Development Bank of the Philippines v. Secretary of Labor
REITERATIONFacts
The Antecedents: Private respondents, employees of Riverside Mills Corporation (RMC), filed a labor case against RMC for illegal dismissal, unfair labor practice, illegal deductions, and violation of minimum wage law. A decision was rendered ordering RMC to pay backwages and separation benefits amounting to P1,256,678.76. Procedural History: A writ of execution was issued but returned unserved and unsatisfied because RMC's premises were padlocked and foreclosed by petitioner Development Bank of the Philippines (DBP) due to RMC's failure to meet loan obligations. Private respondents then filed a motion for delivery of RMC properties in DBP's possession, invoking Article 110 of the Labor Code for their preferential lien. The Officer-in-Charge granted the motion, citing Article 110 and the case of Philippine Commercial and Industrial Bank v. Natural Mines and Allied Workers' (NAMAWU-MIF). DBP's motion for reconsideration, arguing that Article 110 does not apply due to the absence of bankruptcy/liquidation proceedings and that the properties no longer belonged to RMC, was denied. The Petition: Petitioner DBP filed a special civil action for certiorari, seeking to nullify the order of the Undersecretary of Labor and Employment affirming the denial of its motion for reconsideration. This Court issued a temporary restraining order.
Issue(s)
Whether public respondent acted with grave abuse of discretion amounting to lack or excess of jurisdiction in enforcing private respondents' right of first preference under Article 110 of the Labor Code notwithstanding the absence of bankruptcy, liquidation or insolvency proceedings against RMC. Whether the order directing petitioner to deliver the foreclosed properties to the Ministry of Labor and Employment violates the rule that execution extends only to properties unquestionably belonging to the judgment debtor.
Ruling
The petition is granted. The assailed order dated July 29, 1987, is set aside, and the temporary restraining order issued by the Court on August 27, 1987, is made permanent.
Ratio Decidendi
On the first issue: Public respondent acted with grave abuse of discretion amounting to lack or excess of jurisdiction in enforcing private respondents' right of first preference under Article 110 of the Labor Code notwithstanding the absence of bankruptcy, liquidation or insolvency proceedings against RMC. Article 110 of the Labor Code and its implementing rules clearly state that the preferential right of workers applies "in the event of bankruptcy or liquidation of an employer's business." This provision cannot be viewed in isolation and must be reckoned with the Civil Code provisions on concurrence and preference of credits. The rationale for making the application of Article 110 contingent upon bankruptcy or judicial liquidation proceedings is that a preference of credit is only material when the debtor's properties are insufficient to pay debts in full, which necessitates an inventory and liquidation of assets. Such proceedings provide the proper venue for enforcing preferential rights as they are in rem proceedings binding against the whole world. The contention that "bankruptcy" or "liquidation" can be broadly interpreted to cover mere cessation of business operations was previously struck down by this Court in Development Bank of the Philippines vs. Hon. Labor Arbiter Ariel C. Santos. On the second issue: The Order directing petitioner to deliver to the Ministry of Labor and Employment the properties it had foreclosed from RMC violates the basic rule that the power of a court or tribunal in the execution of its judgment extends only over properties unquestionably belonging to the judgment debtor. The records show that petitioner had extra-judicially foreclosed the subject properties from RMC as early as 1983 and purchased them at public auction, with RMC failing to exercise its right to redeem. Therefore, at the time the order for delivery was issued, RMC had ceased to be the absolute owner of the properties. The argument that Article 110 creates an "automatic first lien" predating the foreclosure is a misconception; Article 110 establishes a preference of credit, not a lien. A preference of credit points to the order of payment during bankruptcy, insolvency, or liquidation proceedings and does not create a charge or proprietary interest upon any particular property. It does not vest as a matter of course upon the mere accrual of a money claim, and the debtor can convey good title to third parties free from such preference.
Main Doctrine
The preferential right accorded to employees under Article 110 of the Labor Code is applicable only in cases of bankruptcy or judicial liquidation of the employer's business, and not when the employer's properties have been foreclosed extra-judicially without such proceedings.