, Juris Doctor
Formatted: Font: (Default) Times New Roman, Font color: Blue

Corporate Law Case Digest: De los Santos v. Republic (1955) G.R. No. L-4818 February 28, 1955 Lessons Applicable: Nature of Certificate of Stock (Corporate Law) FACTS:

600,000 shares of stock of the Lepanto Consolidated Mining Co., Inc., (Lepanto), a corporation duly organized and existing under the laws of the Philippines Originally, 1/2 shares of stock were claimed by Apolinario de los Santos, and the other half by Isabelo Astraquillo. During the pendency of this case, the Astraquillo has allegedly conveyed and assigned his interest in and to de los Santos. Vicente Madrigal is registered in the books of the Lepanto as owner of said stocks and whose indorsement in blank appears on the back of said certificates contend that De los Santos bought: o 55,000 shares from Juan Campos o 300,000 shares from Carl Hess o 800,000 shares from Carl Hess for the benefit of Astraquillo delivered to stock broker Leonardo Recio stock certificate No. 2279 55,000 shares to see Mr. DeWitt, who, probably, would be interested in purchasing the shares

DeWitt retained the shares reasoning that it was blocked by the US and receipt was burned at Recio's dwelling By virtue of vesting P-12, dated February 18, 1945, title to the 1,600,000 shares of stock in dispute was, however, vested in the Alien Property Custodian of the U. S. o Plaintiffs filed their respective claims with the Property Custodian Defendant Attorney General of the U. S., successor to the Administrator contends, substantially, that, prior to the outbreak of the war in the Pacific, shares of stock were bought by Vicente Madrigal, in trust for, and for the benefit of, the Mitsui Bussan Kaisha a corporation organized in accordance with the laws of Japan, the true owner thereof, with branch office in the Philippines March, 1942: Madrigal delivered stock certificates, with his blank indorsement thereon, to the Mitsuis, which kept said certificates, in the files of its office in Manila, until the liberation of the latter by the American forces early in 1945; that the Mitsuis had never sold, or otherwise disposed of, said shares of stock; and that the stock certificates aforementioned must have been stolen or looted, therefore, during the emergency resulting from said liberation. CFI: favored plaintiffs Defendants Appealed Hess, during that period, operate as broker, for being American, he was under Japanese surveillance, and that Hess had made, during the occupation, no transaction involving mining shares, except when he sold 12,000 shares of the Benguet Consolidated, inherited from his mother, sometime in 1943.

ISSUE: W/N the plaintiffs are entitled to the shares HELD: NO. REVERSED

burden of proof is upon the plaintiffs Section 35 of the Corporation Law reads:

The capital stock corporations shall be divided into shares for which certificates signed by the president or the vice-president, countersigned by the secretary or clerk and sealed with the seal of the corporation, shall be issued in accordance with the by-laws. Shares of stock so issued are personal property and may be transferred by delivery of the certificate endorsed by the owner or his attorney in fact or other person legally authorized to make the transfer. No transfer, however, shall be valid, except as between the parties, until the transfer is entered and noted upon the books of the corporation so as to show the names of the parties to the transaction, the date of the transfer, the number of the certificate, and the number of shares transferred. No shares of stock against which the corporation holds any unpaid claim shall be transferable on the books of the corporation. (Emphasis supplied.)

Certificates of stock are not negotiable instruments (post, Par. 102), consequently, a transferee under a forged assignment acquires no title which can be asserted against the true owner, unless his own negligence has been such as to create an estoppel against him (Clarke on Corporations, Sec. Ed. p. 415). If the owner of the certificate has endorsed it in blank, and it is stolen from him, no title is acquired by an innocent purchaser for value Neither the absence of blame on the part of the officers of the company in allowing an unauthorized transfer of stock, nor the good faith of the purchaser of stolen property, will avail as an answer to the demand of the true owner The doctrine that a bona fide purchaser of shares under a forged or unauthorized transfer acquires no title as against the true owner does not apply where the circumstances are such as to estop the latter from asserting his title. . . .

