Termulo, Yumang, Muñoz & Adamos

April 20, 1987 Termulo, Yumang, Muoz & Adamos Mantrade Building Pasong Tamo, Makati Metro Manila Attention : Atty . Eugenia J . Muoz Sir/Madam: This relates to your letter, dated February 19, 1987, inquiring on the specific length of time within which stock and transfer book, books of accounts and other related records of corporations in the different stages of existence are required to be kept. LibLex Books and records relating to the issuance, holding and transfer of stock have been the subject of statutory enactments in our jurisdiction, and the keeping of proper and adequate record books and record of such matters is a duty positively imposed of such provisions. Hence, the penultimate paragraph of Section 74 of the Corporation Code reads thus: xxx xxx xxx Stock corporations must also keep a book to be known as the 'stock and transfer book',in which must be kept a record of all stocks in the names of the stockholders alphabetically arranged; the installments paid and unpaid on all stock for which subscription has been made, and the date of payment of any installment; a statement of every alienation, sale or transfer of stock made, the date thereof, and by and to whom made, and such other entries as the by-laws may prescribe. The stock and transfer book may be kept in the principal office of the corporation or in the office of its stock transfer agent and shall be open for inspection of any director or stockholder of the corporation at reasonable hours on business day. xxx xxx xxx" Likewise, our statutes require the keeping of journals or minutes, books of corporate and directors' meetings, showing the dates thereof, action taken, persons present and the like. Also, in the general course of business of a corporation, it is necessary that proper books of account be kept. This is one of the unqualified duties of the corporate officers. Section 74 of the Corporation Code, paragraph 1 thereof, provides thus: "Every corporation shall, at its principal office, keep and carefully preserve a record of all business transactions, and minutes of all meetings of stockholders or members, or of the board of directors or trustees. ..." (Emphasis supplied) Where the statutes require or regulate the keeping of corporate books and record, a corporation is duty bound to comply with them. "The object of such statutes is to protect the right of stockholders, so that the books may be open to examination to aid the state in exercising its visitorial power over the corporation, and perhaps to enable the creditors to examine the books also." (5 Fletcher, Cyc. Corps.,2192, citing North and South Rolling Stock Co. v. People, 147 Ill. 234, 35 N.E. 608, 24 L.R.A. 462). The above rules apply irrespective of whether or not an existing corporation has any remaining assets. Anent your other query, Section 22 of the Corporation Code is quoted hereunder: "Effects of non-use of corporate charter and continuous inoperation of a corporation. If a corporation does not formally organize and commence the transaction of its business or the construction of its works within two (2) years from the date of incorporation, its corporate powers cease and the corporation shall be deemed dissolved. However, if a corporation has commenced the transaction of its business but subsequently becomes continuously inoperative for a period of at least five (5) years, the same shall be a ground for the suspension or revocation of its corporate franchise or certificate of incorporation. xxx xxx xxx Automatic dissolution of corporations falling within the context of Section 22 of the Corporation Code is not perceived. As previously opined by the Commission, a corporation continues to be such despite its failure to organize and commence its business within the required period until its dissolution has been finally decreed. This interpretation is ably supported by the second paragraph of Section 22 of the Code which provides thus: "This provision shall not apply if the failure to organize, commence the transaction of its business or the construction of its works, or to continuously operate is due to causes beyond the control of the corporation as may be determined by the Securities and Exchange Commission." The above view is likewise justified by the provisions of Section 6 of PD No. 902-A, as amended, which states: "In order to effectively exercise such jurisdiction, the Commission shall possess the following powers: xxx xxx xxx 1) To suspend, or revoke, after proper notice and hearing, the franchise or certificate of registration of corporations, partnerships or associations, upon any of the grounds provided by law, including the following: xxx xxx xxx 4. Continuous inoperation for a period of at least five (5) years; 5. Failure to file by-laws within the required period. xxx xxx xxx (emphasis ours) Considering the foregoing, please be advised that corporations affected by the provisions of Section 22 of the Corporation Code should, likewise, adhere to the laws requiring or regulating the keeping of appropriate books. Finally, in relation to the keeping of books by dissolved corporations, Section 122 of the Corporation Code is quoted: "Corporate liquidation. Every corporation whose charter expires by its own limitation or is annulled by forfeiture or otherwise, or whose corporate existence for other purposes is terminated in any other manner, shall nevertheless be continued as a body corporate for three (3) years after the time when it would have been so dissolved, for the purpose of prosecuting and defending suits by or against it and enable it to settle and close its property and to distribute its assets, but not for the purpose of continuing the business for which it was established." Thus, while the corporation is already dissolved, it continues to exist as a corporate body after dissolution and within three (3) years thereafter for the specific purpose of closing up its business. During the three-year period allowed, it must collect all debts owing to it and pay all its creditors." (Campos, Campos, Corporation Code, "Comments, Notes and Selected Cases, 1981 ed., p. 917). As a general rule, after the three-year period, the corporation can no longer sue or be sued. However, any litigation filed by or against it within the period of three years, but which could not be terminated, must necessarily prolong that period. (Agbayani, Commercial laws of the Phil., Vol. 3, p. 606, citing Pasay Credit and Finance Corporation (C.A.) 48 O.G. 5528). "Moreover, if the liquidation is effected by the appointment of a receiver or of a trustee, the receivership or trusteeship, unless otherwise specifically limited in its duration, shall exist indefinitely until the affairs of the corporation shall have been completely settled and liquidated." (Agbayani, p. 606, citing In re: Voluntary Dissolutions of Union Guaranty Co. (C.A., 370. G. 545, March 2, 1939; Sec. 22, Corporation Code). Corporate books and records are evidence not only as between the corporation and its members, and between it or its members and strangers, but generally to prove prima facie certain corporate acts and doings. As pointed out by Mr. Fletcher, "the phrase 'production of books and papers',when used of corporate books and papers may have reference to any of several different proceedings. Thus, it may its used in its ordinary legal sense to signify their production in court for evidentiary purpose in pending or anticipated litigation." (Fletcher, sec. 2207).Thus, corporate books and records must be duly preserved by the corporation which has been dissolved until the final settlement and liquidation of its affairs. Please be advised accordingly. Very truly yours, (SGD.) JULIO A. SULIT, JR. Chairman