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1.

SEVILLA TRADING COMPANY, petitioner, vs. A.V.A. TOMAS E.


SEMANA, SEVILLA TRADING WORKERS UNION
SUPER, respondents.
D E C I S I O N
PUNO, J .:
On appeal is the Decision
[1]
of the Court of Appeals in CA-G.R. SP No.
63086 dated 27 November 2001 sustaining the Decision
[2]
of Accredited
Voluntary Arbitrator Tomas E. Semana dated 13 November 2000, as well as
its subsequent Resolution
[3]
dated 06 March 2002 denying petitioners Motion
for Reconsideration.
The facts of the case are as follows:
For two to three years prior to 1999, petitioner Sevilla Trading Company
(Sevilla Trading, for short), a domestic corporation engaged in trading
business, organized and existing under Philippine laws, added to the base
figure, in its computation of the 13
th
-month pay of its employees, the amount
of other benefits received by the employees which are beyond the basic
pay. These benefits included:
(a) Overtime premium for regular overtime, legal and special holidays;
(b) Legal holiday pay, premium pay for special holidays;
(c) Night premium;
(d) Bereavement leave pay;
(e) Union leave pay;
(f) Maternity leave pay;
(g) Paternity leave pay;
(h) Company vacation and sick leave pay; and
(i) Cash conversion of unused company vacation and sick leave.
Petitioner claimed that it entrusted the preparation of the payroll to its
office staff, including the computation and payment of the 13
th
-month pay and
other benefits. When it changed its person in charge of the payroll in the
process of computerizing its payroll, and after audit was conducted, it
allegedly discovered the error of including non-basic pay or other benefits in
the base figure used in the computation of the 13
th
-month pay of its
employees. It cited the Rules and Regulations Implementing P.D. No. 851
(13
th
-Month Pay Law), effective December 22, 1975, Sec. 2(b) which stated
that:
Basic salary shall include all remunerations or earnings paid by an employer to an
employee for services rendered but may not include cost-of-living allowances granted
pursuant to P.D. No. 525 or Letter of Instruction No. 174, profit-sharing payments,
and all allowances and monetary benefits which are not considered or integrated as
part of the regular or basic salary of the employee at the time of the promulgation of
the Decree on December 16, 1975.
Petitioner then effected a change in the computation of the thirteenth
month pay, as follows:
13
th
-month pay = net basic pay
12 months
where:
net basic pay = gross pay (non-basic pay or other benefits)
Now excluded from the base figure used in the computation of the thirteenth
month pay are the following:
a) Overtime premium for regular overtime, legal and special holidays;
b) Legal holiday pay, premium pay for special holidays;
c) Night premium;
d) Bereavement leave pay;
e) Union leave pay;
f) Maternity leave pay;
g) Paternity leave pay;
h) Company vacation and sick leave pay; and
i) Cash conversion of unused vacation/sick leave.
Hence, the new computation reduced the employees thirteenth month
pay. The daily piece-rate workers represented by private respondent Sevilla
Trading Workers Union SUPER (Union, for short), a duly organized and
registered union, through the Grievance Machinery in their Collective
Bargaining Agreement, contested the new computation and reduction of their
thirteenth month pay. The parties failed to resolve the issue.
On March 24, 2000, the parties submitted the issue of whether or not the
exclusion of leaves and other related benefits in the computation of 13
th
-
month pay is valid to respondent Accredited Voluntary Arbitrator Tomas E.
Semana (A.V.A. Semana, for short) of the National Conciliation and Mediation
Board, for consideration and resolution.
The Union alleged that petitioner violated the rule prohibiting the
elimination or diminution of employees benefits as provided for in Art. 100 of
the Labor Code, as amended. They claimed that paid leaves, like sick leave,
vacation leave, paternity leave, union leave, bereavement leave, holiday pay
and other leaves with pay in the CBA should be included in the base figure in
the computation of their 13
th
-month pay.
On the other hand, petitioner insisted that the computation of the 13
th
-
month pay is based on basic salary, excluding benefits such as leaves with
pay, as per P.D. No. 851, as amended. It maintained that, in adjusting its
computation of the 13
th
-month pay, it merely rectified the mistake its personnel
committed in the previous years.
A.V.A. Semana decided in favor of the Union. The dispositive portion of
his Decision reads as follows:
WHEREFORE, premises considered, this Voluntary Arbitrator hereby declared that:
1. The company is hereby ordered to include sick leave and vacation leave,
paternity leave, union leave, bereavement leave and other leave with pay in the CBA,
premium for work done on rest days and special holidays, and pay for regular
holidays in the computation of the 13
th
-month pay to all covered and entitled
employees;
2. The company is hereby ordered to pay corresponding backwages to all covered
and entitled employees arising from the exclusion of said benefits in the computation
of 13
th
-month pay for the year 1999.
Petitioner received a copy of the Decision of the Arbitrator on December
20, 2000. It filed before the Court of Appeals, a Manifestation and Motion for
Time to File Petition for Certiorari on January 19, 2001. A month later,
on February 19, 2001, it filed its Petition for Certiorari under Rule 65 of the
1997 Rules of Civil Procedure for the nullification of the Decision of the
Arbitrator. In addition to its earlier allegations, petitioner claimed that
assuming the old computation will be upheld, the reversal to the old
computation can only be made to the extent of including non-basic benefits
actually included by petitioner in the base figure in the computation of their
13
th
-month pay in the prior years. It must exclude those non-basic benefits
which, in the first place, were not included in the original computation. The
appellate court denied due course to, and dismissed the petition.
Hence, this appeal. Petitioner Sevilla Trading enumerates the grounds of
its appeal, as follows:
1. THE DECISION OF THE RESPONDENT COURT TO REVERT TO THE OLD
COMPUTATION OF THE 13
TH
-MONTH PAY ON THE BASIS THAT THE OLD
COMPUTATION HAD RIPENED INTO PRACTICE IS WITHOUT LEGAL BASIS.
2. IF SUCH BE THE CASE, COMPANIES HAVE NO MEANS TO CORRECT
ERRORS IN COMPUTATION WHICH WILL CAUSE GRAVE AND IRREPARABLE
DAMAGE TO EMPLOYERS.
[4]

First, we uphold the Court of Appeals in ruling that the proper remedy from
the adverse decision of the arbitrator is a petition for review under Rule 43 of
the 1997 Rules of Civil Procedure, not a petition for certiorari under Rule
65. Section 1 of Rule 43 states:
RULE 43
Appeals from the Court of Tax Appeals and
Quasi-Judicial Agencies to the Court of Appeals
SECTION 1. Scope. This Rule shall apply to appeals from judgments or final
orders of the Court of Tax Appeals and from awards, judgments, final orders or
resolutions of or authorized by any quasi-judicial agency in the exercise of its quasi-
judicial functions. Among these agencies are the Civil Service Commission, Central
Board of Assessment Appeals, Securities and Exchange Commission, Office of the
President, Land Registration Authority, Social Security Commission, Civil
Aeronautics Board, Bureau of Patents, Trademarks and Technology Transfer,
National Electrification Administration, Energy Regulatory Board, National
Telecommunications Commission, Department of Agrarian Reform under Republic
Act No. 6657, Government Service Insurance System, Employees Compensation
Commission, Agricultural Inventions Board, Insurance Commission, Philippine
Atomic Energy Commission, Board of Investments, Construction Industry Arbitration
Commission, and voluntary arbitrators authorized by law. [Emphasis supplied.]
It is elementary that the special civil action of certiorari under Rule 65 is
not, and cannot be a substitute for an appeal, where the latter remedy is
available, as it was in this case. Petitioner Sevilla Trading failed to file an
appeal within the fifteen-day reglementary period from its notice of the
adverse decision of A.V.A. Semana. It received a copy of the decision of
A.V.A. Semana on December 20, 2000, and should have filed its appeal
under Rule 43 of the 1997 Rules of Civil Procedure on or before January 4,
2001. Instead, petitioner filed on January 19, 2001 a Manifestation and
Motion for Time to File Petition for Certiorari, and on February 19, 2001, it
filed a petition for certiorari under Rule 65 of the 1997 Rules of Civil
Procedure. Clearly, petitioner Sevilla Trading had a remedy of appeal but
failed to use it.
A special civil action under Rule 65 of the Rules of Court will not be a cure
for failure to timely file a petition for review on certiorari under Rule 45 (Rule
43, in the case at bar) of the Rules of Court. Rule 65 is an independent action
that cannot be availed of as a substitute for the lost remedy of an ordinary
appeal, including that under Rule 45 (Rule 43, in the case at bar), especially if
such loss or lapse was occasioned by ones own neglect or error in the choice
of remedies.
[5]

Thus, the decision of A.V.A. Semana had become final and executory
when petitioner Sevilla Trading filed its petition for certiorari on February 19,
2001. More particularly, the decision of A.V.A. Semana became final and
executory upon the lapse of the fifteen-day reglementary period to appeal, or
on January 5, 2001. Hence, the Court of Appeals is correct in holding that it
no longer had appellate jurisdiction to alter, or much less, nullify the decision
of A.V.A. Semana.
Even assuming that the present petition for certiorari under Rule 65 of the
1997 Rules of Civil Procedure is a proper action, we still find no grave abuse
of discretion amounting to lack or excess of jurisdiction committed by A.V.A.
Semana. Grave abuse of discretion has been interpreted to mean such
capricious and whimsical exercise of judgment as is equivalent to lack of
jurisdiction, or, in other words where the power is exercised in an arbitrary or
despotic manner by reason of passion or personal hostility, and it must be so
patent and gross as to amount to an evasion of positive duty or to a virtual
refusal to perform the duty enjoined or to act at all in contemplation of
law.
[6]
We find nothing of that sort in the case at bar.
On the contrary, we find the decision of A.V.A. Semana to be sound, valid,
and in accord with law and jurisprudence. A.V.A. Semana is correct in holding
that petitioners stance of mistake or error in the computation of the thirteenth
month pay is unmeritorious. Petitioners submission of financial statements
every year requires the services of a certified public accountant to audit its
finances. It is quite impossible to suggest that they have discovered the
alleged error in the payroll only in 1999. This implies that in previous years it
does not know its cost of labor and operations. This is merely basic cost
accounting. Also, petitioner failed to adduce any other relevant evidence to
support its contention. Aside from its bare claim of mistake or error in the
computation of the thirteenth month pay, petitioner merely appended to its
petition a copy of the 1997-2002 Collective Bargaining Agreement and an
alleged corrected computation of the thirteenth month pay. There was no
explanation whatsoever why its inclusion of non-basic benefits in the base
figure in the computation of their 13
th
-month pay in the prior years was made
by mistake, despite the clarity of statute and jurisprudence at that time.
The instant case needs to be distinguished from Globe Mackay Cable
and Radio Corp. vs. NLRC,
[7]
which petitioner Sevilla Trading invokes. In that
case, this Court decided on the proper computation of the cost-of-living
allowance (COLA) for monthly-paid employees. Petitioner Corporation,
pursuant to Wage Order No. 6 (effective 30 October 1984), increased the
COLA of its monthly-paid employees by multiplying the P3.00 daily COLA by
22 days, which is the number of working days in the
company. The Union disagreed with the computation, claiming that the daily
COLA rate of P3.00 should be multiplied by 30 days, which has been the
practice of the company for several years. We upheld the contention of the
petitioner corporation. To answer the Unions contention of company practice,
we ruled that:
Payment in full by Petitioner Corporation of the COLA before the execution of the
CBA in 1982 and in compliance with Wage Orders Nos. 1 (26 March 1981) to 5 (11
June 1984), should not be construed as constitutive of voluntary employer practice,
which cannot now be unilaterally withdrawn by petitioner. To be considered as such,
it should have been practiced over a long period of time, and must be shown to have
been consistent and deliberate . . . The test of long practice has been enunciated thus:
. . . Respondent Company agreed to continue giving holiday pay knowing fully
well that said employees are not covered by the law requiring payment of holiday
pay. (Oceanic Pharmacal Employees Union [FFW] vs. Inciong, 94 SCRA 270
[1979])
Moreover, before Wage Order No. 4, there was lack of administrative guidelines for
the implementation of the Wage Orders. It was only when the Rules Implementing
Wage Order No. 4 were issued on 21 May 1984 that a formula for the conversion of
the daily allowance to its monthly equivalent was laid down.
Absent clear administrative guidelines, Petitioner Corporation cannot be faulted for
erroneous application of the law . . .
In the above quoted case, the grant by the employer of benefits through
an erroneous application of the law due to absence of clear administrative
guidelines is not considered a voluntary act which cannot be unilaterally
discontinued. Such is not the case now. In the case at bar, the Court of
Appeals is correct when it pointed out that as early as 1981, this Court has
held in San Miguel Corporation vs. Inciong
[8]
that:
Under Presidential Decree 851 and its implementing rules, the basic salary of an
employee is used as the basis in the determination of his 13
th
-month pay. Any
compensations or remunerations which are deemed not part of the basic pay is
excluded as basis in the computation of the mandatory bonus.
Under the Rules and Regulations Implementing Presidential Decree 851, the
following compensations are deemed not part of the basic salary:
a) Cost-of-living allowances granted pursuant to Presidential Decree 525 and Letter of
Instruction No. 174;
b) Profit sharing payments;
c) All allowances and monetary benefits which are not considered or integrated as part
of the regular basic salary of the employee at the time of the promulgation of the
Decree on December 16, 1975.
Under a later set of Supplementary Rules and Regulations Implementing Presidential
Decree 851 issued by the then Labor Secretary Blas Ople, overtime pay, earnings and
other remunerations are excluded as part of the basic salary and in the computation of
the 13
th
-month pay.
The exclusion of cost-of-living allowances under Presidential Decree 525 and Letter
of Instruction No. 174 and profit sharing payments indicate the intention to strip basic
salary of other payments which are properly considered as fringe
benefits. Likewise, the catch-all exclusionary phrase all allowances and monetary
benefits which are not considered or integrated as part of the basic salary shows also
the intention to strip basic salary of any and all additions which may be in the form of
allowances or fringe benefits.
Moreover, the Supplementary Rules and Regulations Implementing Presidential
Decree 851 is even more empathic in declaring that earnings and other remunerations
which are not part of the basic salary shall not be included in the computation of the
13
th
-month pay.
While doubt may have been created by the prior Rules and Regulations Implementing
Presidential Decree 851 which defines basic salary to include all remunerations or
earnings paid by an employer to an employee, this cloud is dissipated in the later and
more controlling Supplementary Rules and Regulations which categorically, exclude
from the definition of basic salary earnings and other remunerations paid by employer
to an employee. A cursory perusal of the two sets of Rules indicates that what has
hitherto been the subject of a broad inclusion is now a subject of broad exclusion. The
Supplementary Rules and Regulations cure the seeming tendency of the former rules
to include all remunerations and earnings within the definition of basic salary.
The all-embracing phrase earnings and other remunerations which are deemed not
part of the basic salary includes within its meaning payments for sick, vacation, or
maternity leaves, premium for works performed on rest days and special holidays, pay
for regular holidays and night differentials. As such they are deemed not part of the
basic salary and shall not be considered in the computation of the 13
th
-month pay. If
they were not so excluded, it is hard to find any earnings and other remunerations
expressly excluded in the computation of the 13
th
-month pay. Then the exclusionary
provision would prove to be idle and with no purpose.
In the light of the clear ruling of this Court, there is, thus no reason for any
mistake in the construction or application of the law. When petitioner Sevilla
Trading still included over the years non-basic benefits of its employees, such
as maternity leave pay, cash equivalent of unused vacation and sick leave,
among others in the computation of the 13
th
-month pay, this may only be
construed as a voluntary act on its part. Putting the blame on the petitioners
payroll personnel is inexcusable.
In Davao Fruits Corporation vs. Associated Labor Unions, we likewise
held that:
[9]

The Supplementary Rules and Regulations Implementing P.D. No. 851 which put to
rest all doubts in the computation of the thirteenth month pay, was issued by the
Secretary of Labor as early as January 16, 1976, barely one month after the effectivity
of P.D. No. 851 and its Implementing Rules. And yet, petitioner computed and paid
the thirteenth month pay, without excluding the subject items therein until
1981. Petitioner continued its practice in December 1981, after promulgation of the
aforequoted San Miguel decision on February 24, 1981, when petitioner purportedly
discovered its mistake.
From 1975 to 1981, petitioner had freely, voluntarily and continuously included in the
computation of its employees thirteenth month pay, without the payments for sick,
vacation and maternity leave, premium for work done on rest days and special
holidays, and pay for regular holidays. The considerable length of time the
questioned items had been included by petitioner indicates a unilateral and voluntary
act on its part, sufficient in itself to negate any claim of mistake.
A company practice favorable to the employees had indeed been established and the
payments made pursuant thereto, ripened into benefits enjoyed by them. And any
benefit and supplement being enjoyed by the employees cannot be reduced,
diminished, discontinued or eliminated by the employer, by virtue of Sec. 10 of the
Rules and Regulations Implementing P.D. No. 851, and Art. 100 of the Labor Code of
the Philippines which prohibit the diminution or elimination by the employer of the
employees existing benefits. [Tiangco vs. Leogardo, Jr., 122 SCRA 267 (1983)]
With regard to the length of time the company practice should have been
exercised to constitute voluntary employer practice which cannot be
unilaterally withdrawn by the employer, we hold that jurisprudence has not laid
down any rule requiring a specific minimum number of years. In the above
quoted case of Davao Fruits Corporation vs. Associated Labor
Unions,
[10]
the company practice lasted for six (6) years. In another
case, Davao Integrated Port Stevedoring Services vs. Abarquez,
[11]
the
employer, for three (3) years and nine (9) months, approved the commutation
to cash of the unenjoyed portion of the sick leave with pay benefits of its
intermittent workers. While in Tiangco vs. Leogardo, Jr.,
[12]
the employer
carried on the practice of giving a fixed monthly emergency allowance from
November 1976 to February 1980, or three (3) years and four (4) months. In
all these cases, this Court held that the grant of these benefits has ripened
into company practice or policy which cannot be peremptorily withdrawn. In
the case at bar, petitioner Sevilla Trading kept the practice of including non-
basic benefits such as paid leaves for unused sick leave and vacation leave in
the computation of their 13
th
-month pay for at least two (2) years. This, we
rule likewise constitutes voluntary employer practice which cannot be
unilaterally withdrawn by the employer without violating Art. 100 of the Labor
Code:
Art. 100. Prohibition against elimination or diminution of benefits. Nothing in this
Book shall be construed to eliminate or in any way diminish supplements, or other
employee benefits being enjoyed at the time of promulgation of this Code.
IN VIEW WHEREOF, the petition is DENIED. The Decision of the Court of
Appeals in CA-G.R. SP No. 63086 dated 27 November 2001 and its
Resolution dated 06 March 2002 are hereby AFFIRMED.
SO ORDERED.
Quisumbing, Austria-Martinez, and Tinga, JJ., concur.
Callejo, Sr., J., no part.


2.
NESTL PHILIPPINES, INC., petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, EUGENIA C. NUNEZ, LIZA T. VILLANUEVA,
EMMANUEL S. VILLENA, RUDOLPH C. ARMAS, RODOLFO M. KUA and RODOLFO A.
SOLIDUM, respondents.
Siguion Reyna, Montecillo & Ongsiako for petitioner.
Banzuela, Flores, Miralles, Raneses, Sy, Taquio & Associates for private respondents.

GRIO-AQUINO, J .:p
This petition for certiorari seeks a review of the resolutions dated May 28, 1988 and September 1,
1988 of the National Labor Relations Commission (NLRC) in Injunction Case No. 1582 granting the
injunction prayed for by the private respondents, to hold in abeyance the cancellation of their car
loans and payments of the monthly amortizations thereon pending the resolution of their complaints
for illegal dismissal.
The private respondents were employed by the petitioner either as sales representatives or medical
representatives. By reason of the nature of their work they were each allowed to avail of the
company's car loan policy. Under that policy, the company advances the purchase price of a car to
be paid back by the employee through monthly deductions from his salary, the company retaining
the ownership of the motor vehicle until it shall have been fully paid for. All of the private
respondents availed of the petitioner's car loan policy.
On September 14, 1987, private respondents Nuez, Villanueva, Villena and Armas were dismissed
from the service for having participated in an illegal strike. On December 26, 1987, respondents Kua
and Solidum were also dismissed for certain irregularities. All the private respondents filed
complaints for illegal dismissal in the Arbitration Branch of the NLRC. The Labor Arbiter dismissed
their complaints and upheld the legality of their dismissal. They appealed to the NLRC where their
appeals are still pending.
In the Notices of Dismissal which they received from Nestl, the private respondents had been
directed to either settle the remaining balance of the cost of their respective cars, or return them to
the company for proper disposition.
As they failed and refused to avail of either option, the company filed in the Regional Trial Court of
Makati a civil suit to recover possession of the cars. The Court issued an Order dated March 7, 1988
directing the Deputy Sheriff to take the motor vehicles into his custody.
The private respondents sought a temporary restraining order in the NLRC to stop the company from
cancelling their car loans and collecting their monthly amortizations pending the final resolution of
their appeals in the illegal dismissal case.
On May 27, 1988, the NLRC en banc, issued a resolution granting their petition for injunction. Its
order reads:
Acting on the Urgent Petition for the Issuance of a Temporary Restraining Order, the
Commission sitting en banc after deliberation, Resolved to hold in abeyance the
cancellation of the petitioners' car loans and the payment of the monthly
amortizations thereof pending resolution of their illegal dismissal cases. (p. 5, Rollo.)
The company filed a motion for reconsideration, but it was denied for tardiness. Hence, this petition
for certiorarialleging that the NLRC acted with grave abuse of discretion amounting to lack of
jurisdiction when it issued a labor injunction without legal basis and in the absence of any labor
dispute related to the same.
The private respondents, in their comment on the petition, alleged that there is a labor dispute
between the petitioner and the private respondents and that their default in paying the amortizations
for their cars was brought about by their illegal dismissal from work by the petitioner as punishment
for their participation in the illegal strike of the Union of Filipro Employees of which they are
members. If they had not participated in the strike, they would not have been dismissed from work
and they would not have defaulted in the payment of their amortizations. Private respondents
admitted their civil obligation to the petitioner.
The Office of the Solicitor General filed a manifestation on June 13, 1989, stating that "after judicious
scrutiny of the records, . . . and in consonance with the applicable law and jurisprudence on the
matter, the Office of the Solicitor General is convinced that it cannot, without violating the law,
sustain the findings of the National Labor Relations Commission in the case at bar. So as not to
prejudice NLRC's case, the OSG deems it best to refrain from filing its Comment, even as it begs
leave of the Honorable Court to be excused from further appearing in behalf of the NLRC in this
particular case" (p. 173, Rollo).
Filing its own comment, the NLRC argued that as the illegal dismissal case is a labor dispute which
is still pending resolution before it, "it is clothed with authority to issue the contested resolutions
because under the law, PD 442, otherwise known as the Labor Code of the Philippines as amended,
it is vested with the authority to resolve labor disputes" (p. 252, Rollo).
The power of the NLRC to issue writs of injunction is found in Article 218 of the Labor Code, which
provides:
Art. 218 Powers of the Commission. The Commission shall have the power and
authority:
xxx xxx xxx
(e) To enjoin or restrain any actual or threatened commission of any or all prohibited
or unlawful acts or to require the performance of a particular act in any labor
dispute which, if not restrained or performed forthwith, may cause grave or
irreparable damage to any party or render ineffectual any decision in favor of such
party: . . . (Emphasis ours.)
That power, as the statute provides, can only be exercised in a labor dispute. Paragraph (1) of
Article 212 of the Labor Code defines a labor dispute as follows:
(1) "Labor dispute" includes any controversy or matters concerning terms or
conditions of employment or the association or representation of persons in
negotiating, fixing, maintaining, changing or arranging the terms and conditions of
employment, regardless of whether the disputants stand in the proximate relation of
employer and employee.
Nestl's demand for payment of the private respondents' amortizations on their car loans, or, in the
alternative, the return of the cars to the company, is not a labor, but a civil, dispute. It involves
debtor-creditor relations, rather than employee-employer relations.
Petitioner Nestl Philippines, Inc., correctly pointed out that:
The twin directives contained in petitioner's letters to the private respondents to
either (1) settle the remaining balance on the value of their assigned cars under the
company car plan or return the cars to the company for proper disposition; or (2) to
pay all outstanding accountabilities to the company are matters related to the
enforcement of a civil obligation founded on contract. It is not dependent on or
related to any labor aspect under which a labor injunction can be issued. Whether or
not the private respondents remain as employees of the petitioner, there is no
escape from their obligation to pay their outstanding accountabilities to the petitioner;
and if they cannot afford it, to return the cars assigned to them.
As noted, the options given to the private respondents are civil in nature arising from
contractual obligations. There is no labor aspect involved in the enforcement of those
obligations. (p. 7, Rollo.)
The NLRC gravely abused its discretion and exceeded its jurisdiction by issuing the writ of injunction
to stop the company from enforcing the civil obligation of the private respondents under the car loan
agreements and from protecting its interest in the cars which, by the terms of those agreements,
belong to it (the company) until their purchase price shall have been fully paid by the employee. The
terms of the car loan agreements are not in issue in the labor case. The rights and obligations of the
parties under those contracts may be enforced by a separate civil action in the regular courts, not in
the NLRC.
WHEREFORE, the petition for certiorari is granted. The questioned resolution dated May 27, 1988 of
the NLRC in Injunction Case No. 1582 (Annex A) is hereby annulled and set aside. Costs against
the private respondents.
SO ORDERED.

3.
DAVAO FRUITS CORPORATION, petitioner,
vs.
ASSOCIATED LABOR UNIONS (ALU) for in behalf of all the rank-and-file workers/employees
of DAVAO FRUITS CORPORATION and NATIONAL LABOR RELATIONS
COMMISSION, respondents.
Dominguez & Paderna Law Offices for petitioners.
The Solicitor General for public respondents.

