011 Pioneer Insurance v. CA, 175 SCRA 668 (July 28, 1989, G.R. No. 84197 and G.R.

84157) TOPIC: Classification of Private Corporation (Other Matters) PONTENTE: GUTIERREZ, JR., J.

AUTHOR: SUPRA case. Relate the case on STOCK vs. NON-STOCK The TABLE for the difference in the ratio is NOT seen in the case. STOCK NON-STOCK Corporations which have All other private capital stock divided into corporations (3) shares and are authorized to distribute One where no part of its to the holders of shares income is distributable as dividends or allotments of dividends to its members, the surplus profits on the trustees or officers. (87) basis of the shares (3)

FACTS 1. In 1965, Jacob S. Lim was the owner-operator of Southern Air Lines (SAL) a single proprietorship. 2. On May 17, 1965, Japan Domestic Airlines (JDA) and Lim entered into and executed a sales contract. 3. It appears that Border Machinery and Heavy Equipment Company, Inc. (Bormaheco), Francisco and Modesto Cervantes (Cervanteses) and Constancio Maglana contributed some funds used in the purchase of aircrafts and spare parts. The funds were supposed to be their contributions to a new corporation proposed by Lim to expand his airline business. 4. They executed two (2) separate indemnity agreements in favor of Pioneer, one signed by Maglana and the other jointly signed by Lim for SAL, Bormaheco and the Cervanteses. 5. The indemnity agreements stipulated that the indemnitors principally agree and bind themselves jointly and severally to indemnify and hold and save harmless Pioneer from and against any/all damages. 6. Lim defaulted on his subsequent installment payments. JDA requested payments from the surety. Pioneer paid a total sum of P298,626.12. 7. On July 19, 1966, Pioneer filed an action for judicial foreclosure with an application for a writ of preliminary attachment against Lim and respondents, the Cervanteses, Bormaheco and Maglana. 8. In their Answers, Maglana, Bormaheco and the Cervanteses filed cross-claims against Lim alleging that they were not privies to the contracts signed by Lim and, by way of counterclaim, sought for damages for being exposed to litigation and for recovery of the sums of money they advanced to Lim for the purchase of the aircrafts in question. 9. CFI - decision was rendered holding Lim liable to pay Pioneer but dismissed Pioneer's complaint against all other defendants. 10. CA - modified the trial court's decision in that the plaintiffs complaint against all the defendants was dismissed. In all other respects the trial court's decision was affirmed. ISSUE: 1. WON the Corporation being formed by the defendants can be classified as a stock or non-stock corporation HELD: Yes, non-stock RATIO: B.P 68 Sec. 3. Classes of corporations. - Corporations formed or organized under this Code may be stock or nonstock corporations. Corporations which have capital stock divided into shares and are authorized to distribute to the holders of such shares dividends or allotments of the surplus profits on the basis of the shares held are stock corporations. All other corporations are non-stock corporations. Sec. 87. Definition. - For the purposes of this Code, a non-stock corporation is one where no part of its income is distributable as dividends to its members, trustees, or officers

Following the definition of a non-stock corporation, it can be construed that the parties herein, invested to the business but never stated any desire to distribute its income. To wit: that sometime in early 1965, Jacob Lim proposed to Francisco Cervantes and Maglana to expand his airline business. Lim was to procure two DC-3's from Japan and secure the necessary certificates of public convenience and necessity as well as the required permits for the operation thereof. Maglana sometime in May 1965, gave Cervantes his share of P75,000.00 for delivery to Lim which Cervantes did and Lim acknowledged receipt thereof. Cervantes, likewise, delivered his share of the undertaking. Lim in an undertaking sometime on or about August 9,1965, promised to incorporate his airline in accordance with their agreement and proceeded to acquire the planes on his own account. The following are classification under STOCK and NON-STOCK: STOCK
Purpose Primarily to make profits for its shareholders May be formed or organized for charitable, religious, educational, professional, cultural, fraternal, literary, scientific, social, civic service, or similar purposes like trade, industry, agricultural and like chambers, or any combination thereof. (88)

NON-STOCK

Distribution of Profits

Profit is distributed to shareholders

Whatever incidental profit made is not distributed among its members but is used for furtherance of its purpose. AOI or by-laws may provide for the distribution of its assets among its members upon its dissolution. Before then, no profit may be made by members. Members Each member, regardless of class, is entitled to one (1) vote UNLESS such right to vote has been limited, broadened, or denied in the AOI or bylaws. (Sec. 89)

Composition Scope of right to vote

Stockholders Each stockholder votes according to the proportion of his shares in the corporation. No shares may be deprived of voting rights except those classified and issued as "preferred" or "redeemable" shares, and as otherwise provided by the Code. (Sec. 6) Stockholders and members may vote in person or by proxy in all meetings of stockholders or members. (Sec. 58) May be denied by the AOI or the bylaws. (Sec. 89) May be authorized by the by-laws, with the approval of and under the conditions prescribed by the SEC. (Sec. 89)

Voting by proxy

Unless otherwise provided in the articles of incorporation or the by-laws, a member may vote by proxy in accordance with the provisions of this Code. (Sec. 89) Voting by mail or other similar means by members of non-stock corporations may be authorized by the by-laws of non-stock corporations with the approval of, and under such conditions which may be prescribed by, the Securities and Exchange Commission. (Sec. 89) Members of the corporation

Voting by mail

Who exercises Powers 23

Corporate

Board of Directors or Trustees

Governing Board

Board of Directors or Trustees, consisting of 5-15 directors / trustees.

Board of Trustees, which may consist of more than 15 trustees unless otherwise provided by the AOI or bylaws. (Sec, 92) Board classified in such a way that the term of office of 1/3 of their number shall expire every year. Subsequent elections of trustees comprising 1/3 of the board shall be held annually, and trustees so elected shall have a term of 3 years. (Sec. 92)

Term of directors or trustees

Directors / trustees shall hold office for 1 year and until their successors are elected and qualified (Sec. 23).

Election of officers

Officers are elected by the Board of Directors (Sec. 25), except in close corporations where the stockholders themselves may elect the officers. (Sec. 97) Any place within the Philippines, if provided for by the by-laws (Sec. 93)

Officers may directly elected by the members UNLESS the AOI or by-laws provide otherwise. (Sec. 92)

Place of meetings

Generally, the meetings must be held at the principal office of the corporation, if practicable. If not, then anyplace in the city or municipality where the principal office of the corporation is located. (Sec. 51) Generally non-transferable since membership and all rights arising therefrom are personal. However, the AOI or by-laws can provide otherwise. (Sec. 90) See Sec. 94.

Transferability of interest or membership

Transferable.

Distribution of assets in case of dissolution

CASE LAW/ DOCTRINE: