DEVELOPMENT BANK OF THE PHILIPPINES vs.

THE NATIONAL LABOR

RELATIONS COMMISSION, ONG PENG, ET. AL., (G.R. Nos. 100264-81 January 29,
1993)

FACTS: On November 14, 1986, the private respondents filed with the Provincial Extension
Office of the Department of Labor and Employment (DOLE) in Daet, Camarines Norte
seventeen individual complaints against RHI Republic Hardwood, Inc. (RHI) for unpaid wages
and separation pay. These complaints were thereafter endorsed to the Regional Arbitration
Branch (Branch V of Legaspi City) of the National Labor Relations Commission (NLRC)
since the petitioners had already been terminated from employment. In its position paper
dated March 1987, RHI alleged that it had ceased to operate in 1983 due to the government
ban against tree-cutting.

It further alleged that in May 24, 1981, its sawmill was totally burned resulting in enormous
losses and that due to its financial setbacks, RHI failed to pay its loan with the DBP. RHI
contended that since DBP foreclosed its mortgaged assets on September 24, l985, then any
adjudication of monetary claims in favor of its former employees must be satisfied against
DBP. On October 28, 1988, Executive Labor Arbiter Gelacio Rivera rendered a joint decision
on the complaints in favor of the private respondents. DBP appealed to the NLRC which
rendered a decision on April 15, 1991 affirming the labor arbiter's judgment. DBP filed a
motion for reconsideration which was likewise dismissed by the NLRC on May 17, 1991.

ISSUE: WON the private respondents’ separation pay should be preferred than the DBP’s
lien over the RHI’s mortgaged assets.

HELD:

NO.The amendment of Article 110 of the Labor Code by R.A. No. 6715, is not applicable
since it took effect only on March 21, 1989 hence, cannot therefore be retroactively applied
to, nor can it affect, the mortgage credit which was secured by the petitioner several years
prior to its effectivity.

We ruled in DBP v. NLRC the amendment expands worker preference to cover not only
unpaid wages but also other monetary claims to which even claims of the Government must
be deemed subordinate." Hence, under the new law, even mortgage credits are subordinate to
workers’ claims.

Article 110. Worker preference in case of bankruptcy. (as amended) — In the event of
bankruptcy or liquidation of an employers 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."

It is also stressed that before the workers’ preference provided by Article 110 may be
invoked, there must first be a declaration of bankruptcy or a judicial liquidation of the
employer’s business. (DBP VS SANTOS)
PRIOR TO AMENDMENT:

In Republic v. Peralta, 150 SCRA 37 (1987), the Court held that the term "wages" includes
separation pay and ruled that: Article 110 must be read in relation to the provisions of the
Civil Code concerning the classification, concurrence and preference of credits.

Before amendment, The preference given by Article 110, when not falling within Article
2241 (6) )- (claims for laborers’ wages, on the goods manufactured or the work done) and
Article 2242 (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) of the Civil Code and not attached to any specific property, is an ordinary
preference, which is being the case of the unpaid wages.

As distinguished, . a preference applies only to claims which do not attach to specific

properties. A lien creates a charge on a particular property.
HENCE, DBP’s claim anchored on a mortgage credit (with a right enforceable against whole
world –Article 2176) will be first satisfied. ( BEFORE AMENDMENT)

Article 110, prior to its amendment by Republic Act No. 6715, 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 wages due them for
services rendered during the period prior to the bankruptcy or liquidation, any provision of
law 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. Section 10, Rule VIII, Book
III of the Implementing Rules and Regulations of the Labor Code states: 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. In Republic v. Peralta, 150 SCRA 37 (1987), the Court
held that the term "wages" includes separation pay. But the Court declared: Article 110 of the
Labor Code, in determining the reach of its terms, cannot be viewed in isolation. Rather,
Article 110 must be read in relation to the provisions of the Civil Code concerning the
classification, concurrence and preference of credits, which provisions find particular
application in insolvency proceedings where the claims of all creditors, preferred or
nonpreferred, may be adjudicated in a binding manner.

We have repeatedly stressed that before the workers' preference provided by Article 110 may
be invoked, there must first be a declaration of bankruptcy or a judicial liquidation of the
employer's business. The NLRC, therefore, committed grave abuse of discretion when it
affirmed the labor arbiter's ruling that the workers' preference espoused in Article 110 may be
applied even in the absence of a declaration of bankruptcy or a liquidation order.