QUIASON, J .:
This is a petition for certiorari to set aside the resolution of the National Labor Relations Commission
(NLRC), dismissing for lack of merit petitioner's appeal from the decision of the Labor Arbiter in
NLRC Case No. 1791-MC-X1-82.
On December 28, 1982 respondent Associated Labor Unions (ALU), for and in behalf of all the rank-
and-file workers and employees of petitioner, filed a complaint (NLRC Case No. 1791-MC-XI-82)
before the Ministry of Labor and Employment, Regional Arbitration Branch XI, Davao City, against
petitioner, for "Payment of the Thirteenth-Month Pay Differentials." Respondent ALU sought to
recover from petitioner the thirteenth month pay differential for 1982 of its rank-and-file employees,
equivalent to their sick, vacation and maternity leaves, premium for work done on rest days and
special holidays, and pay for regular holidays which petitioner, allegedly in disregard of company
practice since 1975, excluded from the computation of the thirteenth month pay for 1982.
In its answer, petitioner claimed that it erroneously included items subject of the complaint in the
computation of the thirteenth month pay for the years prior to 1982, upon a doubtful and difficult
question of law. According to petitioner, this mistake was discovered only in 1981 after the
promulgation of the Supreme Court decision in the case of San Miguel Corporation v. Inciong (103
SCRA 139).
A decision was rendered on March 7, 1984 by Labor Arbiter Pedro C. Ramos, in favor of respondent
ALU. The dispositive portion of the decision reads as follows:
WHEREFORE, in view of all the foregoing considerations, judgment is hereby
rendered ordering respondent to pay the 1982 13th month pay differential to all its
rank-and-file workers/employees herein represented by complainant Union (Rollo, p.
32).
Petitioner appealed the decision of the Labor Arbiter to the NLRC, which affirmed the said decision
accordingly dismissed the appeal for lack of merit.
Petitioner elevated the matter to this Court in a petition for review under Rule 45 of the Revised
Rules of Court. This error notwithstanding and in the interest of justice, this Court resolved to treat
the instant petition as a special civil action for certiorari under Rule 65 of the Revised Rules of Court
(P.D. No. 1391, Sec. 5; Rules Implementing P.D. No. 1391, Rule II, Sec. 7; Cando v. National Labor
Relations Commission, 189 SCRA 666 [1990]: Pearl S. Buck Foundation, Inc. v. National Labor
Relations Commission, 182 SCRA 446 [1990]).
The crux of the present controversy is whether in the computation of the thirteenth month pay given
by employers to their employees under P.D.
No. 851, payments for sick, vacation and maternity leaves, premiums for work done on rest days
and special holidays, and pay for regular holidays may be excluded in the computation and payment
thereof, regardless of long-standing company practice.
Presidential Decree No. 851, promulgated on December 16, 1975, mandates all employers to pay
their employees a thirteenth month pay. How this pay shall be computed is set forth in Section 2 of
the "Rules and Regulations Implementing Presidential Decree No. 851," thus:
SECTION 2. . . .
(a) "Thirteenth month pay" shall mean one twelfth (1/12) of the basic salary of an
employee within a calendar year.
(b) "Basic Salary" shall include all renumerations or earnings paid by an employer to
an employee for services rendered but may not include cost of living allowances
granted pursuant to Presidential Decree No. 525 or Letter of Instructions No. 174,
profit-sharing payments, and all allowances and monetary benefits which are not
considered or integrated as part of the regular or basic salary of the employee at the
time of the promulgation of the Decree on December 16, 1975.
The Department of Labor and Employment issued on January 16, 1976 the "Supplementary Rules
and Regulations Implementing P.D. No. 851" which in paragraph 4 thereof further defines the term
"basic salary," thus:
4. Overtime pay, earnings and other renumerations which are not part of the basic
salary shall not be included in the computation of the 13th month pay.
Clearly, the term "basic salary" includes renumerations or earnings paid by the employer to
employee, but excludes cost-of-living allowances, profit-sharing payments, and all allowances and
monetary benefits which have not been considered as part of the basic salary of the employee as of
December 16, 1975. The exclusion of cost-of-living allowances and profit sharing payments shows
the intention to strip "basic salary" of payments which are otherwise considered as "fringe" benefits.
This intention is emphasized in the catch all phrase "all allowances and monetary benefits which are
not considered or integrated as part of the basic salary." Basic salary, therefore does not merely
exclude the benefits expressly mentioned but all payments which may be in the form of "fringe"
benefits or allowances (San Miguel Corporation v. Inciong, supra, at 143-144). In fact, the
Supplementary Rules and Regulations Implementing P.D. No. 851 are very emphatic in declaring
that overtime pay, earnings and other renumerations shall be excluded in computing the thirteenth
month pay.
In other words, whatever compensation an employee receives for an eight-hour work daily or the
daily wage rate in the basic salary. Any compensation or remuneration other than the daily wage
rate is excluded. It follows therefore, that payments for sick, vacation and maternity leaves, premium
for work done on rest days special holidays, as well as pay for regular holidays, are likewise
excluded in computing the basic salary for the purpose of determining the thirteen month pay.
Petitioner claims that the mistake in the interpretation of "basic salary" was caused by the opinions,
orders and rulings rendered by then Acting Labor Secretary Amado C. Inciong, expressly including
the subject items in computing the thirteenth month pay. The inclusion of these items is clearly not
sanctioned under P.D. No. 851, the governing law and its implementing rules, which speak only of
"basis salary" as the basis for determining the thirteenth month pay.
Moreover, whatever doubt arose in the interpretation of P.D. No. 851 was erased by the
Supplementary Rules and Regulations which clarified the definition of "basic salary."
As pointed out in San Miguel Corporation v. Inciong, (supra):
While doubt may have been created by the prior Rules and Regulations and
Implementing Presidential Decree 851 which defines basic salary to include all
remunerations or earnings paid by an employer to an employee, this cloud is
dissipated in the later and more controlling Supplementary Rules and Regulations
which categorically, exclude from the definition of basic salary earnings and other
remunerations paid by employer to an employee. A cursory perusal of the two sets of
Rules indicates that what has hitherto been the subject of broad inclusion is now a
subject of broad exclusion. The Supplementary Rules and Regulations cure the
seeming tendency of the former rules to include all remunerations and earnings
within the definition of basic salary.
The all-embracing phrase "earnings and other remunerations which are deemed not
part of the basic salary includes within its meaning payments for sick, vacation, or
maternity leaves, premium for work performed on rest days and special holidays, pay
for regular holidays and night differentials. As such they are deemed not part of the
basic salary and shall not be considered in the computation of the 13th-month pay. If
they were not so excluded, it is hard to find any "earnings and other remunerations"
expressly excluded in computation of the 13th month-pay. Then the exclusionary
provision would prove to be idle and with purpose.
The "Supplementary Rules and Regulations Implementing P.D. No. 851," which put to rest all doubts
in the computation of the thirteenth month pay, was issued by the Secretary of Labor as early as
January 16, 1976, barely one month after the effectivity of P.D. No. 851 and its Implementing Rules.
And yet, petitioner computed and paid the thirteenth month pay, without excluding the subject items
therein until 1981. Petitioner continued its practice in December 1981, after promulgation of the
afore-quoted San Miguel decision on February 24, 1981, when petitioner purportedly "discovered" its
mistake.
From 1975 to 1981, petitioner had freely, voluntarily and continuously included in the computation of
its employees' thirteenth month pay, the payments for sick, vacation and maternity leaves, premiums
for work done on rest days and special holidays, and pay for regular holidays. The considerable
length of time the questioned items had been included by petitioner indicates a unilateral and
voluntary act on its part, sufficient in itself to negate any claim of mistake.
A company practice favorable to the employees had indeed been established and the payments
made pursuant thereto, ripened into benefits enjoyed by them. And any benefit and supplement
being enjoyed by the employees cannot be reduced, diminished, discontinued or eliminated by the
employer, by virtue of Section 10 of the Rules and Regulations Implementing P.D. No. 851, and
Article 100 of the labor of the Philippines, which prohibit the diminution or elimination by the
employer of the employees' existing benefits (Tiangco v. Leogardo, Jr., 122 SCRA 267, [1983]).
Petitioner cannot invoke the principle of solutio indebiti which as a civil law concept that is not
applicable in Labor Law. Besides, in solutio indebiti, the obligee is required to return to the obligor
whatever he received from the latter (Civil Code of the Philippines, Arts. 2154 and 2155). Petitioner
in the instant case, does not demand the return of what it paid respondent ALU from 1975 until 1981;
it merely wants to "rectify" the error it made over these years by excluding unilaterally from the
thirteenth month pay in 1982 the items subject of litigation. Solutio indebiti, therefore, is not
applicable to the instant case.
WHEREFORE, finding no grave abuse of discretion on the part of the NLRC, the petition is hereby
DISMISSED, and the questioned decision of respondent NLRC is AFFIRMED accordingly.
Cruz, Grio-Aquino, Davide, Jr. and Bellosillo, JJ., concur.
4. DAVAO INTEGRATED PORT STEVEDORING SERVICES, petitioner, vs. RUBEN V.
ABARQUEZ, in his capacity as an accredited Voluntary Arbitrator and THE ASSOCIATION OF
TRADE UNIONS (ATU-TUCP), respondents.
Libron, Gaspar & Associates for petitioner.
Bansalan B. Metilla for Association of Trade Unions (ATUTUCP).
SYLLABUS
1. LABOR LAWS AND SOCIAL LEGISLATION; LABOR RELATIONS; COLLECTIVE BARGAINING
AGREEMENT; DEFINED; NATURE THEREOF; CONSTRUCTION TO BE PLACED THEREON.
A collective bargaining agreement (CBA), as used in Article 252 of the Labor Code, refers to a
contract executed upon request of either the employer or the exclusive bargaining representative
incorporating the agreement reached after negotiations with respect to wages, hours of work and all
other terms and conditions of employment, including proposals for adjusting any grievances or
questions arising under such agreement. While the terms and conditions of a CBA constitute the law
between the parties, it is not, however, an ordinary contract to which is applied the principles of law
governing ordinary contracts. A CBA, as a labor contract within the contemplation of Article 1700 of
the Civil Code of the Philippines which governs the relations between labor and capital, is not merely
contractual in nature but impressed with public interest, thus, it must yield to the common good. As
such, it must be construed liberally rather than narrowly and technically, and the courts must place a
practical and realistic construction upon it, giving due consideration to the context in which it is
negotiated and purpose which it is intended to serve.
2. ID.; ID.; ID.; ID.; ID.; ID.; CASE AT BAR. It is thus erroneous for petitioner to isolate Section 1,
Article VIII of the 1989 CBA from the other related section on sick leave with pay benefits,
specifically Section 3 thereof, in its attempt to justify the discontinuance or withdrawal of the privilege
of commutation or conversion to cash of the unenjoyed portion of the sick leave benefit to regular
intermittent workers. The manner they were deprived of the privilege previously recognized and
extended to them by petitioner-company during the lifetime of the CBA of October 16, 1985 until
three (3) months from its renewal on April 15, 1989, or a period of three (3) years and nine (9)
months, is not only tainted with arbitrariness but likewise discriminatory in nature. It must be noted
that the 1989 CBA has two (2) sections on sick leave with pay benefits which apply to two (2) distinct
classes of workers in petitioner's company, namely: (1) the regular non-intermittent workers or those
workers who render a daily eight-hour service to the company and are governed by Section 1, Article
VIII of the 1989 CBA; and (2) intermittent field workers who are members of the regular labor pool
and the present regular extra labor pool as of the signing of the agreement on April 15, 1989 or
those workers who have irregular working days and are governed by Section 3, Article VIII of the
1989 CBA. It is not disputed that both classes of workers are entitled to sick leave with pay benefits
provided they comply with the conditions set forth under Section 1 in relation to the last paragraph of
Section 3, to wit: (1) the employee-applicant must be regular or must have rendered at least one
year of service with the company; and (2) the application must be accompanied by a certification
from a company-designated physician. the phrase "herein sick leave privilege," as used in the last
sentence of Section 1, refers to the privilege of having a fixed 15-day sick leave with pay which, as
mandated by Section 1, only the non-intermittent workers are entitled to. This fixed 15-day sick leave
with pay benefit should be distinguished from the variable number of days of sick leave, not to
exceed 15 days, extended to intermittent workers under Section 3 depending on the number of
hours of service rendered to the company, including overtime pursuant to the schedule provided
therein. It is only fair and reasonable for petitioner-company not to stipulate a fixed 15-day sick leave
with pay for its regular intermittent workers since, as the term "intermittent" implies, there is
irregularity in their work-days. Reasonable and practical interpretation must be placed on contractual
provisions. Interpetatio fienda est ut res magis valeat quam pereat. Such interpretation is to be
adopted, that the thing may continue to have efficacy rather than fail.
3. ID.; ID.; ID.; SICK LEAVE BENEFITS; NATURE AND PURPOSE. Sick leave benefits, like
other economic benefits stipulated in the CBA such as maternity leave and vacation leave benefits,
among others, are by their nature, intended to be replacements for regular income which otherwise
would not be earned because an employee is not working during the period of said leaves. They are
non-contributory in nature, in the sense that the employees contribute nothing to the operation of the
benefits. By their nature, upon agreement of the parties, they are intended to alleviate the economic
condition of the workers.
4. ID.; ID.; JURISDICTION OF VOLUNTARY ARBITRATOR; CASE AT BAR. Petitioner-
company's objection to the authority of the Voluntary Arbitrator to direct the commutation of the
unenjoyed portion of the sick leave with pay benefits of intermittent workers in his decision is
misplaced. Article 261 of the Labor Code is clear. The questioned directive of the herein public
respondent is the necessary consequence of the exercise of his arbitral power as Voluntary
Arbitrator under Article 261 of the Labor Code "to hear and decide all unresolved grievances arising
from the interpretation or implementation of the Collective Bargaining Agreement." We, therefore,
find that no grave abuse of discretion was committed by public respondent in issuing the award
(decision). Moreover, his interpretation of Sections 1 and 3, Article VIII of the 1989 CBA cannot be
faulted with and is absolutely correct.
5. ID.; CONDITIONS OF EMPLOYMENT; PROHIBITION AGAINST ELIMINATION OR DIMINUTION
OF BENEFITS; BENEFITS GRANTED PURSUANT TO COMPANY PRACTICE OR POLICY
CANNOT BE PEREMPTORILY WITHDRAWN. Whatever doubt there may have been early on
was clearly obliterated when petitioner-company recognized the said privilege and paid its
intermittent workers the cash equivalent of the unenjoyed portion of their sick leave with pay benefits
during the lifetime of the CBA of October 16, 1985 until three (3) months from its renewal on April 15,
1989. Well-settled is it that the said privilege of commutation or conversion to cash, being an existing
benefit, the petitioner-company may not unilaterally withdraw, or diminish such benefits. It is a fact
that petitioner-company had, on several instances in the past, granted and paid the cash equivalent
of the unenjoyed portion of the sick leave benefits of some intermittent workers. Under the
circumstances, these may be deemed to have ripened into company practice or policy which cannot
be peremptorily withdrawn.
D E C I S I O N
ROMERO, J p:
In this petition for certiorari, petitioner Davao Integrated Port Services Corporation seeks to reverse
the Award 1 issued on September 10, 1991 by respondent Ruben V. Abarquez, in his capacity as
Voluntary Arbitrator of the National Conciliation and Mediation Board, Regional Arbitration Branch XI
in Davao City in Case No. AC-211-BX1-10-003-91 which directed petitioner to grant and extend the
privilege of commutation of the unenjoyed portion of the sick leave with pay benefits to its
intermittent field workers who are members of the regular labor pool and the present regular extra
pool in accordance with the Collective Bargaining Agreement (CBA) executed between petitioner
and private respondent Association of Trade Unions (ATU-TUCP), from the time it was discontinued
and henceforth.
The facts are as follows:
Petitioner Davao Integrated Port Stevedoring Services (petitioner-company) and private respondent
ATU-TUCP (Union), the exclusive collective bargaining agent of the rank and file workers of
petitioner-company, entered into a collective bargaining agreement (CBA) on October 16, 1985
which, under Sections 1 and 3, Article VIII thereof, provide for sick leave with pay benefits each year
to its employees who have rendered at least one (1) year of service with the company, thus:
"ARTICLE VIII
Section 1. Sick Leaves The Company agrees to grant 15 days sick leave with pay each year to
every regular non-intermittent worker who already rendered at least one year of service with the
company. However, such sick leave can only be enjoyed upon certification by a company
designated physician, and if the same is not enjoyed within one year period of the current year, any
unenjoyed portion thereof, shall be converted to cash and shall be paid at the end of the said one
year period. And provided however, that only those regular workers of the company whose work are
not intermittent, are entitled to the herein sick leave privilege.
xxx xxx xxx
Section 3. All intermittent field workers of the company who are members of the Regular Labor
Pool shall be entitled to vacation and sick leaves per year of service with pay under the following
schedule based on the number of hours rendered including overtime, to wit:
Hours of Service Per Vacation Sick Leave
Calendar Year Leave
Less than 750 NII NII
751 825 6 days 6 days
826 900 7 7
901 925 8 8
926 1,050 9 9
1,051 1,125 10 10
1,126 1,200 11 11
1,201 1,275 12 12
1,276 1,350 13 13
1,351 1,425 14 14
1,426 1,500 15 15
The conditions for the availment of the herein vacation and sick leaves shall be in accordance with
the above provided Sections 1 and 2 hereof, respectively."
Upon its renewal on April 15, 1989, the provisions for sick leave with pay benefits were reproduced
under Sections 1 and 3, Article VIII of the new CBA, but the coverage of the said benefits was
expanded to include the "present Regular Extra Labor Pool as of the signing of this Agreement."
Section 3, Article VIII, as revised, provides, thus:
"Section 3. All intermittent field workers of the company who are members of the Regular Labor
Pool and present Regular Extra Labor Pool as of the signing of this agreement shall be entitled to
vacation and sick leaves per year of service with pay under the following schedule based on the
number of hours rendered including overtime, to wit:
Hours of Service Per Vacation Sick Leave
Calendar Year Leave
Less than 750 NII NII
751 825 6 days 6 days
826 900 7 7
901 925 8 8
926 1,050 9 9
1,051 1,125 10 10
1,126 1,200 11 11
1,201 1,275 12 12
1,276 1,350 13 13
1,351 1,425 14 14
1,426 1,500 15 15
The conditions for the availment of the herein vacation and sick leaves shall be in accordance with
the above provided Sections 1 and 2 hereof, respectively."
During the effectivity of the CBA of October 16, 1985 until three (3) months after its renewal on April
15, 1989, or until July 1989 (a total of three (3) years and nine (9) months), all the field workers of
petitioner who are members of the regular labor pool and the present regular extra labor pool who
had rendered at least 750 hours up to 1,500 hours were extended sick leave with pay benefits. Any
unenjoyed portion thereof at the end of the current year was converted to cash and paid at the end
of the said one-year period pursuant to Sections 1 and 3, Article VIII of the CBA. The number of
days of their sick leave per year depends on the number of hours of service per calendar year in
accordance with the schedule provided in Section 3, Article VIII of the CBA.
The commutation of the unenjoyed portion of the sick leave with pay benefits of the intermittent
workers or its conversion to cash was, however, discontinued or withdrawn when petitioner-company
under a new assistant manager, Mr. Benjamin Marzo (who replaced Mr. Cecilio Beltran, Jr. upon the
latter's resignation in June 1989), stopped the payment of its cash equivalent on the ground that they
are not entitled to the said benefits under Sections 1 and 3 of the 1989 CBA.
The Union objected to the said discontinuance of commutation or conversion to cash of the
unenjoyed sick leave with pay benefits of petitioner's intermittent workers contending that it is a
deviation from the true intent of the parties that negotiated the CBA; that it would violate the principle
in labor laws that benefits already extended shall not be taken away and that it would result in
discrimination between the non-intermittent and the intermittent workers of the petitioner-company.
Upon failure of the parties to amicably settle the issue on the interpretation of Sections 1 and 3,
Article VIII of the 1989 CBA, the Union brought the matter for voluntary arbitration before the
National Conciliation and Mediation Board, Regional Arbitration Branch XI at Davao City by way of
complaint for enforcement of the CBA. The parties mutually designated public respondent Ruben
Abarquez, Jr. to act as voluntary arbitrator.
After the parties had filed their respective position papers, 2 public respondent Ruben Abarquez, Jr.
issued on September 10, 1991 an Award in favor of the Union ruling that the regular intermittent
workers are entitled to commutation of their unenjoyed sick leave with pay benefits under Sections 1
and 3 of the 1989 CBA, the dispositive portion of which reads:
"WHEREFORE, premises considered, the management of the respondent Davao Integrated Port
Stevedoring Services Corporation is hereby directed to grant and extend the sick leave privilege of
the commutation of the unenjoyed portion of the sick leave of all the intermittent field workers who
are members of the regular labor pool and the present extra pool in accordance with the CBA from
the time it was discontinued and henceforth.
SO ORDERED."
Petitioner-company disagreed with the aforementioned ruling of public respondent, hence, the
instant petition.
Petitioner-company argued that it is clear from the language and intent of the last sentence of
Section 1, Article VIII of the 1989 CBA that only the regular workers whose work are not intermittent
are entitled to the benefit of conversion to cash of the unenjoyed portion of sick leave, thus: ". . . And
provided, however, that only those regular workers of the Company whose work are not intermittent
are entitled to the herein sick leave privilege."
Petitioner-company further argued that while the intermittent workers were paid the cash equivalent
of their unenjoyed sick leave with pay benefits during the previous management of Mr. Beltran who
misinterpreted Sections 1 and 3 of Article VIII of the 1985 CBA, it was well within petitioner-
company's rights to rectify the error it had committed and stop the payment of the said sick leave
with pay benefits. An error in payment, according to petitioner-company, can never ripen into a
practice.
We find the arguments unmeritorious.
A collective bargaining agreement (CBA), as used in Article 252 of the Labor Code, refers to a
contract executed upon request of either the employer or the exclusive bargaining representative
incorporating the agreement reached after negotiations with respect to wages, hours of work and all
other terms and conditions of employment, including proposals for adjusting any grievances or
questions arising under such agreement.
While the terms and conditions of a CBA constitute the law between the parties, 3 it is not, however,
an ordinary contract to which is applied the principles of law governing ordinary contracts. 4 A CBA,
as a labor contract within the contemplation of Article 1700 of the Civil Code of the Philippines which
governs the relations between labor and capital, is not merely contractual in nature but impressed
with public interest, thus, it must yield to the common good. As such, it must be construed liberally
rather than narrowly and technically, and the courts must place a practical and realistic construction
upon it, giving due consideration to the context in which it is negotiated and purpose which it is
intended to serve. 5
It is thus erroneous for petitioner to isolate Section 1, Article VIII of the 1989 CBA from the other
related section on sick leave with pay benefits, specifically Section 3 thereof, in its attempt to justify
the discontinuance or withdrawal of the privilege of commutation or conversion to cash of the
unenjoyed portion of the sick leave benefit to regular intermittent workers. The manner they were
deprived of the privilege previously recognized and extended to them by petitioner-company during
the lifetime of the CBA of October 16, 1985 until three (3) months from its renewal on April 15, 1989,
or a period of three (3) years and nine (9) months, is not only tainted with arbitrariness but likewise
discriminatory in nature. Petitioner-company is of the mistaken notion that since the privilege of
commutation or conversion to cash of the unenjoyed portion of the sick leave with pay benefits is
found in Section 1, Article VIII, only the regular non-intermittent workers and no other can avail of the
said privilege because of the proviso found in the last sentence thereof.
It must be noted that the 1989 CBA has two (2) sections on sick leave with pay benefits which apply
to two (2) distinct classes of workers in petitioner's company, namely: (1) the regular non-intermittent
workers or those workers who render a daily eight-hour service to the company and are governed by
Section 1, Article VIII of the 1989 CBA; and (2) intermittent field workers who are members of the
regular labor pool and the present regular extra labor pool as of the signing of the agreement on
April 15, 1989 or those workers who have irregular working days and are governed by Section 3,
Article VIII of the 1989 CBA.
It is not disputed that both classes of workers are entitled to sick leave with pay benefits provided
they comply with the conditions set forth under Section 1 in relation to the last paragraph of Section
3, to wit: (1) the employee-applicant must be regular or must have rendered at least one year of
service with the company; and (2) the application must be accompanied by a certification from a
company-designated physician.
Sick leave benefits, like other economic benefits stipulated in the CBA such as maternity leave and
vacation leave benefits, among others, are by their nature, intended to be replacements for regular
income which otherwise would not be earned because an employee is not working during the period
of said leaves. 6 They are non-contributory in nature, in the sense that the employees contribute
nothing to the operation of the benefits. 7 By their nature, upon agreement of the parties, they are
intended to alleviate the economic condition of the workers.
After a careful examination of Section 1 in relation to Section 3, Article VIII of the 1989 CBA in light
of the facts and circumstances attendant in the instant case, we find and so hold that the last
sentence of Section 1, Article VIII of the 1989 CBA, invoked by petitioner-company does not bar the
regular intermittent workers from the privilege of commutation or conversion to cash of the
unenjoyed portion of their sick leave with pay benefits, if qualified. For the phrase "herein sick leave
privilege," as used in the last sentence of Section 1, refers to the privilege of having a fixed 15-day
sick leave with pay which, as mandated by Section 1, only the non-intermittent workers are entitled
to. This fixed 15-day sick leave with pay benefit should be distinguished from the variable number of
days of sick leave, not to exceed 15 days, extended to intermittent workers under Section 3
depending on the number of hours of service rendered to the company, including overtime pursuant
to the schedule provided therein. It is only fair and reasonable for petitioner-company not to stipulate
a fixed 15-day sick leave with pay for its regular intermittent workers since, as the term "intermittent"
implies, there is irregularity in their work-days. Reasonable and practical interpretation must be
placed on contractual provisions. Interpetatio fienda est ut res magis valeat quam pereat. Such
interpretation is to be adopted, that the thing may continue to have efficacy rather than fail. 8
We find the same to be a reasonable and practical distinction readily discernible in Section 1, in
relation to Section 3, Article VIII of the 1989 CBA between the two classes of workers in the
company insofar as sick leave with pay benefits are concerned. Any other distinction would cause
discrimination on the part of intermittent workers contrary to the intention of the parties that mutually
agreed in incorporating the questioned provisions in the 1989 CBA.
Public respondent correctly observed that the parties to the CBA clearly intended the same sick
leave privilege to be accorded the intermittent workers in the same way that they are both given the
same treatment with respect to vacation leaves - non-commutable and non-cumulative. If they are
treated equally with respect to vacation leave privilege, with more reason should they be on par with
each other with respect to sick leave privileges. 9 Besides, if the intention were otherwise, during its
renegotiation, why did not the parties expressly stipulate in the 1989 CBA that regular intermittent
workers are not entitled to commutation of the unenjoyed portion of their sick leave with pay
benefits?
Whatever doubt there may have been early on was clearly obliterated when petitioner-company
recognized the said privilege and paid its intermittent workers the cash equivalent of the unenjoyed
portion of their sick leave with pay benefits during the lifetime of the CBA of October 16, 1985 until
three (3) months from its renewal on April 15, 1989. Well-settled is it that the said privilege of
commutation or conversion to cash, being an existing benefit, the petitioner-company may not
unilaterally withdraw, or diminish such benefits. 10 It is a fact that petitioner-company had, on
several instances in the past, granted and paid the cash equivalent of the unenjoyed portion of the
sick leave benefits of some intermittent workers. 11 Under the circumstances, these may be deemed
to have ripened into company practice or policy which cannot be peremptorily withdrawn. 12
Moreover, petitioner-company's objection to the authority of the Voluntary Arbitrator to direct the
commutation of the unenjoyed portion of the sick leave with pay benefits of intermittent workers in
his decision is misplaced. Article 261 of the Labor Code is clear. The questioned directive of the
herein public respondent is the necessary consequence of the exercise of his arbitral power as
Voluntary Arbitrator under Article 261 of the Labor Code "to hear and decide all unresolved
grievances arising from the interpretation or implementation of the Collective Bargaining
Agreement." We, therefore, find that no grave abuse of discretion was committed by public
respondent in issuing the award (decision). Moreover, his interpretation of Sections 1 and 3, Article
VIII of the 1989 CBA cannot be faulted with and is absolutely correct.
WHEREFORE, in view of the foregoing, the petition is DISMISSED. The award (decision) of public
respondent dated September 10, 1991 is hereby AFFIRMED. No costs.
SO ORDERED.
5. and confidence such that if reinstated, it may well lead to strained relations between employer
and employee. Hence, this does not constitute an exception to the general rule mandating
reinstatement for an employee who has been unlawfully dismissed.
On the other hand, has she betrayed any confidence reposed in her by engaging in transactions that
may have created conflict of interest situations? Petitioner GMCR points out that as a matter of
company policy, it prohibits its employees from involving themselves with any company that has
business dealings with GMCR. Consequently, when private respondent Salazar signed as a witness
to the partnership papers of Concave (a supplier of Ultra which in turn is also a supplier of GMCR),
she was deemed to have placed. herself in an untenable position as far as petitioner was concerned.
However, on close scrutiny, we agree with public respondent that such a circumstance did not create
a conflict of interests situation. As a systems analyst, Salazar was very far removed from operations
involving the procurement of supplies. Salazar's duties revolved around the development of systems
and analysis of designs on a continuing basis. In other words, Salazar did not occupy a position of
trust relative to the approval and purchase of supplies and company assets.
In the instant case, petitioner has predicated its dismissal of Salazar on loss of confidence. As we
have held countless times, while loss of confidence or breach of trust is a valid ground for
terminations it must rest an some basis which must be convincingly established.
35
An employee who
not be dismissed on mere presumptions and suppositions. Petitioner's allegation that since Salazar and
Saldivar lived together in the same apartment, it "presumed reasonably that complainant's sympathy
would be with Saldivar" and its averment that Saldivar's investigation although unverified, was probably
true, do not pass this Court's test.
36
While we should not condone the acts of disloyalty of an employee,
neither should we dismiss him on the basis of suspicion derived from speculative inferences.
To rely on the Maramara report as a basis for Salazar's dismissal would be most inequitous because
the bulk of the findings centered principally oh her friend's alleged thievery and anomalous
transactions as technical operations' support manager. Said report merely insinuated that in view of
Salazar's special relationship with Saldivar, Salazar might have had direct knowledge of Saldivar's
questionable activities. Direct evidence implicating private respondent is wanting from the records.
It is also worth emphasizing that the Maramara report came out after Saldivar had already resigned
from GMCR on May 31, 1984. Since Saldivar did not have the opportunity to refute management's
findings, the report remained obviously one-sided. Since the main evidence obtained by petitioner
dealt principally on the alleged culpability of Saldivar, without his having had a chance to voice his
side in view of his prior resignation, stringent examination should have been carried out to ascertain
whether or not there existed independent legal grounds to hold Salatar answerable as well and,
thereby, justify her dismissal. Finding none, from the records, we find her to have been unlawfully
dismissed.
WHEREFORE, the assailed resolution of public respondent National Labor Relations Commission
dated December 29, 1987 is hereby AFFIRMED. Petitioner GMCR is ordered to REINSTATE private
respondent Imelda Salazar and to pay her backwages equivalent to her salary for a period of two (2)
years only.
This decision is immediately executory.
SO ORDERED.
Paras, Bidin, Grio-Aquino, Medialdea, Regalado, Davide, Jr. and Nocon, JJ., concur.
Cruz, J., concurs in the result.
Gutierrez, Jr., Feliciano and Padilla, JJ., took no part.



Separate Opinions

MELENCIO-HERRERA, J ., dissenting:
I believe there is just cause for dismissal per investigative findings. (See Decision, p. 2.)
Narvasa C.J., concurs


Separate Opinions
MELENCIO-HERRERA, J ., dissenting:
I believe there is just cause for dismissal per investigative findings. (See Decision, p. 2.)
Narvasa C.J., concurs

6. MAMERTO B. ASIS, petitioner,
vs.
MINISTER OF LABOR AND EMPLOYMENT, CENTRAL AZUCARERA DE PILAR, and
EMMANUEL JAVELLANA,respondents.
Belo, Ermitano Abiera & Associates for petitioner.
Yolanda, Quisumbing-Javellana & Associates for respondent Emmanuel Q. Javellana.
V. Veloso & Associates for respondent Central Azucarera

NARVASA, J .:
The facts of this case depict a picture that is hardly edifying: avidity trying to wear the mantle of right.
The facts raise a twofold issue: whether a company which has been haled to court by its own in-
house counsel is obliged to continue his employment and entrust its legal affairs to him, specially
when his cause of action has been shown to be devoid of merit; and whether a firm is bound to
retain in its service a personnel manager who has incited the very employees under his supervision
and control to file complaints against it. Asserting a right to sue his employer for a legitimate
grievance without meriting retaliatory action, the petitioner claims that his dismissal for such conduct
or on the ground, essentially, of loss of confidence, was illegal; and he asks this Court to annul the
judgment of the respondent Commission, which upheld the termination of his services in respondent
company. Said claim finds no support in either the law or the established facts and must, therefore,
be rejected.
The petitioner was appointed Legal Counsel of the Central Azucarera de Pilar 1 Later, concurrently with his
position as Legal Counsel, he was named Head of its Manpower and Services Department.
In addition to his basic salaries and other fringe benefits, his employer granted him, and a few other
officials of the company, a monthly ration of 200 liters of gasoline and a small tank of liquefied
petroleum gas (LPG). 2 This monthly ration was temporarily revoked some five (5) years later as a cost reduction measure of the
Central .3 The petitioner and the other officials adversely affected moved for reconsideration. Their plea was denied.
The petitioner then commenced an action against the Central with the Regional Office of the Ministry
of Labor and Employment, seeking restoration of his monthly ration of gasoline and LPG which, as
aforesaid, had been temporarily suspended. The case was docketed as LRD Case No. 1632.
Shortly afterwards, he filed another action against his employer, docketed as LRD Case No. 1685,
this time complaining against the Central's memorandum ordaining his relief (by being placed on
leave of absence) as the Central's Legal Counsel and Head of the Manpower Services Department,
impleaded by the petitioner as co-respondent was Emmanuel Q. Javellana, the Finance Manager
and Comptroller of the Central, who had signed the memorandum for his relief. 4 The petitioner theorized that
he had in effect been dismissed, illegally. 5
The two cases were jointly heard and decided by the Regional Director. The latter's judgments 6 was for the petitioner's reinstatement to his
former positions without loss of seniority, benefits and other privileges, the payment to him of back wages from date of his relief up to time of
reinstatement, and the delivery to him of the monthly benefits from the time of their temporary revocation up to actual restoration or, at his
option, the money equivalent thereof. 7
The Deputy Minister of Labor however reversed this decision of the Regional Director, on appeal
taken by the Central; the Deputy Minister ordered the dismissal of the petitioner's complaint. 8 The
Deputy Minister found that the evidence satisfactorily established that the Central's suspension of the petitioner's and others' monthly ration
of gasoline and LPG, had been caused by unavoidable financial constraints; that such a suspension, in line with its conservation and cost-
saving policy, did not in truth effect any significant diminution of said benefits, since the petitioner was nevertheless entitled to reimbursement
of the actual amount of gas consumed; that petitioner had encouraged his co-employees to file complaints against the Central over the
rations issue, and this, as well as his institution of his own actions, had created an atmosphere of enmity in the Central, and caused the loss
by the Central of that trust and confidence in him so essential in a lawyer-client relationship as that theretofore existing between them; and
that under the circumstances, petitioner's discharge as the Central's Legal Counsel and Head of the Manpower & Services Department was
justified. The Deputy Minister's order of dismissal was however subsequently modified, at the petitioner's instance, by decreeing the payment
to the latter of separation pay equivalent to one month's salary for every year of service rendered. 9
The petitioner theorizes that apart from the fact that the Deputy Minister lacked jurisdiction to
entertain the Central's appeal from the decision of the Regional Director, he had gravely abused his
discretion in reaching his factual conclusions, pejoratively described as guesswork and speculation.
The petitioner's theory of the Deputy Minister's lack of jurisdiction, founded on the tardy payment by
the Central of the appeal fee of P 25.00, is quickly disposed of by simply adverting to our holding
in Del Rosario & Sons Logging Enterprises, Inc. v. NLRC, 10 to wit:
It may be that, as held in Acda vs. MOLE, 119 SCRA 306 [1982], payment of the appeal fee is by no
means a mere technicality but is an essential requirement in the perfection of an appeal. However,
where as in this case, the fee had been paid, unlike in the Acda case, although payment was
delayed, the broader interest of justice and the desired objective of resolving controversies on the
merits demanded that the appeal be given course as, in fact, it was so given by the NLRC. Besides,
it was within the inherent power of the NLRC to have allowed the late payment of the appeal fee.
As regards the temporary revocation of the petitioner's monthly ration of fuel, suffice it to point out
that, as the Solicitor General stresses, this bad been occasioned by force of circumstances affecting
the Central's business. The monthly ration was not a part of his basic salary, and is not indeed found
in any of the management payroll vouchers pertinent to the petitioner. 11 Moreover, the adverse consequences
of the suspension of the monthly rations had been largely if not entirely negated by the Central's undertaking to reimburse the petitioner for
his actual consumption of fuel during the period of suspension. These facts are entirely distinct from those obtaining in the case of States
Marine Corporation and Royal Line, Inc. v. Cebu Seamen's Association, Inc., 12 invoked by petitioner and thus preclude application of the
ruling therein laid down to the case at bar.
A review of the record demonstrates that there is substantial evidence supporting the factual findings
of the respondent Deputy Minister. Said findings, as well as the legal conclusions derived therefrom,
cannot be said to have been rendered with grave abuse of discretion, and will thus be affirmed. In
fine, and as petitioner could not but have realized from the outset, neither he nor any other employee
similarly situated had any legitimate grievance against the Central.
WHEREFORE, the petition is DISMISSED for lack of merit, with costs against petitioner.
Cruz, Gancayco, Grio-Aquino and Medialdea, JJ., concur.

