TITLE XI

NONSTOCK CORPORATION
SEC. 86. Definition. – For purposes of this Code and subject to its provisions on
dissolution, a nonstock corporation is one where no part of its income is distributable as
dividends to its members, trustees, or officers: Provided, That any profit which a non-
stock corporation may obtain incidental to its operations shall, whenever necessary or
proper, be used for the furtherance of the purpose or purposes for which the corporation
was organized, subject to the provisions of this Title. The provisions governing stock
corporations, when pertinent, shall be applicable to non-stock corporations, except as
may be covered by specific provisions of this Title.

Discussion:

Difference between stock corporation and non-stock corporation

1. Purpose. Essentially a stock corporation is formed for the primary purpose of

generating profit that will eventually accrue to the benefit of the stockholders. On the other
hand, non-stock corporations are organized for purposes other than profit.

2. Distribution of profits. The second distinction between stock and non-stock

corporation is the distribution of profits. Obviously since stock corporation are organized
for the purpose of generating profits, the ultimate result is of course this profit will
eventually be distributed to the stockholders in the form of dividends, whether it be in
case, property or stocks.
On the other hand, a non-stock corporation since it is not organized for the purpose of
generating income, any profit that may be obtained incidentally in the conduct of its
operation will not be distributed to the members but it will be used to further the purpose
or purposes for which the corporation was organized.

3. Corporate composition. In stock corporation, the owners of shares of stock are

called stockholders. The term stockholder is also used interchangeably with the term
shareholder. On the other hand, a non-stock corporation is composed of members.

4. Governing body. In stock corporation the governing body who is responsible for the
overall management and operation of the corporation is called a board of directions
(BOD) while a non-stock corporation is governed by the board of trustees (BOT).

SEC. 87. Purposes. – Non-stock corporations may be formed or organized for charitable,
religious, educational, professional, cultural, fraternal, literary, scientific, social, civic

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service, or similar purposes, like trade, industry, agricultural and like chambers, or any
combination thereof, subject to the special provisions of this Title governing classes of
non-stock corporations.

DISCUSSION:
In our jurisdiction, non-profit organizations (NPOs) are usually organized as "non-stock
corporations" Non-stock corporations may be formed for charitable, religious,
educational, professional, cultural, fraternal, literary, scientific, social, civic service, or
similar purposes, such as trade, industry, agricultural and similar chambers, or any
combination thereof.

Section 87 enumerates the purposes for which non-stock corporations may be formed or
organized. The non-stock corporation need not be organized for just one purpose. It can
be a combination of two or three or any combination thereof. For example, you have these
several private catholic schools organized for religious and educational purposes.
Note that the purpose or purposes enumerated in Section 87 are not exclusive to non-
stock corporation. There are also stock corporations whose purpose/s is/are the same or
similar to the ones enumerated in section 87. In the Philippines we have proprietary
education institutions who are organized and registered with the SEC as private stock
corporation engaged in providing educational services whether primary, secondary,
tertiary, post grad studies, technical or vocational education. These are for profit ventures
of a private school governed by a BOD and occasionally depending on the results of its
operations issues dividends. An example of these stock for profit private schools is Far
Eastern University.

Private corporation whether stock or non-stock corporation can only be established

pursuant to the provisions of a general law such the RCC. The 1935, the 1973 and the
1987 Constitution all contain similar provisions prohibiting Congress from creating private
corporations except by general law. On the other hand, the 1935 as well as the present
constitution expressly the creation of Government-owned or controlled corporations
through a special law.

