FIRST DIVISION
[ G.R. No. 108031, March 01, 1995 ]
DEVELOPMENT BANK OF THE PHILIPPINES, PETITIONER, VS. NATIONAL LABOR RELATIONS COMMISSION AND LEONOR A. ANG, RESPONDENTS.
D E C I S I O N
BELLOSILLO, J.:
Is declaration of bankruptcy or judicial liquidation required before the worker's preference may be invoked under Art. 110 of the Labor Code?
On 21 March 1977 private respondent Leonor A. Ang started employment as Executive Secretary with Tropical Philippines Wood Industries, Inc. (TPWII), a corporation engaged in the manufacture and sale of veneer, plywood and sawdust panel boards. In 1982 she was promoted to the position of Personnel Officer.
In September 1983 petitioner Development Bank of the Philippines, as mortgagee of TPWII, foreclosed its plant facilities and equipment. Nevertheless TPWII continued its business operations interrupted only by brief shutdowns for the purpose of servicing its plant facilities and equipment. In January 1986 petitioner took possession of the foreclosed properties. From then on the company ceased its operations. As a consequence private respondent was on 15 April 1986 verbally terminated from the service.
On 14 December 1987 aggrieved by the termination of her employment, private respondent filed with the Labor Arbiter a complaint for separation pay, 13th month pay, vacation and sick leave pay, salaries and allowances against TPWII, its General Manager, and petitioner.
After hearing the Labor Arbiter found TPWII primarily liable to private respondent but only for her separation pay and vacation and sick leave pay because her claims for unpaid wages and 13th month pay were later paid after the complaint was filed. [1] The General Manager was absolved of any liability. But with respect to petitioner, it was held subsidiarily liable in the event the company failed to satisfy the judgment. The Labor Arbiter rationalized that the right of an employee to be paid benefits due him from the properties of his employer is superior to the right of the latter's mortgagee, citing this Court's resolution in PNB v. Delta Motor Workers Union. [2]
On 16 November 1992 public respondent National Labor Relations Commission affirmed the ruling of the Labor Arbiter. [3]
The issue now before us is whether public respondent committed grave abuse of discretion in holding that Art. 110 of the Labor Code, as amended, which refers to worker preference in case of bankruptcy or liquidation of an employer's business, is applicable to the present case notwithstanding the absence of any formal declaration of bankruptcy or judicial liquidation of TPWII.
Petitioner argues that the decision of public respondent runs counter to the consistent rulings of this Court in a long line of cases emphasizing that the application of Art. 110 of the Labor Code is contingent upon the institution of bankruptcy or judicial liquidation proceedings against the employer.
We hold that public respondent gravely abused its discretion in affirming the decision of the Labor Arbiter. Art. 110 should not be treated apart from other laws but applied in conjunction with the pertinent provisions of the Civil Code and the Insolvency Law to the extent that piece-meal distribution of the assets of the debtor is avoided. Art. 110, then prevailing, provides:
Art. 110. Worker preference in case of bankruptcy. - In the event of bankruptcy or liquidation of an employer's business, his workers shall enjoy first preference as regards wages due them for services rendered during the period prior to the bankruptcy or liquidation, any provision to the contrary notwithstanding. Unpaid wages shall be paid in full before other creditors may establish any claim to a share in the assets of the employer.
Complementing Art. 110, Sec. 10, Rule VIII, Book III, of the Revised Rules and Regulations Implementing the Labor Code provides:
Sec. 10. Payment of wages in case of bankruptcy. - Unpaid wages earned by the employees before the declaration of bankruptcy or judicial liquidation of the employer's business shall be given first preference and shall be paid in full before other creditors may establish any claim to a share in the assets of the employer.
We interpreted this provision in Development Bank of the Philippines v. Santos [4] to mean that -
x x x a declaration of bankruptcy or a judicial liquidation must be present before the worker's preference may be enforced. Thus, Article 110 of the Labor Code and its implementing rule cannot be invoked by the respondents in this case absent a formal declaration of bankruptcy or a liquidation order x x x x (underscoring supplied).