7. LEXAL LABORATORIES and/or JOSE ANGELES, Manager, petitioners,
vs.
NATIONAL CHEMICAL INDUSTRIES WORKERS UNION-PAFLU (Lexal Laboratories Chapter)
and THE COURT OF INDUSTRIAL RELATIONS, respondents.
Matias, Liboro & Benitez for petitioners.
F. M. de los Reyes for respondents.
SANCHEZ, J .:
Condensed, the question before us is this: Are per diems included in backpay? This problem came
about because of the implementation of the decision of the Court of Industrial Relations (CIR) of
June 29, 1963
1
directing petitioner Lexal Laboratories (Lexal) to reinstate Guillermo Ponseca, a
dismissed employee, to his former position "with full back wages from the day of his dismissal up to
the time he is actually reinstated without loss of his seniority rights and of such other rights and
privileges enjoyed by him prior to his lay-off."
CIR, confirming the report of its Chief Examiner and Economist, ruled in its order of February 16,
1965 that Ponseca was entitled to back wages from November 5, 1958 when he ceased reporting
for work, to November 24, 1963 a day prior to his reinstatement on November 25, 1963; and that for
the number of days that he was supposed to be in Manila, he was to earn P4.50 a day, and during
the periods when he should have been in the provinces, P4.50 a day plus a per diem of P4.00 or a
total of P8.50 daily. This order was subsequently modified by CIR's resolution of May 22, 1965 which
directed the deduction of P5,000.00 previously paid Ponseca under the judgment and P610.00
which Ponseca earned from other sources during his lay-off.
Petitioners vigorously objected to the inclusion of the P4.00 per diem in the computation of
Ponseca's back wages because the latter "did not actually spend for his meals and lodgings for he
was all the time in Manila, his station." CIR brushed this contention aside. Whereupon, petitioners
appealed to this Court from the order of February 16, 1965 and the resolution of May 22, 1965.
2

1. Our attention has not been drawn to a rule of law or jurisprudence which holds that per diems are
integral parts of regular wages or salaries. Neither is it suggested in the record that per
diems formed part of the terms of employment between petitioners and respondent union (of which
Ponseca is a member), or with Ponseca himself for that matter. Nor was pronouncement made
either in the original decision or in the questioned order and resolution of CIR that per diems are part
of back wages. CIR simply hit upon the idea that per diems should be paid as part of the back wages
because they were "paid to him regularly."
Per diem, the dictionary definition tells us, is "a daily allowance" given "for each day he (an officer or
employee) was away from his home base".
3
It would seem to us that per diem is intended to cover
the cost of lodging and subsistence of officers and employees when the latter are on duty outside of
their permanent station.
4
Lexal concedes that whenever its employee, Guillermo Ponseca, was out
of Manila, he was allowed a per diem of P4.00 broken down as follows: P1.00 for breakfast; P1.00
for lunch; P1.00 for dinner; and P1.00 for lodging. Ponseca during the period involved did not
leave Manila. Therefore, he spent nothing for meals and lodging outside of Manila. Because he
spent nothing, there is nothing to be reimbursed. Since per diems are in the nature of
reimbursement, Ponseca should not be entitled to per diems.
Besides, back wages are what an employee has lost "in the way of wages" due to his dismissal. So
that, because Ponseca earned P4.50 a day, "then that is the amount which he lost daily by reason of
his dismissal, nothing more nothing less:"
5

We, accordingly, rule that CIR erred in including per diems in the back wages due and payable to
Guillermo Ponseca.
2. The rest is a matter of mathematical computation but first to the facts. The union's evidence is that
since the last part of October, 1958 Ponseca had been reporting everyday to the bodega of
respondents.
6
Anyway, prior to Ponseca's dismissal, he worked daily either in Manila or in the
provinces.
7

But the order of February 15, 1965 credits Ponseca with 1,856 days for the period from November 5,
1958 to November 24, 1963. We checked the accuracy of this figure. We found that there should
only be 1,846 days from November 5, 1958 to November 24, 1963, viz:
November 5, 1958 to December 31, 1958 57 days
January 1, 1959 to December 31, 1959 365 days
January 1, 1960 to December 31, 1960 366 days
January 1, 1961 to December 31, 1961 365 days
January 1, 1962 to December 31, 1962 365 days
January 1, 1963 to November 24, 1963 328 days
T O T A L 1,846 days
This brings us to the total amount due from Lexa1 to Guillermo Ponseca, as follows: .
1,846 days x P4.50

P8,307.00
Less: Advance
payment
P5,000.00

Earnings from other
sources
P610.00
P5,610.00
8

NET BACKPAY P2,697.00 .
For the foregoing reasons, the order of February 16, 1965, and the resolution of May 22, 1965, both
of the Court of Industrial Relations, in its Case No. 2002-ULP, entitled "National Chemical Industries
Workers Union-PAFLU (Lexal Laboratories Chapter), Complainant, versus Lexal Laboratories and
Jose Angeles, its Manager, Respondents", are hereby modified; and
Judgment is hereby rendered ordering petitioner Lexal Laboratories to pay Guillermo Ponseca, by
way of net backpay, the sum of P2,697.00.
No costs. So ordered.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Castro, Angeles, Fernando and Capistrano,
JJ., concur.
Zaldivar, J., is on leave.

8. digest
9. REPUBLIC OF THE PHILIPPINES, represented by the Bureau of Customs and the Bureau of
Internal Revenue, petitioner,
vs.
HONORABLE E.L. PERALTA, PRESIDING JUDGE OF THE COURT OF FIRST INSTANCE OF
MANILA, BRANCH XVII, QUALITY TABACCO CORPORATION, FRANCISCO, FEDERACION
OBRERO DE LA INDUSTRIA TABAQUERA Y OTROS TRABAJADORES DE FILIPINAS
(FOITAF) USTC EMPLOYEES ASSOCIATION WORKERS UNION-PTGWO, respondents.
Oscar A. Pascua for assignee F. Candelaria.
Teofilo C. Villarico for respondent Federation.
Pedro A. Lopez for respondent USTC.

FELICIANO, J .:
The Republic of the Philippines seeks the review on certiorari of the Order dated 17 November 1980
of the Court of First Instance of Manila in its Civil Case No. 108395 entitled "In the Matter of
Voluntary Insolvency of Quality Tobacco Corporation, Quality Tobacco Corporation, Petitioner," and
of the Order dated 19 January 1981 of the same court denying the motion for reconsideration of the
earlier Order filed by the Bureau of Internal Revenue and the Bureau of Customs for the Republic.
In the voluntary insolvency proceedings commenced in May 1977 by private respondent Quality
Tobacco Corporation (the "Insolvent"), the following claims of creditors were filed:
(i) P2,806,729.92, by the USTC Association of Employees and workers Union-PTGWO USTC as
separation pay for their members. This amount plus an additional sum of P280,672.99 as attorney's
fees had been awarded by the National Labor Relations Commission in NLRC Case No. RB-IV-
9775-77. 1
(ii) P53,805.05 by the Federacion de la Industria Tabaquera y Otros Trabajadores de Filipinas
("FOITAF), as separation pay for their members, an amount similarly awarded by the NLRC in the
same NLRC Case.
(iii) P1,085,188.22 by the Bureau of Internal Revenue for tobacco inspection fees covering the
period 1 October 1967 to 28 February 1973;
(iv) P276,161.00 by the Bureau of Customs for customs duties and taxes payable on various
importations by the Insolvent. These obligations appear to be secured by surety bonds.
2
Some of
these imported items are apparently still in customs custody so far as the record before this Court goes.
In its questioned Order of 17 November 1980, the trial court held that the above-enumerated claims
of USTC and FOITAF (hereafter collectively referred to as the "Unions") for separation pay of their
respective members embodied in final awards of the National Labor Relations Commission were to
be preferred over the claims of the Bureau of Customs and the Bureau of Internal Revenue. The trial
court, in so ruling, relied primarily upon Article 110 of the Labor Code which reads thus:
Article 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. Union
paid wages shall be paid in full before other creditors may establish any claim to a
share in the assets of the employer.
The Solicitor General, in seeking the reversal of the questioned Orders, argues that Article 110 of
the Labor Code is not applicable as it speaks of "wages," a term which he asserts does not include
the separation pay claimed by the Unions. "Separation pay," the Solicitor General contends,
is given to a laborer for a separation from employment computed on the basis of the number of
years the laborer was employed by the employer; it is a form of penalty or damage against the
employer in favor of the employee for the latter's dismissal or separation from service.
3

Article 97 (f) of the Labor Code defines "wages" in the following terms:
Wage' paid to any employee shall mean the remuneration or earnings, however
designated, capable of being expressed in terms of money, whether fixed or
ascertained on a time, task, piece, or commission basis, or other method of
calculating the same, which is payable by an employer to an employee under a
written or unwritten contract of employment for work done or to be done, or for
services rendered or to be rendered, and includes the fair and reasonable value, as
determined by the Secretary of Labor, of board, lodging, or other facilities customarily
furnished by the employer to the employee. 'Fair and reasonable value' shall not
include any profit to the employer or to any person affiliated with the
employer.(emphasis supplied)
We are unable to subscribe to the view urged by the Solicitor General. We note, in this connection,
that inPhilippine Commercial and Industrial Bank (PCIB) us. National Mines and Allied Workers
Union,
4
the Solicitor General took a different view and there urged that the term "wages" under Article
110 of the Labor Code may be regarded as embracing within its scope severance pay or termination or
separation pay. In PCIB, this Court agreed with the position advanced by the Solicitor General.
5
We see
no reason for overturning this particular position. We continue to believe that, for the specific purposes of
Article 110 and in the context of insolvency termination or separation pay is reasonably regarded as
forming part of the remuneration or other money benefits accruing to employees or workers by reason of
their having previously rendered services to their employer; as such, they fall within the scope of
"remuneration or earnings for services rendered or to be rendered ." Liability for separation pay
might indeed have the effect of a penalty, so far as the employer is concerned. So far as concerns the
employees, however, separation pay is additional remuneration to which they become entitled because,
having previously rendered services, they are separated from the employer's service. The relationship
between separation pay and services rendered is underscored by the fact that separation pay is
measured by the amount (i.e., length) of the services rendered. This construction is sustained both by the
specific terms of Article 110 and by the major purposes and basic policy embodied in the Labor Code.
6
It
is also the construction that is suggested by Article 4 of the Labor Code which directs that doubts
assuming that any substantial rather than merely frivolous doubts remain-in the interpretation of the
provisions of the labor Code and its implementing rules and regulations shall be "resolved in favor of
labor."
The resolution of the issue of priority among the several claims filed in the insolvency proceedings
instituted by the Insolvent cannot, however, rest on a reading of Article 110 of the labor Code alone.
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 non-preferred, may be
adjudicated in a binding manner.
7
It is thus important to begin by outlining the scheme constituted by
the provisions of the Civil Code on this subject.
Those provisions may be seen to classify credits against a particular insolvent into three general
categories, namely:
(a) special preferred credits listed in Articles 2241 and 2242,
(b) ordinary preferred credits listed in Article 2244; and
(c) common credits under Article 2245.
Turning first to special preferred credits under Articles 2241 and 2242, it should be noted at once
that these credits constitute liens or encumbrances on the specific movable or immovable property
to which they relate. Article 2243 makes clear that these credits "shall be considered as mortgages
or pledges of real or personal property, or liens within the purview of legal provisions governing
insolvency." It should be emphasized in this connection that "duties, taxes and fees due [on specific
movable property of the insolvent] to the State or any subdivision thereof" (Article 2241 [1]) and
"taxes due upon the [insolvent's] land or building (2242 [1])"stand first in preference in respect of the
particular movable or immovable property to which the tax liens have attached. Article 2243 is quite
explicit: "[T]axes mentioned in number 1, Article 2241 and number 1, Article 2242 shall first be
satisfied. " The claims listed in numbers 2 to 13 in Article 2241 and in numbers 2 to 10 in Articles
2242, all come after taxes in order of precedence; such claims enjoy their privileged character as
liens and may be paid only to the extent that taxes have been paid from the proceeds of the specific
property involved (or from any other sources) and only in respect of the remaining balance of such
proceeds. What is more, these other (non-tax) credits, although constituting liens attaching to
particular property, are not preferred one over another inter se. Provided tax liens shall have been
satisfied, non-tax liens or special preferred credits which subsist in respect of specific movable or
immovable property are to be treated on an equal basis and to be satisfied concurrently and
proportionately.
8
Put succintly, Articles 2241 and 2242 jointly with Articles 2246 to 2249 establish a two-
tier order of preference. The first tier includes only taxes, duties and fees due on specific movable or
immovable property. All other special preferred credits stand on the same second tier to be satisfied, pari
passu and pro rata, out of any residual value of the specific property to which such other credits relate.
Credits which are specially preferred because they constitute liens (tax or non-tax) in turn, take
precedence over ordinary preferred credits so far as concerns the property to which the liens have
attached. The specially preferred credits must be discharged first out of the proceeds of the property
to which they relate, before ordinary preferred creditors may lay claim to any part of such proceeds.
9

If the value of the specific property involved is greater than the sum total of the tax liens and other
specially preferred credits, the residual value will form part of the "free property" of the insolvent
i.e., property not impressed with liens by operation of Articles 2241 and 2242. If, on the other hand,
the value of the specific movable or immovable is less than the aggregate of the tax liens and other
specially preferred credits, the unsatisfied balance of the tax liens and other such credits are to the
treated as ordinary credits under Article 2244 and to be paid in the order of preference there set
up. 10
In contrast with Articles 2241 and 2242, Article 2244 creates no liens on determinate property which
follow such property. What Article 2244 creates are simply rights in favor of certain creditors to have
the cash and other assets of the insolvent applied in a certain sequence or order of priority. 11
Only in respect of the insolvent's "free property" is an order of priority established by Article 2244. In
this sequence, certain taxes and assessments also figure but these do not have the same kind of
overriding preference that Articles 2241 No. 1 and 2242 No. I create for taxes which constituted liens
on the taxpayer's property. Under Article 2244,
(a) taxes and assessments due to the national government, excluding those which
result in tax liens under Articles 2241 No. 1 and 2242 No. 1 but including the balance
thereof not satisfied out of the movable or immovable property to which such liens
attached, are ninth in priority;
(b) taxes and assessments due any province, excluding those impressed as tax liens
under Articles 2241 No. 1 and 2242 No. 1, but including the balance thereof not
satisfied out of the movable or immovable property to which such liens attached,
are tenth in priority; and
(c) taxes and assessments due any city or municipality, excluding those impressed
as tax liens under Articles 2241 No. I and 2242 No. 2 but including the balance
thereof not satisfied out of the movable or immovable property to which such liens
attached, are eleventh in priority.
It is within the framework of the foregoing rules of the Civil Code that the question of the relative
priority of the claims of the Bureau of Customs and the Bureau of Internal Revenue, on the one
hand, and of the claims of the Unions for separation pay of their members, on the other hand, is to
be resolved. A related vital issue is what impact Article 110 of the labor Code has had on those
provisions of the Civil Code.
A. Claim of the Bureau of Customs for Unpaid Customs Duties and Taxes-
Under Section 1204 of the Tariff and Customs Code, 12 the liability of an importer
for duties, taxes and fees and other charges attaching on importation constitute a personal debt due
from the importer to the government which can be discharged only by payment in full of all duties,
taxes, fees and other charges legally accruing It also constitutes a lien upon the articles imported
which may be enforced while such articles are in the custody or subject to the control of the
government. (emphasis supplied)
Clearly, the claim of the Bureau of Customs for unpaid customs duties and taxes enjoys the status of
a specially preferred credit under Article 2241, No. 1, of the Civil Code. only in respect of the articles
importation of which by the Insolvent resulted in the assessment of the unpaid taxes and duties, and
which are still in the custody or subject to the control of the Bureau of Customs. The goods imported
on one occasion are not subject to a lien for customs duties and taxes assessed upon other
importations though also effected by the Insolvent. Customs duties and taxes which remain
unsatisfied after levy upon the imported articles on which such duties and taxes are due, would have
to be paid out of the Insolvent's "free property" in accordance with the order of preference embodied
in Article 2244 of the Civil Code. Such unsatisfied customs duties and taxes would fall within Article
2244, No. 9, of the Civil Code and hence would be ninth in priority.
B. Claims of the Bureau of Internal Revenue for Tabacco Inspection Fees
Under Section 315 of the National Internal Revenue Code ("old Tax Code"), 13 later reenacted in Identical
terms as Section 301 of the Tax Code of 1977, 14 an unpaid "internal revenue tax," together with related interest, penalties and costs,
constitutes a lien in favor of the Government from the time an assessment therefor is made and until paid, "upon all property and rights to
property belonging to the taxpayer."
Tobacco inspection fees are specifically mentioned as one of the miscellaneous taxes imposed
under the National Internal Revenue Code, specifically Title VIII, Chapter IX of the old Tax Code and
little VIII, Chapter VII of the Tax Code of 1977. 15 Tobacco inspection fees are collected both for purposes of regulation
and control and for purposes of revenue generation: half of the said fees accrues to the Tobacco Inspection Fund created by Section 12 of
Act No. 2613, as amended by Act No. 3179, while the other half accrues to the Cultural Center of the Philippines. Tobacco inspection fees, in
other words, are imposed both as a regulatory measure and as a revenue-raising measure. In Commissioner of Internal Revenue us.
Guerrero, et al 16 this Court held, through Mr. Chief Justice Concepcion, that the term "tax" is used in Section 315 of the old Tax Code:
not in the limited sense [of burdens imposed upon persons and/or properties, by way
of contributions to the support of the Government, in consideration
of general benefits derived from its operation], but, in a broad sense, encompassing
all government revenues collectible by the Commissioner of Internal Revenue under
said Code, whether involving taxes, in the strict technical sense thereof, or not. x x x
As used in Title IX of said Code, the term 'tax' includes 'any national internal revenue
tax, fee or charge imposed by the Code. 17
It follows that the claim of the Bureau of Internal Revenue for unpaid tobacco inspection fees
constitutes a claim for unpaid internal revenue taxes 18 which gives rise to a tax lien upon all the properties and assets,
movable and immovable, of the Insolvent as taxpayer. Clearly, under Articles 2241 No. 1, 2242 No. 1, and 2246-2249 of the Civil Code, this
tax claim must be given preference over any other claim of any other creditor, in respect of any and all properties of the Insolvent. 19
C. Claims of the Unions for Separation Pay of Their Members
Article 110 of the Labor Code does not purport to create a lien in favor of workers or employees for
unpaid wages either upon all of the properties or upon any particular property owned by their
employer. Claims for unpaid wages do not therefore fall at all within the category of specially
preferred claims established under Articles 2241 and 2242 of the Civil Code, except to the extent
that such claims for unpaid wages are already covered by Article 2241, number 6. "claims for
laborers' wages, on the goods manufactured or the work done;" or by Article 2242, number 3:
"claims of laborers and other workers engaged in the construction, reconstruction or repair of
buildings, canals and other works, upon said buildings, canals or other works." To the extent that
claims for unpaid wages fall outside the scope of Article 2241, number 6 and 2242, number 3, they
would come within the ambit of the category of ordinary preferred credits under Article 2244.
Applying Article 2241, number 6 to the instant case, the claims of the Unions for separation pay of
their members constitute liens attaching to the processed leaf tobacco, cigars and cigarettes and
other products produced or manufactured by the Insolvent, but not to other assets owned by the
Insolvent. And even in respect of such tobacco and tobacco products produced by the Insolvent, the
claims of the Unions may be given effect only after the Bureau of Internal Revenue's claim for unpaid
tobacco inspection fees shall have been satisfied out of the products so manufactured by the
Insolvent.
Article 2242, number 3, also creates a lien or encumbrance upon a building or other real property of
the Insolvent in favor of workmen who constructed or repaired such building or other real property.
Article 2242, number 3, does not however appear relevant in the instant case, since the members of
the Unions to whom separation pay is due rendered services to the Insolvent not (so far as the
record of this case would show) in the construction or repair of buildings or other real property, but
rather, in the regular course of the manufacturing operations of the Insolvent. The Unions' claims do
not therefore constitute a lien or encumbrance upon any immovable property owned by the
Insolvent, but rather, as already indicated, upon the Insolvent's existing inventory (if any of
processed tobacco and tobacco products.
We come to the question of what impact Article 110 of the Labor Code has had upon the complete
scheme of classification, concurrence and preference of credits in insolvency set out in the Civil
Code. We believe and so hold that Article 110 of the Labor Code did not sweep away the overriding
preference accorded under the scheme of the Civil Code to tax claims of the government or any
subdivision thereof which constitute a lien upon properties of the Insolvent. It is frequently said that
taxes are the very lifeblood of government. The effective collection of taxes is a task of highest
importance for the sovereign. It is critical indeed for its own survival. It follows that language of a
much higher degree of specificity than that exhibited in Article 110 of the Labor Code is necessary to
set aside the intent and purpose of the legislator that shines through the precisely crafted provisions
of the Civil Code. It cannot be assumed simpliciter that the legislative authority, by using in Article
110 the words "first preference" and "any provision of law to the contrary notwithstanding" intended
to disrupt the elaborate and symmetrical structure set up in the Civil Code. Neither can it be
assumed casually that Article 110 intended to subsume the sovereign itself within the term "other
creditors" in stating that "unpaid wages shall be paid in full before other creditors may establish any
claim to a share in the assets of employer." Insistent considerations of public policy prevent us from
giving to "other creditors" a linguistically unlimited scope that would embrace the universe of
creditors save only unpaid employees.
We, however, do not believe that Article 110 has had no impact at all upon the provisions of the Civil
Code. Bearing in mind the overriding precedence given to taxes, duties and fees by the Civil Code
and the fact that the Labor Code does not impress any lien on the property of an employer, the use
of the phrase "first preference" in Article 110 indicates that what Article 110 intended to modify is the
order of preference found in Article 2244, which order relates, as we have seen, to property of the
Insolvent that is not burdened with the liens or encumbrances created or recognized by Articles 2241
and 2242. We have noted that Article 2244, number 2, establishes second priority for claims for
wages for services rendered by employees or laborers of the Insolvent "for one year preceding the
commencement of the proceedings in insolvency." Article 110 of the Labor Code establishes "first
preference" for services rendered "during the period prior to the bankruptcy or liquidation, " a period
not limited to the year immediately prior to the bankruptcy or liquidation. Thus, very substantial effect
may be given to the provisions of Article 110 without grievously distorting the framework established
in the Civil Code by holding, as we so hold, that Article 110 of the Labor Code has modified Article
2244 of the Civil Code in two respects: (a) firstly, by removing the one year limitation found in Article
2244, number 2; and (b) secondly, by moving up claims for unpaid wages of laborers or workers of
the Insolvent from second priority to first priority in the order of preference established I by Article
2244.
Accordingly, and by way of recapitulating the application of Civil Code and Labor Code provisions to
the facts herein, the trial court should inventory the properties of the Insolvent so as to determine
specifically: (a) whether the assets of the Insolvent before the trial court includes stocks of
processed or manufactured tobacco products; and (b) whether the Bureau of Customs still has in its
custody or control articles imported by the Insolvent and subject to the lien of the government for
unpaid customs duties and taxes.
In respect of (a), if the Insolvent has inventories of processed or manufactured tobacco products,
such inventories must be subjected firstly to the claim of the Bureau of Internal Revenue for unpaid
tobacco inspection fees. The remaining value of such inventories after satisfaction of such fees (or
should such inspection fees be satisfied out of other properties of the Insolvent) will be subject to a
lien in favor of the Unions by virtue of Article 2241, number 6. In case, upon the other hand, the
Insolvent no longer has any inventory of processed or manufactured product, then the claim of the
Unions for separation pay would have to be satisfied out of the "free property" of the Insolvent under
Article 2244 of the Civil Code. as modified by Article 110 of the Labor Code.
Turning to (b), should the Bureau of Customs no longer have any importations by the Insolvent still
within customs custody or control, or should the importations still held by the Bureau of Customs be
or have become insufficient in value for the purpose, customs duties and taxes remaining unpaid
would have only ninth priority by virtue of Article 2244, number 9. In respect therefore of the
Insolvent's "free property, " the claims of the Unions will enjoy first priority under Article 2244 as
modified and will be paid ahead of the claims of the Bureau of Customs for any customs duties and
taxes still remaining unsatisfied.
It is understood that the claims of the Unions referred to above do not include the 10% claim for
attorney's fees. Attorney's fees incurred by the Unions do not stand on the same footing as the
Unions' claims for separation pay of their members.
WHEREFORE, the petition for review is granted and the Orders dated 17 November 1980 and 19
January 1981 of the trial court are modified accordingly. This case is hereby remanded to the trial
court for further proceedings in insolvency compatible with the rulings set forth above. No
pronouncement as to costs.
SO ORDERED.
Teehankee, C.J., Yap, Fernan, Narvasa, Melencio-Herrera, Gutierrez, Jr., Paras, Gancayco, Padilla,
Bidin, Sarmiento and Cortes, JJ., concur,


Separate Opinions

CRUZ, J ., dissenting:
I regret I cannot give my concurrence to the majority opinion because it reads into the law an
exception that is not there. In so doing, it arrogates for the Court a power rightfully belonging to the
legislature.
It seems to me that the erudite ponencia "doth protest too much. "
The language of the provision in question is clear and categorical. Article 110 of P.D. No. 442 states
quite plainly:
D. 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. (Emphasis mine).
I take the phrase "any provision of law to the contrary notwithstanding" to mean exactly what it says,
I submit that if the law had intended an exception, it would have - and could easily have-provided for
it.
The labor Code was promulgated by President Marcos who, we may assume, was aware of the
usual preference of tax claims. So informed, he would have reserved that primacy in the above
article if that was what he really wanted.
That fact that he did not is to me a certain indication of his true intention, viz., that under the said
article the claims of laborers for unpaid wages shall have priority above all else.
It is axiomatic that the words of a statute are to be given their normal and ordinary connotation. We
cannot read into the law meanings that are not intended and - worse - that are precisely excluded as
in this case.
Moreover, the Labor Code was promulgated later than the Civil Code, the Insolvency Law and the
Internal Revenue Code where the tax claims are preferred. The Labor Code prevails over these
earlier statutes as it represents the later expression of the legislative will.
While I recognize the need for the usual preference of taxes over other claims, I suggest that general
rule must be read in the light of the basic policy embodied in the Labor Code for the protection of the
working class.
The power of taxation, while indispensable, is not absolute and may be subordinated to the
demands of social justice. I for one am not alarmed by the dire prognostication that this would
prejudice the very existence of the state. The amount involved is relatively insubstantial and is not
significant enough as to drain the coffers of the government.
By contrast, that same amount could, without exaggeration, spell the difference between
subsistence and starvation for the laborer and affect the very survival of the faith we hope he still
retains in the concern of the state for his welfare.
Social justice is not a mere catchphrase to be mouthed with sham fervor in Labor Day celebrations
for the delectation and seduction of the working class. It is a mandate we should pursue with energy
and sincerity if we are to truly insure the dignity and well-being of the laborer.
By the decision reached today, I feel the Court has reneged on its hitherto consistent commitment
for the protection of labor under the policy of social justice. It is for me a cause for deep
disappointment.

10. DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and DOROTHY S. ANCHETA, MA.
MAGDALENA Y. ARMARILLE, CONSTANTE A. ANCHETA, CONSTANTE B. BANAYOS,
EVELYN BARRIENTOS, JOSE BENAVIDEZ, LEONARDO BUENAAGUA, BENJAMIN BAROT,
ERNESTO S. CANTILLER, EDUARDO CANDA, ARMANDO CANDA, AIDA DE LUNA, PACIFICO
M. DE JESUS, ALFREDO ESTRERA, AURELIO A. FARINAS, FRANCISCO GREGORIO,
DOMELINA GONZALES, JUANA JALANDONI, MANUEL MALUBAY, FELICIANO OCAMPO,
MABEL PADO, GEMINIANO PLETA, ERNESTO S. SALAMAT, JULIAN TRAQUENA, JUSFIEL
SILVERIO, JAMES CRISTALES, FRANCISCO BAMBIO, JOSE T. MARCELO, JR., SUSAN M.
OLIVAR, ERNESTO JULIO, CONSTANTE ANCHETA, JR., ENRIQUE NABUA and JAVIER P.
MATARO, respondents.
The Legal Counsel for petitioner.
CA. Ancheta & C.B. Banayos for private respondents.

