3.) DBP vs

DBP vs. NLRC GRN 82763; March 19, 1990

 This Petition for Certiorari Certiorari addresses addresses itself to the 12 February February 1986 Order of  the National Labor Relations Commission directin !etitioner "e#elo!ment $an% of the Phili!!ines &"$P' to remit the sum of P6(292()8*+** ,out of  !roceeds of the foreclosed !ro!erties of Lira Te-tile .ills( /nc+( sold at !ublic auction in order to satisfy the 0udment, in NLRC Cases Nos+ NCR)28182 and 22*9*82+  The bac%roun bac%round d facts of these t3o cases may be be summari4ed summari4ed as follo3s5 follo3s5  The com!lainants com!lainants in the t3o cases led belo3 3ere former em!loyees em!loyees of  Lira Te-tile .ills( /nc+ &L/R7( for short'+ L/R7 3as a mortae debtor of  "$P+ Pri#ate res!ondent Labor 7lliance for National "e#elo!ment &L7N"( for bre#ity' 3as the barainin re!resentati#e of the more or less 8** former ran% and le em!loyees of L/R7+ 7round e!tember 1981( L/R7 started terminatin terminatin the ser#ices of its em!loyees em!loyees on the round of retrenchment+ retrenchment+ $y "ecem "e cember ber of the said said year year there there 3e 3ere re alre already ady 18* 18* reul reular ar em em!lo !loye yees es se!arated from the ser#ice+ L/R7 has since ceased o!erations !resumably due to nancial re#erses+ /n Febru ebruar ary y 1982 1982(( :ose :oseli lito to 7lba 7lbay( y( one one of the the em em!l !loy oyee ees s dism dismis isse sed d in e!tember 1981( led a com!laint before the NLRC aainst L/R7 for illeal dismissal &Case No+ 22*9*82'+ On 1 .arch 1982( L7N"( on behalf of 18* dismissed members( also led a Com!laint aainst L/R7 see%in se!aration !ay( 1)th month !ay( ratuity !ay( sic% lea#e and #acation lea#e !ay and emer em ere enc ncy y allo allo3a 3anc nce e &Ca Case se No+ No+ )2 )281 818 82' 2'++ Thes These e t3o t3o case cases s 3e 3erre consolidated and 0ointly heard by the NLRC+ aid com!lainants ha#e since been 0oined by su!er#isors and manaers+ /n a "ecision( dated )* :uly 1982( Labor 7rbiter 7!olinar L+ e#illa ordered L/R7 to !ay the indi#idual com!lainants+ The NLRC &Third "i#ision' a;rmed the same on 28 .arch 1982+ That 0udment became nal and e-ecutory+ On 1 7!ril 198)( a uired said mortaed !ro!erties for P)1()?6(?62+9*+ ince "$P 3as the sole mortaee( no actual !ayment 3as made( the amount of the bid ha#in been merely credited in !artial satisfaction of L/R7@s indebtedness+ $y reason of said foreclosure( the uitable distribution of the insol#ent@s !ro!erty amon his creditors+ To accom!lish this there must rst be some !roceedin 3here notice to all of  the insol#ents@ creditors may be i#en and 3here the claims of !referred creditors may be bindinly ad0udicated &"e $arretto #s+ Dillanue#a( No+ L1?9)8( "ecember 29( 1962( 6 CR7 928'+ The rationale therefore has been e-!ressed in the recent case of "$P #s+ ecretary of Labor &+R+ No+ A9)1( 28 No#ember 1989'( 3hich 3e >uote5 ,7 !reference of credit besto3s u!on the !referred creditor an ad#antae of  ha#in his credit satised rst ahead of other claims 3hich may be established aainst the debtor+ Loically( it becomes material only 3hen the !ro!erties and assets of the debtors are insu;cient to !ay his debts in fullG for if the debtor is am!ly able to !ay his #arious creditors in full( ho3 can the necessity e-ist to determine 3hich of his creditors shall be !aid rst or 3hether they shall be !aid out of the !roceeds of the sale the debtor@s s!ecic !ro!ertyE /ndubitably( the !referential riht of credit attains sinicance only after the !ro!erties of the debtor ha#e been in#entoried and li>uidated( and the claims held by his #arious creditors ha#e been established &Huen4le I trei &Ltd+' #s Dillanue#a( ?1 Phil 611 &1916'G $arretto #s+ Dillanue#a( +R+ No+ 1?9)8( 29 "ecember 1962( 6 CR7 928G Phili!!ine a#ins $an% #s+ Lantin( +R+ ))929( 2 e!tember 198)( 12? CR7 ?A6'+ ?+ 7 distinction should be made bet3een a !reference of credit and a lien+ 7 !reference a!!lies only to claims 3hich do not attach to s!ecic !ro!erties+ 7 lien creates a chare on a !articular !ro!erty+ The riht of rst !reference as reards un!aid 3aes reconi4ed by 7rticle 11* does not constitute a lien on the !ro!erty of the insol#ent debtor in fa#or of 3or%ers+ /t is but a !reference of credit in their fa#or( a !reference in a!!lication+ /t is a method ado!ted to determine and s!ecify the order in 3hich credits should be !aid in the nal distribution of the !roceeds of the insol#ent@s assets+ /t is a riht to a rst !reference in the dischare of the funds of the 0udment debtor+ /n the 3ords of Re!ublic #s+ Peralta( su!ra5