The rationale is that to hold Art. 110 to be applicable also to extrajudicial proceedings would be putting the worker in a better position than the State which could only assert its own prior preference in case of a judicial proceeding.[5] Art. 110, which was amended by R.A. 6715 effective 21 March 1989, now reads:
Art. 110. Worker preference in case of bankruptcy. - In the event of bankruptcy or liquidation of an employer's business, his workers shall enjoy first preference as regards their unpaid wages and other monetary claims, any provision of law to the contrary notwithstanding. Such unpaid wages and monetary claims shall be paid in full before the claims of the Government and other creditors may be paid.
Obviously, the amendment expanded the concept of "worker preference" to cover not only unpaid wages but also other monetary claims to which even claims of the Government must be deemed subordinate. The Rules and Regulations Implementing R.A. 6715, approved 24 May 1989, also amended the corresponding implementing rule, and now reads:
Sec. 10. Payment of wages and other monetary claims in case of bankruptcy. - In case of bankruptcy or liquidation of the employer's business, the unpaid wages and other monetary claims of the employees shall be given first preference and shall be paid in full before the claims of government and other creditors may be paid.
Although the terms "declaration" (of bankruptcy) or "judicial" (liquidation) have been notably eliminated, still in Development Bank of the Philippines v. NLRC, [6] this Court did not alter its original position that the right to preference given to workers under Art. 110 cannot exist in any effective way prior to the time of its presentation in distribution proceedings. In effect, we reiterated our previous interpretation in Development Bank of the Philippines v. Santos where we said:
It (worker preference) will find application when, in proceedings such as insolvency, such unpaid wages shall be paid in full before the 'claims of the Government and other creditors' may be paid. But, for an orderly settlement of a debtor's assets, all creditors must be convened, their claims ascertained and inventoried, and thereafter the preferences determined in the course of judicial proceedings which have for their object the subjection of the property of the debtor to the payment of his debts or other lawful obligations. Thereby, an orderly determination of preference of creditors' claims is assured (Philippine Savings Bank vs. Lantin, No. L-33929, September 2, 1983, 124 SCRA 476); the adjudication made will be binding on all parties-in-interest since those proceedings are proceedings in rem; and the legal scheme of classification, concurrence and preference of credits in the Civil Code, the Insolvency Law, and the Labor Code is preserved in harmony. [7]
In ruling, as we did, in Development Bank of the Philippines v. Santos, we took into account the following pronouncements:
In the event of insolvency, a principal objective should be to effect an equitable distribution of the insolvent's property among his creditors. To accomplish this there must first be some proceeding where notice to all of the insolvent's creditors may be given and where the claims of preferred creditors may be bindingly adjudicated. (De Barreto v. Villanueva, No. L-14938, December 29, 1962, 6 SCRA 928). The rationale therefore has been expressed in the recent case of DBP v. Secretary of Labor (G.R. No. 79351, 28 November 1989), which we quote:
A preference of credit bestows upon the preferred creditor an advantage of having his credit satisfied first ahead of other claims which may be established against the debtor. Logically, it becomes material only when the properties and assets of the debtors are insufficient to pay his debts in full; for if the debtor is amply able to pay his various creditors in full, how can the necessity exist to determine which of his creditors shall be paid first or whether they shall be paid out of the proceeds of the sale (of) the debtor's specific property. Indubitably, the preferential right of credit attains significance only after the properties of the debtor have been inventoried and liquidated, and the claims held by his various creditors have been established (Kuenzle & Streiff (Ltd.) v. Villanueva, 41 Phil 611 [1916]; Barretto v. Villanueva, G.R. No. 14938, 29 December 1962, 6 SCRA 928; Philippine Savings Bank v. Lantin, G.R. No. 33929, 2 September 1983, 124 SCRA 476).
In the present case, there is as yet no declaration of bankruptcy nor judicial liquidation of TPWII. Hence, it would be premature to enforce the worker's preference.