Note that during the time of President Manuel L. Quezon the Philippines National Red
Cross (PNRC) was established pursuant to which is R.A. 95, a special law. Whether or
not the PNRC is a GOCC or a private non-stock corporation is a highly disputed issue. In
the case of Camporedondo vs. NLRC, the SC ruled that the PNRC is a GOCC. In the
Camporedondo case, the petitioner filed a complaint for illegal dismissal against the
PNRC before the NLRC. The PNRC moved for the dismissal of the complaint for lack of
jurisdiction over the subject matter of the case because according to the PNRC it is a
government corporation whose employees are members of the Government Service

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Insurance System (GSIS), and embraced within the Civil Service Law and regulations. In
ruling that the PNRC is a GOOC, the SC held and quoted hereunder that:

“The test to determine whether a corporation is government owned or controlled, or

private in nature is simple. Is it created by its own charter for the exercise of a public
function, or by incorporation under the general corporation law? Those with special
charters are government corporations subject to its provisions, and its employees are
under the jurisdiction of the Civil Service Commission and are compulsory members of
the Government Service Insurance System. The PNRC was not "impliedly converted to
a private corporation" simply because its charter was amended to vest in it the authority
to secure loans, be exempted from payment of all duties, taxes, fees and other charges
of all kinds on all importations and purchases for its exclusive use, on donations for its
disaster relief work and other services and in its benefits and fund raising drives, and be
allotted one lottery draw a year by the Philippine Charity Sweepstakes Office for the
support of its disaster relief operation in addition to its existing lottery draws for blood
program”

Then came the case of Liban vs. Gordon where the SC court made a sudden turnaround.
Sometime in the 2006 while still serving as a member of the Senate of the Philippines,
Sen. Gordon was elected Chairman of the PNRC. Petitioners alleged that by accepting
the chairmanship of the PNRC Board of Governors, Senator Gordon has ceased to be a
member of the Senate as provided in Section 13, Article VI of the Constitution, which
reads:

SEC. 13. No Senator or Member of the House of Representatives may hold any other
office or employment in the Government, or any subdivision, agency, or instrumentality
thereof, including government-owned or controlled corporations or their subsidiaries,
during his term without forfeiting his seat. Neither shall he be appointed to any office which
may have been created or the emoluments thereof increased during the term for which
he was elected.

Petitioners then cited the case of Camporedondo v. NLRC which held that the PNRC is
a government-owned or controlled corporation.

In ruling that the PNRC is not a GOCC, the SC came up with a brilliant argument.
According to the SC “the PNRC has the duty to uphold the Fundamental Principles and
ideals of the Movement. In order to be recognized as a National Society, the PNRC has
to be autonomous and must operate in conformity with the Fundamental Principles of the
Movement.

The reason for this autonomy is fundamental. To be accepted by warring belligerents as

neutral workers during international or internal armed conflicts, the PNRC volunteers must
not be seen as belonging to any side of the armed conflict. In the Philippines where there
is a communist insurgency and a Muslim separatist rebellion, the PNRC cannot be seen
as government-owned or controlled, and neither can the PNRC volunteers be identified
as government personnel or as instruments of government policy. Otherwise, the

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insurgents or separatists will treat PNRC volunteers as enemies when the volunteers tend
to the wounded in the battlefield or the displaced civilians in conflict areas.

Thus, the PNRC must not only be, but must also be seen to be, autonomous, neutral and
independent in order to conduct its activities in accordance with the Fundamental
Principles. The PNRC must not appear to be an instrument or agency that implements
government policy; otherwise, it cannot merit the trust of all and cannot effectively carry
out its mission as a National Red Cross Society. It is imperative that the PNRC must be
autonomous, neutral, and independent in relation to the State.

To ensure and maintain its autonomy, neutrality, and independence, the PNRC cannot
be owned or controlled by the government. Indeed, the Philippine government does not
own the PNRC. The PNRC does not have government assets and does not receive any
appropriation from the Philippine Congress.”

So, what happened in the in the case of Liban vs. Gordon is that since the PNRC is not
a GOCC, Senator Gordon was able to keep both his post as a senator and as a Chairman
of the PNRC. However, because the PNRC was created through a special law then its
charter violated the express prohibition under the Constitution that private corporations
can only be established through a general law. That is why in the same case, the SC
declared that the PNRC Charter is void insofar as it creates the PNRC as a private
corporation, the PNRC should incorporate under the Corporation Code and register with
the Securities and Exchange Commission if it wants to be a private corporation.