REGALADO, J .:
The present petition for certiorari seeks the reversal of the decision of the National Labor
Relations Commission (NLRC) in, NLRC-NCR Case No. 00-07-02500-87, dated January 16,
1986,
1
which dismissed the appeal of the Development Bank of the Philippines (DBP) from the
decision of the labor arbiter ordering it to pay the unpaid wages, 13th month pay, incentive pay
and separation pay of herein private respondents.
Philippine Smelters Corporation (PSC), a corporation registered under Philippine law,
obtained a loan in 1983 from the Development Bank of the Philippines, a government-owned
financial institution created and operated in accordance with Executive Order No. 81, to
finance its iron smelting and steel manufacturing business. To secure said loan, PSC
mortgaged to DBP real properties with all the buildings and improvements thereon and
chattels, with its President, Jose T. Marcelo, Jr., as co-obligor.
By virtue of the said loan agreement, DBP became the majority stockholder of PSC, with
stockholdings in the amount of P31,000,000.00 of the total P60,226,000.00 subscribed and
paid up capital stock. Subsequently, it took over the management of PSC.
When PSC failed to pay its obligation with DBP, which amounted to P75,752,445.83 as of
March 31, 1986, DBP foreclosed and acquired the mortgaged real estate and chattels of PSC
in the auction sales held on February 25, 1987 and March 4, 1987.
On February 10, 1987, forty (40) petitioners filed a Petition for Involuntary Insolvency in the
Regional Trial Court, Branch 61 at Makati, Metropolitan Manila, docketed therein as Special
Proceeding No. M-1359,
2
against PSC and DBP, impleading as co-respondents therein Olecram
Mining Corporation, Jose Panganiban Ice Plant and Cold Storage, Inc. and PISO Bank, with said
petitioners representing themselves as unpaid employees of said private respondents, except
PISO Bank.
On February 13, 1987, herein private respondents filed a complaint with the Department of
Labor against PSC for nonpayment of salaries, 13th month pay, incentive leave pay and
separation pay. On February 20, 1987, the complaint was amended to include DBP as party
respondent. The case was thereafter indorsed to the Arbitration Branch of the National Labor
Relations Commission (NLRC). DBP filed its position paper on September 7, 1987, invoking
the absence of employer-employee relationship between private respondents and DBP and
submitting that when DBP foreclosed the assets of PSC, it did so as a foreclosing creditor.
On January 30, 1988, the labor arbiter rendered a decision, the dispositive portion of which
directed that "DBP as foreclosing creditor is hereby ordered to pay all the unpaid wages and
benefits of the workers which remain unpaid due to PSC's foreclosure."
3

On appeal by DBP, the NLRC sustained the ruling of the labor arbiter, holding DBP liable for
unpaid wages of private respondents "not as a majority stockholder of respondent PSC, but
as the foreclosing creditor who possesses the assets of said PSC by virtue of the auction
sale it held in 1987." In addition, the NLRC held that the labor arbiter is correct in assuming
jurisdiction because "the worker's preference to the amount secured by DBP by virtue of said
foreclosure sales of PSC properties arose out of or are connected or interwoven with the
labor dispute brought forth by appellees against PSC and DBP.
4
Hence, the present petition by
DBP.
DBP contends that the labor arbiter and the NLRC committed a grave abuse of discretion (1)
in assuming jurisdiction over DBP; (2) in applying the provisions of Article 110 of the Labor
Code, as amended; and (3) in not enforcing and applying Section 14 of Executive Order No.
81.
We find merit in the petition.
It is to be noted that in their comment, private respondents tried to prove the existence of
employer-employee relationship based on the fact that DBP is the majority stockholder of
PSC and that the majority of the members of the board of directors of PSC are from DBP.
5
We
do not believe that these circumstances are sufficient indicia of the existence of an employer-
employee relationship as would confer jurisdiction over the case on the labor arbiter, especially in
the light of the express declaration of said labor arbiter and the NLRC that DBP is being held liable
as a foreclosing creditor. At any rate, this jurisdictional defect was cured when DBP appealed the
labor arbiter's decision to the NLRC and thereby submitted to its jurisdiction.
The pivotal issue for resolution is whether DBP, as foreclosing creditor, could be held liable
for the unpaid wages, 13th month pay, incentive leave pay and separation pay of the
employees of PSC.
We rule in the negative.
During the dates material to the foregoing proceedings, Article 110 of the Labor Code read:
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.
In conjunction therewith, Section 10, Rule VIII, Book III of the Implementing Rules and
Regulations of the Labor Code provided:
Sec. 10. Payment of wages in mm 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.
Interpreting the above provisions, this Court, in Development Bank of the Philippines vs.
Hon. Labor Arbiter Ariel C. Santos, et al.,
6
explicated as follows:
It is quite clear from the provisions that a declaration of bankruptcy or a
judicial liquidation must be present before the worker's preference may be
enforced. ... .
xxx xxx xxx
Moreover, the reason behind the necessity for a judicial proceeding or a
proceeding in rem before the concurrence and preference of credits may be
applied was explained by this Court in the case of Philippine Savings Bank v.
Lantin (124 SCRA 476 [1983]). We said:
The proceedings in the court below do not partake of the nature
of the insolvency proceedings or settlement of a decedent's
estate. The action filed by Ramos was only to collect the unpaid
cost of the construction of the duplex apartment. It is far from
being a general liquidation of the estate of the Tabligan spouses.
Insolvency proceedings and settlement of a decedent's estate
are both proceedings in rem which are binding against the
whole world. All persons having interest in the subject matter
involved, whether they were notified or not, are equally bound.
Consequently, a liquidation of similar import or 'other equivalent
general liquidation must also necessarily be a proceeding in rem
so that all interested persons whether known to the parties or
not may be bound by such proceeding.
In the case at bar, although the lower court found that 'there
were no known creditors other than the plaintiff and the
defendant herein,' this can not be conclusive. It will not bar other
creditors in the event they show up and present their claim
against the petitioner bank, claiming that they also have
preferred liens against the property involved. Consequently,
Transfer Certificate of Title No. 101864 issued in favor of the
bank which is supposed to be indefeasible would remain
constantly unstable and questionable. Such could not have been
the intention of Article 2243 of the Civil Code although it
considers claims and credits under Article 2242 as statutory
fines. Neither does the De Barreto case ...
The claims of all creditors whether preferred or non- preferred, the
Identification of the preferred ones and the totality of the employer's asset
should be brought into the picture. There can then be an authoritative, fair, and
binding adjudication instead of the piece meal settlement which would result
from the questioned decision in this case.
Republic Act No. 6715, which took effect on March 21, 1989, amended Article 110 of the Labor
Code to read as follows:
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 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.
As a consequence, Section 1 0, Rule VIII, Book III of the Implementing Rules and Regulations
of the Labor Code was likewise amended, to wit:
Sec. 10. Payment of wages and other monetary claims in case of bankruptcy.
In case of bankruptcy or liquidation of the employer's business, the unpaid
wages and other monetary claims of the employees shall be given first
preference and shall be paid in full before the claims of government and other
creditors may be paid.
Despite said amendments, however, the same interpretation of Article 110 as applied in the
aforesaid case of Development Bank of the Philippines vs. Hon. Labor Arbiter Ariel C. Santos,
et al., supra, was adopted by this Court in the recent case of Development Bank of the
Philippines vs. National Labor Relations Commission, et. al.,
7
For facility of reference,
especially the rationalization for the conclusions reached therein, we reproduce the salient
portions of the decision in this later case.
Notably, the terms "declaration" of bankruptcy or "judicial" liquidation have
been eliminated. Does this means then that liquidation proceedings have been
done away with?
We opine m the negative, upon the following considerations:
1. Because of its impact on the entire system of credit, Article 110 of the Labor
Code cannot be viewed in isolation but must be read in relation to the Civil
Code scheme on classification and preference of credits.
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 non-preferred, may
be adjudicated in a binding manner ... (Republic vs. Peralta (G.R.
No. L-56568, May 20, 1987, 150 SCRA 37).
2. In the same way that the Civil Code provisions on classification of credits
and the Insolvency Law have been brought into harmony, so also must the
kindred provisions of the Labor Law be made to harmonize with those laws.
3. In the event of insolvency, a principal objective should be to effect an
equitable distribution of the insolvent's property among his creditors. To
accomplish this there must first be some proceeding where notice to all of the
insolvent's creditors may be given and where the claims of preferred creditors
may be bindingly adjudicated (De Barretto vs. Villanueva, No. L-14938,
December 29, 1962, 6 SCRA 928). The rationale therefor has been expressed in
the recent case of DBP vs. Secretary of Labor (G.R. No. 79351, 28 November
1989), which we quote:
A preference of credit bestows upon the preferred creditor an
advantage of having his credit satisfied first ahead of other
claims which may be established against the debtor. Logically, it
becomes material only when the properties and assets of the
debtors are insufficient to pay his debts in full; for if the debtor
is amply able to pay his various creditors, in full, how can the
necessity exist to determine which of his creditors shall be paid
first or whether they shall be paid out of the proceeds of the sale
of the debtor's specific property? Indubitably, the preferential
right of credit attains significance only after the properties of the
debtor have been inventoried and liquidated, and the claims held
by his various creditors have been established (Kuenzle & Streiff
[Ltd.] vs. Villanueva, 41 Phil. 611 [1916]; Barretto vs. Villanueva,
G.R. No. 14038, 29 December 1962, 6 SCRA 928; Philippine
Savings Bank vs. Lantin, G.R. 33929, 2 September 1983,124
SCRA 476).
4. A distinction should be made between a preference of credit and a lien. A
preference applies only to claims which do not attach to specific properties. A
hen creates a charge on a particular property. The right of first preference as
regards unpaid wages recognize by Article 110 does not constitute a hen on
the property of the insolvent debtor in favor of workers. It is but a preference of
credit in their favor, a preference in application. It is a met-hod adopted to
determine and specify the order in which credits should be paid in the final
distribution of the proceeds of the insolvent's assets- It is a right to a first
preference in the discharge of the funds of the judgment debtor. in the words
of Republic vs. Peralta,supra:
Article 110 of the Labor Code does not purport to create a lien in
favor of workers or employees for unpaid wages either upon all
of the properties or upon any particular property owned by their
employer. Claims for unpaid wages do not therefore fall at all
within the category of specially preferred claims established
under Articles 2241 and 2242 of the Civil Code, except to the
extent that such claims for unpaid wages are already covered by
Article 2241, number 6: 'claims for laborers' wages, on the
goods manufactured or the work done; or by Article 2242,
number 3: 'claims of laborers and other workers engaged in the
construction, reconstruction or repair of buildings, canals and
other works, upon said buildings, canals or other works.' To the
extent that claims for unpaid wages fall outside the scope of
Article 2241, number 6 and Article 2242, number 3, they would
come within the ambit of the category of ordinary preferred
credits under Article 2244.'
5. The DBP anchors its claim on a mortgage credit. A mortgage directly and
immediately subjects the property upon which it is imposed, whoever the
possessor may be, to the fulfillment of the obligation for whose security it was
constituted (Article 2176, Civil Code). It creates a real right which is
enforceable against the whole world. It is a lien on an Identified immovable
property, which a preference is not. A recorded mortgage credit is a special
preferred credit under Article 2242 (5) of the Civil Code on classification of
credits. The preference given by Article 110, when not falling within Article
2241 (6) and Article 2242 (3) of the Civil Code and not attached to any specific
property, is an ordinary preferred credit although its impact is to move it from
second priority to first priority in the order of preference established by Article
2244 of the Civil Code (Republic vs. Peralta, supra).
In fact, under the Insolvency Law (Section 29) a creditor holding a mortgage or
hen of any kind as security is not permitted to vote in the election of the
assignee in insolvency proceedings unless the value of his security is first
fixed or he surrenders all such property to the receiver of the insolvent's
estate.
6. Even if Article 110 and its Implementing Rule, as amended, should be
interpreted to mean 'absolute preference,' the same should be given only
prospective effect in line with the cardinal rule that laws shall have no
retroactive effect, unless the contrary is provided (Article 4, Civil Code).
Thereby, any infringement on the constitutional guarantee on non-impairment
of obligation of contracts (Section 10, Article III, 1987 Constitution) is also
avoided. In point of fact, DBP's mortgage credit antedated by several years the
amendatory law, RA No. 6715. To give Article 110 retroactive effect would be to
wipe out the mortgage in DBPs favor and expose it to a risk which it sought to
protect itself against by requiring a collateral in the form of real property.
In fine, the right to preference given to workers under Article 110 of the Labor
Code cannot exist in any effective way prior to the time of its presentation in
distribution proceedings. It will find application when, in proceedings such as
insolvency, such unpaid wages shall be paid in full before the 'claims of the
Government and other creditors' may be paid. But, for an orderly settlement of
a debtor's assets, all creditors must be convened, their claims ascertained and
inventoried, and thereafter the preference determined in the course of judicial
proceedings which have for their object the subjection of the property of the
debtor to the payment of his debts or other lawful obligations. Thereby, an
orderly determination of preference of creditors' claims is assured (Philippine
Savings Bank vs. Lantin, No. L-33929, September 2, 1983, 124 SCRA 476); the
adjudication made will be binding on all parties-in-interest, since those
proceedings are proceedings in rem; and the legal scheme of classification,
concurrence and preference of credits in the Civil Code, the Insolvency Law,
and the Labor Code is preserved in harmony.
On the foregoing considerations and it appearing that an involuntary insolvency proceeding
has been instituted against PSC, private respondents should properly assert their respective
claims in said proceeding. .
WHEREFORE, the petition is GRANTED. The decision of public respondent is hereby
ANNULLED and SET ASIDE.
SO ORDERED.
Melencio-Herrera (Chairperson) and Paras, J J ., concur.


Separate Opinions

SARMIENTO, J ., dissenting:
As I held in DBP v. NLRC
1
and more recently, in Bolinao v. Padolina,
2
that on account of the
amendment introduced by Republic Act No. 6715, workers now enjoy "absolute preference" in the
payment of labor claims, above and beyond taxes due from the Government, and credits
belonging to private persons. As I said therein, Republic Act No. 6715 was enacted, precisely, to
work more favorable terms to labor-because prior to the amendment, labor enjoyed no preference.
I am afraid that the majority has misread the clear intent of the legislature.

PADILLA, J ., dissenting:
I dissent for the same reasons stated in my dissenting opinion in DBP vs. NLRC, et al., G.R.
Nos. 82763-64,19 March 1990.


Separate Opinions
SARMIENTO, J ., dissenting:
As I held in DBP v. NLRC
1
and more recently, in Bolinao v. Padolina,
2
that on account of the
amendment introduced by Republic Act No. 6715, workers now enjoy "absolute preference" in the
payment of labor claims, above and beyond taxes due from the Government, and credits
belonging to private persons. As I said therein, Republic Act No. 6715 was enacted, precisely, to
work more favorable terms to labor-because prior to the amendment, labor enjoyed no preference.
I am afraid that the majority has misread the clear intent of the legislature.

PADILLA, J ., dissenting:
I dissent for the same reasons stated in my dissenting opinion in DBP vs. NLRC, et al., G.R.
Nos. 82763-64,19 March 1990.

12. A.N. BOLINAO, JR., JUAN A. AGSALON, JR., ZOSIMO L. CARREON AND REYNOLD P.
DANNUG, petitioners,
vs.
HON. MANUEL S. PADOLINA, PHELPS DODGE (PHILS.) INC., BANK OF AMERICA, AND
DEPUTY SHERIFF CARLOS G. MAOG, respondents.
A.N. Bolinao, Jr. for petitioners.
Mina & Associates for respondents.
Agcaoili & Associates for respondent BA.

PARAS, J .:
This is a petition for certiorari with preliminary injunction which seeks to reverse and to set aside the
order of the Regional Trial Court of Pasig, Metro Manila, dated January 5, 1988 in Civil Case No.
50936 entitled "Phelps Dodge (Phils.) Inc. v. Sabena Mining Corporation" denying the motion to
intervene and dismissing the third party claim filed by herein petitioners.
As gathered from the records, the facts of the case are as follows:
Petitioners A.N. Bolinao, Jr., Reynold P. Dannug, Juan A. Agsalon, Jr. and Zosimo L. Carreon were
all former employees of Sabena Mining Corporation, which had a copper and gold project in
operation, located in New Bataan, Davao del Norte. In 1982 and 1983 they were laid off without
being recalled (Rollo, Petition, pp. 3-4).
In September, 1983, petitioners filed a formal complaint for collection of unpaid salaries, unused
accrued vacation and sick leave benefits, 13th month pay and separation pay before the National
Labor Relations Commission (NLRC) against Sabena Mining Corporation and Development Bank of
the Philippines docketed as NCR Case No. 9-4178-83 (Rollo, Petition, p. 5).
On May 29,1984, a compromise agreement was entered into by the parties, wherein petitioners
were to be paid on a staggered basis the collective amount of P385,583.95 (Rollo, Petition, Annex
"A, pp. 22-24). The company faithfully complied with the scheduled payments only up to March,
1985 because it ceased operations effective April 1, 1985. With this development, petitioners moved
for the issuance of a writ of execution in June, 1985 (Rollo, Petition, p. 6).
In an order dated June 21, 1985, the Labor Arbiter issued a writ of execution against the company to
collect the balance of P311,580.14 (Rollo, Annex "B", pp. 25-26). On June 27, 1985 Deputy Sheriff
Antonio P. Soriano garnished the remaining amount of P150,279.64 in the savings account of the
company at the Development Bank of the Philippines (DBP) (Rollo, Annex "B-1 ", p. 27). However,
the same amount was previously garnished by two creditors of the company; namely, Bank of
America and Phelps Dodge (Phils.), Inc. Bank of America garnished the amount in April, 1982 in
Civil Case No. 45452 (Rollo, Petition , pp. 4-5 while Phelps Dodge garnished the amount in June,
1984 in Civil Case No. 50936 (Rollo, Petition, p. 5). Both cases were filed in different branches of the
Regional Trial Court in Pasig (Ibid.)
In an order dated September 30, 1987, the respondent court directed the DBP to release to its
Deputy Sheriff, herein respondent Carlos G. Maog, the amount of P150,279.64 declaring that the
writ of preliminary attachment made by Bank of America thru Deputy Sheriff Norberto Doblado in
Civil Case No. 45452 by the Pasig Regional Trial Court cannot prevail over the garnishment
pursuant to a writ of execution issued in Civil Case No. 50936 in favor of respondent Phelps Dodge
(Phils.) Inc., for failure of Bank of America to prosecute its hen (Rollo, Petition, Annex "C", pp. 29-
31).
The order came to the attention of the petitioners who then filed a "Motion to Intervene and to Lift
Order of September 30, 1987" on October 13, 1987 and a third party claim with the deputy sheriff on
October 19, 1987 (Rollo, Annex "D', p. 32-36; Annex "D-1 ", pp. 38-42).
DBP did not interpose any objection to the motion to intervene and the third party claim (Reno,
Annex "E', pp. 44-45). But respondent Phelps Dodge, Phils., Inc. opposed said Motion to
Intervene/Third Party Claim, on the ground among others:
xxx xxx xxx
b) That the rights of preference and first lien of petitioners, as former employees of
Sabena Mining Corporation, as provided for in Art. 110 of the Labor Code and Art.
2244 of the Civil Code, are operative only in insolvency court and in a bankruptcy
case; (Rollo, Annex "F", pp. 47-53; Annex "F-1", pp. 54-57).
Petitioners filed their reply to the opposition and at the same time filed a motion to resolve the third
party claim (Rollo, Annex "G, pp. 58-62; Annex "G-1", pp. 63- 67).
On January 5, 1988 the respondent court issued an order denying the motion to intervene and
dismissing the third party claim, declaring that the garnishment made by its Deputy Sheriff in favor of
respondent Phelps Dodge, Phils., Inc. superior to the rights of petitioners (Rollo. Annex "I", pp. 70-
77).
Hence, the petition.
The Second Division of this Court in its resolution dated August 10, 1989, gave due course to the
petition (Rollo, Petition, pp. 2-19; Resolution, p. 309)
The main thrust in this petition is whether or not petitioners enjoy preferential right or claim over the
funds of Sabena Mining Corporation as provided for under the provisions of Article 110 of the New
Labor Code, as amended, and Section 10, Rule VIII, Book III of the Implementing Rules and
Regulations of the Labor Code.
The petitioners contend that under Article 110 and its implementing rules; and regulations of the
Labor Code, the claims of the laborers for unpaid wages and other monetary benefits due them for
services rendered prior to bankruptcy enjoy first preference in the satisfaction of credits against a
bankrupt company.
On the other hand, the respondent maintains that the rights of preference and first lien of petitioners,
as former employees of Sabena Mining Corporation, under aforesaid law and rules, are operative
only in an insolvency court and in a bankrupt case.
The petition is without merit.
It is quite clear from the provisions of Article 110 of the Labor Code and Section 10, Rule VIII, Book
H of the Revised Rules and Regulations Implementing the Labor Code, that a declaration of
bankruptcy or a judicial liquidation must be present before the worker's preference may be enforced.
Thus, it was held that Article 110 of the Labor Code and its implementing rule cannot be invoked
absent a formal declaration of bankruptcy or a liquidation order (Development Bank of the
Philippines v. Labor Arbiter, G.R. Nos. 78261-62, March 8, 1989). (Emphasis supplied)
In the case at bar, there was no showing of any insolvency proceeding or declaration of bankruptcy
or judicial liquidation that was being filed by Sabena Mining Corporation. It is only an extra-judicial
foreclosure that was being enunciated as when DBP extra-judicially foreclosed the assets of Sabena
Mining Corporation. Conversely, to hold that Article 110 is also applicable in extra-judicial
proceedings would be putting the worker in a better position than the State which could only assert
its own prior preference in case of ajudicial proceeding. Article 110 must not be viewed in isolation
and must always be reckoned with the provisions of the Civil Code (DBP v. Labor Arbiter,supra).
Quite recently, the rule enunciated in Republic v. Peralta (150 SCRA 37 [1987]) reads:
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 non-preferred, may be adjudicated in a binding
manner. ...
The reason behind the necessity for a judicial proceeding or a proceeding in rem before the
concurrence and preference of credits may be appealed is to bind all interested persons whether
known to the parties or not. The claims of all credits whether preferred or non preferred, the
Identification of the preferred ones and the totality of the employer's assets should be brought into
the picture. There can then be an authoritative, fair and binding adjudication instead of the piece
meal settlement which would result from the questioned decision in this case
1
(DBP v. Labor
Arbiter, supra).
PREMISES CONSIDERED, the petition is hereby DISMISSED for lack of merit and the questioned
Order dated January 5, 1988 issued by the respondent court is hereby AFFIRMED.
SO ORDERED.
Melencio-Herrera (Chairperson) and Regalado, JJ., concur.



Separate Opinions

SARMIENTO, J ., dissenting:
I reiterate my dissent in Development Bank of the Philippines vs. National Labor Relations
Commission.
1
I also adopt Mr. Justice Teodoro Padilla's dissent therein, insofar as he holds that under
Article 110 of the Labor Code, as amended, by Republic Act No. 671 5, workers enjoy "absolute
preference"
2
as and for unpaid wages and other monetary claims, over and above taxes due to the
government and claims of creditors, and subject to no prior declaration of bankruptcy or judicial order of
liquidation. I find his opinion to be not only accord with the explicit language of Republic Act No. 6715,
but, as I held in my own dissent, consistent with the express decree of the Constitution affording full
protection to labor.
3

While I agree that prior to its amendment, Article 110 was couched in arguable terms,
4
that is, a
declaration of insolvency was necessary before labor may claim preference. Republic Act No. 6715 has
laid the debate to rest. The very language of the Act:
SECTION 1. Article 110 of Presidential Decree No. 442, as amended, otherwise
known as the Labor Code of the Philippines, is hereby further amended to read as
follows:
ART. 110. Worker Preference in case of bankruptcy. In the event of bankruptcy or
liquidation of an employer's business, bis 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.
5

convinces this writer that the Congressional intent was precisely to settle the argument-in favor of
absolute worker preference.
Indeed, to say that the amendment of Article 110 by Republic Act No. 6715 wrought no change, and
the Article should be read as it was read prior to amendment:
Article 110. Workers 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.
6

is to say that the legislature engaged in an exercise in futility, a proposition I am not prepared to
accept. Clearly, the legislative will, in working the amendment, was to change the law-it could not
have been for any other purpose-and I do not believe that the Supreme Court is empowered to
override the intent of the lawmakers.
Once more, constitutional policy is to give full protection to labor. It also means exactly what it says-
labor above capital. The Charter is evidently not neutral, it is partial to the workingman. I am afraid
that with the holding my brethren will leave in this case, the working class would find itself at the
receiving end.
Padilla, J.


Separate Opinions
SARMIENTO, J ., dissenting:
I reiterate my dissent in Development Bank of the Philippines vs. National Labor Relations
Commission.
1
I also adopt Mr. Justice Teodoro Padilla's dissent therein, insofar as he holds that under
Article 110 of the Labor Code, as amended, by Republic Act No. 671 5, workers enjoy "absolute
preference"
2
as and for unpaid wages and other monetary claims, over and above taxes due to the
government and claims of creditors, and subject to no prior declaration of bankruptcy or judicial order of
liquidation. I find his opinion to be not only accord with the explicit language of Republic Act No. 6715,
but, as I held in my own dissent, consistent with the express decree of the Constitution affording full
protection to labor.
3

While I agree that prior to its amendment, Article 110 was couched in arguable terms,
4
that is, a
declaration of insolvency was necessary before labor may claim preference. Republic Act No. 6715 has
laid the debate to rest. The very language of the Act:
SECTION 1. Article 110 of Presidential Decree No. 442, as amended, otherwise
known as the Labor Code of the Philippines, is hereby further amended to read as
follows:
ART. 110. Worker Preference in case of bankruptcy. In the event of bankruptcy or
liquidation of an employer's business, bis 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.
5

convinces this writer that the Congressional intent was precisely to settle the argument-in favor of
absolute worker preference.
Indeed, to say that the amendment of Article 110 by Republic Act No. 6715 wrought no change, and
the Article should be read as it was read prior to amendment:
Article 110. Workers 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.
6

is to say that the legislature engaged in an exercise in futility, a proposition I am not prepared to
accept. Clearly, the legislative will, in working the amendment, was to change the law-it could not
have been for any other purpose-and I do not believe that the Supreme Court is empowered to
override the intent of the lawmakers.
Once more, constitutional policy is to give full protection to labor. It also means exactly what it says-
labor above capital. The Charter is evidently not neutral, it is partial to the workingman. I am afraid
that with the holding my brethren will leave in this case, the working class would find itself at the
receiving end.
Padilla, J.

12. DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,
vs.
HON. LABOR ARBITER ARIEL C. SANTOS, PHILIPPINE ASSOCIATION OF FREE LABOR
UNIONS (PAFLU-RMC CHAPTER) and its members, MICHAEL PENALOSA, ET AL.,
SAMAHANG DIWANG MANGGAGAWA SA RMC-FFW CHAPTER, and its members, JAIME
ARADA, ET AL., respondents.
The Chief Legal Counsel for petitioner DBP.
Pablo B. Castillon for private respondents.
Reynaldo B. Aralar & Associates for the Arada respondents.
Sisenando R. Villaluz, Jr. for individual respondents.

GUTIERREZ, JR., J .:
This petition calls for the interpretation of Article 110 of the Labor Code which gives the workers
preferences as regards wages in case of liquidation or bankruptcy of an employer's business.
Petitioner Development Bank of the Philippines (DBP) maintains the Article 110 does not apply
where there has been an extra-judicial foreclosure proceeding while the respondents claim
otherwise. Labor Arbiter Ariel C. Santos sustained the private respondent's position. Petitioner DBP
has now elevated the case to us by way of this petition for certiorari.
On November 29,1984, in NLRC-NCR Case No. 2517-84 entitled "Philippine Association of Free
Labor Unions (PAFLU-RMC Chapter) and its Members v. Riverside Mills Corporation, et al.", Labor
Arbiter Manuel Caday awarded separation pay, wage and/or living allowance increases and 13th
month pay to the individual complainants who comprise some of the respondents in this case.
On March 18, 1985, Labor Arbiter Teodorico Dogelio likewise awarded separation pay, vacation and
sick leave pay and unpaid increases in the basic wage and allowances to the other private
respondents herein in NLRC Case No. NCR-7-2577-84 entitled "Michael Penalosa, Jose Garcia and
Apolinar Ray, et al., v. Riverside Mills Corporation, et al., and Samahang Diwang Manggagawa sa
RMC-FFW Chapter, et al., v. Riverside Mills Corporation (RMC)." On March 29, 1985, after the
judgment had become final and executory, Dogelio issued a writ of execution directing NLRC Deputy
Sheriff Juanita Atienza to collect the total sum of Eighty Five Million Nine Hundred Sixty One
thousand Fifty-Eight & 70/100 Pesos (P85,961,058.70). The Deputy Sheriff, however, failed to
collect the amount so he levied upon personal and real properties of RMC.
On April 25, 1985, a notice of levy on execution of certain real properties was annotated on the
certificate of title filed with the Register of Deeds of Pasig, Metro Manila, where all the said
properties are situated.
Meanwhile in the other development which led to this case, petitioner DBP obtained a writ of
possession on June 7, 1985 from the Regional Trial Court (RTC) of Pasig of all the properties of
RMC after having extra-judicially foreclosed the same at public auction earlier in 1983. DBP
subsequently leased the said properties to Egret Trading and Manufacturing Corporation, Rosario
Textile Mills and General Textile Mills.
The writ of possession prevented the scheduled auction sale of the RMC properties which were
levied upon by the private respondents. As a result, on June 19, 1985, the latter filed an incidental
petition with the NLRC to declare their preference over the levied properties. The petition entitled
"PAFLU-RMC Chapter and its members, Michael Penalosa, et al., and the Samahang Diwang
Manggagawa sa RMC-FFW Chapter and its members v. RMC and DBP, et al." was docketed as
NLRC Case No. NCR-7-2577-84. Petitioner DBP filed its position paper and memorandum in answer
to the petition.
On October 31, 1985, Dogelio issued an order recognizing and declaring the respondents' first
preference as regards wages and other benefits due them over and above all earlier encumbrances
on the aforesaid properties/assets of said company, particulary those being asserted by respondent
Development Bank of the Philippines.' (p. 84, Rollo)
The petitioner appealed the order of Dogelio to the NLRC. The latter in turn, set aside the order and
remanded the case to public respondent Labor Arbiter Santos for further proceedings.
Meanwhile, another set of complainants (who are also named as respondents herein) filed, on April
7, 1986, a complaint for separation pay, underpayment, damages, etc., entitled 'Jaime Arada, et al.
v. RMC, DBP, Egret Trading and Manufacturing Corp., docketed as NLRC Case No. NCR-4-1278-
86." This case was subsequently consolidated with the case pending before respondent Santos.
Accordingly, the latter conducted several hearings where the parties, particulary DBP, General
Textile Mills, Inc., and Rosario Textile Mills, Inc., were given the opportunity to argue their respective
theories of the case. Eventually, all the parties agreed that the case shall be submitted for decision
after their filing of positions papers and/or memorandums.
On March 31, 1987, public respondent Santos rendered the questioned decision, the dispositive
portion of which reads:
WHEREFORE, it is hereby declared that all the complainants in the above- entitled
cases, as former employees of respondent Riverside Mills Corporation, enjoy first
preference as regards separation pay, unpaid wages and other benefits due them
over and above all earlier encumbrances on all of the assets/properties of RMC
specifically those being asserted by respondent DBP.
As a consequence of the above declaration, the decision dated March 18, 1983 of
the then Hon. Arbiter Teodorico Dogelio should be immediately enforced against
DBP who is hereby directed to pay all the monetary claims of complainants who were
former employees of respondent RMC.
Anent the Arada case, DBP is hereby directed to pay all the amounts as indicated
opposite the names of complainants listed from page I to page 5 of Annex "A" of
complainants' complaint provided that their names are not among those listed in the
Penalosa case.
It is hereby also declared that former employees whose names are not listed in the
complainants' position papers but can prove that they were former employees of
RMC prior to its bankruptcy, should also be paid the same monetary benefits being
granted to herein complainants.
Finally, DBP is hereby ordered to deposit with the National Labor Relations
Commission the proceeds of the sale of the assets of RMC between DBP on one
hand and General Textile Mills, Inc. and/ or Rosario Textile Mills, Inc., on the other
hand and that future payment being made by the latter to the former should be
deposited with the National Labor Relations Commission for proper disposition. (pp.
174-175, Rollo)
Hence, this petition.
Petitioner DBP maintains that the public respondent misinterpreted Article 110 of the Labor Code
and Section 10, Rule VIII, Book III of the Revised Rules and Regulations Implementing the Labor
Code in that the said respondent upheld the existence of the worker's preference over and above
earlier encumbrances on the properties of RMC despite the absence of any bankruptcy or liquidation
proceeding instituted against the latter. The petitioner argues that there must be a judicial
declaration, or at the very least, a cognizance by an appropriate court or administrative agency of
bankruptcy or inability of the employer to meet its obligations.
On the other hand, the respondents contend that under both Article 110 and its implementing rule,
the claims of the laborers for unpaid wages and other monetary benefits due them for services
rendered prior to bankruptcy enjoy first preference in the satisfaction of credits against a bankrupt
company; that the word "bankruptcy" in the Labor Code is used in its generic sense, meaning that
condition of inability to pay one's debt; and that Article 110 of the Labor Code is not confined to the
situation contemplated in Articles 2236-2245 of the Civil Code where all the preferred creditors must
necessarily be convened and the import of their claims ascertained.
We apply the rule expressed in Republic v. Peralta (150 SCRA 37 [1988] ), where we stated:
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, prefer red or non-preferred, may be adjudicated in a binding
manner. (Barreto v. Villanueva, 1 SCRA 288 [ 1961] ). (pp. 44-45)
In the above quoted case, there was a voluntary insolvency proceeding instituted by the employer.
The respondents, however, contend that since in the case at bar there is only an extra-judicial
proceeding, Article 110 is still the only law applicable without regard to the provisions of the Civil
Code.
We do not agree with this contention.
Article 110 of the Labor Code and Section 10, Rule VIII, Book III of the Revised Rules and
Regulations Implementing the Labor Code provide:
Article 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.
Article 10. Payment of wages in case of bankruptcy. Unpaid wages earned by the
employee 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 the assets of the employer.
It is quite clear from the provisions that a declaration of bankruptcy or a judicial liquidation must be
present before the worker's preference may be enforced. Thus, Article 110 of the Labor Code and its
implementing rule cannot be invoked by the respondents in this case absent a formal declaration of
bankruptcy or a liquidation order. Following the rule in Republic v. Peralta, supra, to hold that Article
110 is also applicable in extra-judicial proceedings would be putting the worker in a better position
than the State which could only assert its own prior preference in case of a judicial proceeding.
Therefore, as stated earlier, Article 110 must not be viewed in isolation and must always be
reckoned with the provisions of the Civil Code.
There was no issue of judicial vis-a-vis extra-judicial proceedings in the Republic v. Peralta
interpretation of Article 110 but the necessity of a judicial adjudication was pointed out when we
explained the impact of Article 110 on the concurrence and preference of credits provided in the Civil
Code.
We stated:
We come to the question of what impact Article 110 of the Labor Code has had upon
the complete scheme of classification, concurrence and preference of credits in
insolvency set out in the Civil Code. We believe and so hold that Article 110 of the
Labor Code did not sweep away the overriding preference accorded under the
scheme of the Civil Code to tax claims of the government or any subdivision thereof
which constitute a lien upon properties of the Insolvent. ... It cannot be assumed
simpliciter that the legislative authority, by using Article 110 of the words 'first
preference' and any provisions of law to the contrary notwithstanding intended to
disrupt the elaborate and symmetrical structure set up in the Civil Code. Neither can
it be assumed casually that Article 110 intended to subsume the sovereign itself
within the term 'other creditors', in stating that 'unpaid wages shall be paid in full
before other creditors may establish any claim to a share in the assets of employer.'
Insistent considerations of public policy prevent us from giving to 'other creditors a
linguistically unlimited scope that would embrace the universe of creditors save only
unpaid employees.
Moreover, the reason behind the necessity for a judicial proceeding or a proceeding in rem before
the concurrence and preference of credits may be applied was explained by this Court in the case of
Philippine Savings Bank v. Lantin (124 SCRA 476 [1983] ). We said:
The proceedings in the court below do not partake of the nature of the insolvency
proceedings or settlement of a decedent's estate. The action filed by Ramos was
only to collect the unpaid cost of the construction of the duplex apartment. It is far
from being a general liquidation of the estate of the Tabligan spouses.
Insolvency proceedings and settlement of a decedent's estate are both proceedings
in rem which are binding against the whole world. All persons having interest in the
subject matter involved, whether they were notified or not, are equally bound.
Consequently, a liquidation of similar import or 'other equivalent general liquidation
must also necessarily be a proceeding in rem so that all interested persons whether
known to the parties or not may be bound by such proceeding.
In the case at bar, although the lower court found that 'there were no known creditors
other than the plaintiff and the defendant herein', this can not be conclusive. It will not
bar other creditors in the event they show up and present their claim against the
petitioner bank, claiming that they also have preferred liens against the property
involved. Consequently, Transfer Certificate of Title No. 101864 issued in favor of the
bank which is supposed to be indefeasible would remain constantly unstable and
questionable. Such could not have been the intention of Article 2243 of the Civil
Code although it considers claims and credits under Article 2242 as statutory liens.
Neither does the De Barreto case ... .
The claims of all creditors whether preferred or non-preferred, the identification of the preferred ones
and the totality of the employer's asset should be brought into the picture, There can then be an
authoritative, fair, and binding adjudication instead of the piece meal settlement which would result
from the questioned decision in this case.
We, therefore, hold that Labor Arbiter Ariel C. Santos committed grave abuse of discretion in ruling
that the private respondents may enforce their first preference in the satisfaction of their claims over
those of the petitioner in the absence of a declaration of bankruptcy or judicial liquidation of RMC.
There is, of course, nothing in this decision which prevents the respondents from instituting
involuntary insolvency or any other appropriate proceeding against their employer RMC where
respondents' claims can be asserted with respect to their employer's assets.
WHEREFORE, the petition is hereby GRANTED. The questioned decision of the public respondent
is ANNULLED and SET ASIDE. The Temporary Restraining Order we issued on May 20, 1987
enjoining the enforcement of the questioned decision is made PERMANENT. No costs.
SO ORDERED.