,7rticle 11* of the Labor Code does not !ur!ort to create a lien in fa#or of  3or%ers or em!loyees for un!aid 3aes either u!on all of the !ro!erties or u!on any !articular !ro!erty o3ned by their em!loyer+ Claims for un!aid 3aes do not therefore fall at all 3ithin the cateory of s!ecially !referred claims established under 7rticles 22?1 and 22?2 of the Ci#il Code( e-ce!t to the e-tent that such claims for un!aid 3aes are already co#ered by 7rticle 22?1( number 65 @claims for laborers@ 3aes( on the oods manufactured or the 3or% doneG@ or by 7rticle 22?2( number )5 @claims of laborers and other 3or%ers enaed in the construction( reconstruction or re!air of buildins( canals and other 3or%s( u!on said buildins( canals and other 3or%s+@ To the e-tent that claims for un!aid 3aes fall outside the sco!e of 7rticle 22?1( number 6 and 22?2( number )( they 3ould come 3ithin the ambit of the cateory of ordinary !referred credits under 7rticle 22??+, + The "$P anchors its claim on a mortae credit+ 7 mortae directly and immediately sub0ects the !ro!erty u!on 3hich it is im!osed( 3hoe#er the !ossessor may be( to the fulllment of the obliation for 3hose security it 3as constituted &7rticle 21A6( Ci#il Code'+ /t creates a real riht 3hich is enforceable aainst the 3hole 3orld+ /t is a lien on an identied immo#able !ro!erty( 3hich a !reference is not+ 7 recorded mortae credit is a s!ecial !referred credit under 7rticle 22?2 &' of the Ci#il Code on classication of  credits+ The !reference i#en by 7rticle 11*( 3hen not fallin 3ithin 7rticle 22?1 &6' and 7rticle 22?2 &)' of the Ci#il Code and not attached to any s!ecic !ro!erty( is an ordinary !referred credit althouh its im!act is to mo#e it from second !riority to rst !riority in the order of !reference established by 7rticle 22?? of the Ci#il Code &Re!ublic #s+ Peralta( su!ra'+ /n fact( under the /nsol#ency La3 &ection 29' a creditor holdin a mortae or lien of any %ind as security is not !ermitted to #ote in the election of the assinee in insol#ency !roceedins unless the #alue of his security is rst -ed or he surrenders all such !ro!erty to the recei#er of the insol#ents estate+ 6+ =#en if 7rticle 11* and its /m!lementin Rule( as amended( should be inter!reted to mean ,absolute !reference(, the same should be i#en only !ros!ecti#e eect in line 3ith the cardinal rule that la3s shall ha#e no retroacti#e eect( unless the contrary is !ro#ided &7rticle ?( Ci#il Code'+  Thereby( any infrinement on the constitutional uarantee on non im!airment of the obliation of contracts &ection 1*( 7rticle ///( 198A Constitution' is also a#oided+ /n !oint of fact( "$P@s mortae credit antedated by se#eral years the amendatory la3( R7 No+ 6A1+ To i#e 7rticle 11* retroacti#e eect 3ould be to 3i!e out the mortae in "$P@s fa#or and e-!ose it to a ris% 3hich it souht to !rotect itself aainst by re>uirin a collateral in the form of real !ro!erty+ /n ne( the riht to !reference i#en to 3or%ers under 7rticle 11* of the