one of two innocent parties must suffer by reason of a wrongful or unauthorized act, the loss must fall on the one who first trusted the wrongdoer and put in his hands the means of inflicting such loss negligence which will work an estoppel of this kind must be a proximate cause of the purchase or advancement of money by the holder of the property, and must enter into the transaction itself o the negligence must be in or immediately connected with the transfer itself to establish this estoppel it must appear that the true owner had conferred upon the person who has diverted the security the indicia of ownership, or an apparent title or authority to transfer the title o So the owner is not guilty of negligence in merely entrusting another with the possession of his certificate of stock, if he does not, by assignment or otherwise, clothe him with the apparent title. o Nor is he deprived of his title or his remedy against the corporation because he intrusts a third person with the key of a box in which the certificate are kept, where the latter takes them from the box and by forging the owner's name to a power of attorney procures their transfer on the corporate books. o Nor is the mere indorsement of an assignment and power of attorney in blank on a certificate of stock, which is afterwards lost or stolen, such negligence as will estop the owner from asserting his title as against a bona fide purchaser from the finder or thief, or from holding the corporation liable for allowing a transfer on its books, where the loss or theft of the certificate was not due to any negligence on the part of the owner o stock pledged to a bank is endorsed in blank by the owner does not estop him from asserting title thereto as against a bona fide purchaser for value who derives his title from one who stole the certificate from the pledgee. And this has also been held to be true though the thief was an officer of the pledgee, since his act in wrongfully appropriating the certificate cannot be regarded as a misappropriation by the bank to whose custody the certificate was intrusted by the owner, even though the bank may be liable to the pledgor Hence, as the undisputed principal or beneficiary of the registered owner (Madrigal), the Mitsuis may claim his rights, which cannot be exercised by the plaintiffs, not only because their alleged title is not derived either from madrigal or from the Mitsuis, but, also, because it is in derogation, of said rights. madrigal and the Mitsuis are notprivies to the alleged sales by Campos and Hess to the plaintiffs, contrary to the latter's pretense.
o

Wednesday, December 19, 2012 Ponce vs. Alsons Cement Corporation Case Digest Ponce vs. Alsons Cement Corporation [GR 139802, 10 December 2002] Facts: On 25 January 1996, Vicente C. Ponce, filed a complaint with the SEC for mandamus and damages against Alsons Cement Corporation and its corporate secretary Francisco M. Giron, Jr. In his complaint, Ponce alleged, among others, that "the late Fausto G. Gaid was an incorporator of Victory Cement Corporation (VCC), having subscribed to and fully paid 239,500 shares of said corporation; that on 8 February 1968, Ponce and Fausto Gaid executed a "Deed of Undertaking" and "Indorsement" whereby the latter acknowledges that the former is the owner of said shares and he was therefore assigning/endorsing the same to Ponce; that on 10 April 1968, VCC was renamed Floro Cement Corporation (FCC); that on 22 October 1990, FCC was renamed Alsons Cement Corporation (ACC); that from the time of incorporation of VCC up to the present, no certificates of stock corresponding to the 239,500 subscribed and fully paid shares of Gaid were issued in the name of Fausto G. Gaid and/or Ponce; and that despite repeated demands, ACC and Giron refused and continue to refuse without any justifiable reason to issue to Ponce the certificates of stocks corresponding to the 239,500 shares of Gaid, in violation of Ponce's right to secure the corresponding certificate of stock in his name. ACC and Giron moved to dismiss. SEC Hearing Officer Enrique L. Flores, Jr. granted the motion to dismiss in an Order dated 29 February 1996. Ponce appealed the Order of dismissal. On 6 January 1997, the Commission En Banc reversed the appealed Order and directed the Hearing Officer to proceed with the case. In ruling that a transfer or assignment of stocks need not be registered first before it can take cognizance of the case to enforce Ponce's rights as a stockholder, the Commission En Banc cited the Supreme Court's ruling in Abejo vs. De la Cruz, 149 SCRA 654 (1987). Their motion for reconsideration having been denied, ACC and Giron appealed the decision of the SEC En Banc and the resolution denying their motion for reconsideration to the Court of Appeals. In its decision, the Court of Appeals held that in the absence of any allegation that the transfer of the shares between Gaid and Ponce was registered in the stock and transfer book of ACC, Ponce failed to state a cause of action. Thus, said the appellate court, "the complaint for mandamus should be dismissed for failure to state a cause of action." Ponce's motion for reconsideration was denied in a resolution dated 10 August 1999. Ponce filed the petition for review on certiorari.