The additional ratiocination of public respondent that "under Article 110 of the Labor Code complainant enjoys a preference of credit over the properties of TPWII being held in possession by DBP," is a dismal misconception of the nature of preference of credit, a subject matter which we have already discussed in clear and simple terms and even distinguished from a lien in Development Bank of the Philippines v. NLRC [8] -
x x x A preference applies only to claims which do not attach to specific properties. A lien creates a charge on a particular property. The right of first preference as regards unpaid wages recognized by Article 110 does not constitute a lien on the property of the insolvent debtor in favor of workers. It is but a preference of credit in their favor, a preference in application. It is a method adopted to determine and specify the order in which credits should be paid in the final distribution of the proceeds of the insolvent's assets. It is a right to a first preference in the discharge of the funds of the judgment debtor x x x x In the words of Republic v. Peralta, supra: 'Article 110 of the Labor Code does not purport to create a lien in favor of workers or employees for unpaid wages either upon all of the properties or upon any particular property owned by their employer. Claims for unpaid wages do not therefore fall at all within the category of specially preferred claims established under Articles 2241 and 2242 of the Civil Code, except to the extent that such claims for unpaid wages are already covered by Article 2241, number 6: 'claims for laborers' wages, on the goods manufactured or the work done;' or by Article 2242, number 3: 'claims of laborers and other workers engaged in the construction, reconstruction or repair of buildings, canals and other works, upon said buildings, canals and other works x x x x To the extent that claims for unpaid wages fall outside the scope of Article 2241, number 6, and 2242, number 3, they would come within the ambit of the category of ordinary preferred credits under Article 2244.
The DBP anchors its claim on a mortgage credit. A mortgage directly and immediately subjects the property upon which it is imposed, whoever the possessor may be, to the fulfillment of the obligation for whose security it was constituted (Article 2176, Civil Code). It creates a real right which is enforceable against the whole world. It is a lien on an identified immovable property, which a preference is not. A recorded mortgage credit is a special preferred credit under Article 2242 (5) of the Civil Code on classification of credits. The preference given by Article 110, when not falling within Article 2241 (6) and Article 2242 (3) of the Civil Code and not attached to any specific property, is an ordinary preferred credit although its impact is to move it from second priority to first priority in the order of preference established by Article 2244 of the Civil Code.
The present controversy could have been easily settled by public respondent had it referred to ample jurisprudence which already provides the solution. Stare decisis et non quieta movere. Once a case is decided by this Court as the final arbiter of any justiciable controversy one way, then another case involving exactly the same point at issue should be decided in the same manner. Public respondent had no choice on the matter. It could not have ruled any other way. This Court having spoken in a string of cases against public respondent, its duty is simply to obey judicial precedents. [9] Any further disregard, if not defiance, of our rulings will be considered a ground to hold public respondent in contempt.
WHEREFORE, the petition is GRANTED. The decision of public respondent National Labor Relations Commission affirming the decision of the Labor Arbiter insofar as it held petitioner Development Bank of the Philippines liable for the monetary claims of private respondent Leonor A. Ang is SET ASIDE. The temporary restraining order we issued on 8 February 1993 [10] enjoining the execution of the decision of public respondent against petitioner is made PERMANENT.
SO ORDERED.
Davide, Jr., Quiason, and Kapunan, JJ., concur.
Padilla, (Chairman), J., see dissenting opinion.
[1] RoIlo, pp. 45-46.
[2] G.R. Nos. 75161-62, 3 April 1987.
[3] Rollo, p. 38.
[4] G.R. Nos. 78261-62, 8 March 1989, 171 SCRA 138.
[5] Republic v. Peralta, G.R. No. 56568, 20 May 1987, 150 SCRA 37.
[6] G.R. Nos. 82763-64, 19 March 1990, 183 SCRA 328.
[7] Invoked as a leading authority in Development Bank of the Philippines v. NLRC, G.R. No. 86932, 27 June 1990, 186 SCRA 841; Development Bank of the Philippines v. NLRC, G.R. Nos. 100264-81, 29 January 1993, 218 SCRA 183; Development Bank of the Philippines v. NLRC, G.R. No. 86227, 19 January 1994, 229 SCRA 350, and other cases.