Chapter I
MEMBERS
SEC. 88. Right to Vote. – The right of the members of any class or classes to vote may
be limited, broadened, or denied to the extent specified in the articles of incorporation or
the bylaws. Unless so limited, broadened, or denied, each member, regardless of class,
shall be entitled to one (1) vote.
Unless otherwise provided in the articles of incorporation or the bylaws, a member may
vote by proxy, in accordance with the provisions of this Code. The bylaws may likewise
authorize voting through remote communication and/or in absentia.

DISCUSSION:
The Right to Vote in
Nonstock Corporations

In nonstock corporations, the voting rights is attached to the membership such that
if a person is no longer a member by reason of any of the grounds provided in the by-
laws that will cause a person to lose his/her membership in the non-stock corporation
then that person can no longer vote.

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 Members vote as persons, in accordance with the RCC and the bylaws of the
corporation. Each member shall be entitled to one vote unless so limited, broadened, or
denied in the articles of incorporation or bylaws. The principle for determining the quorum
for stock corporations is applied by analogy to nonstock corporation and that is only those
who are actual members with voting rights should be counted and the best evidence of
who are the present members of the non-stock corporation is the 'membership book. If it
is a stock corporation, that document would be the stock and transfer books.

The members may also vote by proxy and the manner of voting is the same as
that in a stock corporation. Voting through remote communication and/or in absentia is a
new provision in the RCC. It is not found in the old code. Voting in abstentia and/or remote
communication may also be done provided it is authorized in the bylaws.

Can a corporation become a

member of a non-stock
corporation?
In the case of Tan vs. Sycip, it was held that for stock corporations, the quorum is
based on the number of outstanding voting stocks while for non-stock corporations, only
those who are actual, living members with voting rights shall be counted in
determining the existence of a quorum
In the case of Lim vs. Moldex Land, Inc. it appears that non-living persons such as
corporations may be deemed as a member of a non-stock corporation. In this case, Lim
is a unit owner and member of Condocor (a non-stock condominium corporation).
Moldex, on the other hand is a a real estate corporation engaged in the construction and
development of high-end condominium projects and in the marketing and sale of the units
thereof to the general public. Moldex became a member of Condocor based on its
ownership of the 220 unsold units in the Golden Empire Tower.
Citing Section 30 of PD 957 otherwise known as the Subdivisions’ and Condominium
Buyers’ Protective Decree, Lim argued that Moldex, cannot be a member of Condocor.
Lim insisted that a condominium corporation is an association of homeowners for the
purpose of managing the condominium project, among others. Thus, it must be composed
of actual unit buyers or residents of the condominium project. Lim further averred that the
ownership contemplated by law must result from a sale transaction between the owner-
developer and the purchaser. She advanced the view that the ownership of Moldex was
only in the nature of an owner-developer and only for the sole purpose of selling the units.
Lim's reliance of P.D. No. 957 is misplaced. There is no provision in P.D. No. 957 which
states that an owner-developer of a condominium project cannot be a member of a
condominium corporation. Section 30 of P.D. No. 957 determines the purposes of a

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homeowners association - to promote and protect the mutual interest of the buyers and
residents, and to assist in their community development. A condominium corporation,
however, is not just a management body of the condominium project. It also holds title to
the common areas, including the land, or the appurtenant interests in such areas. Hence,
it is especially governed by the Condominium Act.

Members with no voting rights

are not included in the
determinization of the
existence of quorum
Note that just like in a stock corporation, a member of a non-stock corporation may also
be deprived of voting powers. For purposes of determining quorum, a member who does
have voting rights is not included in the counting. The reason behind this is obvious,
according to the SC in Lim vs. Moldex Land Inc. to include these members without voting
rights in the total number of members for purposes of quorum would be superfluous for
although they may attend a particular meeting, they cannot cast their vote on any matter
discussed therein.

Quorum distinguished from voting

Going back to the Lim vs. Moldex Land Inc., case, On July 21, 2012, Condocor held its
annual general membership meeting. The Chairman of Condocor and as certified by the
corporate secretary declared the existence of a quorum even though only 29 of the
108 unit buyers were present. The declaration of quorum was based on the presence of
the majority of the voting rights, including those pertaining to the 220 unsold units held by
Moldex through its representatives.

