Hautea v. National Labor Relations Commission
REITERATIONFacts
The Antecedents: Jose H. Hautea was hired by Calinog-Lambunao Sugarmill, Inc. (CLSMI) in January 1967 and retired in December 1984. On December 2, 1986, Philippine National Bank (PNB) extrajudicially foreclosed the real and personal properties mortgaged by CLSMI. On January 12, 1987, Jose Hautea filed a complaint for separation pay/retirement benefits, damages, and attorney's fees against CLSMI and/or PNB. Notices were sent to CLSMI, and both CLSMI and PNB were declared in default for failure to appear. On February 27, 1987, CLSMI's foreclosed properties were transferred to the Government through the Asset Privatization Trust (APT). On March 12, 1987, the Labor Arbiter ordered CLSMI to pay Jose Hautea P276,000.00. On April 23, 1987, a writ of execution was issued, and Sheriff Adorico Dadivas levied on CLSMI's properties worth P1,500,000.00, which APT/PNB acquired through foreclosure. APT filed a third-party claim, and later joined PNB in a petition for relief with an application for preliminary injunction. Jose Hautea died on July 31, 1987, and was substituted by his wife, Conchita S. Hautea. Procedural History: The National Labor Relations Commission (NLRC) annulled the Labor Arbiter's decision insofar as it affected PNB, citing lack of proper service of summons on PNB and the principle that execution cannot be maintained against properties foreclosed by PNB. The NLRC also vacated the writ of execution and lifted the levy on PNB's properties. The motion for reconsideration was denied. The Petition: Petitioner Hautea sought to nullify the NLRC decision, imputing grave abuse of discretion, arguing that the NLRC erred in strictly applying the Rules of Court on service of summons to the detriment of labor justice and in holding that Jose H. Hautea could not claim coverage under Section 27 of Proclamation No. 50.
Issue(s)
Whether the respondent National Labor Relations Commission erred in applying strictly the provision of the Rules of Court on the service of summons to the detriment of the interest of expeditious labor justice, practicability and convenience, and the related issue of PNB's liability. Whether the respondent National Labor Relations Commission erred in holding that Jose H. Hautea cannot claim coverage under Section 27 of Proclamation No. 50 because work-related benefits will only be extended to employees of companies who are or will be terminated from employment by reason of sale or disposition of the companies' assets, and the related issue of preference of worker's claims versus mortgage credits.
Ruling
The Supreme Court affirmed the questioned decision of the National Labor Relations Commission. The Court held that the mortgage credit of PNB antedated by several years the amendatory law, RA 6715, which became effective on March 21, 1989, and thus, the amendment could not be retroactively applied to affect PNB's mortgage credit. The Court reiterated that a mortgage credit is a special preferred credit under Article 2242 of the Civil Code, while the workers' preference under Article 110 of the Labor Code, prior to its amendment, was an ordinary preferred credit.
Ratio Decidendi
On the issue of service of summons and PNB's liability: The Court found the issue of the validity of the service of summons on PNB to be immaterial. It noted that the Labor Arbiter's decision did not adjudge PNB liable for the judgment debt, but rather ordered CLSMI to pay the separation pay, moral damages, and attorney's fees. PNB was impleaded because it possessed CLSMI's property acquired through foreclosure, and its liability, if any, would attach through the levy on that property. Therefore, the NLRC's nullification of the Labor Arbiter's decision based on a jurisdictional defect of lack of summons was not the primary basis for the resolution of the enforcement issue. On the issue of coverage under Section 27 of Proclamation No. 50 and the preference of worker's claims versus mortgage credits: The Court clarified that Section 27 of Proclamation No. 50 pertains to the entitlement to employment benefits of officers and employees of government corporations whose employment is terminated upon transfer to the Asset Privatization Trust. It does not support the petitioner's submission that the award of employment benefits could be satisfied from the properties of the corporation subject to a lien superior to the workers' preference of credit. The Court emphasized that the judgment ordering CLSMI to pay separation pay had become final, and the core issue was the enforcement of this judgment against APT/PNB as the mortgagee of the foreclosed properties. The Court extensively discussed Article 110 of the Labor Code, both prior to and as amended by Republic Act No. 6715. It cited the case of Development Bank of the Philippines v. NLRC (1990), which held that a mortgage credit is a special preferred credit under Article 2241 of the Civil Code, while the workers' preference is an ordinary preferred credit. The Court reiterated that the amendment by RA 6715, which expands worker preference to cover other monetary claims and makes them subordinate even to government claims, should be given only prospective effect to avoid infringing on the constitutional guarantee of non-impairment of the obligation of contracts. Since PNB's mortgage credit was constituted and foreclosed several years prior to the effectivity of RA 6715, the amendatory law could not be retroactively applied to prejudice PNB's vested rights.
Main Doctrine
A mortgage credit, being a special preferred credit, generally takes precedence over ordinary preferred credits, such as workers' monetary claims, unless the mortgage credit was constituted after the accrual of the workers' claims or unless the amendatory law granting absolute preference to workers' claims (RA 6715) is given retroactive application, which is generally not permissible if it impairs vested rights or contractual obligations.