Labor Code cannot e-ist in any eecti#e 3ay !rior to the time of its !resentation in distribution !roceedins+ /t 3ill nd a!!lication 3hen( in !roceedins such as insol#ency( such un!aid 3aes shall be !aid in full before the ,claims of the o#ernment and other creditors, may be !aid+ $ut( for an orderly settlement of a debtor@s assets( all creditors must be con#ened( their claims ascertained and in#entoried( and thereafter the !references determined in the course of 0udicial !roceedins 3hich ha#e for their ob0ect the sub0ection of the !ro!erty of the debtor to the !ayment of his debts or other la3ful obliations+ Thereby( an orderly determination of  !reference of creditors@ claims is assured &Phili!!ine a#ins $an% #s+ Lantin( No+ L))929( e!tember 2( 198)( 12? CR7 ?A6'G the ad0udication made 3ill be bindin on all !artiesininterest( since those !roceedins are !roceedins in remG and the leal scheme of classication( concurrence and !reference of  credits in the Ci#il Code( the /nsol#ency La3( and the Labor Code is !reser#ed in harmony+ uino( .edialdea and Realado( ::+( concur+ Cru4( Padilla and armiento ::+( see dissent+ Paras( :+( / concur 3ith :+ Padilla@s dissent+ CRUZ, J., Dissenting:

/ 3as the lone dissenter in Re!ublic #+ Peralta( 1* CR7 )A( 3hich is the mainstay of the !resent ma0ority !onencia+ =#en then( / 3as con#inced that it 3as the intention of the leislature to i#e absolute !reference to the 3or%ers@ claims !ursuant to the social 0ustice !olicy+ The amendment of  7rticle 11* of the Labor Code only strenthens that con#iction and( / li%e to thin%( #indicates my oriinal !osition / reiterate it no3 and re!eat that5 ocial :ustice is not a mere catch!hrase to be mouthed 3ith sham fer#or in

Labor "ay celebrations for the delectation and seduction of the 3or%in class+ /t is a mandate 3e should !ursue 3ith enery and sincerity if 3e are to truly insure the dinity and 3ellbein of the laborer+ / am !roud to dissent once aain on the side of labor+ PADILLA, J.:

 The material facts are not dis!uted+ Lira Te-tile &L/R7' ceased o!erations by early 1982+ Pursuant to a nal and e-ecutory 0udment of the NLRC( dated 2* .arch 198)( L/R7 3as ad0uded liable to its 3or%ers for un!aid 3aes and salaries 3hich( as of 12 February 1986( amounted to P6(292()8*+**+ L/R7@s only remainin asset 3as mortaed to "e#elo!ment $an% of the Phili!!ines &"$P' 3hich on 1 7!ril 198) foreclosed the mortae and ac>uired said !ro!erty at !ublic auction for P)1()?6+?62+9*( in !artial satisfaction of L/R7@s indebtedness to "$P+ L/R7@s 3or%ers throuh their union &L7N"' thereu!on souht to arnish on "$P the !roceeds of the foreclosure sale( to the e-tent of their ad0uded un!aid 3aes &P6(292()8*+**'+ The NLRC ruled for L7N" o#er "$P@s ob0ection+ The issue therefore( in !ractical terms( is 3hether P6(292()8*+** should be deducted from the P)1()?6(?62+9* reali4ed by "$P from the foreclosure sale of L/R7@s !ro!erty( to fully satisfy L7N"@s claim for L/R7 3or%ers@ un!aid 3aes( thereby lea#in a balance of P2(*?(*82+9* only in !artial satisfaction of  L/R7@s debt to "$P+  The ma0ority holds that L7N" may not enforce its rst !reference in the satisfaction of un!aid monetary claims of its members( #i4+ L/R7@s 3or%ers( o#er that of "$P( in the absence of a formal declaration of ban%ru!tcy or  0udicial li>uidation of L/R7@s business+ / reret that / cannot 0oin the ma0ority rulin in the liht of the amendment to 7rticle 11* of the Labor Code by Re!ublic 7ct 6A1( a!!ro#ed on 2 .arch 1989( and the resultant amendment of ection 1*( Rule D///( $oo% /// of the Re#ised Rules and Reulations /m!lementin the Labor Code+ $efore its amendment by Re!ublic 7ct 6A1( 7rticle 11* of the Labor Code !ro#ided ,uidation of an em!loyer@s business( his 3or%ers shall en0oy rst !reference as reards 3aes due them for ser#ices rendered durin the !eriod !rior to the ban%ru!tcy or li>uidation( any !ro#ision of la3 to the contrary not3ithstandin+ n!aid 3aes shall be !aid in full before other creditors may establish any claim to a share in the assets of the em!loyer+, 7fter Re!ublic 7ct 6A1( 7rt+ 11* no3 !ro#ides5