13. CONCHITA S. HAUTEA, in Substitution of JOSE H. HAUTEA (Deceased), petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, ASSET PRIVATIZATION TRUST AND
PHILIPPINE NATIONAL BANK, respondents.
Eugenio S. Hautea and Salvador A. Altura, Jr. for petitioners.
Jose M. Suratos, Jr. for Asset Privatization Trust.

NOCON, J .:
Petitioner entreats this Court to nullify the decision dated August 13, 1990 of respondent National
Labor Relations Commission (NLRC) in Injunction cases Nos. 1457 and 1469, entitled "Asset
Privatization Trust/Philippine National Bank v. Jose Hautea and Rodolfo G. Layoc, Executive Labor
Arbiter, Arbitration Branch, Region IV, NLRC, Iloilo City."
The questioned decision annulled the decision dated March 12, 1987 of the Labor Arbiter in RAB
Case No. VI-0007-87 which ordered Calinog-Lambunao Sugar Mill, Inc. (CLSM) to pay Jose H.
Hautea separation pay/retirement benefits, moral damages and attorney's fees amounting to
P276,000.00, insofar as said Labor Arbiter's decision affected Philippine National Bank (PNB). The
questioned decision of the NLRC also ordered the writ of execution issued on April 23, 1987 and the
order of the Labor Arbiter dated May 22, 1987 vacated and set aside and the levy on the properties
of PNB lifted.
Petitioner imputes grave abuse of discretion on the part of public respondent in annulling the
decision of the labor arbiter insofar as it affected PNB on the grounds that PNB, though impleaded
as party-respondent was never properly served with summons and that no execution can be
maintained against the properties foreclosed by PNB pursuant to the case of Development Bank of
the Philippines v. NLRC.
1

The facts show that on January, 1967, Jose Hautea was hired by the Calinog-Lambunao Sugarmill,
Inc. (CLSMI). In December, 1984, he retired from his employment with CLSMI. On December 2,
1986, the PNB extrajudicially foreclosed the real and personal mortgaged to it by CLSMI and at the
auction sale it was the sole bidder.
On January 12, 1987, Jose Hautea filed with the public respondent a complaint for separation
pay/retirement benefits against CLSMI and/or PNB. On January 29, 1987, the complaint was
amended to include damages and attorney's fees. The respondents CLSMI and/or PNB were
furnished with copies of the complaint and amended complaint through CLSMI at its offices at
Calinog, Iloilo. All notices of hearing were likewise sent to CLSMI at its offices. For failure to appear
during the scheduled hearings, CLSMI and PNB were declared in default.
On February 27, 1987, the properties of CLSMI foreclosed by PNB were transferred and assigned in
favor of the Government of the Republic of the Philippines thru the Asset Privatization Trust (APT),
by virtue of Proclamation No. 50, as amended, and the Deed of Transfer.
On March 12, 1987, the Labor Arbiter rendered a decision in favor of Jose Hautea and against
CLSMI and PNB. On April 1, 1987, copy of the decision was sent to CLSMI and PNB at the offices of
CLSMI in Calinog, Iloilo.
On April 20, 1987, Jose Hautea filed a motion for execution. Acting on the motion, the Labor Arbiter
issued on April 23, 1987 the necessary writ of execution. Sheriff Adorico Dadivas levied on the
property of CLSMI worth more or less P1,500,000.00 which APT/PNB acquired through foreclosure
of mortgage.
On May 5, 1987, the APT filed a third party claim with the Labor Arbiter, and later joined PNB in a
petition for relief with application for preliminary injunction originally filed with the Labor Arbiter and
later elevated to the NLRC (4th Division) at Cebu City.
On July 31, 1987, Jose Hautea died and he was substituted by his wife, Conchita S. Hautea,
petitioner herein.
In a Decision
2
dated August 13, 1990, respondent NLRC found for APT and PNB. The dispositive portion
of decision reads:
WHEREFORE, in view of all the foregoing, the petition to annul the decision in RAB
CASE No. VI-0007-87 insofar as it affects petitioner Philippine National Bank is
GRANTED and the decision in said case is MODIFIED accordingly. The Writ of
Execution issued on April 23, 1987 and the Order of the Labor Arbiter dated May 22,
1987 are VACATED and SET ASIDE. The levy on the properties of petitioner
pursuant to the Writ of Execution is lifted.
SO ORDERED.
3

On September 21, 1990, Conchita S. Hautea filed a motion for reconsideration which was denied on
October 29, 1990.
Aggrieved, petitioner comes to us and raises the following issues:
I. WHETHER OR NOT 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.
II. WHETHER OR NOT THE RESPONDENT NATIONAL LABOR RELATIONS
COMMISSION ERRED IN HOLDING THAT
JOSE H. HAUTEA CANNOT LIKEWISE CLAIM COVERAGE UNDER SECTION 27
OF PROCLAMATION NO. 50 BECAUSE AS SPECIFICALLY PROVIDED UNDER
SECTION 27 OF SAID PROCLAMATION 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.
4

In setting aside the decision of the Labor Arbiter, public respondent held that PNB was not properly
served with summons, hence, it cannot be held liable for the claim of Jose H. Hautea. The question
of validity of the service of summons of PNB is, however, immaterial. An examination of the
dispositive portion of the Labor Arbiter's decision shows that PNB has not been adjudged to pay the
judgment debt, to wit:
WHEREFORE, premises considered, respondent Calinog-Lambunao Sugarmill, Inc.
is hereby ordered to pay herein complainant the amount of P126,000.00 as
separation pay, P125,000.00 as moral damages and P25,000.00 as attorney's fees.
SO ORDERED.
5

Although PNB was impleaded as party respondent, it was not held liable for the claim of Jose H.
Hautea. Correctly so, because it was not the employer of Hautea. It was dragged into the case
because it has in its possession, property of the employer CLSMI which it had acquired through
foreclosure of mortgage. Thus, as pointed out by the Solicitor General, its liability attached through
the levy on the property which it had foreclosed. In this regard, the validity of the decision of the
public respondent nullifying the decision of the Labor Arbiter based on the jurisdictional defect of lack
of summons need not be discussed.
The second issue raises the question of whether the public respondent erred in not holding that Jose
H. Hautea can claim coverage under Section 27 of Proclamation No. 50, which provides:
Sec. 27. Automatic Termination of Employer-Employee Relations. Upon the sale or
other disposition of the ownership and/or controlling interest of the government in a
corporation held by the Trust, or all or substantially all of the assets of such
corporation, the employer-employee relations between the government and other
offices and the personnel of such corporations shall terminate by operation of law.
None of such officers or employees shall retain any vested right to future
employment in the privatized or disposed corporation, and the new owners or
controlling interest holders thereof shall have full and absolute discretion to retain or
dismiss said officers and employees and to hire the replacement or replacements of
any one or all of them as the pleasure and confidence of such owners or controlling
interest holders may dictate.
Nothing in this section shall, however, be construed to deprive said officers and
employees of their vested entitlements in accrued or due compensation and other
benefits incident to their employment or attaching to termination under applicable
employment contracts, collective bargaining agreements, and applicable legislation.
Clearly evident is that the foregoing provision speaks of entitlement to employment benefits of
officers and employees of government corporations whose employment is terminated when the
corporations are transferred to the Asset Privatization Trust. It does not support petitioner's
submission that the award of employment benefits in her husband's favor can be satisfied from the
properties of the corporation subject to a lien superior to that of the workers' preference of credit.
Nevertheless, the question whether Jose H. Hautea is entitled to the benefits he had claimed is now
beyond question. The judgment ordering CLSMI to pay him separation pay had become final and the
only problem at hand is the enforcement of said judgment.
Thus, the relevant issue in this case is whether said judgment can be enforced against APT/PNB as
mortgagee of the foreclosed properties of CLSMI.
Article 110 of the Labor Code, 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.
As amended by Republic Act 6715, Article 110 now 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 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.
In the 1990 Development Bank of the Philippines v. NLRC case (supra) involving the former
employees of Lirag Textile Mills, Inc., this Court, En Banc, noted that 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. Despite the elimination of the terms
"declaration" of bankruptcy or "judicial" liquidation, this Court opined that liquidation proceedings
have not been done away with. In the event of insolvency, there must be some proceedings where
notice to all of the insolvent's creditors may be given and where the claims of preferred creditors may
be bindingly adjudicated.
This Court emphasized therein that DBP's lien on Lirag's properties, being a mortgage credit, is a
special preferred credit under Article 2241 of the Civil Code while the workers' preference is an
ordinary preferred credit, to wit:
. . . A mortgage directly and immediately subjects the property upon which it is
imposed, whoever the possessor may be, to the fulfillment of the obligation for whose
security it was constituted (Article 2176, Civil Code). It creates a real right which is
enforceable against the whole world. It is a lien on an identified immovable property,
which a preference is not.
A recorded mortgage credit is a special preferred credit under Article 2242(5) of the
Civil Code on classification of credits. The preference given by Article 110, when not
falling within Article 2241(6) and Article 2242(3) of the Civil Code and not attached to
any specific property, is an ordinary preferred credit although its impact is to move it
from second priority to first in the order of preference established by Article 2244 of
the Civil Code (Republic vs. Peralta, supra).
6

In the 1993 Development Bank of the Philippines v. NLRC case
7
involving claims for separation pay of
employees of Republic Hardwood, Inc., the Third Division of this Court also emphasized that DBP's lien
on
Republic Hardwood, Inc.'s mortgage credit is a special preferred credit under Article 2242 of the Civil
Code while the workers' preference is an ordinary preferred credit under Article 2242. While the decision
had expressed that under the new Article 110 of the Labor Code, even mortgage credits are subordinate
to worker's claims, the statement, however, was merely anobiter. Furthermore,
RA 6715 amending Article 110 took effect only on March 21, 1989. The amendment 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. In the 1990 Development Bank of the Philippines v. NLRC case, this Court
enunciated the prospective application of the law, to wit:
Even if Article 110 and its Implementing Rule, as amended, should be interpreted to
mean "absolute preference", the same should be given only prospective effect in line
with the cardinal rule that laws shall have no retroactive effect, unless the contrary is
provided (Article 4, Civil Code). Thereby, any infringement on the constitutional
guarantee on
non-impairment of the obligation of contracts (Section 10, Article III, 1987
Constitution) is also avoided. In point of fact, DBP's mortgage credit antedated by
several years the amendatory law, RA No. 6715. To give Article 110 retroactive
effect would be to wipe out the mortgage in DBP's favor and expose it to risk which it
sought to protect itself against by requiring a collateral in the form of real property.
8

Considering that in the case at bar, PNB had extrajudicially foreclosed the properties of
CLSMI on December 2, 1986, it is evident that the
mortgage credit of PNB also antedated by several years the amendatory law, RA No. 6715
which became effective on March 21, 1989.
WHEREFORE, in view of the foregoing reasons, the questioned decision of public respondent
National Labor Relations Commission is hereby AFFIRMED.
SO ORDERED.
Narvasa, C.J., Feliciano, Bidin, Regalado, Davide, Jr., Romero, Bellosillo, Melo, Quiason and Vitug,
JJ., concur.
Kapunan, J., took no part.



Separate Opinions

CRUZ, J ., dissenting:
I dissent for the reasons given in my dissents in Republic v. Peralta, 150 SCRA 37,
and Development Bank of the Philippines v. NLRC, 183 SCRA 328, where I submitted, as I still do,
that the Labor Code gives absolute preference to the worker's claims pursuant to the social justice
policy.
PADILLA, J ., dissenting:
The majority opinion would deny the right of petitioner Conchita S. Hautea to enjoy her husband's
earned benefits from his employer by ruling that petitioner has no right to CSLMI's assets superior to
the preferred credit of private respondents. The majority has opted to follow the Court's
1990 DBP ruling
1
and refuses to recognize the absolute preference of workers' claims to unpaid wages
and monetary benefits, established by Republic Act No. 6715 in amending Article 110 of the Labor Code.
I, therefore, reiterate my dissenting opinion delivered in said DBP case. For reasons stated in said
dissent, the workers' claims should not have been relegated then; it should not again be relegated
now because
1. The distinction made between a preference of credit and a lien does not, in my view, negate the
clear intent of the law (Rep. Act No. 6715) in giving absolute preference to unpaid wages and other
monetary claims of workers over all other claims including those of the Government.
It should be recalled that Article 110 of the Labor Code as amended by Republic Act No. 6715
states:
Worker preference in case of bankruptcy. In the event of bankruptcy or liquidation
of an the event of bankruptcy or liquidation of an employer's business, his workers
shall enjoy first preference as regards their wages and other monetary claims, any
provisions of law to the contrary notwithstanding. Such unpaid wages and monetary
claims shall be paid in full before claims of the government and other creditors may
be paid. (Emphasis supplied)
It is to be noted that the law gives absolute preference to workers' claims for unpaid wages and
monetary benefits, subordinating even claims of the government. The clear legislative intent is to
give life to Article II, Section 18 of the Constitution which protects the rights of workers and promotes
their welfare.
2. Neither can the argument in the DBP case that a mortgage credit is a "special preferred credit"
under Article 2242(5) of the Civil Code be used to support the conclusion of the majority, for the
law expressly and unqualifiedlystates that workers' claims are given first preference over all other
claims, any provision of law to the contrary notwithstanding. This, to me, is the only logical
interpretation that can be made from the letter, intent and spirit of the law and the Constitution. To
give any claim other than those of workers first preference would plainly violate that letter, intent and
spirit of the law and the Constitution.
3. That Republic Act No. 6715 which amended Article 110 of the Labor Code cannot be applied
retroactively provides no argument, in my opinion, for denying the execution the execution of the
judgment in favor of petitioner Hautea.
It should be stressed that Jose Hautea retired from his employment with CLSMI in December
1984 after almost twenty (20) years of service. Hautea, therefore, from the time he retired, acquired
the right to receive retirement benefits and separation pay from CLSMI. This was two (2)
years before PNB foreclosed the properties of CLSMI. It does not appear that it was through
Hautea's fault that he failed to receive the benefits before PNB foreclosed on CLSMI's properties. On
the contrary, the filing of the complaint for separation pay/retirement benefits with the labor arbiter on
12 January 1987 indicates that it was CLSMI which failed or refused to pay the retirement benefits
after more than two (2) years. Thus, even without the benefit of the amendment to Article 110
introduced by Republic Act No. 6715, the claim of petitioner Hautea would still enjoy preference. The
amendment of Article 110 giving the claims of workers absolute preference only reinforces the
argument that Hautea should be allowed to claim against the Asset Privatization Trust (APT).
I, therefore, vote to GRANT petitioner Hautea's claim for her husband's unpaid benefits earned
during his employment with CLSMI.


# Separate Opinions
CRUZ, J ., dissenting:
I dissent for the reasons given in my dissents in Republic v. Peralta, 150 SCRA 37,
and Development Bank of the Philippines v. NLRC, 183 SCRA 328, where I submitted, as I still do,
that the Labor Code gives absolute preference to the worker's claims pursuant to the social justice
policy.
PADILLA, J ., dissenting:
The majority opinion would deny the right of petitioner Conchita S. Hautea to enjoy her husband's
earned benefits from his employer by ruling that petitioner has no right to CSLMI's assets superior to
the preferred credit of private respondents. The majority has opted to follow the Court's
1990 DBP ruling
1
and refuses to recognize the absolute preference of workers' claims to unpaid wages
and monetary benefits, established by Republic Act No. 6715 in amending Article 110 of the Labor Code.
I, therefore, reiterate my dissenting opinion delivered in said DBP case. For reasons stated in said
dissent, the workers' claims should not have been relegated then; it should not again be relegated
now because
1. The distinction made between a preference of credit and a lien does not, in my view, negate the
clear intent of the law (Rep. Act No. 6715) in giving absolute preference to unpaid wages and other
monetary claims of workers over all other claims including those of the Government.
It should be recalled that Article 110 of the Labor Code as amended by Republic Act No. 6715
states:
Worker preference in case of bankruptcy. In the event of bankruptcy or liquidation
of an the event of bankruptcy or liquidation of an employer's business, his workers
shall enjoy first preference as regards their wages and other monetary claims, any
provisions of law to the contrary notwithstanding. Such unpaid wages and monetary
claims shall be paid in full before claims of the government and other creditors may
be paid. (Emphasis supplied)
It is to be noted that the law gives absolute preference to workers' claims for unpaid wages and
monetary benefits, subordinating even claims of the government. The clear legislative intent is to
give life to Article II, Section 18 of the Constitution which protects the rights of workers and promotes
their welfare.
2. Neither can the argument in the DBP case that a mortgage credit is a "special preferred credit"
under Article 2242(5) of the Civil Code be used to support the conclusion of the majority, for the
law expressly and unqualifiedlystates that workers' claims are given first preference over all other
claims, any provision of law to the contrary notwithstanding. This, to me, is the only logical
interpretation that can be made from the letter, intent and spirit of the law and the Constitution. To
give any claim other than those of workers first preference would plainly violate that letter, intent and
spirit of the law and the Constitution.
3. That Republic Act No. 6715 which amended Article 110 of the Labor Code cannot be applied
retroactively provides no argument, in my opinion, for denying the execution the execution of the
judgment in favor of petitioner Hautea.
It should be stressed that Jose Hautea retired from his employment with CLSMI in December
1984 after almost twenty (20) years of service. Hautea, therefore, from the time he retired, acquired
the right to receive retirement benefits and separation pay from CLSMI. This was two (2)
years before PNB foreclosed the properties of CLSMI. It does not appear that it was through
Hautea's fault that he failed to receive the benefits before PNB foreclosed on CLSMI's properties. On
the contrary, the filing of the complaint for separation pay/retirement benefits with the labor arbiter on
12 January 1987 indicates that it was CLSMI which failed or refused to pay the retirement benefits
after more than two (2) years. Thus, even without the benefit of the amendment to Article 110
introduced by Republic Act No. 6715, the claim of petitioner Hautea would still enjoy preference. The
amendment of Article 110 giving the claims of workers absolute preference only reinforces the
argument that Hautea should be allowed to claim against the Asset Privatization Trust (APT).
I, therefore, vote to GRANT petitioner Hautea's claim for her husband's unpaid benefits earned
during his employment with CLSMI.
15. COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, DEPUTY CITY SHERIFF CARMELO V.
CACHERO, MARITIME COMPANY OF THE PHILIPPINES, DOMINGO C. NIANGAR, DANIEL C.
SABINO, FERNANDO S. TULIAO and TULMAR TRADING CORPORATION, respondents.
Reynaldo L. Libanan for respondent deputy sheriff.
Joaquin G. Chung, Jr. Law Office for respondent Tulmar Trading Corp.
Eliodoro C. Cruz & Arsenio P. Dizon for Maritime Co. of the Philippines.

MENDOZA, J .:
This is a petition for certiorari to set aside the resolution dated April 4, 1986
1
of the National Labor
Relations Commission in NLRC Case No. NCR-12-4233-84 (Domingo C. Niangar v. Maritime Company
of the Philippines), affirming the denial by the Labor Arbiter
2
of petitioner's motion to annul the sheriff's
sale of four barges or, in the alternative, to order him to remit the proceeds of his sale to the Bureau of the
Internal Revenue for the satisfaction of the tax liabilities of private respondent Maritime Company of the
Philippines.
The facts are as follows:
On January 12, 1984 the Commissioner of the Internal Revenue sent two letters
3
of demand to the
respondent Maritime Company of the Philippines for deficiency common carrier's tax, fixed tax, 6%
Commercial Broker's tax, documentary stamp tax, income tax and withholding taxes in the total amount of
P17,284,882.45.
The assessment became final and executory as private respondent did not contest it. But as private
respondent did not pay its tax liability either, the Commissioner of Internal Revenue issued warrants
of distraint of personal property and levy of real property of private respondent. Copies of the
warrants, both dated January 23, 1985, were served on January 28, 1985 on Yoly T. Petrache,
private respondent's accountant.
4

On April 16, 1985 a "Receipt for Goods, Articles, and Things Seized
5
under Authority of the National
Internal Revenue Code" was executed, covering, among other things, six barges identified as MCP-
1,2,3,4,5 and 6. This receipt is required by 303 (now 206) of the NIRC as proof of the constructive
distraint of property. It is an undertaking by the taxpayer or person in possession of the property covered
that he will preserve the property and deliver it upon order of the court or the Internal Revenue
Commissioner.
The receipt was prepared by the BIR for the signature of a representative of respondent Maritime
Company of the Philippines, but it was not in fact signed. Petitioner later explained that the
individuals who had possession of the barges had refused to sign the receipt.
This circumstance has given rise to the question in this case as it appears that four of the barges
placed under constructive distraint were levied upon execution by respondent deputy sheriff of
Manila on July 20, 1985 to satisfy a judgment for unpaid wages and other benefits of employees of
respondent Maritime Company of the Philippines. More specifically, the question in this case is the
validity of the warrant of distraint served by the Revenue Seizure Officer against the writ of execution
subsequently levied upon the same property by the deputy sheriff of Manila to satisfy the claims of
employees in NLRC Case No. NCR-12-4233-84 (Domingo C. Niangar, et al. v. Maritime Company of
the Philippines) for P490,749.21.
The four barges were sold by respondent deputy sheriff at a public auction on August 12, 1985. The
highest bidder, Daniel C. Sabino, subsequently sold them to private respondents Fernando S. Tuliao
and Tulmar Trading Corporation.
On September 4, 1985, petitioner asked the Labor Arbiter to annul the sale and to enjoin the sheriff
from disposing of the proceeds of the sale or, in the alternative, to remit them to the Bureau of
Internal Revenue so that the amount could be applied to the payment of private respondent Maritime
Company's tax liabilities.
In an order dated September 30, 1985, Labor Arbiter Ceferina Diosana denied the motion on the
ground that petitioner Commissioner of Internal Revenue failed to show that the barges which were
levied upon in execution and sold at public auction had been validly placed under constructive
distraint.
6
The Labor Arbiter likewise rejected petitioner's contention that the government's claim for taxes
was preferred under Art. 2247, in relation to Art. 2241(1) of the Civil Code, on the ground that under this
provisions only taxes and fees which are due on specific movables enjoy preference, whereas the taxes
claimed by petitioner were not due on the four barges in question.
The order was appealed to the NLRC, which in resolution dated April 4, 1986, affirmed the denial of
the Internal Revenue Commissioner's motion. Hence this petition for certiorari.
For reasons to be presently stated, the petition is granted.
The National Internal Revenue Code provides for the collection of delinquent taxes by any of the
following remedies: (a) distraint of personal property or levy of real property of the delinquent
taxpayer and (b) civil or criminal action.
With respect to the four barges in question, petitioner resorted to constructive distraint pursuant to
303 (now 206) of the NLRC. This provisions states:
Constructive distraint of the property of a taxpayer. To safeguard the interest of
the Government, the Commissioner of Internal Revenue may place under
constructive distraint the property of a delinquent taxpayer or any taxpayer who, in
his opinion, is retiring from any business subject to tax, or intends to leave the
Philippines, or remove his property therefrom, or hide or conceal his property, or
perform any act tending to obstruct the proceedings, for collecting the tax due or
which may be due from him.
The constructive distraint of personal property shall be effected by requiring the
taxpayer or any person having possession or control of such property to sign a
receipt covering the property distrained and obligate himself to preserve the same
intact and unaltered and not to dispose of the same in any manner whatever without
the express authority of the Commissioner of Internal Revenue.
In case the taxpayer or the person having the possession and control of the property
sought to be placed under constructive distraint refuses or fails to sign the receipt
herein referred to, the revenue officer effecting the constructive distraint shall
proceed to prepare a list of such property and in the presence of two witnesses leave
a copy thereof in the premises where the property distrained is located, after which
the said property shall be deemed to have been placed under constructive distraint..
Although the warrant of distraint in this case had been issued earlier (January 23,1985) than the levy
on execution in the labor case on July 20, 1985, the Labor Arbiter nevertheless held that there was
no valid distraint of personal property on the ground that the receipt of property distrained had not
been signed by the taxpayer as required above. In her order, which the NLRC affirmed in toto, the
Labor Arbiter said:
It is claimed by the Commissioner of the Internal Revenue that on January 23, 1984,
he issued a warrant of distraint of personal property on respondent to satisfy the
collection of the deficiency taxes in the aggregate sum of P17,284,882.45 and a copy
of said warrant was served upon Maritime Company on January 28, 1985 and
pursuant to the warrant, the Commissioner, through Revenue Seizure Agent Roland
L. Bombay, issued on April 16, 1985, to Maritime Company a receipt for goods,
articles and things seized pursuant to authority granted to him under the National
Internal Revenue Code. Such personal properties seized includes, among others,
"Six (6) units of barges MCI-6 . . . " However, his own receipts for goods attached to
his motions does not show that it was received by Maritime; neither does it show any
signature of any of Maritime's Officers.
Apart from the foregoing, in his affidavit of 11 September 1985, Sheriff Cachero
stated that before he sold the subject four barges at public auction, he conducted an
investigation on the ownership of the said four barges. In brief, he found out that the
said four barges were purchased by respondent through Makati Leasing and that the
whole purchase price has been paid by respondent. In fact, the corresponding deed
of sale has already been signed. He did not find any lien or encumbrance on any of
the said four barges. Thus it cannot be true that the Commissioner effected a valid
warrant of distraint of personal property on the four barges in question.
7

However, this case arose out of the same facts involved in Republic v. Enriquez,
8
in which we
sustained the validity of the distraint of the six barges, which included the four involved in this case,
against the levy on execution made by another deputy sheriff of Manila in another case filed against
Maritime Company. Two barges (MCP-1 and MCP-4) were the subject of a levy in the case. There we
found that the "Receipt for Goods, Articles and Things Seized under Authority of the National Internal
Revenue Code" covering the six barges had been duly executed, with the Headquarters, First Coast
Guard District, Farola Compound Binondo, Manila acknowledging receipt of several barges, vehicles and
two (2) bodegas of spare parts belonging to Maritime Company of the Philippines.
Apparently, what had been attached to the petitioner's motion filed by the government with the Labor
Arbiter in this case was a copy, not the original one showing the rubber stamp of the Coast Guard
and duly signed by its representative. A xerox copy of this signed receipt was submitted in the prior
case.
9
This could be due to the fact that, except for Solicitor Erlinda B. Masakayan, the government
lawyers who prepared the petition in the prior case were different from those who filed the present
petition. They admitted that the receipt of property distrained had not been signed by the taxpayer or
person in possession of the taxpayer's property allegedly because they had refused to do so. What
apparently they did not know is that the receipt had been acknowledged by the Coast Guard which
obviously had the barges in its possession.
In addition to the receipt duly acknowledged by the Coast Guard, the record of the prior case also
shows that on October 4, 1985, the Commissioner of the Internal Revenue issued a "Notice of
Seizure of Personal Property" stating that the goods and chattels listed on its reverse side, among
which were the four barges (MCP-2, MCP-3, MCP-5, and MCP-6), had been distrained by the
Commissioner of Internal Revenue.
10