Note that in every stockholders/members’ meeting, there must first be a quorum before
the stockholders/members could vote on and validly pass any action. The basis in
determining the presence of quorum in non-stock corporations is the numerical equivalent
of all members who are entitled to vote, unless some other basis is provided by the By-
Laws of the corporation. The qualification "with voting rights" simply recognizes the power
of a non-stock corporation to limit or deny. In the case of Lim vs. Moldex Land Inc., the
Supreme Court emphasized that insofar as Condocor is concerned, quorum is different
from voting rights. Applying the law and Condocor's By-Laws, if there are 100 members
in a non-stock corporation, 60 of which are members in good standing, then the presence
of 50% plus 1 of those members in good standing will constitute a quorum. Thus, 31
members in good standing will suffice in order to consider a meeting valid as regards the
presence of quorum. The 31 members will naturally have to exercise their voting rights.
It is in this instance when the number of voting rights each member is entitled to becomes

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significant. If 29 out of the 31 members are entitled to 1 vote each, another member
(known as A) is entitled to 20 votes and the remaining member (known as B) is entitled
to 15 votes, then the total number of voting rights of all 31 members is 64. Thus, majority
of the 64 total voting rights, which is 33 (50% plus 1), is necessary to pass a valid act.
Assuming that only A and B concurred in approving a specific undertaking, then their 35
combined votes are more than sufficient to authorize such act.

In the said case, because it was established that there was no quorum, any resolution
passed during the July 21, 2012 annual membership meeting was null and void and,
therefore, not binding upon the corporation or its members.

SEC. 89. Nontransferability of Membership. – Membership in a nonstock corporation and

all rights arising therefrom are personal and nontransferable, unless the articles of
incorporation or the bylaws otherwise provide.
DISCUSSION:
As a rule, membership in a nonstock corporation and all rights arising therefrom
are personal and nontransferable.
In stock corporations, shareholders may generally transfer their shares. Thus, on
the death of a shareholder, the executor or administrator duly appointed by the Court is
vested with the legal title to the stock and entitled to vote it. Until a settlement and
division of the estate is effected, the stocks of the decedent are held by the
administrator or executor.
On the other hand, membership in and all rights arising from a nonstock
corporation are personal and non-transferable, unless the articles of incorporation or the
bylaws of the corporation provide otherwise. In other words, the determination of whether
or not 'dead members' are entitled to exercise their voting rights (through their executor
or administrator), depends on those articles of incorporation or bylaws.
Another issue that was brought in the case of Lim vs Moldex Land Inc. is the is the non-
transferability of membership in a non-stock corporation. The by-laws of Condocor states
that membership in the CORPORATION is a mere appurtenance of the ownership of any
unit in the CONDOMINIUM and may not therefore be sold, transferred or otherwise
encumbered separately from the said unit.” Any member who sells or transfer
his/her/its unit/s in the CONDOMINIUM shall automatically cease to be a member
of the CORPORATION, the membership being automatically assumed by the buyer
or transferee upon registration of the sale or transfer and ownership of the latter
over the unit with the Register of Deeds for the City of Manila”. In other words, to be
a member of Condocor, one must own at least one of its condo units. Moldex Land Inc.
argued that Lim had no cause of action to file the subject action because she was no

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longer the owner of a condominium unit by virtue of a Deed of Assignment executed in
favor of Reynaldo Valera Lim and Dianna Mendoza Lim, her nephew and niece.

In ruling that Lim was still a member of Condocor, the Supreme Court held that there was
nothing in the records which showed that the alleged transfer made by Lim was registered
with the Register of Deeds of the City of Manila or was reported to the corporation.
Logically, until and unless the registration is effected, Lim remains to be the registered
owner of the condominium unit and thus, continues to be a member of Condocor.