Issue: Whether Ponce can require the corporate secretary, Giron, to register Gaids shares in his name. Held: Fausto Gaid was an original subscriber of ACC's 239,500 shares. From the Amended Articles of Incorporation approved on 9 April 1995, each share had a par value of P1.00 per share. Ponce had not made a previous request upon the corporate secretary of ACC, Francisco M. Giron Jr., to record the alleged transfer of stocks. Pursuant to Section 63 of the Corporation Code, a transfer of shares of stock not recorded in the stock and transfer book of the corporation is non-existent as far as the corporation is concerned. As between the corporation on the one hand, and its shareholders and third persons on the other, the corporation looks only to its books for the purpose of determining who its shareholders are. It is only when the transfer has been recorded in the stock and transfer book that a corporation may rightfully regard the transferee as one of its stockholders. From this time, the consequent obligation on the part of the corporation to recognize such rights as it is mandated by law to recognize arises. Hence, without such recording, the transferee may not be regarded by the corporation as one among its stockholders and the corporation may legally refuse the issuance of stock certificates in the name of the transferee even when there has been compliance with the requirements of Section 64 of the Corporation Code. The stock and transfer book is the basis for ascertaining the persons entitled to the rights and subject to the liabilities of a stockholder. Where a transferee is not yet recognized as a stockholder, the corporation is under no specific legal duty to issue stock certificates in the transferee's name. A petition for mandamus fails to state a cause of action where it appears that the petitioner is not the registered stockholder and there is no allegation that he holds any power of attorney from the registered stockholder, from whom he obtained the stocks, to make the transfer. The deed of undertaking with indorsement presented by Ponce does not establish, on its face, his right to demand for the registration of the transfer and the issuance of certificates of stocks. Under the provisions of our statute touching the transfer of stock, the mere indorsement of stock certificates does not in itself give to the indorsee such a right to have a transfer of the shares of stock on the books of the company as will entitle him to the writ of mandamus to compel the company and its officers to make such transfer at his demand, because, under such circumstances the duty, the legal obligation, is not so clear and indisputable as to justify the issuance of the writ. As a general rule, as between the corporation on the one hand, and its shareholders and third persons on the other, the corporation looks only to its books for the purpose of determining who its shareholders are, so that a mere indorsee of a stock certificate, claiming to be the owner, will not necessarily be recognized as such by the corporation and its officers, in the absence of express instructions of the registered owner to make such transfer to the indorsee, or a power of attorney authorizing such transfer. Thus, absent an allegation that the transfer of shares is recorded in the stock and transfer book of ACC, there appears no basis for a clear and indisputable duty or clear legal obligation that can be imposed upon the corporate secretary, so as to justify the issuance of the writ of mandamus to compel him to perform the transfer of the shares to Ponce.

Corporate Law Case Digest: Bachrach Motor Co V. Lacson Ledesma (1937) G.R. No. L-42462 August 31, 1937 Lessons Applicable: Quasi-negotiable Character of Certificate of Stock (Corporate Law)

FACTS:

June 30, 1927: CFI favored Bachrach Motor Co., Inc (Bachrach) against Mariano Lacson Ledesma Ledesma mortgaged to the Philippine National Bank (PNB) Talisay-Silay Milling Co., Inc shares September 29, 1928: PNB brought an action against Ledesma and his wife Concepcion Diaz for the recovery of a mortgage credit January 2, 1929: PNB amended its complaint by including the Bachrach Motor Co., Inc., as party defendant because they claim to have rights to some of the subject matters of this complaint January 30, 1929: Bachrach field a gen. denial CFI: favored PNB December 20, 1929: Bachrach brought an action in the CFI against the Talisay-Silay Milling Co., Inc., to recover P13,850 against the bonus or dividend w/c, by virtue of the resolution of December 22, 1923, Central Talisay-Silay Milling Co., Inc., had declared in favor of Ledesma as one of the owners of the hacienda which had been mortgaged to the PNB to secure the obligation of the Talisay-Silay Milling Co., Inc. in favor of said bank CFI: favored Bachrach

ISSUE: W/N shares of stock are personal property and therefore can be subject to pledge or chattel mortgage HELD: YES. AFIRMED

section 4 of the Chattel Mortgage Law, in so far as it provides that a chattel mortgage shall not be valid against any person except the mortgagor, his executors or administrators, unless the possession of the property is delivered to and retained by the mortgagee or unless the mortgage is recorded in the office of the register of deeds of the province in which the mortgagor resides. pledge of the 6,300 stock dividends is valid against the Bachrach because the certificate was delivered to the creditor bank, notwithstanding the fact that the contract does not appear in a public instrument Certificates of stock or of stock dividends, under the Corporation Law, are quasi negotiable instruments in the sense that they may be given in pledge or mortgage to secure an obligation

certificates of stock, while not negotiable in the sense of the law merchant, like bills and notes, are so framed and dealt with as to be transferable, when property endorsed, by mere delivery, and as they frequently convey, by estoppel

G.R. No. 74306 March 16, 1992ENRIQUE RAZON, petitioner,vs. INTERMEDIATE APPELLATE COURT and VICENTE B. CHUIDIAN, in his capacity as Administrator of theEstate of the Deceased JUAN T. CHUIDIAN, respondents. Facts: Sometime in 1962, Enrique Razon organized the E. Razon, Inc. for the purpose of bidding for thearrastre services in South Harbor, Manila. Stock certificate No. 003 for 1,500 shares of stock of thecorporation was issued in the name of late Juan T. Chuidian. Vicente B. Chuidian, as an administrator, filed acomplaint against Enrique Razon for the delivery of certificate of stocks representing the shareholdings of thedeceased Juan T. Chuidian in the E. Razon, Inc. with a prayer for an order to restrain the petitioner fromdisposing of the said shares of stock. Petitioner alleged that after organizing the E. Razon, Inc., Enrique Razondistributed shares of stock previously placed in the names of the withdrawing nominal incorporators to somefriends including Juan T. Chuidian.Stock Certificate No. 003 covering 1,500 shares of stock upon instruction of the late Chuidian was personallydelivered by Chuidian to the Corporate Secretary of Attorney who was himself an associate of the ChuidianLaw Office. Since then, Enrique Razon was in possession of said stock certificate even during the lifetime of the late Chuidian, from the time the late Chuidian delivered the said stock certificate to defendant Razon untilthe time ( sic ) of defendant Razon. By agreement of the parties ( sic ) delivered it for deposit with the bank under the joint custody of the parties as confirmed by the trial court in its order. Razon was alleged later that those who paid for all the subscription on the shares of stock in the defendant corporation and theunderstanding was that he (defendant Razon) was the owner of the said shares of stock and was to havepossession thereof until such time as he was paid therefor by the other nominalPetitioner, in its answer, alleged that all the shares of stock in the name of stockholders of record of thecorporation were fully paid for by Razon; that said shares are subject to the agreement between Razon, Inc.and incorporators; that the shares of stock were actually owned and remained in the possession of Razon.Neither the late Juan T. Chuidian nor the Vicente Chuidan had paid any amount whatsoever for the 1,500shares of stock in question.The then Court of First Instance of Manila, now Regional Trial Court of Manila, declared that Enrique Razon,the petitioner in is the owner of the said shares of stock. The then Intermediate Appellate Court, now Court of Appeals, however, reversed the trial court's decision and ruled that Juan T. Chuidian, the deceased father of petitioner Vicente B. Chuidian in is the owner of the shares of stock. Both parties filed separate motions forreconsideration. Enrique Razon wanted the appellate court's decision reversed and the trial court's decisionaffirmed while Vicente Chuidian asked that all cash and stock dividends and all the pre-emptive rightsaccruing to the 1,500 shares of stock be ordered delivered to him. The appellate court denied both motions.Hence, these petitions.Issue: Whether or not Juan T. Chuidian is the rightful owber of the stocks.Held: Chuidian is the rightful owber of the stocks. The law is clear that in order for a transfer of stock certificate to be effective, the certificate must be properly indorsed and that title to such certificate of stock isvested in the transferee by the delivery of the duly indorsed certificate of stock. (Section 35, Corporation Code)Since the certificate of stock covering the questioned 1,500 shares of stock registered in the name of the lateJuan Chuidian was never indorsed to the petitioner, the inevitable conclusion is that the questioned shares of stock belong