[8] See Note 6, pp. 337-338.
[9] Pines City Educational Center v. NLRC, G.R. No. 96779, 10 November 1993, 227 SCRA 655.
[10] Rollo, pp. 67-68.
On 21 March 1977 private respondent Leonor A. Ang started employment as Executive Secretary with Tropical Philippines Wood Industries, Inc. (TPWII), a corporation engaged in the manufacture and sale of veneer, plywood and sawdust panel boards. In 1982 she was promoted to the position of Personnel Officer.
In September 1983 petitioner Development Bank of the Philippines, as mortgagee of TPWII, foreclosed its plant facilities and equipment. Nevertheless TPWII continued its business operations interrupted only by brief shutdowns for the purpose of servicing its plant facilities and equipment. In January 1986 petitioner took possession of the foreclosed properties. From then on the company ceased its operations. As a consequence private respondent was on 15 April 1986 verbally terminated from the service.
On 14 December 1987 aggrieved by the termination of her employment, private respondent filed with the Labor Arbiter a complaint for separation pay, 13th month pay, vacation and sick leave pay, salaries and allowances against TPWII, its General Manager, and petitioner.
After hearing the Labor Arbiter found TPWII primarily liable to private respondent but only for her separation pay and vacation and sick leave pay because her claims for unpaid wages and 13th month pay were later paid after the complaint was filed. [1] The General Manager was absolved of any liability. But with respect to petitioner, it was held subsidiarily liable in the event the company failed to satisfy the judgment. The Labor Arbiter rationalized that the right of an employee to be paid benefits due him from the properties of his employer is superior to the right of the latter's mortgagee, citing this Court's resolution in PNB v. Delta Motor Workers Union. [2]
On 16 November 1992 public respondent National Labor Relations Commission affirmed the ruling of the Labor Arbiter. [3]
The issue now before us is whether public respondent committed grave abuse of discretion in holding that Art. 110 of the Labor Code, as amended, which refers to worker preference in case of bankruptcy or liquidation of an employer's business, is applicable to the present case notwithstanding the absence of any formal declaration of bankruptcy or judicial liquidation of TPWII.
Petitioner argues that the decision of public respondent runs counter to the consistent rulings of this Court in a long line of cases emphasizing that the application of Art. 110 of the Labor Code is contingent upon the institution of bankruptcy or judicial liquidation proceedings against the employer.
We hold that public respondent gravely abused its discretion in affirming the decision of the Labor Arbiter. Art. 110 should not be treated apart from other laws but applied in conjunction with the pertinent provisions of the Civil Code and the Insolvency Law to the extent that piece-meal distribution of the assets of the debtor is avoided. Art. 110, then prevailing, provides:
Art. 110. Worker preference in case of bankruptcy. - In the event of bankruptcy or liquidation of an employer's business, his workers shall enjoy first preference as regards wages due them for services rendered during the period prior to the bankruptcy or liquidation, any provision to the contrary notwithstanding. Unpaid wages shall be paid in full before other creditors may establish any claim to a share in the assets of the employer.
Complementing Art. 110, Sec. 10, Rule VIII, Book III, of the Revised Rules and Regulations Implementing the Labor Code provides:
Sec. 10. Payment of wages in case of bankruptcy. - Unpaid wages earned by the employees before the declaration of bankruptcy or judicial liquidation of the employer's business shall be given first preference and shall be paid in full before other creditors may establish any claim to a share in the assets of the employer.
We interpreted this provision in Development Bank of the Philippines v. Santos [4] to mean that -
x x x a declaration of bankruptcy or a judicial liquidation must be present before the worker's preference may be enforced. Thus, Article 110 of the Labor Code and its implementing rule cannot be invoked by the respondents in this case absent a formal declaration of bankruptcy or a liquidation order x x x x (underscoring supplied).