SEC. 90. Termination of Membership. – Membership shall be terminated in the manner

and for the causes provided in the articles of incorporation or the bylaws. Termination of
membership shall extinguish all rights of a member in the corporation or in its property,
unless otherwise provided in the articles of incorporation or the bylaws.
DISCUSSION:
In stock corporation, there is no such thing as termination of stockholder, but a person
ceases to be a stockholder if that person dies or had validly disposed, sold, or assigned
his shares of stock to another and such transfer is recorded in the stock and transfer
books of the corporation. In non-stock a corporation, a person’s membership may be
terminated in accordance with the manner and for causes stated in the AOI or by laws.
The prevailing rule is that the provisions of the articles of incorporation or by-laws of
termination of membership must be strictly complied with and applied to the letter. Thus,
an association whose member fails to pay his membership due and annual due as
required in the by-laws, and which provides for the termination or suspension of erring
members as well as prohibits the latter from intervening in any manner in the operational
activities of the association, must be observed because by-laws are self-imposed private
laws binding on all members, directors and officers of the corporation.

Question: May a non-stock corporation seize and dispose of the membership share
of a fully-paid member on account of its unpaid debts to the corporation when it is
authorized to do so under the corporate by-laws but not by the Articles of
Incorporation?
Answer: Yes. The manner and the causes for termination of membership could be
provided in the in the AOI or the bylaw or both.
The case of VALLEY GOLF & COUNTRY CLUB, INC. vs CARAM is very instructive.

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In 1961, the late Congressman Fermin Z. Caram, Jr. (Caram) the husband of the present
respondent, subscribed to purchased and paid for in full one share (Golf Share) in the
capital stock of Valley Golf. He was issued Stock Certificate No. 389 dated 26 January
1961 for the Golf Share. The Stock Certificate likewise indicates a par value of ₱9,000.00.
Although membership in

Valley Golf would subsequently allege that beginning 25 January 1980, Caram stopped
paying his monthly dues, which were continually assessed until 31 June 1987. Valley Golf
claims to have sent five (5) letters to Caram concerning his delinquent account within the
period from 27 January 1986 until 3 May 1987, all forwarded to the mailing address which
Caram allegedly furnished Valley Golf. The first letter informed Caram that his account as
of 31 December 1985 was delinquent and that his club privileges were suspended
pursuant to Section 3, Article VII of the by-laws of Valley Golf. Despite such notice of
delinquency, the second letter, dated 26 August 1986, stated that should Caram’s
account remain unpaid for 45 days, his name would be "included in the delinquent list to
be posted on the club’s bulletin board." The third letter dated 25 January 1987, again
informed Caram of his delinquent account and the suspension of his club privileges. The
fourth letter dated 7 March 1987, informed Caram that should he fail to settle his
delinquencies, then totaling ₱7,525.45, within ten (10) days from receipt thereof Valley
Golf would exercise its right to sell the Golf Share to satisfy the outstanding amount, again
pursuant to the provisions of the by-laws. The final letter, dated 3 May 1987, issued a
final deadline until 31 May 1987 for Caram to settle his account, or otherwise face the
sale of the Golf Share to satisfy the claims of Valley Golf. The Golf Share was sold at
public auction on 11 June 1987 for ₱25,000.00 after the Board of Directors had authorized
the sale in a meeting on 11 April 1987, and the Notice of Auction Sale was published in
the 6 June 1987 edition of the Philippine Daily Inquirer.

As it turned out, Caram had died on 6 October 1986. Respondent initiated intestate
proceedings before the Regional Trial Court (RTC) of Iloilo City, Branch 35, to settle her
husband’s estate. Unaware of the pending controversy over the Golf Share, the Caram
family and the RTC included the same as part of Caram’s estate. The RTC approved a
project of partition of Caram’s estate on 29 August 1989. The Golf Share was adjudicated
to respondent, who paid the corresponding estate tax due, including that on the Golf
Share.

It was only through a letter dated 15 May 1990 that the heirs of Caram learned of the sale
of the Golf Share following their inquiry with Valley Golf about the share. After a series of
correspondence, the Caram heirs were subsequently informed, in a letter dated 15
October 1990, that they were entitled to the refund of ₱11,066.52 out of the proceeds of
the sale of the Golf Share, which amount had been in the custody of Valley Golf since 11
June 1987.