to Chuidian. The petitioner's asseveration that he did not require an indorsement of thecertificate of stock in view of his intimate friendship with the late Juan Chuidian can not overcome the failureto follow the procedure required by law or the proper conduct of business even among friends. To reiterate,indorsement of the certificate of stock is a mandatory requirement of law for an effective transfer of a

Case Digest on Bitong vs. CA (292 SCRA 503)

July 27, 2010

Bitong vs. CA [292 SCRA 503 (July Ownership of Corporate Shares/ Stock Certificates: Valid Issuance

13

1998)]

Facts: Bitong was the treasurer and member of the BoD of Mr. & Mrs. Corporation. She filed a complaint with the SEC to hold respondent spouses Apostol liable for fraud, misrepresentation, disloyalty, evident bad faith, conflict of interest and mismanagement in directing the affairs of the corporation to the prejudice of the stockholders. She alleges that certain transactions entered into by the corporation were not supported by any stockholders resolution. The complaint sought to enjoin Apostol from further acting as president-director of the corporation and from disbursing any money or funds. Apostol contends that Bitong was merely a holder-in-trust of the JAKA shares of the corporation, hence, not entitled to the relief she prays for. SEC Hearing Panel issued a writ enjoining Apostol. After hearing the evidence, SEC Hearing Panel dissolved the writ and dismissed the complaint filed by Bitong. Bitong appealed to the SEC en banc. The latter reversed SEC Hearing Panel decision. Apostol filed petition for review with the CA. CA reversed SEC en banc ruling holding that Bitong was not the owner of any share of stock in the corporation and therefore, not a real party in interest to prosecute the complaint. Hence, this petition with the SC. Issue: Whether or not Bitong was the real party in interest. Held: Based on the evidence presented, it could be gleaned that Bitong was not a bona fide stockholder of the corporation. Several corporate documents disclose that the true party in interest was JAKA. Although her buying of the shares were recorded in the Stock and Transfer Book of the corporation, and as provided by Sec. 63 of the Corp Code that no transfer shall be valid except as between the parties until the transfer is recorded in the books of the corporation, and upon its recording the corporation is bound by it and is estopped to deny the fact of transfer of said shares, this provision is not conclusive even against the corporation but are prima facie evidence only. Parol evidence may be admitted to supply the omissions in the records, explain ambiguities, or show what transpired where no records were kept, or in some cases where such records were contradicted. Besides, the provision envisions a formal certificate of stock which can be issued only upon compliance with certain requisites: (1) certificates must be signed by the president or vice president, countersigned by the secretary or assistant secretary, and sealed with the seal of the corporation, (2) delivery of the certificate; (3) the par value, as to par value shares, or the full subscription as to no par value shares, must be first fully paid; (4) the original certificate must be surrendered where the person requesting the issuance of a certificate is a transferee from a stockholder. These considerations are founded on the basic principle that stock issued without authority and in violation of the law is void and confers no rights on the person to whom it is issued and subjects him to no liabilities. Where there is an inherent lack of power in the corporation to issue the stock, neither the corporation nor the person to whom the stock is issued is estopped to question its validity since an estoppel cannot operate to create stock which under the law cannot have existence.