The rationale is that to hold Art. 110 to be applicable also to extrajudicial proceedings would be putting the worker in a better position than the State which could only assert its own prior preference in case of a judicial proceeding.[5] Art. 110, which was amended by R.A. 6715 effective 21 March 1989, now reads:
Art. 110. Worker preference in case of bankruptcy. - In the event of bankruptcy or liquidation of an employer's business, his workers shall enjoy first preference as regards their unpaid wages and other monetary claims, any provision of law to the contrary notwithstanding. Such unpaid wages and monetary claims shall be paid in full before the claims of the Government and other creditors may be paid.
Obviously, the amendment expanded the concept of "worker preference" to cover not only unpaid wages but also other monetary claims to which even claims of the Government must be deemed subordinate. The Rules and Regulations Implementing R.A. 6715, approved 24 May 1989, also amended the corresponding implementing rule, and now reads:
Sec. 10. Payment of wages and other monetary claims in case of bankruptcy. - In case of bankruptcy or liquidation of the employer's business, the unpaid wages and other monetary claims of the employees shall be given first preference and shall be paid in full before the claims of government and other creditors may be paid.
Although the terms "declaration" (of bankruptcy) or "judicial" (liquidation) have been notably eliminated, still in Development Bank of the Philippines v. NLRC, [6] this Court did not alter its original position that the right to preference given to workers under Art. 110 cannot exist in any effective way prior to the time of its presentation in distribution proceedings. In effect, we reiterated our previous interpretation in Development Bank of the Philippines v. Santos where we said:
It (worker preference) will find application when, in proceedings such as insolvency, such unpaid wages shall be paid in full before the 'claims of the Government and other creditors' may be paid. But, for an orderly settlement of a debtor's assets, all creditors must be convened, their claims ascertained and inventoried, and thereafter the preferences determined in the course of judicial proceedings which have for their object the subjection of the property of the debtor to the payment of his debts or other lawful obligations. Thereby, an orderly determination of preference of creditors' claims is assured (Philippine Savings Bank vs. Lantin, No. L-33929, September 2, 1983, 124 SCRA 476); the adjudication made will be binding on all parties-in-interest since those proceedings are proceedings in rem; and the legal scheme of classification, concurrence and preference of credits in the Civil Code, the Insolvency Law, and the Labor Code is preserved in harmony. [7]
In ruling, as we did, in Development Bank of the Philippines v. Santos, we took into account the following pronouncements:
In the event of insolvency, a principal objective should be to effect an equitable distribution of the insolvent's property among his creditors. To accomplish this there must first be some proceeding where notice to all of the insolvent's creditors may be given and where the claims of preferred creditors may be bindingly adjudicated. (De Barreto v. Villanueva, No. L-14938, December 29, 1962, 6 SCRA 928). The rationale therefore has been expressed in the recent case of DBP v. Secretary of Labor (G.R. No. 79351, 28 November 1989), which we quote:
A preference of credit bestows upon the preferred creditor an advantage of having his credit satisfied first ahead of other claims which may be established against the debtor. Logically, it becomes material only when the properties and assets of the debtors are insufficient to pay his debts in full; for if the debtor is amply able to pay his various creditors in full, how can the necessity exist to determine which of his creditors shall be paid first or whether they shall be paid out of the proceeds of the sale (of) the debtor's specific property. Indubitably, the preferential right of credit attains significance only after the properties of the debtor have been inventoried and liquidated, and the claims held by his various creditors have been established (Kuenzle & Streiff (Ltd.) v. Villanueva, 41 Phil 611 [1916]; Barretto v. Villanueva, G.R. No. 14938, 29 December 1962, 6 SCRA 928; Philippine Savings Bank v. Lantin, G.R. No. 33929, 2 September 1983, 124 SCRA 476).
In the present case, there is as yet no declaration of bankruptcy nor judicial liquidation of TPWII. Hence, it would be premature to enforce the worker's preference.