Respondent filed an action for reconveyance of the share with damages before the SEC
against Valley Golf. Subsequently thereafter, the SEC Hearing Officer rendered a
decision in favor of respondent, ordering Valley Golf to convey ownership of the Golf
Share or in the alternative to issue one fully paid share of stock of Valley Golf the same

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class as the Golf Share to respondent. Damages totaling ₱90,000.00 were also awarded
to respondent

The main issue raised in the said case is whether or not a non-stock corporation may
seize and dispose of the membership share of a fully-paid member on account of its
unpaid debts to the corporation when it is authorized to do so under the corporate by-
laws but not by the Articles of Incorporation.

In answering the main issue raised in the said case, the SC held that the right of a non-
stock corporation such as Valley Golf to expel a member through the forfeiture of
the Golf Share may be established in the by-laws alone, as is the situation in this
case. Thus, both the SEC and the appellate court are wrong in holding that the
establishment of a lien and the loss of the Golf Share consequent to the
enforcement of the lien should have been provided for in the articles of
incorporation.
If you read the entire text of the case, it appears that both the SEC and the appellate court
erroneously applied the provisions on delinquency sale. Such provision is only applicable
to stock corporations because obviously non-stock corporation do not issue shares of
stocks. However, the SEC and the appellate court could not be faulted because it clearly
established in the case that Caram was issued Stock Certificate No. 389 dated 26 January
1961 for the Golf Share and the said Stock Certificate indicates a par value of ₱9,000.00.
Even though Valley Golf is a non-stock corporation, as evinced by the fact that it is not
authorized to distribute to the holder of its share’s dividends or allotments of the surplus
profits on the basis of shares held, the Golf Share has an assigned value reflected on the
certificate of membership itself.
Question: Are members of the non-stock corporation entitled to receive due notice
before their membership could be validly terminated?
Answer: The RCC itself is silent on that matter, and the argument can be made that if no
notice is provided for in the articles of incorporation or in the by-laws, then termination
may be effected without any notice at all. In one case involving a non-stock religious
corporation the SC upheld the expulsion of church members despite the absence of any
provision on prior notice in the by-laws stating that the members had "waived such notice
by adhering to those by-laws, became members of the church voluntarily, entered into its
covenant and subscribed to its rules and by doing so, they are bound by their consent.
The case of Long vs. Basai involves a religious corporation whose Board of Directors had
expelled certain members on purely spiritual or religious grounds since they refused to
follow its teachings and doctrines. The controversy centers on the legality of the expulsion
of the petitioners because according to them their expulsion was executed without prior
notice or due process.

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Citing the By-laws of the CHURCH, the Supreme Court ruled that CHURCH by-laws the
members have expressly adhered to, does not require the Board of Directors to give prior
notice to the erring or dissident members in cases of expulsion. The procedure for
expulsion prescribed in Article VII (paragraph 4) of the CHURCH By-laws, which reads:

"4. If it is brought to the notice of the Board of Directors that any member has failed
to observe any regulations and By-laws of the Institution (CHURCH) or the conduct
of any member has been dishonorable or improper or otherwise injurious to the
character and interest of the Institution, the Board of Directors may b(y) resolution
without assigning any reason therefor expel such member from such Institution
and he shall then forfeit his interest, rights and privileges in the Institution."

From the above-quoted By-law provision, the Supreme Court ruled that the only
requirements before a member can be expelled or removed from the membership of the
CHURCH are: (a) the Board of Directors has been notified that a member has failed to
observe any regulations and By-laws of the CHURCH, or the conduct of any member has
been dishonorable or improper or otherwise injurious to the character and interest of the
CHURCH, and (b) a resolution is passed by the Board expelling the member concerned,
without assigning any reason therefor.

It is thus clear that a member who commits any of the causes for expulsion
enumerated in paragraph 4 of Article VII may be expelled by the Board of Directors,
through a resolution, without giving that erring member any notice prior to his
expulsion. The resolution need not even state the reason for such action.

