Ernesto O. Pascual vs. Ester P. Abad

[SEC-SICD * CASE NO. 10-97-5788. March 15, 2000.] ERNESTO O. PASCUAL , plaintiff, vs .ESTER P. ABAD , defendant . D E C I S I O N This is a complaint for accounting whereby plaintiff prays that defendant be directed to comply with her duties and obligations as Treasurer of L.R. Pascual and Sons Inc. and to render an accounting of the funds of the company for the period beginning March 1995. Plaintiff alleged that, as Treasurer, defendant should be responsible for the funds, bonds and securities of the company and keep accurate record of receipts, disbursements and commercial transaction in the book of accounts which should be supported by appropriate vouchers; that since March 1995, defendant failed to keep said records or to prepare annual statements of the company's financial conditions, or to render an accounting of the company's money in the three accounts at Banco de Oro despite repeated demands. ScCEIA On the other hand, defendant alleged that since the company was a family corporation, there were no formal elections of officers nor was there formal preparation of financial statements for the stockholders who accordingly informally informed them of the company's financial status; that immediately after plaintiff's first written demand, defendant had furnished him bank statements with supporting documents and receipts which he failed to return; that although the defendant is the Treasurer, it is plaintiff who is in possession of the securities bonds, and titles of assets of the company; and that an accurate accounting cannot be done in the absence of the documents, receipts and titles which are at present in possession of the plaintiff. The relevant facts as culled from the pleadings and evidence are: Plaintiff and defendant are brother and sister, of legal age, stockholders and directors (with all the other brothers and sisters) of L.R. Pascual & Sons Inc.,a family corporation duly registered with the Commission and which engages in renting apartments and buildings. Plaintiff is the administrator of the company's properties while defendant is the Treasurer since 1986 up to the present. Said corporation is owned by eight (8) brothers and sisters who also constitute the Board of Directors. As such they do not formally elect their officers nor they formally prepare financial statements. It was only when one of the stockholders questions a certain expenditure that a detailed explanation should be made. AcISTE The corporation's only income since March 1995 up to the present is the rental (P13,000.00 a month) of its 18-door apartment in Sampaloc, Manila. Its houses and lots in Baguio and Batangas do not earn any income. From 1986 to March 1995, the corporation held its office at La Consolacion Building in Cubao, Quezon City where corporate records and documents were kept. Only plaintiff and the stockholders' niece, Victoria Castro, hold office in the same. After selling and leaving La Consolacion Building, all company's records-prior to March 1995 were turned over to plaintiff. At present the corporation has no principal office to speak of. As administrator from 1986 to March 1995, plaintiff was in charge of the collection of rentals, deposits in banks, disbursements and sharing of proceeds in the sale of corporate assets. Defendant's only role was to sign blank deposit slips. From March 1995 onwards, defendant administers the rental of the company's lone apartment and keeps a record of it by preparing the list of income and expenses of the corporation. On November 2, 1995, plaintiff sent a demand letter to defendant in which he asked the latter for an information about the company's funds in three accounts at Banco de Oro, the P120,000.00 Retention Money which Opulent Landowners Inc. had returned, and the income of the company's properties. After receiving said demand letter, defendant herself prepared and furnished plaintiff with a copy of a summary of the company's Bank Statement for the period March 1995 to March 1996 including supporting documents and receipts which were not returned by the complainant. On July 26, 1996, plaintiff again sent defendant a letter (Exh. "B") in which he expressed discontent over the Bank Statement for the period March 1995 to March 1996 for being incomplete, incorrect and not reflective of the true financial condition of their company. Thereafter defendant also sent plaintiff another Bank Statements for the period March 1996 to February 1997; March 1997 to January 5, 1998; and as of January 16, 1998 which were all handwritten. (Exhs. "1-A","1-B","1-C") AaCTcI It was also established by evidence that the company had not been submitting its audited financial statements with the Commission for 1995 and 1996. (Exh. "C") The issues to be resolved are: 1. Whether or not defendant is required to render proper accounting of the corporate funds and assets; 2. Whether or not either of the parties is liable for damages; and 3. Whether or not, as prayed for in her answer, defendant can require plaintiff to produce company documents in his possession. The Corporation Code of the Philippines (BP Blg. 68) provides: "SECTION 75. Right to financial statements within ten (10) days from receipt of a written request of any stockholder or member, the corporation shall furnish to him its most recent financial statement which shall include a balance sheet as of the end of the last taxable and a profit or loss statement for said taxable year showing in reasonable detail its assets and liabilities and the result of its operations. At the regular meeting of stockholders, the board of directors or trustees shall present to such stockholders or members a financial report of the operations of the corporation for the preceding year, which shall include financial statements, duly signed and certified by an independent certified public accountant. However, if the paid-up capital of the corporation is less than P50,000.00, the financial statements may be certified under oath by the treasurer or any responsible officer of the corporation." "SECTION 144. * Annual report of Corporations Every corporation, domestic or foreign, lawfully doing business in the Philippines shall submit to the Securities and Exchange Commission an annual report of its operations, together with a financial statement of its assets and liabilities, certified by any independent certified public accountant in appropriate cases, covering the preceding fiscal year and such other requirements as the Securities and Exchange Commission may require. Such report shall be submitted within such period as may be prescribed by the Securities and Exchange Commission." "SECTION 74. books to be kept ... The records of all business transactions of the corporation and the minutes of any meeting shall be open to the inspection of any