G.R. No. 104102 August 7, 1996
CENTRAL TEXTILE MILLS, INC., petitioner, vs. NATIONAL WAGES AND PRODUCTIVITY COMMISSION, REGIONAL TRIPARTITE WAGES AND PRODUCTIVITY BOARD-NATIONAL CAPITAL REGION, and UNITED CMC TEXTILE WORKERS UNION, respondents.

FACTS

On December 20, 1990, the Regional Tripartite Wages and Productivity Board-NCR (the Board) issued Wage Order No. NCR-02, granting a daily wage increase but exempting distressed employers whose capital was impaired by at least 25% in the preceding year. The guidelines defined “capital” for corporations as the “paid-up capital at the end of the last full accounting period.” Petitioner Central Textile Mills, Inc. filed an application for exemption on April 11, 1991, citing financial losses. The Board’s Vice-Chairman disapproved the application, finding only a 22.41% capital impairment based on a paid-up capital figure of P305,767,900.00 as of December 31, 1990.
Petitioner contested this, arguing that its authorized capital stock, not its paid-up capital, should be the basis for computing impairment. It maintained its authorized capital was only P128,000,000.00, which would show impairment of nearly 50%. The Board rejected this, noting petitioner had received subscriptions and payments for a proposed capital stock increase from P128 million to P640 million via a Board resolution dated August 15, 1990. However, petitioner had not filed this resolution or a petition to amend its Articles of Incorporation with the Securities and Exchange Commission (SEC) for approval.

ISSUE

Whether the Board correctly used petitioner’s total paid-up capital, which included payments on the unauthorized capital stock increase, as the basis for determining capital impairment for exemption from the wage order.

RULING

The Supreme Court ruled in favor of the petitioner. The legal logic centers on the proper definition of “paid-up capital” under corporate law. The Court held that payments received for a proposed increase in capital stock cannot be considered part of a corporation’s paid-up capital until the increase is duly approved by the SEC and a corresponding certificate of filing is issued. Citing the Corporation Code and SEC opinions, the Court emphasized that a capital stock increase takes effect only upon SEC approval. The funds received by petitioner for the unauthorized increase were merely held in trust for subscribers, withdrawable at any time before the issuance of the corresponding shares, and thus not legally part of its capital stock.
Consequently, for the purpose of the 1990 exemption application, petitioner’s authorized capital stock remained at P128,000,000.00. Its net loss of P68,844,222.49 for that year resulted in an impairment of approximately 50%, clearly exceeding the 25% threshold for exemption under the wage order. The Board’s orders were annulled and it was directed to grant petitioner’s application for exemption. The Court also noted petitioner’s failure to exhaust administrative remedies was not fatal, as the appeal process to the National Wages and Productivity Commission was not yet available under the guidelines in force when the petition was filed.