The "Notice of Seizure of Personal Property," a copy of which was received by Atty. Redentor R.
Melo in behalf of Maritime Company of the Philippines, together with the receipt of the Coast Guard,
belies the claim of respondent deputy sheriff that when he levied upon the four barges there was no
indication that the barges had previously been placed under distraint by the Commissioner of
Internal Revenue.
Accordingly, what we said in the prior case
11
in upholding the validity of distraint of two of the six
barges (MCP Nos. 1 and 4), fully applies in this case:
It is settled that the claim of the government predicated on a tax lien is superior to the
claim of a private litigant predicated on a judgment. The tax lien attaches not only
from the service of the warrant of distraint of personal property but from the time the
tax became due and payable. Besides, the distraint on the subject properties of the
Maritime Company of the Philippines as well as the notice of their seizure were made
by petitioner, through the Commissioner of the Internal Revenue, long before the writ
of the execution was issued by the Regional Trial Court of Manila, Branch 31. There
is no question then that at the time the writ of execution was issued, the two (2)
barges, MPC-1 and MCP-4, were no longer properties of the Maritime Company of
the Philippines. The power of the court in execution of judgments extends only to
properties unquestionably belonging to the judgment debtor. Execution sales affect
the rights of the judgment debtor only, and the purchaser in an auction sale acquires
only such right as the judgment debtor had at the time of sale. It is also well-settled
that the sheriff is not authorized to attach or levy on property not belonging to the
judgment debtor.
Nor is there any merit in the contention of the NLRC that taxes are absolutely preferred claims only
with respect to movable or immovable properties on which they are due and that since the taxes
sought to be collected in this case are not due on the barges in question the government's claim
cannot prevail over the claims of employees of the Maritime Company of the Philippines which,
pursuant to Art. 110 of the Labor Code, "enjoy first preference."
In Republic v. Peralta
12
this Court rejected a similar contention. Through Mr. Justice Feliciano we held:
. . . [T]he claim of the Bureau of Internal Revenue for unpaid tobacco inspection fees
constitutes a claim for unpaid internal revenue taxes which gives rise to a tax lien
upon all the properties and assets, movable or immovable, of the insolvent as
taxpayer. Clearly, under Articles 2241 No. 1, 2242 No. 1, and 2246-2249 of the Civil
Code, this tax claim must be given preference over any other claim of any other
creditor, in respect of any and all properties of the insolvent.
xxx xxx xxx
Article 110 of the Labor Code does not purport to create a lien in favor of workers or
employees for unpaid wages either upon all of the properties or upon any particular
property owned by their employer. Claims for unpaid wages do not therefore fall at all
within the category of specially preferred claims established under Articles 2241 and
2242 of the Civil Code, except to the extent that such claims for unpaid wages are
already covered by Article 2241, number 6: "claims for laborer's wages, on the goods
manufactured or the work done," or by Article 2242, number 3: "claims of laborers
and other workers engaged in the construction, reconstruction or repair of buildings,
canals and other works, upon said buildings, canals or other works." To the extent
that claims for unpaid wages fall outside the scope of Article 2241, number 6 and
2242, number 3, they would come with the ambit of the category of ordinary
preferred credits under Article 2244.
Applying Article 2241, number 6 to the instant case, the claims of the Unions for
separation pay of their members constitute liens attaching to the processed leaf
tobacco, cigars and cigarettes and other products produced or manufactured by the
Insolvent, but not to other assets owned by the Insolvent. And even in respect of
such tobacco and tobacco products produced by the Insolvent, the claims of the
Unions may be given effect only after the Bureau of Internal Revenue's claim for
unpaid tobacco inspection fees shall have been satisfied out of the products so
manufactured by the Insolvent.
Article 2242, number 3, also creates a lien or encumbrance upon a building or other
real property of the Insolvent in favor of workmen who constructed or repaired such
building or other real property. Article 2242, number 3, does not however appear
relevant in the instant case, since the members of the Unions to whom separation
pay is due rendered services to the Insolvent not (so far as the record of this case
would show) in the construction or repair of buildings or other real property, but
rather, in the regular course of the manufacturing operations of the Insolvent. The
Unions' claims do not therefore constitute a lien or encumbrance upon any
immovable property owned by the insolvent, but rather, as already indicated, upon
the Insolvent's existing inventory (if any) of processed tobacco and tobacco products.
In addition, we have held
13
that Art. 110 of the Labor Code applies only in case of bankruptcy or judicial
liquidation of the employer. This is clear from the text of the law.
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 claims to
a share in the assets of the employer.
This case does not involve the liquidation of the employer's business.
WHEREFORE, the petition for certiorari is GRANTED and the resolution dated April 4, 1986 of
respondent NLRC in NLRC Case No. NCR-12-4233-84 is SET ASIDE insofar as it denies the
government's claim for taxes, and respondent deputy sheriff Carmelo V. Cachero or his successor is
ORDERED to remit the proceeds of the auction sale to the Bureau of Internal Revenue to be applied
as part payment of respondent Maritime Company's tax liabilities.
SO ORDERED.
Narvasa, C.J., Regalado and Puno, JJ., concur.

16. BANCO FILIPINO SAVINGS AND MORTGAGE BANK (Represented by its liquidator, MS.
CARLOTA P. VALENZUELA), petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, Labor Arbiter EVANGELINE LUBATON and
FORTUNATO DIZON, JR., respondents.
Sycip Salazar Hernandez & Gamaitan for petitioner.
Atienza, Tabora, Del Rosario & Castillo for private respondent.

MEDIALDEA, J .:
After BANCO FILIPINO SAVINGS AND MORTGAGE BANK was placed under receivership, and
later ordered liquidated by the Monetary Board of the Central Bank, FORTUNATO M. DIZON. Jr.,
who was then holding the position of Executive Vice President and Chief Operating Officer of the
bank, received a letter from the Central Bank appointed liquidator, MS. CARLOTA P. VALENZUELA,
informing him that all management authority in the bank had been assumed by the Central Bank
appointed liquidators and that his employment is being terminated.
Mr. Dizon filed with the liquidator a request for the payment to him of the cash equivalent of his
vacation and sick leave credits and unexpended/unused reimbursable allowance. His claims were
not paid by the liquidator upon counsel's advice that Dizon's claim should be treated as a claim of a
creditor and should therefore be processed pursuant to the liquidation plan as approved by the
Monetary Board. Subsequent demands for payment having been denied, Dizon filed on March 31,
1986 a complaint with the labor arbiter against the bank for recovery of unpaid salary, the cash
equivalent of his accumulated vacation and sick leaves, termination pay under Article 283 of the
Labor Code and moral damages and attorney's fees.
Representing the bank, the liquidator moved for the dismissal of the complaint refuting the legal and
factual bases thereof as well as the jurisdiction of the labor arbiter to entertain Dizon's money claims
because such pertains to the Regional Trial Court of Makati, Branch 146, acting as the liquidation
court.
On November 14, 1986, the labor arbiter upheld her jurisdiction and promulgated a decision in favor
of Dizon but withheld his demand for payment of moral damages and attorney's fees. Both parties
appealed to the National Labor Relations Commission which increased the award due Dizon and
further ordered payment of actual and moral damages and attorney's fees. The award of moral
damages was later deleted in the resolution of February 24, 1988 of the Commission.
In this petition, the liquidator assails the foregoing decisions and resolution and prays that they be
declared null and void on the following grounds: Firstly, she maintains that "[a]ll disputed claims
against banks under liquidation pertain to the exclusive jurisdiction of the liquidation court (pursuant
to section 29 of the Central Bank Act) and may not be adjudicated by the Labor Arbiters and the
NLRC under Article 217 of the Labor Code," and cites the case of Hernandez v. Rural Bank of
Lucena, Inc., No. L-29791, January 10, 1978, 81 SCRA 75. She argues that "[t]he general
provisions of Article 217 conferring upon respondents Labor Arbiter and the NLRC jurisdiction over
claims arising from an employment relationship cannot prevail over the explicit provisions of Section
29 of the Central Bank Act, which is a special law specifically vesting upon the liquidation court
jurisdiction over all claims against liquidated banks." Secondly, the liquidator points out that "[t]he
assailed decisions directing the payment of the claims outside of the liquidation process amount to
an undue preference in favor of a particular creditor." She submits that "the statutory status of
employees as preferred creditors with respect to 'wages due them for services rendered during the
period prior to the bankruptcy or liquidation' does not in itself entitle them to advance
paymentoutside of the liquidation proceedings and while said proceedings are in progress. The
provision [Art. 110, Labor Code] entitles them only to preferential treatment over other creditors in
the same liquidation proceedings to the proceeds of the assets of the employer after the distributable
assets shall have been determined therein," and cites the case of Republic v. Peralta, No. 56568,
May 20, 1987, 150 SCRA 37. She further argues that an action could not be maintained against an
insolvent bank after it had been ordered liquidated citing Central Bank v. Morfe No. L-38427, March
12, 1975, 63 SCRA 114 and Central Bank, v. Court of Appeals, No. L-37859, July 26, 1988,163
SCRA 482.
It is common knowledge that the taking over of the management and assets of Banco Filipino by the
Monetary Board of the Central Bank is being contested by some stockholders of the bank who insist
that the bank is solvent and in sound financial condition and that its closure was illegal. The
controversy has generated quite a number of cases in this Court and in one of them, G.R. No.
70054, entitled Banco Filipino Savings and Mortgage Bank v. The Monetary Board, et al., We
adopted a resolution, dated August 29, 1985, enjoining the Monetary Board, its officers, and the
Central Bank appointed receivers "from executing further acts of liquidation of a bank "save"acts
such as receiving collectibles and receivables or paying off creditors claims and other transactions
pertaining to normal operations of a bank," and later, further ordered that a hearing be conducted by
the Regional Trial Court of Makati, Branch 146 to afford the former management/stockholders of the
bank an opportunity to prove that the bank's closure was illegal. The temporary restraining order still
stands and it appears that a report and recommendation on the hearing has yet to be filed. For the
moment, therefore, the bank is not being liquidated and the possibility lurks that it might not be at all.
Respondent Dizon, cognizant of these, argues that it is the labor arbiter and the NLRC which has
jurisdiction over his money claims since there is no liquidation court to speak of.
We are of the opinion that it is the NLRC which has jurisdiction over Dizon's money claims. Section
29 of the Central Bank Act (Republic Act No. 265) before its amendment by Executive Order No. 289
(September, 1987,) reads, to wit:
Sec. 29. Proceedings upon insolvency. ... If the Monetary Board shall determine
and confirm within the said period that the bank or non-bank financial intermediary
performing quasi-banking functions is insolvent or cannot resume business with
safety to its depositors, creditors and the general public, it shall, if the public interest
requires, order its liquidation, indicate the manner of its liquidation and approve a
liquidation plan. The Central Bank shall, by the Solicitor General, file a petition in the
Court of First Instance reciting the proceedings which have been taken and praying
the assistance of the court in the liquidation of such institution. The court shall have
jurisdiction in the same proceedings to adjudicate disputed claims against the bank
or non-bank financial intermediary performing quasibanking function and enforce
individual liabilities of the stockholders. and do all that is necessary to preserve the
assets of such institution and to implement the liquidation plan approved by the
Monetary Board. ... The liquidator shall with all convenient speed, convert the assets
of the banking institution or non-bank financial intermediary performing quasi-banking
functions to money or sell, assign or otherwise dispose of the same to creditors and
other parties for the purpose of paying the debts of such institution and he may, in
the name of the bank or non-bank financial intermediary performing quasi-banking
functions, institute such actions as may be necessary in the appropriate court to
collect and recover accounts and assets of such institution. [Emphasis supplied]
There is nothing in Section 29 which suggests that the jurisdiction of the liquidation court to
adjudicate claims against the insolvent bank is exclusive. On the other hand, Article 217 of the Labor
Code explicitly provides that labor arbiters have original and exclusive jurisdiction, over money
claims of an employee against his employer, thus:
ART. 217. Jurisdiction of the Labor Arbiter and the Commission. (a) The Labor
Arbiter shall have the original and exclusive jurisdiction to hear and decide ... the
following cases involving all workers,...:
xxx xxx xxx
3. All money claims of workers, including those based on non-payment or
underpayment of wages, overtime compensation, separation pay and other benefits
provided by law or appropriate agreement, except claims for employee's
compensation, social security, medicare and maternity benefits. [Emphasis supplied]
We do not think that this jurisdiction would be lost simply because a former employer had been
placed under liquidation. The legislature deemed it wise to confer jurisdiction over labor disputes to a
body exclusively of others and We are not prepared to divest such authority from the labor arbiter
and the NLRC absent any clear provision of law to that effect.
The liquidator cites the case of Hernandez v. Rural Bank of Lucena, supra, where this Court,
commenting on the original section 29 as embodied in R.A. No. 265, held that:
The fact that the insolvent bank is forbidden to do business, that its assets are turned
over to the Superintendent of Banks, as a receiver, for conversion into cash, and that
its liquidation is undertaken with judicial intervention means that, as far as lawful and
practicable, all claims against the insolvent bank should be filed in the liquidation
proceeding.
The judicial liquidation is intended to prevent multiplicity of actions against the
insolvent bank. The lawmaking body contemplated that for convenience only one
court, if possible, should pass upon the claims against the insolvent bank and that
the liquidation court should assist the Superintendent or Banks and control his
operations.
In the course of the liquidation, contentious cases might arise wherein a full-dress
hearing would be required and legal issues would have to be resolved. Hence, it
would be necessary in justice to all concerned that a Court of First Instance should
assist and supervise the liquidation and should act as umpire and arbitrator in the
allowance and disallowance of claims.
The judicial liquidation is a pragmatic arrangement designed to establish due process
and orderliness in the liquidation of the bank to obviate the proliferation of litigations
and to avoid injustice and arbitrariness. (Hernandez v. Rural Bank of Lucena,
Inc. supra, pp. 87-88) [Emphasis supplied]
But it will be noted that even in the quoted opinion, consideration was given of the possibility or
practicality of certain claims being adjudicated by other tribunals besides the liquidation court. Thus,
in the later case ofCarandang v. Court of Appeals, No. L-44932, April 15, 1988, 160 SCRA 266, We
upheld the jurisdiction of the then Court of First Instance of Laguna over that of the liquidation court,
the Court of First Instance of Manila, considering that the cause of action of therein plaintiff was
already fully litigated in the former court and to re-litigate would "mean more inconvenience to the
parties, entailing waste of money and precious time." In other words, it is not a legal aberration
that certain claims against an insolvent bank be litigated in another court where to do so would be
more practical; and more so in this case where it is not legally possible to litigate Dizon's claims
other than with the Labor Arbiter and the NLRC because of the express provision of the Labor Code.
Neither do We subscribe to the interpretation given by the bank in the case of Central Bank v. Morfe
supra, which purportedly prohibits the filing of cases against a bank after it has been declared
insolvent. That case simply ruled that judgments from suits filed after a bank has been declared
insolvent "cannot be considered preferred and that Article 2244 (14) (b) [of the Civil Code] does not
apply to judgments for the payment of the deposits in an insolvent savings bank which were
obtained after the declaration of insolvency." Moreover, as in the other cited case ofCentral Bank v.
Court of Appeals, supra, the case involves recovery of deposits.
Under normal circumstances the decision of the NLRC is immediately executory (See Article 223,
Labor Code). The bank's liquidator, however, resists immediate payment to Dizon of his adjudicated
money claims on the ground that it would amount to undue preference of credit. Dizon countered
that under Article 110 of the Labor Code unpaid wages of laborers are indeed preferred. Moreover,
Dizon reminded, this Court had temporarily enjoined the liquidation of the bank and, therefore, there
is no liquidation proceeding where his claims may be paid.
Article 110 of the Labor Code before its amendment by Republic Act No. 6715 (March 2, 1989)
reads as follows:
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.
In Republic v. Peralta, supra the majority of this Court was of the opinion that the above quoted
provision did not upgrade the worker's claim as absolutely preferred credit. There We explained that
the provision did not alter Articles 2241 and 2242 of the Civil Code so much so that creditors with
liens over a certain property are still given special preference over the proceeds of that property. And
it is only after these specially preferred credits are satisfied may the ordinary preferred credits
enumerated in Article 2244 of the Civil Code be paid according to their order of priority. The
significance of Article 110 in the scheme of concurrence and preference of credit is to raise the
worker's money claim into first priority under Article 2244. (See also Development Bank of the
Philippines v. NLRC, G.R. Nos. 82763-64, March 19, 1990).
Not being an absolutely preferred credit, as taxes are under Articles 2241 (1) and 2242 (1), Dizon's
claims cannot be paid ahead of other credits and outside of the liquidation proceeding because the
"free property" or the property left after the creditors mentioned in Articles 2241 and 2242 are paid
has not yet been determined (See Barreto v. Villanueva, No. L-14938, December 29, 1962, 6 SCRA
928). In the words of Lipana v. Development Bank of Rizal, No. '73884, September 24, 1987, 154
SCRA 257, 261, "to execute the judgment would unduly deplete the assets of respondent bank to
the obvious prejudice of other [depositors and] creditors."
Thus, Dizon's adjudicated claims should be submitted to the liquidators for processing. If, of course,
it is later determined that Banco Filipino's liquidation is improper then the NLRC'S decision may be
executed under normal procedure. If the contrary is proven, however, and the bank's liquidation
should proceed, Dizon's established claims should be treated as an ordinary preferred credit
enjoying first preference under Art. 2244 of the Civil Code.
In its petition, the bank did not raise any argument against the merit of Dizon's money claims. Thus,
the comments of the public and private respondents thereto were directed on what was so far
discussed. It would seem unfair, therefore, that the bank would subsequently assail the merits of the
award in its memorandum leaving the respondents off-guard. In any event, We do not find the bank's
foray on Dizon's money claims meritorious.
The bank argues that Dizon is not entitled to separation pay citing Article 283 of the Labor Code
which reads to wit:
... In case of retrenchment to prevent losses and in cases of closures or cessation of
operations of establishment or undertaking not due to serious business loses 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. A
fraction of at least six (6) months shall be considered one (1) whole year.
It is the banks interpretation of the law that when an institution is closed due to serious business
losses or financial reverses its workers are not entitled to separation pay. We disagree. We instead
quote with approval the opinion of respondent Labor Arbiter, thus:
Article 283 (Art. 282) of the Labor Code enumerated the just causes for an employer
to terminate an employee. If an employee is dismissed for just cause, he is not
entitled to termination pay. However, in Article 284 (Art. 283), in case of closure of
establishment, the employee is always given termination pay. The reason for the
closure is taken into consideration only to determine whether to give one month or
one-half month pay for every year of service. This provision is based on social justice
and equity... (p. 41, Rollo)
Such was Our ruling in International Hardware, Inc. v. NLRC, G.R. No. 80770, August 10, 1989. As
regards the commutation to cash of Dizon's accumulated vacation and sick leaves, both the Labor
Arbiter and the NLRC found that this was authorized by the Collective Bargaining Agreement then
existing before the bank's closure and which CBA the liquidators manifested to honor. This is a
factual issue which We are not inclined to disturb. Also, since Dizon was forced to litigate, he is
entitled to attorney's fees.
ACCORDINGLY, the decision under review is AFFIRMED save that the money due the private
respondent should be presented to the liquidators for processing.
SO ORDERED.
18. SSK PARTS CORPORATION, petitioner,
vs.
TEODORICO CAMAS and SECRETARY OF LABOR & EMPLOYMENT, respondents.
G.R. No. 85935 January 30, 1990
SSK PARTS CORPORATION, petitioner,
vs.
SSK-OLALIA and/ or RIC DURAN and SECRETARY OF LABOR &
EMPLOYMENT, respondents.
G.R. No. 85936 January 30, 1990
IN RE: ROUTINE INSPECTION AT SSK PARTS CORP., BGY. PULO CABUYAO, LAGUNA.
Emiliano S. Samson, R. Balderrama-Samson and Mary Anne B. Sam for petitioner.
Armamento & Cabana for SSK employees' union.

GRIO-AQUINO, J .:
This is a petition for review on certiorari of the decision dated November 16, 1988 of the
Department of Labor and Employment, affirming the Order of the Regional Director dated
January 11, 1988 in three consolidated cases filed against the petitioner: (1) by Teodorico
Camas for illegal deductions; (2) for underpayment of wages, non-payment of legal holiday
pay and service incentive leave filed by the union in behalf of its members; and (3) for non-
payment of employees' service incentive leave, underpayment of allowance, overtime pay,
premium pay, and non-payment of two (2) regular holidays in December which were
discovered upon routine inspection conducted by the labor regulation officers.
After the parties had submitted their position papers and evidence, the Regional Director
issued an order on January 11, 1988, the dispositve portion of which reads thus:
WHEREFORE, premises considered, an Order is hereby entered:
a) Ordering respondent [herein petitioner] to refund to complainant Teodorico
Camas the amount of Seven Hundred and Seventy Five Pesos (P775.00) having
been illegally deducted from his salaries; and
b) Ordering respondent to pay individual claimants in the second case their
unpaid overtime pay, legal holiday pay, living allowance and service incentive
leave within ten (10) days from receipt hereof, otherwise a writ of execution
shall be issued for the enforcement of this Order. (p. 92, Rollo.)
Petitioner's appeal to the Secretary of Labor was dismissed by the latter. Hence, this petition
forcertiorari in which the petitioner alleges:
1. that the Regional Director has no jurisdiction over its employees' claims;
and
2. that it (petitioner) was denied due process.
The petition is devoid of merit. The jurisdiction of the Regional Director over claims for
violation of labor standards is conferred by Article 128-B of the Labor Code, as amended by
Executive Order No. 111 of March 26,1987 which provides that:
(b) The Provisions of Article 217 of this Code to the contrary notwithstanding
and in cases where the relationship of employer-employee still exists, the
Minister of Labor and Employment or his duly authorized representatives shall
have the power to order and administer, after due notice and hearing,
compliance with the labor standards provisions of this Code and other labor
legislation based on the findings of labor regulation officers or industrial
safety engineers made in the course of inspection, and to issue writs of
execution to the appropriate authority for the enforcement of their orders,
except in cases where the employer contests the findings of the labor
regulation officer and raises issues which cannot be resolved without
considering evidentiary matters that are not verifiable in the normal course of
inspections. (Emphasis supplied.)
The jurisdiction of the Regional Director over employees' claims for wages and other
monetary benefits not exceeding P5,000 has been affirmed by Republic Act No. 6715,
amending Article 129 of the Labor Code as follows:
Art. 129. Recovery of wages, simple money claims and other benefits. Upon
complaint of any interested party, the Regional Director of the Department of
Labor and Employment or any of the duly authorized hearing officers of the
Department is empowered, through summary proceeding and after due notice,
to hear and decide any matter involving the recovery of wages and other
monetary claims and benefits, including legal interest, owing to an employee
or person employed in domestic or household service or househelper under
this Code, arising from employer-employee relations: Provided, that such
complaint does not include a claim for reinstatement: Provided, further, That
the aggregate money claims of each employee or househelper do not exceed
five thousand pesos (P5,000.00). The Regional Director or hearing officer shall
decide or resolve the complaint within thirty (30) calendar days from the date
of the filing of the same.
Being a curative statute, Republic Act No. 6715 may be given retroactive effect if, as in this
case, no vested rights would be impaired (DBP vs. Court of Appeals, 96 SCRA 342; Santos
vs. Duata, 14 SCRA 1041; Briad-Agro Dev. Corp. vs. De la Serna, et al., G.R. No. 82805, Nov.
9,1989).
Under the exception clause in Article 128 (b) of the Labor Code, the Regional Director may
not be divested of his jurisdiction over these claims, unless three (3) elements concur,
namely: (a) that the petitioner (employer) contests the findings of the labor regulation officer
and raises issues thereon; (b) that in order to resolve such issues, there is a need to examine
evidentiary matters; and (c) that such matters are not verifiable in the normal course of
inspection.
In this case, although the petitioner contested the Regional Director's finding of violations of
labor standards committed by the petitioner, that issue was resolved by an examination of
evidentiary matters which were verifiable in the ordinary course of inspection. Hence, there
was no need to indorse the case to the appropriate arbitration branch of the National Labor
Relations Commission (NLRC) for adjudication (Sec. 2, Rules Implementing Executive Order
111).
The petitioner's allegation that it was denied due process is not well taken. The petitioner
actively participated in the proceedings a quo by filing its answer to the complaint,
presenting a position paper to the Regional Director, submitting evidence in support of its
claim, and appealing the decision of the Regional Director to the Secretary of Labor. Each of
those steps was a part and parcel of its right to due process. As the petitioner had all those
opportunities to be heard, it may not complain that it was denied due process (People vs.
Retamia, 95 SCRA 201; Divine Word High School vs. NLRC, 143 SCRA 346; Municipality of
Daet vs. Hidalgo Enterprises, Inc., 138 SCRA 265).
WHEREFORE, the petition for certiorari is dismissed for lack of merit.
SO ORDERED.
Narvasa, Cruz, Gancayco and Medialdea, J J ., concur.

20. SERVANDO'S INCORPORATED, petitioner,
vs.
THE SECRETARY OF LABOR AND EMPLOYMENT AND THE REGIONAL DIRECTOR, REGION
VI, DEPARTMENT OF LABOR AND EMPLOYMENT, respondents.
Torres, Valencia, Ciocon, Dabao, Valencia & De la Paz Law Offices for petitioner.

PADILLA, J .:
This is a petition for certiorari to set aside the 23 August 1988 order of the Secretary of
Labor,
1
sustaining the Director of the Department of Labor and Employment, Region VI, in holding herein
petitioner company liable to fifty four (54) of its employees in the aggregate amount of P964,952.50,
representing their alleged wage differentials. The antecedent facts of the case are as follows:
On 28 April 1987, the Labor Standards and Welfare Office conducted a routine inspection of
petitioner's establishment. On that same date, petitioner was furnished copy of a Notice of Inspection
Result and apprised of its violations of the labor standards/occupational health and safety measures,
that were discovered in the course of the inspection, namely:
LABOR STANDARDS LAWS:
1. Some of the employees are underpaid under Wage Order No. 4, covering the
period from May 1, 1984 to June 15, 1984 averaging from P6.00 below for salary and
P9.00 below for living allowance.
2. Some of the employees are underpaid under Wage Order No. 5, covering the
period from June 16, 1984 to October 31, 1984 averaging from P7.00 below for
salary and P3.00 for living allowance.
3. Some of the employees are underpaid under Wage Order No. 6 covering the
period from November 1, 1984 to present averaging from P12.00 below for salary
and P11.00 below for living allowance.
OCCUPATIONAL HEALTH AND SAFETY:
1. There were some obstacles in the passageway of the bodega as the waste
materials are being scattered in the aisle.
2. The fire extinguisher is not being displayed inside the bodega.
2

On 22 May 1987, the Regional Office issued a subpoena duces tecum requiting petitioner to submit
its payrolls and daily time records, with a warning that failure to comply with the same will be
deemed a waiver of its right to present evidence. Petitioner ignored said warning.
On 17 June 1987, the Labor Standards and Welfare Officer submitted his report to the Regional
Director, recommending the issuance of an order to require petitioner to pay fifty four (54) of its
employees the amount of P964,952.50, based on the computation made by the Labor Standards
and Welfare Office, representing the deficiencies in wages and allowances of said employees.
3

Adopting the recommendation made by the Labor Standards and Welfare Office, the Regional
Director issued the 2 July 1987 Order,
4
requiring petitioner to pay its employees the total amount of
P964.952.50 as differentials, summarized as follows:
1. Noel Cadiao P36,208.49
2. Tranquilino Villaruel 18,132.64
3. Edwin Cabaluna 27,572.99
4. Herdiolyn Garcia 27,572.99
5. Eunice Dela Torre 22,041.67
6. Alfredo Canabe 22,041.67
7. Julie Salon Cabaluna 22,041.67
8. Asuncion Zamora 31,966.54
9. Marilou Loceno 31,814.99
10. Sandra Cadiao 31,814.99
11. Menchie Ygonia 31,814.99
12. Imelda Perlin 31,814.99
13. Julianita Salucio 10,491.37
14. Rene Zarcino 10,491.37
15. Gertrudes V. Besana 3,218.36
16. Gilda Pahilanga 10,491.37
17. Denia Pacheco 10,491.37
18. Susan Gonzaga 10,491.37
19. Flor Gardo 10,491.37
20. Emma Tortusa 13,218.36
21. Salvador Moleta, Jr. 10,491.37
22. Ditto Fernandez 10,491.37
23. Ma. Fe Termil 13,218.36
24. Ma. Helen P. Yap 13,218.36
25. Tito Dalaorao 16,248.36
26. Lorenda Dimaala 10,480.75
27. Nena Makilan 10,491.37
28. Nenita Sumagaysay 10,491.37
29. Felecidad Baticados 10,491.37
30. Julie Baylon 10,491.37
31. Dorina Leonidas 22,199.00
32. Marlene Espinosa 22,199.00
33. Daisy Anoche 19,221.55
34. Bernadette Chavez 19,221.55
35. Monica Tejedo 19,221.55
36. Melanie Guancia 19,221.55
37. Merlinda Poblete 19,221.55
38. Edna Delas Marias 19,221.55
39. Angelica Salon 10,491.37
40. Teresa Narvas 10,491.37
41. Rogelia Guinabo 10,491.37
42. Elizabeth Cuadra 10,491.37
43. Liza Encabo 19,221.55
44. Jovita Milleno 16,248.36
45. Oscar Gonzaga 10,642.87
46. Doris Tabaculde 22,062.17
47. Johnny Delgado 13,521.37
48. Lolita Noble 18,483.00
49. Tarcila Dimamay 20,604.00
50. Anita Gravino 24,391.53
51. Ely Blancia 18,483.00
52. Estela Cerna 6,703.87
53. Laila Yee 19,506.12
54. Eulalio Agnes 33,357.27
GRAND TOTAL P964,952.50
5

Petitioner was likewise ordered to clear the passageway of its warehouse of waste materials,
and to put up fire extinguishers in their proper places pursuant to the occupational safety and
health rules.
A motion for reconsideration of said order was filed by petitioner, but the same was denied. On
appeal, the Secretary of Labor in his order of 23 August 1988 affirmed the orders of the Regional
Director.
6
Hence this petition.
The sole issue raised in this case is whether or not the Regional Director has the jurisdiction to hear
and decide cases involving recovery of wages and other monetary claims and benefits of workers
and employees.
The jurisdiction of the Regional Director to adjudicate money claims of workers and employees is
governed by Articles 129 and 217 of the Labor Code, as amended by Secs. 2 and 9, respectively, of
RA 6715, which provide that:
Sec. 2. Article 129 of the Labor Code of the Philippines, as amended, is hereby
further amended to read as follows:
Art. 129. Recovery of wages, simple money claims and other
benefits. Upon complaint of any interested party, the Regional
Director of the Department of Labor and Employment or any of the
duly authorized hearing officers of the Department is empowered,
through summary proceeding and after due notice, to hear and
decide any matter involving the recovery of wages and other
monetary claims and benefits, including legal interest, owing to an
employee or person employed in domestic or household service or
househelper under this Code, arising from employer-employee
relations:Provided, That such complaint does not include a claim for
reinstatement: Provided, further, That the aggregate money claims of
each employee or househelper do not exceed Five thousand pesos
(P5,000.00) . . . (emphasis supplied)
Sec. 9. Article 217 of the same Code, as amended, is hereby further amended to
read as follows:
Article 217. Jurisdiction of Labor Arbiters and the Commission. (a) Except as
otherwise provided under this Code, the Labor Arbiters shall have original and
exclusive jurisdiction to hear and decide, within thirty (30) calendar days after the
submission of the case by the parties for decision without extension, even in the
absence of stenographic notes, the following cases involving all workers, whether
agricultural or non-agricultural:
xxx xxx xxx
(6) Except claims for employees compensation, social security medicare and
maternity benefits, all other claims arising from employer-employee relations,
including those of persons in domestic or household service, involving an amount
exceeding Five thousand pesos (P5,000.00), whether or not accompanied with a
claim for reinstatement.
xxx xxx xxx
In order to fully appreciate the previous rulings of the Court on the power of the Regional Directors to
adjudicate money claims of workers and employees, there is a need to trace back the grant of said
power by legislation. Prior to the enactment of RA 6715, Art. 217 of the Labor Code, as amended,
conferred on the Labor Arbiters theoriginal and exclusive jurisdiction to hear and decide all cases
involving household services, and all money claims of workers, including those based on non-
payment or underpayment of wages, overtime compensation, separation pay and other benefits
provided by law or appropriate agreement, except claims for employees' compensation, social
security, medicare and maternity benefits. The Regional Director was not empowered to share in
that original and exclusive jurisdiction conferred on Labor Arbiters by Art. 217.
7

Subsequently, Executive Order (EO) 111 was promulgated on 24 December 1986, Section 2
8
of
which amended Article 128 par. (b) of the Labor Code, as amended, by granting the Minister of Labor or
his duly authorized representative the power to order and administer compliance with standards and other
labor legislations.
In the case of Briad Agro Development Corp. vs. de la Cerna and Camus Engineering
Corp. v. Sec. of Labor,
9
applying (EO) 111, the Court recognized the concurrent jurisdiction of the
Secretary of Labor (or Regional Directors) and the Labor Arbiters to pass on employees' money claims,
including those cases over which the Labor Arbiters had previously exercised exclusive jurisdiction.
However, in a subsequent modificatory resolution in the Briad Agro case, dated 9 November 1989, the
Court modified its original decision in view of the enactment of RA 6715, and upheld the power of the
Regional Directors to adjudicate employees' money claims subject to the conditions set forth in Section 2
of said law (RA 6715).
The power then of the Regional Director (under the present state of the law) to adjudicate
employees' money claims is subject to the concurrence of all the requisites provided under Sec. 2 of
RA 6715, to wit: (1) the claim is presented by an employee or person employed in domestic or
household service, or househelper; (2) the claim arises from employer-employee relations; (3) the
claimant does not seek reinstatement; and (4) the aggregate money claim of each employee or
househelper does not exceed P5,000.00.
Going over the records of this case, we note that the aggregate claims of each of the fifty four (54)
employees of herein petitioner are over and above the amount of P5,000.00. Under the
circumstances, the power to adjudicate such claims belongs to the Labor Arbiter who has the
exclusive jurisdiction over employees' claims where the aggregate amount of the claim
for each employee exceeds P5,000.00.
WHEREFORE, the petition is GRANTED. The order of respondent Secretary of Labor dated 23
August 1988 and the order of respondent Regional Director dated 2 July 1987 are SET ASIDE. The
case is REFERRED to the appropriate Labor Arbiter for proper determination. No costs.
SO ORDERED.
Melencio-Herrera, Paras, Sarmiento and Regalado, JJ., concur.