G.R. Nos. 100264-81

DEVELOPMENT BANK OF THE PHILIPPINES , Petitioner, v. THE NATIONAL
LABOR RELATIONS COMMISSION, ONG PENG, ET AL., Respondents SUMMARY:
LA: FAVORED THE PETITIONERS WORKERS AND ORDERED RHI AND DBP TO
PAY SEPARATION PAY AND UNPAID WAGES
NLRC: AFFIRMED LA’S DECISION
SC: GRANTED PETITION OF DBP
ANTECEDENTS:

1. Ong Peng and other workers of Republic Hardwood (RHI) , (the private respondents )filed
with the Provincial Extension Office of the Department of Labor and Employment (DOLE)
in Daet, Camarines Norte. On November 14, 1986 seventeen individual complaints against
RHI for unpaid wages and separation pay. These complaints were thereafter endorsed to the
Regional Arbitration Branch (Branch V of Legaspi City) of the National Labor Relations
Commission (NLRC) since the petitioners had already been terminated from employment.
2. RHI alleged the following:
-that it had ceased to operate in 1983 due to the government ban against tree-cutting
- that in May 24, 1981, its sawmill was totally burned resulting in enormous losses and that
due to its financial setbacks, RHI failed to pay its loan with the DBP.
-RHI contended that since DBP foreclosed its mortgaged assets on September 24,1985, then
any adjudication of monetary claims in favor of its former employees must be satisfied
against DBP.
3. On April 29, 1987, the private respondents filed a motion to implead DBP.

4. On July 13, 1987, DBP filed its opposition to said motion.

LABOR ARBITER’S JOINT DECISION

 Ordered Republic Hardwood, Inc. and DBP to jointly and severally pay the workers the
amount of P 59,610.00 as separation pay within ten
(10) days upon receipt of this Decision through this Regional
Arbitration Branch.
 To pay also the amount of P308.00 as deposit fee pursuant to PD 1177
under Budget Circular No. 304 and Secs. 4 8 of Batas Pambansa Big. 230.

APPEAL TO NLRC BY DBP

Affirmed the labor arbiter’s judgment.

DBP filed a motion for reconsideration which was likewise dismissed by the NLRC on May
17,1991

ISSUES:
1. WON the private respondents are entitled to separation pay.
2. WON the private respondents’ separation pay should be preferred than the DBP’s lien
over the RHI’s mortgaged assets.

PETITION FOR CERTIORARI AT SUPREME COURT BY DBP

 Petition is hereby GRANTED

#1 ISSUE:
 Yes workers are entitled to separation pay.
-closure of RHI’s business was not primarily brought about by serious business losses. Such
closure was a consequence of DBP’s foreclosure of RHI’s assets. We therefore apply Article
283 which provides: in cases of closures or cessation of operations of establishment or
undertaking not due to serious business losses or financial reverses, the separation pay shall
be equivalent to one (1) month pay or at least one- half(1/2) month pay for every year of
service, whichever is higher

#2 ISSUE:
NO.The amendment of Article 110 of the Labor Code by R.A. No. 6715, is not applicable since it took
effect only on March 21, 1989 hence, cannot therefore be retroactively applied to, nor can it affect,
the mortgage credit which was secured by the petitioner several years prior to its effectivity.

We ruled in DBP v. NLRC the amendment expands worker preference to cover not only unpaid wages
but also other monetary claims to which even claims of the Government must be deemed
subordinate." Hence, under the new law, even mortgage credits are subordinate to workers’ claims.
Article 110. Worker preference in case of bankruptcy. (as amended) — In the event of bankruptcy or
liquidation of an employers 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."
*It is also stressed that before the workers’ preference provided by Article 110 may be invoked, there
must first be a declaration of bankruptcy or a judicial liquidation of the employer’s business. (DBP VS
SANTOS)

PRIOR TO AMENDMENT:
 In Republic v. Peralta, 150 SCRA 37 (1987), the Court held that the term "wages" includes
separation pay and ruled that: Article 110 must be read in relation to the provisions of the Civil Code
concerning the classification, concurrence and preference of credits.

 Before amendment, The preference given by Article 110, when not falling within Article 2241 (6) )-
(claims for laborers’ wages, on the goods manufactured or the work done) and Article 2242 (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) of the Civil Code and
not attached to any specific property, is an ordinary preference, which is being the case of the unpaid
wages.
As distinguished, . a preference applies only to claims which do not attach to specific properties. A
lien creates a charge on a particular property.
HENCE, DBP’s claim anchored on a mortgage credit (with a right enforceable against whole world –
Article 2176) will be first satisfied.

( BEFORE AMENDMENT) ____________

FURTHER:
 There is no merit to the contention of DBP being deprived of due process. As due process means
the total lack of opportunity to be heard. The petitioner, was given ample opportunity to present its
case with the following acts:
- filed an opposition to the motion to implead it as a party defendant.
-filed a motion for reconsideration of the labor arbiter’s decision.
-filed an appeal with the NLRC and, later on, a motion for reconsideration of the NLRC decision.