,uidation of an em!loyer@s business( his 3or%ers shall en0oy rst !reference as reards their 3aes and other monetary claims( any !ro#isions of la3 to the contrary not3ithstandin+ uch un!aid 3aes and monetary claims shall be !aid in full before claims of the o#ernment and other creditors may be !aid+,  ection 1* of the /m!lementin Rules( before Re!ublic 7ct 6A1 !ro#ided5 ,Payment of 3aes in case of ban%ru!tcy+n!aid 3aes earned by the em!loyees before the declaration of ban%ru!tcy or 0udicial li>uidation of the em!loyer@s business shall be i#en rst !reference and shall be !aid in full before other creditors may establish any claim to a share in the assets of the em!loyer+,

7fter Re!ublic 7ct 6A1( ection 1* of the Rules no3 !ro#ides5 ,Payment of 3aes and other monetary claims in case of ban%ru!tcy+/n case of ban%ru!tcy or li>uidation of the em!loyer@s business( the un!aid 3aes and other monetary claims of the em!loyees shall be i#en rst !reference and shall be !aid in full before the claims of o#ernment and other creditors may be !aid+,  The ma0ority( in my considered o!inion( has failed to fully ta%e into account the radical chane introduced by Re!ublic 7ct 6A1 into the system of  !riorities or !references amon credits or creditors ordained by the Ci#il Code+ nder the !ro#isions of the Ci#il Code( s!ecically( 7rticles 22?1 and 22?2(  0ointly 3ith 7rticles 22?6 to 22?9( a t3otier order of !reference of credits is established+ The rst tier includes only ta-es( duties and fees on s!ecic mo#able or immo#able !ro!erty+ 7ll other s!ecial !referred credits stand on a second tier+1 nder the system of !references in the Ci#il Code( only ta-es en0oy absolute !reference i+e+( they e-clude the credits of the lo3er order until such ta-es are fully satised out of the !roceeds of the sale of the !ro!erty sub0ect of  the !reference( and ta-es can e#en e-haust such !roceeds+ 7ll other s!ecial !referred credits en0oy no !riority amon themsel#es but must be !aid or satised !ro rata+ To ma%e the !roratin fully eecti#e( the !referred creditors enumerated in Nos+ 2 to 1) of 7rticle 22?1 and Nos+ 2 to 1* of 

7rticle 22?2 must be con#ened and the im!ort of their claims ascertained in some !roceedin 3here the claims of all may be bindinly ad0udicated+ uidation of the em!loyer@s business is a condition sine >ua non to the o!eration of the !reference accorded to 3or%ers under 7rticle 11* of the Labor Code( for the follo3in s!ecic reasons5 First( the ma0ority reads into the aforesaid la3 and im!lementin rule a >ualication that is not there+ No3here is it stated in the !resent la3 and its ne3 im!lementin rule that a !rior declaration of ban%ru!tcy or 0udicial li>uidation is a condition sine >ua non to the o!eration of 7rticle 11*+ /n fact( it 3ill be noted that the !hrase declaration of ban%ru!tcy or 0udicial li>uidation of the em!loyer@s business( 3hich formerly a!!eared in ection 1*( Rule D///( $oo% /// of the Re#ised Rules and Reulations /m!lementin the Labor Code has been deleted in the ne3 im!lementin rule+ ualied runt of !riority to 3or%ers@ monetary claims o#er and abo#e all other claims as aainst all the assets of an em!loyer inca!able of fully !ayin his obliations+ econd( a !roceedin in rem( by its nature( see%s to bar any other !erson 3ho claims any interest in the !ro!erty or riht sub0ect of the suit+ To my mind( such a !roceedin is not essential or necessary to enforce the 3or%ers@ !referential riht o#er the assets of the insol#ent debtor as aainst other creditors of the lo3er tier( as 7rticle 11* of the Labor Code itself bars the satisfaction of claims of other creditors( includin the o#ernment( until un!aid 3aes and monetary claims of the 3or%ers are rst satised in full+ Further( it a!!ears that such a !roceedin is essential only 3here the credits are concurrin and en0oy no !reference o#er one another( but not 3hen the la3 accords to one of the credits absolute !riority and undis!uted su!remacy+ This submission nds su!!ort( by analoy( in the case of "e $arreto #s+ Dillanue#a( 3here the Court stated5 ,Thus it becomes e#ident that one !referred creditor@s third !arty claim to

