Case Summary (G.R. No. 203060)
Default, Demand and Conversion to Treasury Stocks
When the Villanuevas did not settle the obligation by the agreed deadline, the Board of Directors demanded surrender of all stock certificates and delivery of collateral securing the P3,346,898.54 balance. The Villanuevas ignored this demand, prompting the Bank to convert their shares into treasury stocks—a conversion later challenged by the Villanuevas as invalid.
Exclusion from 1994 Stockholders’ Meeting
The Bank convened a stockholders’ meeting on January 15, 1994 to elect directors and officers without notifying the Villanuevas. The latter, joined by co-stockholders, petitioned the SEC to annul the meeting and election on grounds of by-laws violation, lack of notice, deprivation of voting rights, exclusion from the stockholders’ list, and arbitrary rejection of Avelina Villanueva’s directorship candidacy.
SEC Hearing Officer’s Orders and Injunctions
On February 16, 1994, the SEC issued a TRO enjoining the newly elected officers from acting. The Hearing Officer initially denied a preliminary injunction on April 6, 1994, but on reconsideration (December 16, 1994) granted it—finding that the Villanuevas, still in possession of their stock certificates, remained entitled to notice and vote. He further restrained the Bank from holding its 1995 stockholders’ meeting on January 13, 1995.
SEC En Banc Denial of Certiorari Petition
The Bank filed a certiorari petition before the SEC en banc to annul the Hearing Officer’s orders as grave abuse of discretion. On June 7, 1995, the en banc denied relief, holding that under Section 63 of the Corporation Code, the Villanuevas remained stockholders until the indorsed certificates were delivered and the transfer recorded. Reconsideration was denied on September 29, 1995.
Court of Appeals Affirmation
The Bank appealed to the Court of Appeals (CA-G.R. SP No. 38861). On February 27, 1996, the appellate court dismissed the petition for lack of merit, upholding the SEC en banc’s findings: valid share transfer requires strict compliance with delivery, endorsement, and corporate book-entry per Section 63. The CA denied reconsideration on March 29, 1996.
Supreme Court Ruling
The Supreme Court denied the petition for review, affirming both the SEC and the Court of Appeals. It held that: (1) the Deed of Assignment without delivery and endorsement of certificates did not vest title; (2) inter partes assignment does not confer stockholder rights absent statutory requisites; (3) strict compliance with Section 63 is mandatory; and (
Case Syllabus (G.R. No. 203060)
Facts
- Reynaldo Villanueva, Sr. executed a Deed of Assignment (February 5, 1993) assigning his 10,467 shares—plus those of eight other shareholders under his control—to certain officers and directors of the Rural Bank of Lipa City, Inc.
- On November 10, 1993, Reynaldo and Avelina Villanueva acknowledged a P4,000,000 debt to the Bank, agreeing repayment from real‐property sale proceeds.
- The Board of Directors meeting on November 15, 1993 promised that failure to pay by December 31, 1993 would permit liquidation of the Villanuevas’ shares and other collateral for any shortfall.
- When the Villanuevas defaulted, the Bank demanded (January 5, 1994) surrender of stock certificates and additional collateral for a remaining debt of P3,346,898.54; upon non‐compliance, the shares were converted into Treasury Stocks.
- The Villanuevas, through counsel, contested the share conversion’s legality and, without notice, were excluded from the January 15, 1994 stockholders’ meeting electing new directors, prompting them to file an SEC petition for annulment, damages, and preliminary injunction.
Procedural History
- SEC Hearing Officer granted a temporary restraining order (February 16, 1994) enjoining the new directors from acting.
- Respondents moved to lift the TRO, dismissed the petition, and counterclaimed for damages.
- SEC denied preliminary injunction (April 6, 1994) but later granted reconsideration (December 16, 1994), finding the Villanuevas still entitled to notice since they retained certificates.
- A January 13, 1995 TRO enjoined the Bank’s 1995 annual meeting; petition for certiorari by the Bank before SEC en banc