G.R. No. 100264 -81 January 29, 1993
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. THE NATIONAL LABOR RELATIONS COMMISSION, ONG PENG, ET. AL., respondents.

FACTS

On November 14, 1986, private respondents filed complaints against Republic Hardwood, Inc. (RHI) for unpaid wages and separation pay. RHI alleged it ceased operations in 1983 due to a government logging ban and suffered enormous losses from a fire in 1981, leading to its failure to pay a loan from petitioner Development Bank of the Philippines (DBP). DBP foreclosed RHI’s mortgaged assets on September 24, 1985. RHI contended any monetary claims by former employees should be satisfied against DBP. The private respondents moved to implead DBP, which DBP opposed. The Executive Labor Arbiter rendered a joint decision ordering RHI and DBP to jointly and severally pay separation pay. The NLRC affirmed this decision. DBP filed a petition for certiorari, asserting its preferential right as a foreclosing creditor and raising issues including denial of due process, entitlement to separation pay, retroactive application of Executive Order No. 81, correct application of Article 110 of the Labor Code, and the basis for ordering a deposit fee.

ISSUE

1. Whether DBP was deprived of procedural due process.
2. Whether the private respondents are entitled to separation pay.
3. Whether there was retroactive application of Executive Order No. 81.
4. Whether the Labor Arbiter and NLRC correctly applied Article 110 of the Labor Code.
5. Whether there was a basis for ordering the payment of a deposit fee.

RULING

1. No, DBP was not deprived of due process. It was given ample opportunity to be heard by filing an opposition to the motion to implead, a motion for reconsideration of the labor arbiter’s decision, an appeal to the NLRC, and a motion for reconsideration of the NLRC decision.
2. Yes, the private respondents are entitled to separation pay. The closure of RHI’s business was not primarily due to serious business losses but was a consequence of DBP’s foreclosure of its assets in 1985, with most private respondents working until the end of 1985. Thus, Article 283 of the Labor Code applies, granting separation pay equivalent to one month pay or at least one-half month pay for every year of service.
3. The Court did not find it necessary to discuss this issue.
4. No, the Labor Arbiter and NLRC incorrectly applied Article 110 of the Labor Code. Under Article 110 prior to its amendment, and its implementing rules, a formal declaration of bankruptcy or a judicial liquidation order is required before workers’ preference may be invoked. No such declaration or order existed here. Furthermore, DBP’s mortgage credit, being a special preferred credit under Article 2242 of the Civil Code, enjoys priority over the workers’ ordinary preferred credit under Article 2244. While R.A. No. 6715 amended Article 110 to expand worker preference to cover other monetary claims and subordinate even government and mortgage credits, this amendment took effect only on March 21, 1989, and cannot be applied retroactively to affect DBP’s mortgage credit secured years earlier.
5. The Court did not find it necessary to discuss this issue.
The petition was GRANTED. The NLRC decision and resolution were SET ASIDE, and the temporary restraining order was made PERMANENT.