the !roceeds of the foreclosure &as in the case no3 before us' is not the !roceedin contem!lated by la3 for the enforcement of !reference under 7rticle 22?2( unless the claimant 3ere enforcin credit for ta-es that en0oy absolute !riority+ /f none of the claim is for ta-es( a dis!ute bet3een t3o creditors 3ill not enable the court to ascertain the !ro rata di#idend corres!ondin to each( because the rihts of other creditors li%e3ise en0oyin !reference under 7rticle 22?2 cannot be ascertained+,) &/talics ours' /n sum( it is to me clear that( 3hether or not there be a 0udicial !roceedin in rem( i+e+( insol#ency( ban%ru!tcy or li>uidation !roceedins( the fact remains that Conress intends that the assets of the insol#ent debtor be held( rst and abo#e all else( to satisfy in full the un!aid 3aes and monetary claims of  its 3or%ers+ Translated into the case at bar( a formal declaration of  insol#ency or ban%ru!tcy or 0udicial li>uidation of the em!loyer@s business should not be a !rice im!osed u!on the 3or%ers to enable them to et their much needed and already ad0udicated un!aid 3aes+ This !osition( / belie#e( is only in %ee!in 3ith a fundamental state !olicy enshrined in the Constitutional mandate to accord !rotection to labor+ The leislati#e intent bein clear and manifest( it is the duty of this Court( / submit( not to decimate but to i#e it breath and life+ 7CCOR"/NLM( / #ote to "/./ the "$P !etition and to 7FF/R. the resolution of the NLRC in fa#or of L7N"+ SARMIENTO, J., Dissenting

/ 0oin .r+ :ustice Teodoro Padilla in his dissent+ /t is also my considered o!inion that under Re!ublic 7ct No+ 6A1( the !ayment of un!aid 3aes and other benets to labor en0oys !reference o#er all other indebtedness( includin ta-es( of manaement( 3ith or 3ithout a declaration of insol#ency+ /t is li%e3ise so( because labor en0oys !rotection not only from statute but from the #ery Constitution+ Thus5 ee+ 18+ The tate a;rms labor as a !rimary social economic force+ /t shall !rotect the rihts of 3or%ers and !romote their 3elfare+ &7rticle 11' --- --- --ec+ )+ The tate shall aord full !rotection to labor( local and o#erseas( orani4ed and unorani4ed( and !romote full em!loyment and e>uality or em!loyment o!!ortunities for all+ /t shall uarantee the rihts of all 3or%ers to selforani4ation( collecti#e barainin and neotiations( and !eaceful concerted acti#ities( includin the

riht to stri%e in accordance 3ith la3+ They shall be entitled to security of  tenure( humane conditions of 3or%( and a li#in 3ae+ They shall also !artici!ate in !olicy and decisionma%in !rocesses aectin their rihts and benets as may be !ro#ided by la3+  The tate shall !romote the !rinci!le of shared res!onsibility bet3een 3or%ers and em!loyers and the !referential use of #oluntary modes in settlin dis!utes( includin conciliation( and shall enforce their mutual com!liance there3ith to foster industrial !eace+  The tate shall reulate the relations bet3een 3or%ers and em!loyers reconi4in the riht of labor to its 0ust share in the fruits of !roduction and the riht of enter!rises to reasonable returns on in#estments( and to e-!ansion and ro3th+ &7rticle B///' On the other hand( under the Labor Code5 7RT+ )+ "eclaration of basic !olicyThe tate shall aord !rotection to labor( !romote full em!loyment( ensure e>ual 3or% o!!ortunities reardless of se-( race or creed and reulate the relations bet3een 3or%ers and em!loyers+  The tate shall assure the rihts of