The CHURCH By-law provision on expulsion, as phrased, may sound unusual and
objectionable to petitioners as there is no requirement of prior notice to be given to an
erring member before he can be expelled. But that is how peculiar the nature of a religious
corporation is vis-à-vis an ordinary corporation organized for profit. It must be stressed
that the basis of the relationship between a religious corporation and its members is the
latter’s absolute adherence to a common religious or spiritual belief. Once this basis
ceases, membership in the religious corporation must also cease. Thus, generally, there
is no room for dissension in a religious corporation. And where, as here, any member of
a religious corporation is expelled from the membership for espousing doctrines and
teachings contrary to that of his church, the established doctrine in this jurisdiction is that
such action from the church authorities is conclusive upon the civil courts.

However, a distinction should be made between membership in a religious corporation,

which ordinarily does not involve the purchase of ownership shares, and membership in
a non-stock corporation which entails acquisition of property right. Because in the case
of Valley Golf vs. Caram, while the SC found that the by-laws of Valley Golf did not violate
the RCC and even conceded that the actions of Valley Golf were, technically speaking,
in accord with the provisions of its by-laws on termination of membership. Yet especially
since the termination of membership in Valley Golf is inextricably linked to the deprivation

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of property rights over the Golf Share, the emergence of such adverse consequences
make legal and equitable standards come to fore.

In the case of, where the purchase of an ownership share is a condition sine qua non.
Membership in Valley Golf entails the acquisition of a property right. In turn, the loss of
such property right could also involve the application of aspects of civil law, in addition to
the provisions of the Corporation Code. To put it simply, when the loss of membership
in a non-stock corporation also entails the loss of property rights, the manner of
deprivation of such property right should also be in accordance with the provisions
of the Civil Code.

In other words, if the termination of membership is inextricably linked to the deprivation

of property rights then the manner of deprivation of such property right should also be in
accordance with the provisions of the Civil Code. In the Valley Golf case, the remedy
suggested by the Supreme Court is to sue the erring member for collection of sum of
money.

Chapter II
TRUSTEES AND OFFICERS
SEC. 91. Election and Term of Trustees. – The number of trustees shall be fixed in the
articles of incorporation or bylaws which may or may not be more than fifteen (15). They
shall hold office for not more than three (3) years until their successors are elected and
qualified. Trustees elected to fill vacancies occurring before the expiration of a particular
term shall hold office only for the unexpired period.
Except with respect to independent trustees of nonstock corporations vested with public
interest, only a member of the corporation shall be elected as trustee.
Unless otherwise provided in the articles of incorporation or the bylaws, the members
may directly elect officers of a nonstock corporation.

Discussion:
The election and term of trustees had been amended significantly. Prior to the RCC, the
number of trustees stated in the AOI may be more than fifteen (15). However, the old law
is silent as to whether a non-stock corporation is allowed to have less than 15 directors.
Now it is clearer that a corporation may or may not have more than 15 members.
At present the term of office of each member shall be not be more than 3 years until their
successors are elected and qualified. Before the passage of the RCC, the term of office
for each member is not 3 years. Under the old law, after the corporation has been

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organized, the members themselves shall determine who among them will constitute the
1/3 of the total members who shall serve the term of office that will expire every year for
the first 3 years. The subsequent elections of trustees comprising one-third (1/3) of the
board of trustees shall be held annually and trustees so elected shall have a term of three
(3) years. In other words, for the first year of its organization the term of the 1/3 of the
members shall expire. On the 2nd year, another 1/3 shall have their terms expire. Only the
remaining 1/3 shall serve a full 3 years term. Those we will subsequently succeed those
whose term have expired will now serve a full 3 years term. Apparently, that has caused
so much confusion so our lawmakers deemed it necessary to give all the first set of Board
of Trustees a uniform fixed term of 3 years.
Only a member of the
corporation shall be elected as
trustee
In stock corporations, one must own at least 1 share of stock to be qualified as a Director.
In non-stock corporation, one needs to be a member to qualify as a member. Note
however, that for nonstock corporations vested with public interest the independent
trustees are not required to be a member.

