Development Bank of the Philippines v. National Labor Relations Commission
REITERATIONFacts
The Antecedents: Employees of Atlas Textile Development Corporation (ATLAS) filed a claim for wage differentials, illegal salary deductions, separation pay, and similar money claims against ATLAS and its creditor, Development Bank of the Philippines (DBP). ATLAS had mortgaged its assets to DBP, and DBP foreclosed on the mortgage in March 1985 after ATLAS defaulted. Procedural History: The Labor Arbiter ruled in favor of the employees. The National Labor Relations Commission (NLRC) affirmed the Labor Arbiter's decision on appeal by DBP. The Petition: DBP filed a petition for review on certiorari with the Supreme Court, contending that the NLRC erred in giving worker preference under Article 110 of the Labor Code over DBP's mortgage lien.
Issue(s)
Whether the worker preference under Article 110 of the Labor Code, as amended, prevails over DBP's mortgage lien. Whether the amendatory provisions of Republic Act No. 6715 should be given retroactive effect.
Ruling
The petition is GRANTED. The assailed decision of the National Labor Relations Commission and that of the Labor Arbiter, insofar as the latter holds the petitioner liable for monetary claims of private respondents, are REVERSED and SET ASIDE.
Ratio Decidendi
On the issue of worker preference over mortgage lien: The Court reiterated that Article 110 of the Labor Code, as originally enacted, does not create a lien in favor of workers over all properties of the employer. It does not fall within the category of specially preferred claims under Articles 2241 and 2242 of the Civil Code, except to the extent covered by specific provisions related to goods manufactured or work done. Claims outside these specific provisions are considered ordinary preferred credits under Article 2244. The Court emphasized that the right of preference given to workers under Article 110 cannot exist in an effective way prior to its presentation in distribution proceedings, such as insolvency proceedings, where all creditors are convened and their claims ascertained. The Court found that the case at bench involved monetary claims that were not part of judicial proceedings in rem for the adjudication of creditors' claims against the debtor's assets, nor had such claims accrued after the effectivity of R.A. 6715. Therefore, the issues raised were squarely resolved by previous decisions of the Court. The Court reiterated its holdings that Article 110, as amended, must be read with the Civil Code provisions on preference of credits, requires judicial proceedings in rem to be operative, expands worker preference to other monetary claims. On the effect of the amendment by Republic Act No. 6715: The Court noted that Article 110 was amended by R.A. No. 6715, which expanded worker preference to cover not only unpaid wages but also other monetary claims, making them superior even to claims of the government. However, the Court held that this amendment, despite eliminating the terms "declaration" of bankruptcy or "judicial" liquidation, cannot be viewed in isolation but must be harmonized with the Civil Code scheme on classification and preference of credits and the Insolvency Law. The Court reiterated that for an orderly distribution of an insolvent's assets, there must be a proceeding where all creditors are notified and claims are adjudicated. Furthermore, the Court stressed that even if the amended Article 110 were interpreted as granting "absolute preference," it should only be given prospective effect in line with the cardinal rule that laws have no retroactive effect unless provided otherwise. This prospective application also avoids infringement on the constitutional guarantee of non-impairment of the obligation of contracts, especially since DBP's mortgage credit antedated the amendatory law, and that R.A. 6715 should only be given prospective application.
Main Doctrine
Article 110 of the Labor Code, as amended, must be read in conjunction with the Civil Code provisions on concurrence and preference of credits, and requires judicial proceedings in rem for its operative effect. The amendatory provisions of R.A. No. 6715 are prospective.