Rural Bank of Lipa City, Inc. vs.

CA (2001)
GR NO. 124535
TOPIC: Sec 63 is on formal requirements while Sec 64 is on the nature of the stock certificate
DOCTRINE/S:
 The requirements for valid transfer of stocks are:
1. There must be delivery of the stock certificate;
2. The certificate must be endorsed by the owner or his attorney-in- fact or other persons legally
authorized to make the transfer; and
3. To be valid against third parties, the transfer must be recorded in the books of the corporation.
 An assignment of shares without complying with the foregoing is only binding between the assignor and the
assignee.

EMERGENCY RECIT
Private respondent Mr. Villanueva, a stockholder of the Rural Bank of Lipa City, executed a Deed of Assignment,
wherein he assigned his shares and 8 other shareholders under his control in favor of the stockholders of the Bank.
He and his wife have a debt of P4million with the Bank and they assured its Board that their debt would be paid
timely; otherwise, the Bank would be entitled to liquidate their shareholdings, including those under their control.
When the Villanuevas failed to settle their obligation on the due date, the Board sent them a letter demanding the
surrender of all the stock certificates issued to them. The Villanuevas ignored the Bank’s demands, whereupon their
shares of stock were converted into Treasury Stocks. During the election of new directors and officers, the
Villanuevas were not notified since, according to the Bank, they were no longer entitled to notice of the meeting as
they had relinquished their rights as stockholders. Consequently, the Villanuevas filed a petition for annulment of the
stockholders’ meeting and election of directors and officers. The Bank argues that by virtue of the Deed of
Assignment, the Villanuevas had relinquished to them any and all rights they may have had as stockholders of the
Bank. The issue is whether Villanueva’s assignment of their shareholdings in favor of the Bank effectively transferred
their shares to the latter. The SC held that while it may be true that there was an assignment of the Villanuevas’
shares to the Bank, said assignment was not sufficient to effect the transfer of shares since there was no
endorsement of the certificates of stock by the owners, their attorneys-in-fact or any other person legally authorized to
make the transfer. Also, the Bank admit that the assignment of shares was not coupled with delivery, the absence of
which is a fatal defect. It may be argued that despite non-compliance with the requisite endorsement and delivery,
the assignment was valid between the parties, meaning the Villanuevas as assignors and the Bank as assignees.
While the assignment may be valid and binding on them, it does not necessarily make the transfer effective.
Consequently, 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.