Footnotes
1 Rollo, pp. 22-27.
2 Rollo, pp. 22-23.
3 Rollo, p. 23.
4 Ibid., pp. 16-18.
5 Rollo, pp. 16-17.
6 Rollo, pp. 22-27.
7 Zambales Base Metals, Inc. v. The Minister of Labor, G.R. Nos. 73184-88, 26
November 1986, 146 SCRA 50.
8 Section 2. Article 128 (b) of the Labor Code of the Philippines is hereby further
amended to read as follows:
(b) The provisions of Article 217 of this Code to the contrary notwithstanding and in
cases where the relationship of employer-employee still exists, the Minister of Labor
and Employment or his duly authorized representatives shall have the power to order
and administer, after due notice and hearing, compliance with the labor standards
provisions of this Code and other labor legislation based on the findings of labor
regulation officers or industrial safety engineers made in the course of inspection,
and to issue writs of execution to the appropriate authority for the enforcement of
their orders, except in cases where the employer contests the findings of the labor
regulation officer and raises issues which cannot be resolved without considering
evidentiary matters that are not verifiable in the normal course of inspection.
(Emphasis supplied)
9 G.R. Nos. 82805 and 83225, 29 June 1989.

21. ABOITIZ SHIPPING CORPORATION, petitioner,
vs.
HON. DIONISIO C. DELA SERNA, IN HIS CAPACITY AS UNDERSECRETARY OF LABOR AND
EMPLOYMENT; HON. LUNA C. PIEZAS IN HIS CAPACITY AS DIRECTOR, NATIONAL CAPITAL
REGION, DEPARTMENT OF LABOR AND EMPLOYMENT; and, ABOITIZ SHIPPING
EMPLOYEES ASSOCIATION, respondents.
Alejandro B. Cinco for petitioner.
Rogelio B. De Guzman for private respondent.

PADILLA, J .:
The principal issue in this special civil action for certiorari is whether the respondent Regional
Director, National Capital Region, Department of Labor and Employment (Regional Director, for
short) correctly assumed jurisdiction over the money claims filed with him by the complainants
(members of herein private respondent).
Assailed specifically in this petition is the Order dated 9 February 1989 of the respondent
Undersecretary of Labor and Employment affirming the Order dated 13 October 1988 of the
Regional Director, ordering petitioner company to pay the seven hundred seventeen (717)
complainants a total amount of P1,350,828.00., or P1,884.00 each, representing underpayment of
an allowance of P2.00 per day, reckoned from 16 February 1982 to 15 February 1985.
The facts of the case, as found by respondent Undersecretary, are as follows:
. . . a complaint was filed by the Aboitiz Shipping Employees Association against
Aboitiz Shipping Corporation for non-compliance of the mandated minimum wage
rates and allowances pursuant to P.D. Nos. 1713, 1751, Wage Order Nos. 1, 2, 3, 4,
5 and 6. Accordingly, the Labor Regulation Officers of the Regional Office a
quo inspected the respondent's employment records.
On the other hand, the respondent filed a Motion to Dismiss contending that the
complainant-union has no legal capacity to sue because a representation issue is still
pending with Med-Arbiter Edgardo Cruz in LRD CASE NO. M-001-85.
Series of hearings were conducted whereby the Office a quo repeatedly directed the
respondent to present and submit all its pertinent papers/employment records
covered by the investigation. However, on several occasions, the respondent failed
to appear. Likewise, despite repeated notices, the respondent failed to present any of
the documents due for inspection evidencing correct payments of salaries and
allowances.
On December 28, 1987, the hearing officer submitted his report and recommended
for the payment to the union's members amounting to an aggregate sum of
P16,200,877.47.
On January 20, 1988, the Office a quo formally issued subpoena duces
tecum, requiring the presentation by the respondent of its employees' payrolls and
vouchers covering the period from February 16, 1982 to December 31, 1985. This,
the respondent ignored. In lieu thereof, it filed a second Motion to Dismiss alleging
that on July 24, 1986, the parties entered into a compromise agreement whereby
they agreed that all cases filed against and by respondent would be dropped and/or
dismissed, including the above entitled case; that pursuant to and by virtue of the
compromise agreement, cases filed against the Aboitiz Shipping Corporation and its
officers were dropped and/or withdrawn and/or dismissed; and that similarly, cases
filed by Aboitiz Shipping Corporation and its officers against the union and its officers
were dropped, withdrawn and/or dismissed.
In the subsequent hearing of February 16, 1988 however, the parties agreed that on
March 4, 1988, the respondent shall submit to the Office a quo the required
payrolls/vouchers for wages and salaries covering the period from February 16, 1982
to December 31, 1985. On that date, the respondent again failed to make good its
commitment. Nevertheless, it agreed to submit the payrolls of its Manila-based
employees for the period from January 1982 to December 1982. Together with the
submission of the photocopies of the payrolls of the Manila-based employees, the
respondent also filed a Manifestation of Compliance stating that the following should
be taken into consideration:
Annex 1. Which is a BWF/ISM Form No. 5 an advance notice dated October 1987
issued by the DOLE Regional Office No. 7 notifying respondent of their intent to
check payrolls etc. . . .
Annex 2. Which is the notice of inspection results no. 05598 dated October 23, 1987
stating that the respondent (company-wide payrolls, etc.) has no violation insofar as
wages, salaries, etc. are concerned as well as the benefits. Its indicated in the CBA. .
. .
Annex 3. Which is the certification of the ASEA Union President based in Cebu City
and the Union Vice President that company records inspected coveting the period
1984-1987 were true correct and in order, and in compliance with the Labor and
Standard Laws;
Annex 4. Which is the existing CBA between the respondent and complainant ASEA
employees Union;
Annex 5. Which is the letter of Bureau of Working Conditions dated July 17, 1987
signed by Director Augusto Sanchez sustaining and validating respondent's use of
314 as divisor in the computation of wages and COLA for land based employees of
respondent.
Again, on July 5, 1988, the respondent filed a supplemental Motion to Dismiss,
questioning this time the jurisdiction of the Office a quo. The motion alleged that ". . .
considering the complaint involves money claims, the original and exclusive
jurisdiction rests not before the Honorable Director but before the labor Arbiter . . ."
xxx xxx xxx
Another hearing was conducted on August 17, 1988, whereby the respondent was
required to submit its payrolls for the year 1984. The respondent manifested
however, that its Motion to Dismiss be resolved first by the Office a quo. Further, the
respondent averred that the payroll for 1984 need not be submitted, and thus moved
for the resolution of this case based on the available records and motions
submitted.
1

Subsequently, respondent Regional Director issued the now assailed Order dated 13 October 1988,
the dispositive portion of which reads:
WHEREFORE, premises considered, the Aboitiz Shipping Corporation is hereby
Ordered to pay the herein listed complainants the total amount of ONE MILLION
THREE HUNDRED FIFTY THOUSAND EIGHT HUNDRED TWENTY EIGHT and
00/100 PESOS (P1,350,828.00.) representing underpayment of daily allowance of
TWO (P2.00) PESOS per day reckoned from 16 February 1982 to 15 February 1985.
FURTHER, the Aboitiz Shipping Corporation is hereby Ordered to pay each and
every one of its employees the deficiency in allowance of two (P2.00) PESOS per
day from 16 February 1985 onward until this Order is fully complied with.
2

On appeal to the Office of the Secretary of Labor and Employment, in which petitioner questioned,
among others, the jurisdiction of respondent Regional Director over the instant claims, respondent
Undersecretary issued the Order dated 9 February 1989 dismissing petitioner's appeal and affirming
the Order dated 13 October 1988 of the respondent Director. The motion for reconsideration of the
order dated 9 February 1989 having been denied by respondent Undersecretary in the Order dated
2 June 1989, petitioner interposed this present petition.
Petitioner contends that it is the Labor Arbiter, not the Regional Director who has jurisdiction over
money claims, citing Article 217 of the Labor Code, and invoking this Court's ruling in Zambales
Base Metals, Inc. vs. Minister of Labor.
3

We rule against petitioner's contention.
Pertinent to the issue at bar are Articles 129 and 217 of the Labor Code, as amended by Sections 2
and 9 of Republic Act 6715 approved on 2 March 1989 which read as follows:
Article 129. Recovery of wages, simple money claims and other benefits. Upon
complaint of any interested party, the Regional Director of the Department of Labor
and Employment or any of the duly authorized hearing officers of the Department is
empowered, through summary proceeding and other monetary claims and benefits,
including legal interest, owing to an employee or person employed in domestic or
household service or househelper under this Code, arising from employer-employee
relations: Provided, that such complaint does not include a claim for
reinstatement: Provided, furtherThat the aggregate money claims of each employee
of househelper do not exceed five thousand pesos (P5,000.00). The Regional
Director hearing officer shall decide to resolve the complaint within thirty (30)
calendar days from the date of the filing of the same. Any sum thus recovered on
behalf of any employee or househelper pursuant to this Article shall be held in a
special deposit account, and shall be paid, on order of the Secretary of Labor and
Employment or the Regional Director directly to the employee or househelper
concerned. Any such sum not paid to the employee or househelper, because he
cannot be located after diligent and reasonable effort to locate him within a period of
three (3) years, shall be held as a special fund of the Department of Labor and
Employment to be used exclusively for the amelioration and benefit of workers.
Any decision or resolution of the Regional Director or hearing officer pursuant to this
provision may be appealed on the same grounds provided in Article 223 of this Code,
within five (5) calendar days from receipt of a copy of said decision or resolution, to
the National Labor Relations Commission which shall resolve the appeal within ten
(10) calendar days from the submission of the last pleading required or allowed
under its rules.
The Secretary of Labor and Employment or his duly authorized representative may
supervise the payment of unpaid wages and other monetary claims and benefits,
including legal interest, found owing to any employee or househelper under this
Code.
xxx xxx xxx
Art. 217. Jurisdiction of Labor Arbiters and the Commission. (a) Except as
otherwise provided under this Code, the Labor Arbiters shall have original and
exclusive jurisdiction to hear and decide, within thirty (30) calendar days after the
submission of the case by the parties for decision without extension, even in the
absence of stenographic notes, the following cases involving all workers, whether
agricultural or non-agricultural:
(1) Unfair labor practice cases;
(2) Termination disputes;
(3) If accompanied with a claim for reinstatement, those cases that workers may file
involving wages, rates of pay, hours of work and other terms and conditions of
employment;
(4) Claims for actual, moral, exemplary and other forms of damages arising from the
employer-employee relations;
(5) Cases arising from any violation of Article 264 of this Code, including questions
involving the legality of strikes and lockouts; and
(6) Except claims for employees compensation, social security, medicare and
maternity benefits, all other claims arising from employer-employee relations,
including those of persons in domestic or household service, involving an amount
exceeding five thousand pesos (P5,000.00) whether or not accompanies with a claim
for reinstatement.
(b) The Commission shall have exclusive appellate jurisdiction over all cases decided
by Labor Arbiters.
(c) Cases arising from the interpretation or implementation of collective bargaining
agreements and those arising from the interpretation or enforcement of company
personnel policies shall be disposed of by the Labor Arbiter by referring the same to
the grievance machinery and voluntary arbitration as may be provided in said
agreements.
It should be pointed out that, following the ruling in Briad Agro vs. Dela Cerna,
and L.M. Camus Engineering vs. Secretary of Labor,
4
the above-cited amendments, being
curative in nature, have retroactive effect and, thus, find application in the instant case.
Under the foregoing provisions of Articles 129 and 217 of the Labor Code, as amended, the
Regional Director is empowered, through summary proceeding and after due notice, to hear and
decide cases involving recovery of wages and other monetary claims and benefits, including legal
interest, provided the following requisites are present,
5
to wit:
1) the claim is presented by an employee or person employed in domestic or
household service, or househelper;
2) the claim arises from employer-employee relations;
3) the claimant does not seek reinstatement; and
4) the aggregate money claim of each employee or househelper does not exceed
P5,000.00 (Art. 129, Labor Code, as amended by R.A. 6715).
In the absence of any of the requisites above enumerated, it is the Labor Arbiter who shall have
exclusive original jurisdiction over claims arising from employer-employee relations, except claims
for employees' compensation, social security, medicare and maternity benefits, all these pursuant to
Article 217 of the Labor Code, particularly paragraph six (6) thereof.
This power of the Regional Directors qualified under R.A. 6715 is recognized in the modificatory
resolution dated 9 November 1989 in said Briad Agro vs. Dela Cerna which modified the earlier
decision therein dated 29 June 1989.
6

In view of the enactment of R.A. 6715, and the modificatory resolution in the Briad Agro case, the
ruling inZambales Base Metals, Inc. vs. Minister of Labor, supra, is no longer applicable.
In the case at bar, it is noted that in the Order dated 13 October 1988 of the Regional Director, the
latter foundeach of the seven hundred seventeen (717) complainants entitled to a uniform amount of
P1,884.00. (Rollo, pp. 11 7-131,). All the other requisites for the exercise of the power of the
Regional Director under Article 129 of the Labor Code, as amended by R.A. 6715, are present. It
follows that the respondent Regional Director properly took cognizance of the claims, subject of this
petition.
To the petitioner's contention that it was denied due process of law as it was not afforded time and
opportunity to present its evidence, the records show that on several occasions despite due notice,
petitioner failed to either appear at the scheduled hearings, or to present its employees' payrolls and
vouchers for wages and salaries, particularly, those covering the period from 16 February 1982 to 31
December 1985. Therefore, petitioner was not denied due process of law.
We also do not agree with the petitioner's allegation that it was improper for the respondent Regional
Director to order in the questioned Order dated 13 October 1988, compliance with P.D. 1678
7
as the
issue on the said decree was never raised by private respondent in its complaint filed before the Regional
Director. While it may be true that P.D. 1678 is not one of the laws where non-compliance therewith was
complained of, still, the Regional Director correctly acted in ordering petitioner to comply therewith, as he
(Regional Director) has such power under his visitorial and enforcement authority provided under Article
128(a) of the Labor Code, which provides:
Art. 128. Visitorial and enforcement power. (a) The Secretary of Labor or his duly
authorized representatives, including labor regulation officers, shall have access to
employers' records and premises at any time of the day or night whenever work is
being undertaken therein, and the right to copy therefrom, to question any employee
and investigate any fact, condition or matter which may be necessary to determine
violations or which may aid in the enforcement of this Code and of any labor law,
wage order or rules and regulations issued pursuant thereto.
Petitioner also claims that the complaint filed against it should have been dismissed outright,
considering the compromise agreement dated 24 July 1986, which purportedly contains the
agreement of the parties therein to dismiss the cases filed by one against the other.
8

We find no merit in said contention, in the light of the Regional Director's finding that the said
agreement can not bind the complainant-union vis-a-vis the instant claims, for the reason that it was
entered into by one Mr. Elizardo Manuel
9
in his personal capacity, one Luis M. Moro, Jr. representing
Aboitiz Shipping Corporation, and Atty. Luis D. Flores in his capacity as legal counsel of ASEA-
CLO,
10
which finding is supported by the records of the case before us. Such records show that the
compromise agreement primarily binds only the said Mr. Manuel, and that, therefore, it has nothing to do
with the rest of the other complainant-union members. The said agreement
11
reads:
COMPROMISE AGREEMENT
This Agreement, entered into by and among Mr. ELIZARDO MANUEL in his personal
capacity, LUIS M. MORO, JR. representing Aboitiz Shipping Corporation and Atty.
LUIS D. FLORES in his capacity as Legal Counsel of ASEA-CLO.
Based on a compromise agreement Mr. Elizardo Manuel is requesting Aboitiz
Shipping Corporation for payment of P70,000.00 in full settlement of all monetary
claims for back wages and benefits he has, including the settlement decided by the
NLRC which presently is under appeal.
For and in consideration of the above stated amount Mr. Elizardo Manuel and Aboitiz
Shipping Corporation mutually agree that:
Mr. Elizardo Manuel is deemed resigned from Aboitiz Shipping
Corporation upon payment of the above stated amount;
xxx xxx xxx
Aboitiz Shipping Corporation will furnish Mr. E. Manuel a certificate
of good moral character;
All pending cases as attested by our Legal Counsel that are
related on filed by E. Manuel against the Officers of Aboitiz Shipping
Corporation and Aboitiz Shipping Corporation itself will be
immediately dropped;
Aboitiz Shipping Corporation also agrees to drop all pending cases
related to and filed against Mr. E. Manuel and Officers of the Union.
Done this 24th day of July, 1986 in Metro Manila, Philippines.
(SGD) (SGD)
ELIZARDO MANUEL LUIS M. MORO, JR.
(SGD)
ATTY. LUIS D, FLORES
Considering the terms of the said compromise agreement, we rule that said Mr. Manuel shall be
excluded from the list of complainants who shall receive money awards from the petitioner.
Finally, petitioner Avers: that the award of P1,350,828.00. is without factual and legal basis; that
petitioner did not commit any labor standards violation pursuant to the DOLE inspection results and
the union certification to that effect; and that 291 of the 717 complainants are non-employees of
petitioner, and that the other 136 of the said 717 commenced employment only after February 1982.
hence, not entitled to receive money awards. The foregoing contentions being evidentiary in nature,
we have to respect the factual findings of public respondents regarding the above-cited petitioner's
averments, the long-settled rule being that factual findings of labor officials are, generally, conclusive
and binding on this Court when supported by substantial evidence.
12

WHEREFORE, the assailed Order dated 9 February 1989 of the respondent Undersecretary of
Labor and Employment affirming the Order dated 13 October 1988 of the Regional Director is
hereby AFFIRMED, with the modification that Mr. Elizardo Manuel shall be excluded from the list of
complainants at bar who are entitled to money awards of P1,884.00. each. Petition is DISMISSED.
SO ORDERED.
Melencio-Herrera, Paras, Sarmiento and Regalado, JJ., concur.

22. not found
23. VICENTE ATILANO/ROSE SHIPPING LINES, petitioner,
vs.
HON. DIONISIO C. DE LA SERNA, Undersecretary Department of Labor and Employment,
HON. ADRIAN LOMUNTAD, Regional Director, Department of Labor and Employment,
Regional Office No. 7, MAMINTAS O. SANDALAN, CESAR PETALCORIN, JONATHAN
SARADOR, BONIFACIO LASOLA, NILO CLAROS, GODOPREDO GRANADA, CRISTITUTO
DAQUEL, LEONARDO LARGO, TOMAS OTADOY, LUIS GONZALES, PAULINO SIDO, GILBERT
OSABEL, WILLIAM RONDOVIO, RUEL ORGE, NOLASCO P. AUSTERO, WILFREDO FLORES
and BERNARDITO P. MANALO, respondents.
Joaquin G. Chung, Jr. Law Offices and Assarga Law Firm for petitioner.

FELICIANO, J .:
This Petition for certiorari is directed against the order of respondent Undersecretary of Labor and
Employment dated 3 March 1988 which sustained the decision of respondent Regional Director in
LSED Case No. 055-85. That decision awarded salary differentials, allowances, 13th month pay and
overtime pay to the seventeen (17) private respondent employees of petitioner Vicente Atilano who
is doing business under the rubric Rose Shipping Lines.
On 20 May 1985, private respondents filed a letter-complaint in the Regional Office of the then
Ministry of Labor and Employment, Cebu City, against petitioner Rose Shipping Lines and its
Proprietor/Manager Vicente Atilano docketed as LSED Case No. 055-85. The letter-complaint
alleged violations by petitioner of labor standard laws on minimum wages, allowances, 13th month
pay and overtime pay.
Acting on the letter-complaint, the Office of the Regional Director ordered a Labor Standards and
Welfare Officer (LSW officer, hereinafter) to conduct a complaint inspection on 22 July 1985 at the
establishment of petitioner in Cebu City. However, no actual inspection was effected because the
owner, petitioner Mr. Vicente Atilano, was allegedly on a business trip to Manila, and his employees
declined, to allow the inspection in his absence.
Respondent Regional Director subsequently summoned the parties to conciliation conferences the
first of which was held on 5 August 1985 where only the complainants (private respondents herein)
appeared. The conference was then rescheduled to 16 August 1985 and on that meeting both the
parties were represented. Another hearing was held on 21 August 1985 and there the private
respondents submitted their position paper elaborating and documenting their claims. Petitioner did
not file any position paper.
On 16 August 1985, while the above case was in progress, private respondents filed another
complaint against petitioner for unpaid wages covering the month of July 1985 which case was
docketed as LSED Case No. 061-85. On 26 August 1985, the parties were caged to a conference
regarding this second complaint during which petitioner Vicente Atilano appeared and promised to
pay private respondents their unpaid salaries for the month of July not later than 30 August 1985,
and their salaries for the month of August 1985 not later than 2 September 1985. Petitioner,
however, failed to comply with this promise. On 6 September 1985, the Regional Director issued a
Compliance Order requiring petitioner to pay private respondents the aggregate amount of Thirty
Seven Thousand Sixty Five Pesos and Sixty Centavos (P37,065.60) representing the unpaid wages
being claimed under the second complaint LSED Case No. 061-85).
Petitioner filed a motion for reconsideration of the Compliance Order, which was denied for lack of
merit in a Resolution dated 11 October 1985. Counsel for private respondents immediately moved
for the issuance of a writ of execution. The case was later appealed by petitioner to the then Minister
of Labor and Employment which appeal was, however, dismissed on the ground that it was filed out
of time. Petitioner then filed a motion to quash the writ of execution which motion was also denied.
But in an order dated 26 January 1986, LSED Case No. 061-85 was dismissed on the ground that
the claims of all the complaints had been fully settled by the petitioner.
Meanwhile, on 16 January 1986, the Regional Director issued an order in LSED Case No. 055-85
(the earlier case) the dispositive portion of which provided as follows:
WHEREFORE, premises considered, respondent ROSE SHIPPING LINES and the
Manager/Proprietor is (sic) hereby ordered to pay the claims of the complainants in
the aggregate sum of SIX HUNDRED SIXTY THOUSAND FIVE HUNDRED NINETY
FOUR PESOS AND 46/1000 (P660,594.46), Philippine currency, within 15 days from
the receipt thereof, ... .
Petitioner did not file a motion for reconsideration of the above order but instead filed an ex-
parte motion to dismiss dated 24 January 1986 alleging that the case (No. 055-85) had been
rendered moot and academic by the quitclaims and release papers dated 4 January 1986 signed by
complainants in favor of respondents.
Private respondents filed an opposition to the ex-parte motion to dismiss, contending that the quit-
claims and release papers referred to by petitioner (which quitclaims and papers had been prepared
by petitioner) were intended to support the dismissal of LSED Case No. 061-85 (the later case) only.
In his comment on private respondents' opposition to the ex-parte motion to dismiss, petitioner
contended that the two (2) cases involved identical claims and concerned the same parties, and that
the dismissal of LSED Case No. 061-85 was res judicata in respect of LSED Case No. 055-85.
Petitioner added that the dispositive portion of the order dismiss LSED Case No. 061-85 refers not
only to the claims of private respondents in the said case but to allclaims of private respondents
against petitioner including those which are the subject of LSED Case No. 055-85.
Several conciliation conferences on the motion to dismiss were subsequently held and both parties
agreed that they would submit their respective position papers after which petitioner's motion to
dismiss would be deemed submitted for resolution.
On 24 April 1986, public respondent Regional Director denied petitioner's motion to amiss for lack of
merit. A motion for reconsideration or appeal was filed with the Secretary of the Department of Labor
and Employment on 19 May 1986. Petitioner more than a year later filed a Manifestation and Motion
with the Secretary dated 23 July 1987, enclosing therein a different set of quitclaims and/or a also
prepared by petitioner but allegedly signed by private respondents dated 9 July 1986 (i.e., different
from those earlier referred to by petitioner in his ex-partemotion to dismiss filed with the Regional
Director On 3 March 1988, public respondent Under of Labor rendered the questioned order
dismissing petitioner's motion for reconsideration or appeal for lack of merit.
In the instant Petition for Certiorari, petitioner makes the following arguments:
1. Public respondents acted without jurisdiction over the nature and subject matter of
private respondents' purported money claims.
2. Public respondents acted in excess of jurisdiction in not endorsing the matter to
the National Labor Relations Commission for adjudication.
3. Public respondents acted with grave abuse of discretion in not conducting an
actual inspection on the purported charges of labor standards violations.
4. Public respondents acted with grave abuse of discretion amounting to lack of
jurisdiction in summarily granting private respondents' claims.
The main issue to be resolved herein is whether or not the public respondents, Regional Director
and Undersecretary of Labor, have jurisdiction over the subject matter of the case. Petitioner
contends that the power to adjudicate the money claims here involved is vested solely in the Labor
Arbiter.
1. LSED Case No. 055-85 was commenced on 20 May 1985; the order of the
Regional Director in said case, which is here sought to be set aside, was issued on
16 January 1986, while the order of the same official denying petitioner's motion to
dismiss for lack of merit was rendered on 24 April 1986. The order of the
Undersecretary of Labor here assailed was, as already noted, issued on 3 March
1988. At all material times i.e., from 20 May 1985 through to 3 March 1988, the
legal provisions governing the exercise of the visitorial and enforcement powers of
the Regional Directors of Labor were embodied in P.D. No. 850 (promulgated on 16
December 1975) and Executive Order No. 111 (promulgated on 24 December 1986),
amending Article 128 (b) of the Labor Code which, as amended, provided as follows:
ART. 128. Visitorial and enforcement power. ... .
(b) The provisions of Article 217 of this Code to the contrary notwithstanding and in
cases where the relationship of employer-employee still exist, the Minister of Labor
and Employment or his duly authorized representatives shall have the power to order
and administer, after due notice and hearing, compliance with the labor standards
provisions of this Code and other labor legislation based on the findings of labor
regulation officers or industrial safety engineers made in the course of inspection,
and to issue writs of execution to the appropriate authority for the enforcement of
their orders, except in cases where the employer contests the findings of the labor
regulation officer and raises issues which cannot be resolved without considering
evidentiary matters that are not verifiable in the normal course of inspection.
xxx xxx xxx
In Maternity and Children's Hospital v. the Honorable Secretary of Labor,
1
the Court made clear that
under Article 128 of the Labor Code, as amended, the Regional Director of Labor possessed
"enforcement/adjudication authority" over uncontested money claims where the employer-employee
relationship remained. The Court, through Mr. Justice Medialdea, said:
As seen from the foregoing, EO 111 authorizes a Regional Director to order
compliance by an employer with labor standards provisions of the Labor Code and
other legislation. It is Our considered opinion however, that the inclusion of the
phrase, 'The provisions of Article 217 of this Code to the contrary notwithstanding
and in cases where the relationship of employer-employee still exists ... ' in Article
128 (b), as amended, above-cited, merely confirms/reiterates
the enforcement/adjudication authority of the Regional
Director over uncontested money claims in cases where an employer-employee
relationship still exists.
Viewed in the light of PD 850 and read in coordination with MOLE Policy Instructions
Nos. 6, 7 and 37, it is clear that it has always been the intention of our labor
authorities to provide our workers immediate access (when still feasible, as where an
employer-employee relationship still exists) to their rights and benefits without being
inconvenienced by arbitration/litigation processes that prove to be not only nerve-
wracking, bat financially burdensome in the long run.
Note further the second paragraph of Policy Instructions No. 7 indicating that the
transfer of labor standards cases from the arbitration system to the enforcement
system is
".. to assure the workers the rights and benefits due to him under
labor standard laws, without having to go through arbitration. .."
so that
".. the workers would not litigate to get what legally belongs to him. ..
ensuring delivery .. free of charge."
Social justice legislation, to be truly meaningful and rewarding to out-workers, must
not be hampered in its application by long-winded arbitration and litigation. Rights
must be asserted and benefits received with the least inconvenience. Labor laws are
meant to promote, not defeat, social justice.
xxx xxx xxx
The proceedings before the Regional Director must, perforce, be upheld on the basis
of Article 128 (b) as amended by E.O. No. 111, dated December 24, 1986, this
executive order to be considered in the nature of a curative statute with retrospective
application.' (Progressive Workers' Union, et al. v. Hon. F.P. Aguas, et al. [supra]; M.
Garcia vs. Judge A. Martinez, et al., G.R. No. L- 47629, May 28, 1979, 90 SCRA
331). (Citations omitted; Emphasis supplied)
2. Applying the Maternity and Children's Hospital case to the case at bar, we
consider that petitioner did not effectively controvert the money claims of private
respondents against him, which claims originated from labor standards violations
asserted to have been committed by petitioner.
The records of the present case show that petitioner, for reasons satisfactory to himself,
did not contest the claims of private respondents despite the multiple opportunities therefor afforded
to him. Petitioner did not file any answer to the letter-complaint submitted by private respondents to
the Office of the Regional Director; neither did he file a position paper before that Office to controvert
private respondents' claims. It was only after the Regional Director had already rendered his ruling of
16 January 1986 in LSED Case No. 055-85 that petitioner tried to controvert the said claims by
arguing that private respondents had subsequently executed quitclaims and releases in his favor.
We note that petitioner did not question the correctness of the computations of the amounts due to
each of the private respondents nor that said claims had not theretofore been paid by petitioner.
After rendition of the Regional Director's decision, petitioner attempted to set up a defense
of subsequent compromise of and payment to or waiver by private respondents of their claims and
presented what he contends were quitclaims, releases and waivers signed by private respondents.
On the basis of the submission of such papers, petitioner now pretends that he had controverted the
claims of private respondents and that he had raised issues which could not be resolved without
considering evidentiary matters not verifiable in the normal course of inspection, and that therefore
the present case should go to the Labor Arbiter.
We do not find petitioner's argument persuasive. We believe that the question of the authenticity or
genuineness of the quitclaims, releases and waivers supposedly signed by private respondents, but
vehemently denied by the latter, could be verified by the Regional Director in the course of, and in
connection with, examination of the petitioner's books and records of which such supposed
quitclaims, etc. (if at all genuine) must have fanned part. We note also that after petitioner on 19 May
1986 filed a motion for reconsideration or appeal from the Regional Director's order of 16 January
1986, with the Secretary of Labor, the Secretary of Labor requested the Regional Director to conduct
conferences or hearings for the purpose of verifying the genuineness and authenticity of private
respondents' signatures on the quitclaim papers submitted by petitioner. A report by an LSW officer
of the Regional Director's office showed that:
(a) eight (8) of the private respondents denied the genuineness of their purported
signatures appearing on the quitclaim and release papers shown to them for
Identification and examination;
(b) the same private respondents executed affidavits stating that they had not
executed any document in favor of petitioner; that the quitclaims, etc. submitted by
petitioner were simulated and forged; and that private respondents had not tried to
settle the case LSED Case No. 055-85).
2