Rural Bank of Lipa City vs CA Case Digest The Rural Bank of Lipa City Inc., etc. vs. Court of Appeals [GR 124535, 28 September 2001] Facts: Reynaldo Villanueva, Sr., a stockholder of the Rural Bank of Lipa City, executed a Deed of Assignment, wherein he assigned his shares, as well as those of 8 other shareholders under his control with a total of 10,467 shares, in favor of the stockholders of the Bank represented by its directors Bernardo Bautista, Jaime Custodio and Octavio Katigbak. Sometime thereafter, Reynaldo Villanueva, Sr. and his wife, Avelina, executed an Agreement wherein 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 of Directors of the Bank on 15 November 1993, the Villanueva spouses assured the Board that their debt would be paid on or before December 31 of that same year; otherwise, the Bank would be entitled to liquidate their shareholdings, including those under their control. In such an event, should the proceeds of the sale of said shares fail to satisfy in full the obligation, the unpaid balance shall be secured by other collateral sufficient therefor. When the Villanueva spouses failed to settle their obligation to the Bank on the due date, the Board sent them a letter demanding: (1) the surrender of all the stock certificates issued to them; and (2) the delivery of sufficient collateral to secure the balance of their debt amounting to P3,346,898.54. The Villanuevas ignored the bank's demands, whereupon their shares of stock were converted into Treasury Stocks. Later, the Villanuevas, through their counsel, questioned the legality of the conversion of their shares. On 15 January 1994, the stockholders of the Bank met to elect the new directors and set of officers for the year 1994. The Villanuevas were not notified of said meeting. In a letter dated 19 January 1994, Atty. Amado Ignacio, counsel for the Villanueva spouses, questioned the legality of the said stockholders' meeting and the validity of all the proceedings therein. In reply, the new set of officers of the Bank informed Atty. Ignacio that the Villanuevas were no longer entitled to notice of the said meeting since they had relinquished their rights as stockholders in favor of the Bank. Consequently, the Villanueva spouses filed with the Securities and Exchange Commission (SEC), a petition for annulment of the stockholders' meeting and election of directors and officers on 15 January 1994, with damages and prayer for preliminary injunction (SEC Case 02-94-4683_. Joining them as co-petitioners were Catalino Villanueva, Andres Gonzales, Aurora Lacerna, Celso Laygo, Edgardo Reyes, Alejandro Tonogan, and Elena Usi. Named respondents were the newly-elected officers and directors of the Rural Bank, namely: Bernardo Bautista, Jaime Custodio, Octavio Katigbak, Francisco Custodio and Juanita Bautista. On 6 April 1994, the Villanuevas' application for the issuance of a writ of preliminary injunction was denied by the SEC Hearing Officer on the ground of lack of sufficient basis for the issuance thereof. However, a motion for reconsideration was granted on 16 December 1994, upon finding that since the Villanuevas' have not disposed of their shares, whether voluntarily or involuntarily, they were still stockholders entitled to notice of the annual stockholders' meeting was sustained by the SEC. Accordingly, a writ of preliminary injunction was issued enjoining Bautista, et. al. from acting as directors and officers of the bank. Thereafter, Bautista, et al. filed an urgent motion to quash the writ of preliminary injunction, challenging the propriety of the said writ considering that they had not yet received a copy of the order granting the application for the writ of preliminary injunction. With the impending 1995 annual stockholders' meeting only 9 days away, the Villanuevas filed an Omnibus Motion praying that the said meeting and election of officers scheduled on 14 January 1995 be suspended or held in abeyance, and that the 1993 Board of Directors be allowed, in the meantime, to act as such. 1 day before the scheduled

stockholders meeting, the SEC Hearing Officer granted the Omnibus Motion by issuing a temporary restraining order preventing Bautista, et al. from holding the stockholders meeting and electing the board of directors and officers of the Bank. A petition for Certiorari and Annulment with Damages was filed by the Rural Bank, its directors and officers before the SEC en banc. On 7 June 1995, the SEC en banc denied the petition for certiorari. A subsequent motion for reconsideration was likewise denied by the SEC en banc in a Resolution dated 29 September 1995. A petition for review was filed before the Court of Appeals (CA-GR SP 38861), assailing the Order dated 7 June 1995 and the Resolution dated 29 September 1995 of the SEC en banc in SEC EB 440. The appellate court upheld the ruling of the SEC. Bautista, et al.'s motion for reconsideration was likewise denied by the Court of Appeals in an Order dated 29 March 1996. The bank, Bautista, et al. filed the instant petition for review. Issue: Whether there was valid transfer of the shares to the Bank. Held: 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. Still, while the assignment may be valid and binding on the bank, et al. and the Villanuevas, it does not necessarily make the transfer effective. Consequently, the bank et al., 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 Villanuevas 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.