G.R. No. 125198, 3 March 1997
On January 11, 1990, Asturias Sugar Central, Inc. (ASCI), executed a Memorandum of Agreement with Monomer Trading Industries, Inc. (MTII), whereby MTII shall acquire the assets of ASCI by way of a Deed of Assignment provided that an entirely new organization in place of MTII shall be organized, which new corporation shall be the assignee of the assets of ASCI. Thus, a new corporation was organized and incorporated on February 15, 1990 under the corporate name Monomer Sugar Central, Inc. (MSCI), the private respondent herein.
MSCI applied for exemption from the coverage of Wage Order No. RO VI-01 issued by the Regional Tripartite Wages and Productivity Board VI (Board) on the ground that it is a distressed employer. MSCI submitted its audited financial statements and income tax returns duly stamped “received” by the BIR and the SEC.
The petitioner MSCI-NACUSIP Local Chapter (Union), in opposition, maintained that MSCI is not distressed; that respondent applicant has not complied with the requirements for exemption; and that the financial statements submitted by MSCI do not reflect the true and valid financial status of the company, etc.
The Board denied MSCI’s application for exemption based on the finding that the applicant’s losses of P3,400,738.00 for the period February 15, 1990 to August 31, 1990 constitute an impairment of only 5.25% of its paid-up capital of P64,688,528.00, cannot be said to be sufficient to meet the required 25% loss in order to qualify for the exemption, as provided in NWPC Guidelines No. 01, Series of 1992. An appeal was brought before the public respondent NATIONAL WAGES AND PRODUCTIVITY COMMISSION (Commission). The Commission reversed and set aside the orders of the Board, and granted MSCI’s application for exemption from Wage Order No. RO VI-01, for a period of 1 yr from its effectivity. Hence this Petition for Certiorari under Rule 65 by the Petitioner.
What is the correct paid-up capital of MSCI for the period covered by the application for exemption — P5 million or P64,688,528.00? (Would it qualify MSCI as a distressed employer and thus be entitled to exemption from compliance with Wage Order No. RO VI-01)
NWPC Guidelines No. 01, Series of 1992 as well as the new NWPC Guidelines No. 01, Series of 1996, define Capital as referring to paid-up capital at the end of the last full accounting period, in the case of corporations; or total invested capital at the beginning of the period under review, in the case of partnerships and single proprietorships. To have a clear understanding of what paid-up capital is, a referral to Sections 12 and 13 of the Corporation Code would be helpful:“Sec. 12. Minimum capital stock required of stock corporations. — Stock corporations incorporated under this Code shall not be required to have any minimum authorized capital stock except as otherwise specifically provided for by special law, and subject to the provisions of the following section.” “Sec. 13. Amount of capital stock to be subscribed and paid for purposes of incorporation. — At least 25% of the authorized capital stock as stated in the articles of incorporation must be subscribed at the time of incorporation, and at least 25% percent of the total subscription must be paid upon subscription, the balance to be payable on a date or dates fixed in the contract of subscription without need of call, or in the absence of a fixed date or dates, upon call for payment by the board of directors: Provided, however, That in no case shall the paid-up capital be less thanP5,000.00”
Paid-up capital is that portion of the authorized capital stock which has been both subscribed and paid. In the case at bar, MSCI was organized and incorporated on February 15, 1990 with an authorized capital stock of P60 million, P20 million of which was subscribed. Of the P20 million subscribed capital stock, P5 million was paid-up.
The argument of the Board that the value of the assets of ASCI transferred to MSCI as well as the loans or advances made by MTII to MSCI should have been taken into consideration in computing the paid-up capital of MSCI is unmeritorious. Not all funds or assets received by the corporation can be considered paid-up capital, for this term has a technical signification in Corporation Law. Such must form part of the authorized capital stock of the corporation, subscribed and then actually paid up.
The loans and advances of MTII to respondent MSCI cannot be treated as investments, unless the corresponding shares of stocks are issued. But as it turned out, such loans and advances were in fact treated as liabilities of MSCI to MTII as shown in its 1990 audited financial statements. The treatment by the Board of these loans as part of MSCI’s capital stock without satisfying certain mandatory requirements is prohibited under Sec 38 of the Corporation Code which provides:
“Power to increase or decrease capital stock; incur, create or increase bonded indebtedness. No corporation shall increase or decrease its capital stock or incur, create or increase any bonded indebtedness unless approved by a majority vote of the board of directors and, at a stockholders’ meeting duly called for the purpose, two-thirds (2/3) of the outstanding capital stock shall favor the increase or diminution of the capital stock, or the incurring, creating or increasing of any bonded indebtedness. Written notice of the proposed increase or diminution of the capital stock or of the incurring, creating, or increasing of any bonded indebtedness and of the time and place of the stockholders’ meeting at which the proposed increase or diminution of the capital stock or the incurring or increasing of any bonded indebtedness is to be considered, must be addressed to each stockholders at his place of residence as shown on the books of the corporation and deposited to the addressee in the post office with postage prepaid, or served personally.”
The above requirements, which are condition precedents before the capital stock of a corporation may be increased, were not observed in this case. Henceforth, the paid-up capital stock of MSCI for the period covered by the application for exemption still stood at P5 million. The losses, therefore, amounting to P3,400,738.00 for the period Feb 15, 1990 to Aug 31, 1990 impaired MSCI’s paid-up capital of P5M by as much as 68%. MSCI is qualified as a distressed employer. Respondent Commission thus acted well within its jurisdiction in granting MSCI full exemption from Wage Order No. RO VI-01 as a distressed employer.
*Case Digest by Bryne Angelo M. Brillantes, JD-IV, Andres Bonifacio Law School, SY 2019-2020