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CENTRAL TEXTILE MILLS v. NATIONAL WAGES

FACTS:

The Regional Tripartite Wages and Productivity Board - National Capital Region (the Board) issued Wage Order No. NCR-02 (WO No. NCR-02) on December 20, 1990, which mandated a P12.00 increase in the minimum daily wage for private sector employees and workers in the NCR. However, distressed employers whose capital has been impaired by at least 25% in the preceding year were exempted from the wage increase. The "Guidelines on Exemption from Compliance With the Prescribed Wage/Cost of Living Allowance Increase Granted by the Regional Tripartite Wage and Productivity Boards" defined "capital" as the "paid-up capital at the end of the last full accounting period (in case of corporations)." Petitioner, Central Textile Mills, Inc., filed an application for exemption from compliance with WO No. NCR-02 due to financial losses. However, the Board disapproved the application after determining that petitioner had sustained an impairment of only 22.41%. Petitioner argued that its authorized capital stock, not its unauthorized paid-up capital, should be used to compute its capital impairment. The Board, except for Vice-Chairman Gorospe, ruled that petitioner's audited financial statements should be the basis for determining its capital impairment. It was also noted that petitioner did not file the resolution for the increase in authorized capital stock with the Securities and Exchange Commission (SEC), nor did it file a petition to amend its Articles of Incorporation for the capitalization increase. Petitioner maintained that the capital stock stands increased or decreased only upon approval and issuance of the certificate of filing of increase of capital stock. The Court agreed with petitioner, highlighting that the guidelines on exemption specifically referred to paid-up capital, not authorized capital stock, as the basis for capital impairment. Petitioner included payments on advance subscriptions as part of its paid-up capital, even though the proposed increase in capitalization had not been approved or presented for approval by the SEC. The Court clarified that these payments cannot be considered part of petitioner's paid-up capital until the capital stock has been legally increased. The Court also emphasized that including these funds in the paid-up capital would be prejudicial to the corporation as an employer. Another issue raised was the alleged non-exhaustion of administrative remedies by petitioner, but petitioner argued that the revised guidelines allowing appeal to the National Wages and Productivity Commission were not yet in effect when it filed the petition for certiorari. The Court granted the petition, annulling the Board's orders and instructing it to issue another order granting petitioner's application for exemption from WO No. NCR-02 for the year 1990.

ISSUES:

  1. Whether the unauthorized increase in subscribed capital stock should be included in determining the capital impairment of the petitioner.

  2. Whether petitioner is obliged to exhaust administrative remedies by appealing the questioned order of the Board to the National Wages and Productivity Commission.

RULING:

  1. The unauthorized increase in subscribed capital stock should not be included in determining the capital impairment of the petitioner. The guidelines on exemption specifically refer to paid-up capital, not authorized capital stock, as the basis of capital impairment for exemption from Wage Order No. NCR-02. Since the increase in petitioner's capitalization had not yet been approved by the Securities and Exchange Commission (SEC), the payments received on the proposed increase cannot be considered part of the paid-up capital. These payments are still withdrawable by subscribers until the issuance of corresponding shares of stock. Therefore, the capital impairment is based on the authorized capital stock, which was impaired by losses of nearly 50% in the year when exemption from the wage order was sought.

  2. Petitioner is not obliged to exhaust administrative remedies by appealing the questioned order of the Board to the National Wages and Productivity Commission. At the time the petition for certiorari was filed, the procedure governing applications for exemption was the original guidelines, which did not provide for an appeal to the Commission. The revised guidelines, which included the appeals process, were issued after the filing of the petition. Therefore, petitioner cannot be faulted for not appealing the questioned orders to the Commission.

PRINCIPLES:

  • The guidelines on exemption from compliance with wage orders specifically refer to paid-up capital, not authorized capital stock, as the basis of capital impairment.

  • Payments on future subscriptions that have not yet been approved by the SEC cannot be considered part of the paid-up capital of a corporation.

  • Stockholders' legal rights, such as the rights to vote and dividends, are not acquired until a certificate of increase in capital stock is issued by the SEC.

  • If impairment of capital is less than 25%, the employer can still absorb the wage increase, as stated in the wage order.