Philippine Commercial and Industrial Bank v. National Mines & Allied Workers Union
REITERATIONFacts
1. The Antecedents: The underlying dispute originated from a labor case where the National Mines & Allied Workers' Union (NAMAWU-MIF) obtained a judgment against Philippine Iron Mines, Inc. (PIM) for P4,298,307.77 in severance pay and other benefits. This judgment became final and executory. PIM, facing bankruptcy, had previously obtained clearance from the Minister of Labor to shut down operations, with the condition that workers' rights and benefits under their collective bargaining agreement and the Labor Code would be respected. PIM was a mortgage debtor to Philippine Commercial and Industrial Bank (PCIB) and The Manila Banking Corporation (Manila Bank). Following PIM's failure to meet its obligations, PCIB and Manila Bank foreclosed on their mortgages on December 20, 1975, and subsequently acquired the properties through auction sales, as they were the sole bidders. 2. Procedural History: After the foreclosure sale and acquisition of PIM's properties by PCIB and Manila Bank, these banks sold the mining machinery and equipment to Atlas Consolidated Mining and Development Corporation (Atlas) for P30 million. On April 18, 1979, the National Labor Relations Commission (NLRC), through a Labor Arbiter, granted the union's ex parte motion to garnish P4,298,307.77 from the amount due from Atlas to PCIB and Manila Bank. Atlas complied with the writ of garnishment on the same day, delivering a check for the specified amount to the NLRC sheriff. The union subsequently encashed this check on April 23, 1979, and distributed the proceeds to its members between April 23 and May 5, 1979. The Labor Arbiter approved this distribution on May 12, 1979. 3. The Petition: PCIB and Manila Bank filed a petition for certiorari on April 23, 1979, seeking to annul the NLRC's order of April 18, 1979, and to stop the delivery or payment of the garnished funds. They argued that the NLRC's order constituted a grave abuse of discretion and was issued in excess of jurisdiction because the banks were not parties to the labor case, and the funds garnished were not owed to the judgment debtor (PIM) but were due to the banks from Atlas. The petitioners sought to be held not liable for the garnished amount and for Atlas to remain liable to them for the sum delivered to the sheriff, asserting that the properties sold to Atlas were warranted to be free from liens and encumbrances, and that the workers' claims, while preferential in bankruptcy, should not supersede their rights as secured creditors who foreclosed prior to the NLRC judgment.
Issue(s)
Whether the petition for certiorari has become moot and academic due to the encashment and distribution of the garnished funds. Whether the petitioners, as purchasers of PIM's foreclosed properties and subsequent sellers to Atlas, are liable for the judgment debt owed by PIM to its workers, considering the warranties in the Deed of Sale and the timing of the foreclosure sale versus the NLRC judgment. Whether the workers' claim for wages and benefits enjoys preference over the claims of secured creditors like the petitioners, considering Article 110 of the New Labor Code and the circumstances of PIM's cessation of business.
Ruling
The petition for certiorari is dismissed. The order of garnishment is upheld, and the petitioners are liable for the judgment debt owed by PIM to its workers. The workers' claims for wages and benefits enjoy first preference in case of bankruptcy or liquidation, overriding other creditors, including secured creditors.
Ratio Decidendi
On the issue of mootness: While the prohibitory injunction prayed for was rendered impossible of enforcement due to the encashment and distribution of the garnished funds, the main and real remedy sought by the petitioners was to be absolved from liability for the money paid. Therefore, the case is not moot and academic as the substantive issue of liability remains. On the liability of petitioners for PIM's debt and the timing of foreclosure versus judgment: The petitioners are liable to the Union for the judgment against PIM because the Deed of Sale by which petitioners conveyed PIM's properties to Atlas contained unequivocal warranties that the sellers (petitioners) had full and sufficient title, that the properties were free from all liens and encumbrances, and that Atlas would be held harmless from all claims of NAMAWU. Atlas correctly pointed out that these warranties obligated the petitioners to convey unencumbered title and to hold Atlas free from such claims. The petitioners' attempt to make much of the circumstance that the foreclosure sale predated the NLRC judgment is unavailing because the right of the Union members vested from the date the Minister of Labor approved PIM's application for clearance to shut down operations on May 7, 1975. The NLRC decision was merely confirmatory of this right. Thus, when petitioners acquired PIM's properties in the foreclosure sales, these properties were already encumbered in favor of the Union members by operation of law. Petitioners were aware that they were foreclosing on properties of a debtor who had secured clearance for shutdown due to liquidation and are presumed to know the law on worker preference. From any perspective, the petitioners cannot evade their liability to the Union claimants. They bought the properties with open eyes and sold them knowing they were burdened with the rights of PIM's laborers. The deed of sale explicitly included a warranty that the properties were free from liens and encumbrances. Atlas was therefore justified in withholding the payment to petitioners and instead satisfying the vested right of the laborers of PIM through garnishment, without liability to petitioners for reimbursement. On the preference of workers' claims: The Solicitor General correctly argued that since the NLRC decision arose from PIM's cessation of business due to bankruptcy, its workers enjoy first preference as regards wages due for services rendered prior to bankruptcy or liquidation, as against other creditors like the petitioners. Article 110 of the New Labor Code, as amended, and Section 10, Rule VIII, Book II of the Implementing Rules provide that unpaid wages shall be paid in full before other creditors can establish any claim to share in the employer's assets. The term 'wages' includes all remunerations and benefits, such as severance pay, which enjoy first preference.
Main Doctrine
In cases of bankruptcy or liquidation, workers enjoy first preference as regards wages due for services rendered prior to bankruptcy or liquidation, overriding other creditors, including secured creditors, by operation of law. Furthermore, contractual warranties in a deed of sale, such as freedom from liens and encumbrances, bind the seller to hold the buyer harmless from such claims.