director, trustee, stockholder, or member of the corporation at reasonable hours on business days and he may demand, in writing, for a copy of excerpts from said records or minutes, at his expense." Briefly inferred from the foregoing provisions is the mandatory effect to and on the part of the board of directors and corporate officers to account for its funds and affairs or to furnish every stockholder upon his request, of a copy of the most recent audited financial statements and to annually submit a copy thereof to this Commission as and in compliance with this Commission's reportorial requirements. As such, it becomes a stockholder's right to be well-informed of the financial status and operational affairs of the corporation of which he is a part owner. EHCaDS Accordingly and applying the foregoing provisions to the facts of the case at bar, L.R. Pascual & Sons Inc; by its present Board of Directors and administering officers, like herein respondent, is duty bound to cause the preparation and furnish every requesting stockholder, like herein petitioner, of a copy of its latest audited financial statements that should incorporate among others, a balance sheet as of the end of the last taxable year and a profit or loss statement for said year which shows in details its assets and liabilities and results of its operation and is signed and certified by an independent certified public accountant and/or to file a copy thereof with this Commission in compliance with its rules and regulations. Being a family corporation is not an exception to said requirement nor an informal accounting, as respondent did, is a sufficient compliance. What the law requires to be furnished to a requesting stockholder or to be submitted to this Commission accordingly is an audited financial statement which is prepared in accordance with generally accepted principles of accounting. Defendant's evidence-showing that she in fact only furnished plaintiff with a summary of bank statements (Exhs. "1" to "1-c") for the period from March 1995 to January 16, 1998 as well as the plaintiff's evidence that she did not also comply with the requirements of this Commission to submit a copy of said audited financial statement are sufficient basis in ordering defendant to furnish plaintiff and submit with this Commission a copy of L.R. Pascual and Sons Corp.'s most recent audited financial statement prepared in accordance with law and generally accepted principle of accounting. In the light of the evidence presented, the Commission does not nonetheless disregard the apparent hindrance that may possibly prevent defendant from causing the preparation of a truly reflective audited financial statement or accordingly providing plaintiff and submitting to this Commission of a copy thereof. Evidence show that all financial records, documents, titles of properties and other papers of the company prior to March 1995 and some of the company receipts thereafter are in the possession of the plaintiff. Some of these, even if they refer to the period before defendant took over as the administrator of the company, are necessary in determining the beginning balance of the financial statement, the total value of the present properties, as well as the total liabilities. An audited financial statement involves a continuing process and the most recent thereof should reflect and be reflective of the total summary of all the business and operational transactions of the company during the previous period or years. In other words, a financial statement as of a particular period is merely a continuation of those of the previous periods as particularly shown from the fact that the ending balance of a previous one is the beginning balance of the next one. Defendant cannot accordingly have her audited financial statement for the period March 1995 up to the present begins with zero as balance if the purpose is to fully reflect the true financial status of the company because it had been operating long before March 1995. The company records which are now in the possession of plaintiff are crucial for defendant's use, either to start from or as basis of the data to be reflected in the audited financial statement. Briefly, defendant needs all the company's documents, receipts and data, including those prior to March 1995 in preparing the financial statement requested by plaintiff. Accounting or preparation and furnishing of audited financial statement to a requesting stockholder or filing a copy thereof with this Commission is a task assigned by law, not only to the treasurer but more in particular to the Board of Directors which administers the whole affairs of the corporation. It is a cooperative effort among the members thereof and of the officers, hence it would be unreasonable for one member or officer to be asking for a copy of an audited financial statement which is truly reflective of the company's financial condition, under the guise of exercising such right as a stockholder, while keeping almost all the company's records out of reach by the other member or officer who is now being asked to prepare one for the former. In brief, plaintiff, as member of the Board should cooperate by furnishing the defendant with copies of all the documents, papers or titles and receipts needed in the preparation of an audited financial statement. SaCIAE Relative to the claims for damages by and against either of the parties, the same were not supported by sufficient factual basis that would warrant the awarding thereof. WHEREFORE, judgment is hereby rendered: 1 Directing defendant to render an accounting of the funds of L.R. Pascual & Sons Inc. for the period beginning 1995 onward by causing the preparation and furnishing plaintiff of its most recent audited financial statement that includes a balance sheet a profit and loss statement, the details of the company's assets and liabilities, and the result of its operation; 2 Directing L.R. Pascual & Sons Inc.,by defendant and the Board of Director's, to file with this Commission a copy of the said audited financial statement in compliance with this Commission's reportorial requirements; 3 Being indispensable, plaintiff is similarly directed to furnish defendant with copies of company documents, titles, receipts, and other papers which are now in his possession and necessary in preparing the said audited financial statement; and 4 The Supervision and Monitoring Department of this Commission is hereby notified of the previous failure of L.R. Pascual & Sons Inc. to comply with its rules on reportorial requirements and in taking proper action for said failure or its continued failure. No pronouncements as to costs of litigation and attorney's fees. SO ORDERED. (SGD.) PAULINO Q. GALLEGOS Hearing Officer * Copied verbatim from documents obtained directly from the Securities and Exchange Commission .