GR 86227; (January, 1994) (Digest)
G.R. No. 86227 January 19, 1994
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. THE NATIONAL LABOR RELATIONS COMMISSION and MALAYANG SAMAHAN NG MGA MANGAGAWA SA ATLAS TEXTILE DEVELOPMENT CORPORATION, respondents.
FACTS
The private respondents were employees of Atlas Textile Development Corporation (ATLAS). ATLAS defaulted on its obligations after hypothecating certain assets to the Development Bank of the Philippines (DBP). DBP foreclosed on the mortgage in March 1985 and acquired the mortgaged assets at the foreclosure sale. On October 30, 1985, the private respondents filed claims for wage differentials, illegal salary deductions, separation pay, and other money claims against both ATLAS and DBP. The Labor Arbiter ruled in favor of the private respondents, holding DBP liable along with ATLAS. The National Labor Relations Commission (NLRC) affirmed this decision on appeal by DBP.
ISSUE
Whether the petitioner DBP can be held liable for the monetary claims of the private respondent employees, considering the workers’ preference under Article 110 of the Labor Code in relation to DBP’s mortgage lien.
RULING
The Supreme Court GRANTED the petition and REVERSED and SET ASIDE the assailed decisions of the NLRC and the Labor Arbiter insofar as they held DBP liable for the monetary claims. The Court ruled:
1. Article 110 of the Labor Code, as amended, must be read in conjunction with the Civil Code provisions on classification, concurrence, and preference of credits.
2. These provisions, including Article 110, require judicial proceedings in rem (such as insolvency or liquidation proceedings) for the adjudication of creditors’ claims against the debtor’s assets to become operative. The workers’ right of preference is not a lien on specific property but a preference of credit that must be asserted in such proceedings.
3. Republic Act No. 6715 , which amended Article 110 effective March 21, 1989, expanded the “worker preference” to cover not only unpaid wages but also other monetary claims, to which even government claims are subordinate.
4. The amendatory provisions of Republic Act No. 6715 should only be given prospective application. Since DBP’s mortgage credit antedated the amendatory law by several years, giving it retroactive effect would impair the obligation of contracts. The claims in this case did not accrue after the effectivity of R.A. No. 6715 , and there were no ongoing judicial proceedings in rem for the adjudication of claims.