The additional ratiocination of public respondent that "under Article 110 of the Labor Code complainant enjoys a preference of credit over the properties of TPWII being held in possession by DBP," is a dismal misconception of the nature of preference of credit, a subject matter which we have already discussed in clear and simple terms and even distinguished from a lien in Development Bank of the Philippines v. NLRC [8] -
x x x A preference applies only to claims which do not attach to specific properties. A lien creates a charge on a particular property. The right of first preference as regards unpaid wages recognized by Article 110 does not constitute a lien on the property of the insolvent debtor in favor of workers. It is but a preference of credit in their favor, a preference in application. It is a method adopted to determine and specify the order in which credits should be paid in the final distribution of the proceeds of the insolvent's assets. It is a right to a first preference in the discharge of the funds of the judgment debtor x x x x In the words of Republic v. Peralta, supra: 'Article 110 of the Labor Code does not purport to create a lien in favor of workers or employees for unpaid wages either upon all of the properties or upon any particular property owned by their employer. Claims for unpaid wages do not therefore fall at all within the category of specially preferred claims established under Articles 2241 and 2242 of the Civil Code, except to the extent that such claims for unpaid wages are already covered by Article 2241, number 6: 'claims for laborers' wages, on the goods manufactured or the work done;' or by Article 2242, number 3: 'claims of laborers and other workers engaged in the construction, reconstruction or repair of buildings, canals and other works, upon said buildings, canals and other works x x x x To the extent that claims for unpaid wages fall outside the scope of Article 2241, number 6, and 2242, number 3, they would come within the ambit of the category of ordinary preferred credits under Article 2244.
The DBP anchors its claim on a mortgage credit. A mortgage directly and immediately subjects the property upon which it is imposed, whoever the possessor may be, to the fulfillment of the obligation for whose security it was constituted (Article 2176, Civil Code). It creates a real right which is enforceable against the whole world. It is a lien on an identified immovable property, which a preference is not. A recorded mortgage credit is a special preferred credit under Article 2242 (5) of the Civil Code on classification of credits. The preference given by Article 110, when not falling within Article 2241 (6) and Article 2242 (3) of the Civil Code and not attached to any specific property, is an ordinary preferred credit although its impact is to move it from second priority to first priority in the order of preference established by Article 2244 of the Civil Code.
The present controversy could have been easily settled by public respondent had it referred to ample jurisprudence which already provides the solution. Stare decisis et non quieta movere. Once a case is decided by this Court as the final arbiter of any justiciable controversy one way, then another case involving exactly the same point at issue should be decided in the same manner. Public respondent had no choice on the matter. It could not have ruled any other way. This Court having spoken in a string of cases against public respondent, its duty is simply to obey judicial precedents. [9] Any further disregard, if not defiance, of our rulings will be considered a ground to hold public respondent in contempt.
WHEREFORE, the petition is GRANTED. The decision of public respondent National Labor Relations Commission affirming the decision of the Labor Arbiter insofar as it held petitioner Development Bank of the Philippines liable for the monetary claims of private respondent Leonor A. Ang is SET ASIDE. The temporary restraining order we issued on 8 February 1993 [10] enjoining the execution of the decision of public respondent against petitioner is made PERMANENT.
SO ORDERED.
Davide, Jr., Quiason, and Kapunan, JJ., concur.
Padilla, (Chairman), J., see dissenting opinion.
[1] RoIlo, pp. 45-46.
[2] G.R. Nos. 75161-62, 3 April 1987.
[3] Rollo, p. 38.
[4] G.R. Nos. 78261-62, 8 March 1989, 171 SCRA 138.
[5] Republic v. Peralta, G.R. No. 56568, 20 May 1987, 150 SCRA 37.
[6] G.R. Nos. 82763-64, 19 March 1990, 183 SCRA 328.
[7] Invoked as a leading authority in Development Bank of the Philippines v. NLRC, G.R. No. 86932, 27 June 1990, 186 SCRA 841; Development Bank of the Philippines v. NLRC, G.R. Nos. 100264-81, 29 January 1993, 218 SCRA 183; Development Bank of the Philippines v. NLRC, G.R. No. 86227, 19 January 1994, 229 SCRA 350, and other cases.
[8] See Note 6, pp. 337-338.
[9] Pines City Educational Center v. NLRC, G.R. No. 96779, 10 November 1993, 227 SCRA 655.
[10] Rollo, pp. 67-68.