SEC. 92. List of Members and Proxies, Place of Meetings. – The corporation shall, at all
times, keep a list of its members and their proxies in the form the Commission may
require. The list shall be updated to reflect the members and proxies of record twenty (20)
days prior to any scheduled election. The bylaws may provide that the members of a
nonstock corporation may hold their regular or special meetings at any place even outside
the place where the principal office of the corporation is located: Provided, That proper
notice is sent to all members indicating the date, time and place of the meeting: Provided,
further, That the place of meeting shall be within Philippine territory.

Discussion:
Proxies
Just like in stock corporations, a member of a non-stock corporation may also attend
meetings through proxies but unlike stock corporations, the non-stock corporations are
required at all times to keep a list not only of its members but also their proxies in a form
that the SEC requires. In addition, for any scheduled election, the non-stock corporation
is required to have an updated list so as to reflect the members and proxies of record 20
days prior to any scheduled election.
Sending of prior notices
The manner and procedure in sending prior notices to the members is the same as that
in the case of stockholders’ meetings.

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Place of meetings
Section 50 of the RCC states that the stockholders’ or members’ meetings, whether
regular or special, shall be held in the principal office of the corporation as set forth in the
articles of incorporation, or, if not practicable, in the city or municipality where the principal
office of the corporation is located. However, unlike in stock corporations, for non-stock
corporations Section 92 is very categorical that for as long as it is provided in the bylaws,
the members of a nonstock corporation may hold their regular or special meetings at any
place even outside the place where the principal office of the corporation is located.
Provided, that proper notice is sent to all members indicating the date, time and place of
the meeting that the venue should still be within the Philippines.

Chapter III
DISTRIBUTION OF ASSETS IN NONSTOCK CORPORATIONS
SEC. 93. Rules of Distribution. – The assets of a nonstock corporation undergoing the
process of dissolution for reasons other than those set forth in Section 139 of this Code,
shall be applied and distributed as follows:
(a) All liabilities and obligations of the corporation shall be paid, satisfied and discharged,
or adequate provision shall be made therefor;
(b) Assets held by the corporation upon a condition requiring return, transfer or
conveyance, and which condition occurs by reason of the dissolution, shall be returned,
transferred or conveyed in accordance with such requirements;
(c) Assets received and held by the corporation subject to limitations permitting their use
only for charitable, religious, benevolent, educational or similar purposes, but not held
upon a condition requiring return, transfer or conveyance by reason of the dissolution,
shall be transferred or conveyed to one (1) or more corporations, societies or
organizations engaged in activities in the Philippines substantially similar to those of the
dissolving corporation according to a plan of distribution adopted pursuant to this Chapter;
(d) Assets other than those mentioned in the preceding paragraphs, if any, shall be
distributed in accordance with the provisions of the articles of incorporation or the bylaws,
to the extent that the articles of incorporation or the bylaws determine the distributive
rights of members, or any class or classes of members, or provide for distribution; and
(e) In any other case, assets may be distributed to such persons, societies, organizations
or corporations, whether or not organized for profit, as may be specified in a plan of
distribution adopted pursuant to this Chapter.
SEC. 94. Plan of Distribution of Assets. – A plan providing for the distribution of assets,
consistent with the provisions of this Title, may be adopted by a non-stock corporation in
the process of dissolution in the following manner:

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a) The board of trustees shall, by majority vote, adopt a resolution recommending a plan
of distribution and directing the submission thereof to a vote at a regular or special
meeting of members having voting rights;
b) Each member entitled to vote shall be given a written notice setting forth the proposed
plan of distribution or a summary thereof and the date, time and place of such meeting
within the time and in the manner provided in this Code for the giving of notice of
meetings; and
c) Such plan of distribution shall be adopted upon approval of at least two-thirds (2/3) of
the members having voting rights present or represented by proxy at such meeting.
NOTE: We will just discuss this once we reach Section 139 on the topic corporation
liquidation.

End

List of cases:
1. G.R. No. 129049, August 6, 1999.
2. G. R. No. 175352, January 18, 2011

3. G.R. No. 206038, January 25, 2017

4. G.R. No. 158805, April 16, 2009

5. G.R. Nos. 134963-64, September 27, 2001

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