On the basis of the foregoing report, the Undersecretary of Labor stated in his 3 March 1988 order
that:
In the face of the foregoing circumstances, we have no alternative but to
deny respondents' motion.Let it be noted that a careful examination of the signatures
appearing in the quitclaims and releases will readily show quite apparent variance
vis-a-vis the signatures affixed in the complaint. This aroused our suspicion on their
due execution and genuineness and prompted us to cause the calling of concerned
parties for verification. Said doubts and suspicion were confirmed and further
strengthened by the outright denial made by complainants during the conferences
called as well as in the sworn statements they subsequently submitted. We wish to
state at this juncture that while it is our policy to encourage voluntary settlement of
disputes, this Office can not approve a compromise agreement or settlement which is
being questioned and in fact being denied by one of the parties.While it is true that
respondents submitted quitclaims and releases and other documents purportedly
executed by complainants to show that they have no more claims against
respondents, said documents could not be given any weight after the complainants
personally appeared during the hearing and declared that their signatures appearing
thereon were simulated and forged and at the same time denied that any settlement
was arrived at. Besides, the fact that those documents were supposed to be
executed as early as July 9, 1986 but were submitted to this Office after more than a
year has lapsed puts serious doubts on their authenticity. For if indeed there was an
amicable settlement reached that early, why did it take respondent that long to notify
us of the same and move for the dismissal of this case. More importantly, would it not
be appropriate and logical for the parties, assisted by their respective counsels to file
a joint motion to dismiss, if really they have come to terms.
3

The quitclaim papers which petitioner alleges embodied a compromise or settlement agreement
were in any case not duly executed, that is, they were not signed in the presence of the Regional
Director or his duly authorized representative, in disregard of the requirements of Section 8, Rule II
of the Rules on the Disposition of Labor Standards Cases in the Regional Offices, which provide
that:
Section 8. Compromise Agreement. Should the party arrive at an agreement as to
the whole or part of the dispute, said agreement shall be reduced [to] writing and
signed by the parties in thepresence of the regional director or his duly authorized
representative. (Emphasis supplied)
Thus, the issue of the authenticity and genuineness of the two (2) sets of supposed quitclaims had
been squarely raised before and passed upon and resolved by the Regional Director and the
Undersecretary of Labor. We note that petitioner did not submit any rebuttal evidence before the
Regional Director or his representatives. We note also that the set of supposed quitclaims
purportedly signed as early as 9 July 1986, were first presented by petitioner in his Manifestation
and Motion filed with the Undersecretary of Labor dated 23 July 1987, that is, more than a year after
execution; and that upon the other hand, the joint affidavits supposedly signed by private
respondents attesting to the genuineness of the purported quitclaims are dated only as of 14
September 1987, or more than a year after the supposed quitclaims were signed.
The record thus strongly suggests that the issue of the genuineness or authenticity of the purported
quitclaim documents was an issue belatedly manufactured by petitioner in the effort to evade the
jurisdiction of the Regional Director and delay payment of the amounts awarded by the Regional
Director.
3. On 2 March 1989, Republic Act No. 6715 amending certain provisions of the Labor
Code was enacted. In his concurring opinion in the Resolution of the Motion for
Reconsideration in Briad Agro Development Corporation v. de la Cerna, et al.,
4
Mr.
Justice Narvasa underscored that Republic Act No. 6715 had left Article 128 (b) of the
Labor Code intact, in the sense that the Regional Director retains his visitorial and
enforcement powers thereunder and could exercise such powers even though the
amount involved was in excess of P5,000.00 provided that the employer had not
contested the findings of the LSW officers by raising issues which can not be resolved
without considering evidentiary matters not verifiable in the course of normal inspection:
In the resolution, therefore, of any question of jurisdiction over a money claim arising
from employer-employee relations, the first inquiry should be into whether the
employment relation does indeed still exist between the claimant and the respondent.
If the relation no longer exists, and the claimant does not seek reinstatement, the
case is cognizable by the Labor Arbiter, not by the Regional Director. On the other
hand, if the employment relation still exists, or reinstatement is sought, the next
inquiry should be into the amount involved.
If the amount involved does not exceed P5,000.00, the Regional Director undeniably
has jurisdiction. But even if the amount of the claim exceeds P5,000.00, the claim is
not on that account necessarily removed from the Regional Director's competence. In
respect thereof, he may still exercise the visitorial and enforcement powers vested in
him by Article 128 of the Labor Code, as amended, supra;that is to say, he may still
direct his labor regulations officers or industrial safety engineers to inspect the
employer's premises and examine Ms records; and if the officers should find that
there have been violations of labor standards provisions, the Regional Director may,
after due notice and hearing, order compliance by the employer therewith and issue
a writ of execution to the appropriate authority for the enforcement thereof. However,
this power may not, to repeat, be exercised by him where the employer contests the
labor regulations officers' findings and raises issues which cannot be resolved
without considering evidentiary matters not verifiable in the normal course of
inspection. In such an event, the case will have to be referred to the corresponding
Labor Arbiter for adjudication, since it falls within the latter's exclusive original
jurisdiction. (Emphasis supplied)
As already pointed out above, petitioner here did not controvert the findings of the LSW officers and
the decision of the Regional Director, and that the issue he subsequently raised could, in any event,
have been resolved, as it was in fact verified and resolved, in the normal course of inspection and
conferences among petitioner and private respondents.
4. Should it be assumed for purposes of argument merely, that under Article 217 (6)
of the Labor Code as last amended by Republic Act No. 6715, jurisdiction over wage
claims like those involved in LSED Case No. 055-85 was transferred to the Labor
Arbiter, it must still be pointed out that the amendments introduced by Republic Act
No. 6715 cannot be applied retroactively so as to set aside and
nullify earlier, completed exercises of jurisdiction which had resulted in a decision
which had become final and executory long before the enactment of Republic Act
No. 6715. As noted earlier, at the time LSED Case No. 05585 was commenced and
at the time decision thereon was rendered by the Regional Director and aimed by the
Undersecretary of Labor, both officials undeniably had jurisdiction over the subject
matter of LSED Case No. 055-85. That jurisdiction was not wiped out by the coming
into effect of Republic Act No. 6715.
5

5. Finally, petitioner points to the failure of public respondent Regional Director to
conduct an actual inspection of the establishment owned by petitioner, contending
that the absence of such an inspection nullified the decision rendered by the
Regional Director. This argument fails to take into account two (2) things: firstly, that
the inability of the LSW officers of the Regional Director to conduct an actual
inspection was due to refusal of petitioner's own employees to permit inspection in
the alleged absence of petitioner; secondly, Section 7, Rule II of the Rules on the
Disposition of Labor Standards Cases provides that:
Sec. 2. Complaint inspection. All such complaints shall immediately be forwarded
to the Regional Director who shall refer the case to the appropriate unit in the
Regional office for assignment to a Labor Standards and Welfare Officer (LSWO) for
field inspection. When the field inspection does not produce the desired results, the
Regional Director shall summon the parties for summary investigation to expedite the
disposition of the case. ... . (Emphasis supplied)
Thus, the lack of inspection was cured when the Regional Director called the parties to several
conferences, at which conferences, petitioner could have presented whatever he had in his books
and records to refute the claims of private respondents; petitioner did not do so and his failure must
be deemed a waiver of his right to contest the conclusions of the Regional Director on the basis of
the evidence and records actually made available to him.
WHEREFORE, the Petition is DISMISSED for lack of merit. Costs against petitioner.
SO ORDERED.
Fernan, C.J., Gutierrez, Jr., Bidin and Cortes, JJ., concur.

24. EMPLOYERS CONFEDERATION OF THE PHILIPPINES, petitioner,
vs.
NATIONAL WAGES AND PRODUCTIVITY COMMISSION AND REGIONAL TRIPARTITE WAGES
AND PRODUCTIVITY BOARD-NCR, TRADE UNION CONGRESS OF THE
PHILIPPINES, respondents.
Sycip Salazar, Hernandez & Gatmaitan for petitioner.
Gilbert P. Lorenzo for private respondent.

SARMIENTO, J .:p
The petition is given due course and the various pleadings submitted being sufficient to aid the Court
in the proper resolution of the basic issues raised in this case, we decide it without further ado.
The Employers Confederation of the Philippines (ECOP) is questioning the validity of Wage Order
No. NCR-01-A dated October 23, 1990 of the Regional Tripartite Wages and Productivity Board,
National Capital Region, promulgated pursuant to the authority of Republic Act No. 6727, "AN ACT
TO RATIONALIZE WAGE POLICY DETERMINATION BY ESTABLISHING THE MECHANISM AND
PROPER STANDARDS THEREFORE, AMENDING FOR THE PURPOSE ARTICLE 99 OF, AND
INCORPORATING ARTICLES 120, 121, 122, 123, 124, 126, AND 127 INTO, PRESIDENTIAL
DECREE NO. 442 AS AMENDED, OTHERWISE KNOWN AS THE LABOR CODE OF THE
PHILIPPINES, FIXING NEW WAGE RATES, PROVIDING WAGE INCENTIVES FOR INDUSTRIAL
DISPERSAL TO THE COUNTRYSIDE, AND FOR OTHER PURPOSES," was approved by the
President on June 9, 1989. Aside from providing new wage rates,
1
the "Wage Rationalization Act" also
provides, among other things, for various Regional Tripartite Wages and Productivity Boards in charge of
prescribing minimum wage rates for all workers in the various regions
2
and for a National Wages and
Productivity Commission to review, among other functions, wage levels determined by the boards.
3

On October 15, 1990, the Regional Board of the National Capital Region issued Wage Order No.
NCR-01, increasing the minimum wage by P17.00 daily in the National Capital Region.
4
The Trade
Union Congress of the Philippines (TUCP) moved for reconsideration; so did the Personnel Management
Association of the Philippines (PMAP).
5
ECOP opposed.
On October 23, 1990, the Board issued Wage Order No. NCR-01-A amending Wage Order No.
NCR-01, as follows:
Section 1. Upon the effectivity of this Wage Order, all workers and employees in the
private sector in the National Capital Region already receiving wages above the
statutory minimum wage rates up to one hundred and twenty-five pesos (P125.00)
per day shall also receive an increase of seventeen pesos (P17.00) per day.
ECOP appealed to the National Wages and Productivity Commission. On November 6, 1990, the
Commission promulgated an Order, dismissing the appeal for lack of merit. On November 14, 1990,
the Commission denied reconsideration.
The Orders of the Commission (as well as Wage Order No. NCR-01-A) are the subject of this
petition, in which. ECOP assails the board's grant of an "across-the-board" wage increase to workers
already being paid more than existing minimum wage rates (up to P125. 00 a day) as an alleged
excess of authority, and alleges that under the Republic Act No. 6727, the boards may only
prescribe "minimum wages," not determine "salary ceilings." ECOP likewise claims that Republic Act
No. 6727 is meant to promote collective bargaining as the primary mode of settling wages, and in its
opinion, the boards can not preempt collective bargaining agreements by establishing ceilings.
ECOP prays for the nullification of Wage Order No. NCR 01-A and for the "reinstatement" of Wage
Order No. NCR-01.
The Court directed the Solicitor General to comment on behalf of the Government, and in the
Solicitor General's opinion, the Board, in prescribing an across-the-board hike did not, in reality,
"grant additional or other benefits to workers and employees, such as the extension of wage
increases to employees and workers already receiving more than minimum wages ..."
6
but rather,
fixed minimum wages according to the "salary-ceiling method."
ECOP insists, in its reply, that wage is a legislative function, and Republic Act No. 6727 delegated to
the regional boards no more "than the power to grant minimum wage adjustments"
7
and "in the
absence of clear statutory authority,"
8
the boards may no more than adjust "floor wages."
9

The Solicitor General, in his rejoinder, argues that Republic Act No. 6727 is intended to correct
"wage distortions" and the salary-ceiling method (of determining wages) is meant, precisely, to
rectify wage distortions.
10

The Court is inclined to agree with the Government. In the National Wages and Productivity
Commission's Order of November 6, 1990, the Commission noted that the determination of wages
has generally involved two methods, the "floor-wage" method and the "salary-ceiling" method. We
quote:
Historically, legislation involving the adjustment of the minimum wage made use of
two methods. The first method involves the fixing of determinate amount that would
be added to the prevailing statutory minimum wage. The other involves "the salary-
ceiling method" whereby the wage adjustment is applied to employees receiving a
certain denominated salary ceiling. The first method was adopted in the earlier wage
orders, while the latter method was used in R.A. Nos. 6640 and 6727. Prior to this,
the salary-ceiling method was also used in no less than eleven issuances mandating
the grant of cost-of-living allowances (P.D. Nos. 525, 1123, 1614, 1634, 1678, 1713
and Wage Order Nos. 1, 2, 3, 5 and 6). The shift from the first method to the second
method was brought about by labor disputes arising from wage distortions, a
consequence of the implementation of the said wage orders. Apparently, the wage
order provisions that wage distortions shall be resolved through the grievance
procedure was perceived by legislators as ineffective in checking industrial unrest
resulting from wage order implementations. With the establishment of the second
method as a practice in minimum wage fixing, wage distortion disputes were
minimized.
11

As the Commission noted, the increasing trend is toward the second mode, the salary-cap method,
which has reduced disputes arising from wage distortions (brought about, apparently, by the floor-
wage method). Of course, disputes are appropriate subjects of collective bargaining and grievance
procedures, but as the Commission observed and as we are ourselves agreed, bargaining has
helped very little in correcting wage distortions. Precisely, Republic Act No. 6727 was intended to
rationalize wages, first, by providing for full-time boards to police wages round-the-clock, and
second, by giving the boards enough powers to achieve this objective. The Court is of the opinion
that Congress meant the boards to be creative in resolving the annual question of wages without
labor and management knocking on the legislature's door at every turn. The Court's opinion is that if
Republic No. 6727 intended the boards alone to set floor wages, the Act would have no need for a
board but an accountant to keep track of the latest consumer price index, or better, would have
Congress done it as the need arises, as the legislature, prior to the Act, has done so for years. The
fact of the matter is that the Act sought a "thinking" group of men and women bound by statutory
standards. We quote:
ART. 124. Standards / Criteria for Minimum Wage Fixing. The regional minimum
wages to be established by the Regional Board shall be as nearly adequate as is
economically feasible to maintain the minimum standards of living necessary for the
health, efficiency and general well-being of the employees within the framework of
the national economic and social development program. In the determination of such
regional minimum wages, the Regional Board shall, among other relevant factors,
consider the following:
(a) The demand for living wages;
(b) Wage adjustment vis-a-vis the consumer price index;
(c) The cost of living and changes or increases therein;
(d) The needs of workers and their families;
(e) The need to induce industries to invest in the countryside;
(f) Improvements in standards of living;
(g) The prevailing wage levels;
(h) Fair return of the capital invested and capacity to pay of emphasis employers;
(i) Effects of employment generation and family income; and
(j) The equitable distribution of income and wealth along the imperatives of economic
and social development.
12

The Court is not convinced that the Regional Board of the National Capital Region, in decreeing an
across-the-board hike, performed an unlawful act of legislation. It is true that wage-fixing, like rate
constitutes an act Congress;
13
it is also true, however, that Congress may delegate the power to fix
rates
14
provided that, as in all delegations cases, Congress leaves sufficient standards. As this Court has
indicated, it is impressed that the above-quoted standards are sufficient, and in the light of the floor-wage
method's failure, the Court believes that the Commission correctly upheld the Regional Board of the
National Capital Region.
Apparently, ECOP is of the mistaken impression that Republic Act No. 6727 is meant to "get the
Government out of the industry" and leave labor and management alone in deciding wages. The
Court does not think that the law intended to deregulate the relation between labor and capital for
several reasons: (1) The Constitution calls upon the State to protect the rights of workers and
promote their welfare;
15
(2) the Constitution also makes it a duty of the State "to intervene when the
common goal so demands" in regulating property and property relations;
16
(3) the Charter urges
Congress to give priority to the enactment of measures, among other things, to diffuse the wealth of the
nation and to regulate the use of property;
17
(4) the Charter recognizes the "just share of labor in the
fruits of production;"
18
(5) under the Labor Code, the State shall regulate the relations between labor and
management;
19
(6) under Republic Act No. 6727 itself, the State is interested in seeing that workers
receive fair and equitable wages;
20
and (7) the Constitution is primarily a document of social justice, and
although it has recognized the importance of the private sector,
21
it has not embraced fully the concept of
laissez faire
22
or otherwise, relied on pure market forces to govern the economy; We can not give to the
Act a meaning or intent that will conflict with these basic principles.
It is the Court's thinking, reached after the Court's own study of the Act, that the Act is meant to
rationalize wages, that is, by having permanent boards to decide wages rather than leaving wage
determination to Congress year after year and law after law. The Court is not of course saying that
the Act is an effort of Congress to pass the buck, or worse, to abdicate its duty, but simply, to leave
the question of wages to the expertise of experts. As Justice Cruz observed, "[w]ith the proliferation
of specialized activities and their attendant peculiar problems, the national legislature has found it
more necessary to entrust to administrative agencies the power of subordinate legislation' as it is
caned."
23

The Labor Code defines "wage" as follows:
"Wage" paid to any employee shall mean the remuneration or earnings, however
designated, capable of being expressed in terms of money, whether fixed or
ascertained on a time, task, piece, or commission basis, or other method of
calculating the same, which is payable by an employer to an employee under a
written or unwritten contract of employment for work done or to be done, or for
services rendered or to be rendered and includes the fair and reasonably value, as
determined by the Secretary of Labor, of board, lodging, or other facilities customarily
furnished by the employer to the employee. "Fair and reasonable value" shall not
include any profit to the employer or to any person affiliated with the employer.
24

The concept of "minimum wage" is, however, a different thing, and certainly, it means more than
setting a floor wage to upgrade existing wages, as ECOP takes it to mean. "Minimum wages"
underlies the effort of the State, as Republic Act No. 6727 expresses it, "to promote productivity-
improvement and gain-sharing measures to ensure a decent standard of living for the workers and
their families; to guarantee the rights of labor to its just share in the fruits of production; to enhance
employment generation in the countryside through industry dispersal; and to allow business and
industry reasonable returns on investment, expansion and growth,"
25
and as the Constitution
expresses it, to affirm "labor as a primary social economic force."
26
As the Court indicated, the statute
would have no need for a board if the question were simply "how much". The State is concerned, in
addition, that wages are not distributed unevenly, and more important, that social justice is subserved.
It is another question, to be sure, had Congress created "roving" boards, and were that the case, a
problem of undue delegation would have ensued; but as we said, we do not see a Board (National
Capital Region) "running riot" here, and Wage Order No. NCR-01-A as an excess of authority.
It is also another question whether the salary-cap method utilized by the Board may serve the
purposes of Republic Act No. 6727 in future cases and whether that method is after all, a lasting
policy of the Board; however, it is a question on which we may only speculate at the moment. At the
moment, we find it to be reasonable policy (apparently, it has since been Government policy); and if
in the future it would be perceptibly unfair to management, we will take it up then.
WHEREFORE, premises considered, the petition is DENIED. No pronouncement as to costs.
IT IS SO ORDERED.
Melencio-Herrera (Chairperson), Padilla and Regalado, JJ., concur.
Paras, J., took no part.

25. ALPHA INVESTIGATION AND SECURITY AGENCY, INC.
(AISA), petitioner, vs. NATIONAL LABOR RELATIONS
COMMISSION, THIRD DIVISION, and WILLIAM GALIMBA,
NESTOR LOLOQUISEN, NESTOR IBUYAT, CARLITO CASTRO,
JOSE PERDIDO, FELIPE TOLENTINO, LEONARDO IBUYAT,
FELINO CULANNAY, RONIE NINO, ROMAN NALUNDASAN,
JAIME FONTANILLA, WILFRED BUTAY, JOSE ACIO, EDISON
VALDEZ, CRESENCIO AGRES, RODRIGO LUIS, MARIO SUGUI,
BENEDICTO SUGUI, ROGER RAMBAUD, respondents.
D E C I S I O N
ROMERO, J .:
May the principal of a security service agreement be held jointly and
severally liable with the contractor for non-payment of the minimum wage?
The facts are undisputed.
Petitioner Alpha Investigation and Agency, Inc. (AISA) is a private
corporation engaged in the business of providing security services to its
clients, one of whom is the Don Mariano Marcos State University (DMMSU).
Private respondents were hired as security guards by AISA on February
16, 1990. Five months later, 43 security guards filed before the Regional
Office of the Department of Labor and Employment (DOLE) a complaint
against AISA for non-compliance with the current minimum wage order. After
24 of the original complainants filed a motion for exclusion from the case, the
remaining 19 security guards filed their individual amended complaints
impleading DMMSU as party-respondent.
Private respondents have been receiving a monthly salary of P900.00
although the security service agreement between AISA and
DMMSU
[1]
provided a monthly pay of P1,200.00 for each security guard. AISA
made representations with DMMSU for an increase in the contract rates of the
security guards to enable them to pay the mandated minimum wage rates
without compromising its administrative and operational expenses. DMMSU,
however, replied that, being a government corporation, it cannot grant said
request due to budgetary constraints.
On August 17, 1992, Labor Arbiter Emiliano T. de Asis rendered a
decision, the dispositive portion of which reads as follows:
"RESPONSIVE TO THE FOREGOING, judgment is hereby rendered:
a) Ordering the respondent Alpha Investigation and Security Agency and Mariano
Marcos State University to pay each complainant the amount of FORTY ONE
THOUSAND FOUR HUNDRED FIFTY NINE PESOS AND FIFTY ONE
CENTAVOS (P41,459.51) representing salary differential for the period from
February 16, 1990 to September 30, 1991, or the total amount of P787,730.69 as
follows:
1. Nestor Loloquisen P41,459.51
2. Nestor Ibuyat 41,459.51
3. Jose Acio 41,459.51
4. Cresencio Agres 41,459.51
5. Wilfred Butay 41,459.51
6. Carlito Castro 41,459.51
7. Federico Calunnay 41,459.51
8. Jaime Fontanilla 41,459.51
9. William Galimba 41,459.51
10. Leonardo Ibuyat 41,459.51
11. Rodrigo Luis 41,459.51
12. Roman Nalundasan 41,459.51
13. Ronnie Nino 41,459.51
14. Jose Perdido 41,459.51
15. Roger Rambaud 41,459.51
16. Benedicto Sugui 41,459.51
17. Mario Sugui 41,459.51
18. Felipe Tolentino 41,459.51
19. Edison Valdez 41,459.51

P787,730.69
b) Dismissing the claims for 13th month pay for failure to substantiate the same.
c) Claims of complainants who filed their motion for reconsideration are hereby
dismissed.
SO ORDERED."
[2]

AISA and DMMSU interposed separate appeals. The NLRC, on May 7,
1993, rendered a decision affirming the solidary liability of AISA and DMMSU
and remanding the records of the case to the arbitration branch of origin for
computation of the salary differential awarded by the Labor Arbiter.
Only AISA filed a motion for reconsideration, which was denied by the
NLRC on July 1, 1993, for lack of merit.
The judgment against DMMSU, finding it jointly and severally liable with
AISA for the payment of increase in wages, became final and executory after
it failed to file a petition for certiorari with this Court within a reasonable
time. "Although Rule 65 does not specify any period for the filing of a petition
for certiorari and mandamus, it must, nevertheless, be filed within a
reasonable time. In certiorari cases, the definitive rule now is that such
reasonable time is within three months from the commission of the
complained act."
[3]

In this petition, AISA alleges that payment of the wage increases under the
current minimum wage order should be borne exclusively by DMMSU,
pursuant to Section 6 of Republic Act 6727 (RA 6727)
[4]
which reads as follows:
"Sec. 6. In the case of contracts for construction projects and for security,
janitorial and similar services, the prescribed increases in the wage rates of the
workers shall be borne by the principals or clients of the construction/service
contractors and the contract shall be deemed amended accordingly. In the event,
however, that the principal or client fails to pay the prescribed wage rates, the
construction/service contractor shall be jointly andseverally liable with his principal or
client."
It further contends that Articles 106, 107 and 109 of the Labor Code
generally refer to the failure of the contractor or sub-contractor to pay wages
in accordance with the Labor Code with a mandate that failure to pay such
wages would make the employer and contractor jointly and severally liable for
such payment. AISA insists that the matter involved in the case at bar hinges
on wage differentials or wagesincreases, as prescribed in the aforequoted
Section 6 of RA 6727, and not wages in general, as provided by the Labor
Code.
This interpretation is not acceptable. It is a cardinal rule in statutory
construction that in interpreting the meaning and scope of a term used in the
law, a careful review of the whole law involved, as well as the intendment of
the law, must be made.
[5]
In fact, legislative intent must be
ascertained from a consideration of the statute as a whole, and not of an isolat
ed part or a particular provision alone.
[6]

AISA's solidary liability for the amounts due the security guards finds
support in Articles 106, 107 and 109 of the Labor Code, to wit:
"ART. 106. Contractor or Sub-Contractor. Whenever an employer enters into a
contract with another person for the performance of the former's work, the employees
of the contractor and of the latter's sub-contractor, if any, shall be paid in accordance
with the provisions of this code.
In the event that the contractor or sub-contractor fails to pay the wages of his
employees in accordance with this Code, the employer shall be jointly and severally
liable with his contractor or sub-contractor to such employees to the extent of the
work performed under the contract, in the same manner and extent that he is liable to
employees directly employed by him. xxx
ART. 107. Indirect employer. The provisions of the immediately preceding Article
shall likewise apply to any person, partnership association or corporation which, nor
being an employer, contracts with an independent contractor for the performance of
any work, task, job or project.
ART. 109. Solidary Liability. The provisions of existing laws to the contrary
notwithstanding, every employer or indirect employer shall be held responsible with
his contractor or sub-contractor for any violation of any provision of this Code. For
purposes of determining the extent of their civil liability under the Chapter, they shall
be considered as direct employers."
The joint and several liability of the contractor and the principal is
mandated by the Labor Code to ensure compliance with its provisions,
including the statutory minimum wage.
[7]
The contractor is made liable by virtue
of his status as direct employer, while the principal becomes the indirect
employer of the former's employees for the purpose of paying their wages in
the event of failure of the contractor to pay them. This gives the workers
ample protection consonant with the labor and social justice provisions of the
1987 Constitution.
[8]

In the case at bar, it is not disputed that private respondents are the
employees of AISA. Neither is there any question that they were assigned to
guard the premises of DMMSU pursuant to the latter's security service
agreement with AISA and that these two entities paid their wage increases.
It is to be borne in mind that wages orders, being statutory and mandatory,
cannot be waived. AISA cannot escape liability since the law provides for the
joint and solidary liability of the principal and the contractor to protect the
laborers.
[9]
Thus, the Court held in the Eagle Security v. NLRC:
[10]

"The solidary liability of PTSI and EAGLE, however, does not preclude the right of
reimbursement from his co-debtor by the one who paid (See Article 1217, Civil
Code). It is with respect to this right of reimbursement that petitioners can find
support in the aforecited contractual stipulation and Wage Order provision.
The Wage Orders are explicit that payment of the increases are 'to be borne' by the
principal or client. 'To be borne', however, does not mean that the principal, PTSI in
this case, would directly pay the security guards the wage and allowance increases
because there is no privity of contract between them. The security guards' contractual
relationship is with their immediate employer, EAGLE. As an employer, EAGLE is
tasked, among others, with the payment of their wages. (See Article VII Sec. 3 of the
Contract for Security Services, supra and Bautista v. Inciong, G.R. No. 52824, March
16, 1988, 158 SCRA 556).
Premises considered, the security guards' immediate recourse for the payment of the
increases is with their direct employer, EAGLE. However, in order for the security
agency to comply with the new wage and allowance rates it has to pay the security
guards, the Wage Order made specific provision to amend existing contracts for
security services by allowing the adjustments of the consideration paid by the
principal to the security agency concerned. What the Wage Orders require, therefore,
is the amendment of the contract as to the consideration to cover the service
contractor's payment of the increases mandated. In the end, therefore, ultimate
liability for the payment of the increases rests with the principal." (Underscoring
supplied)
Section 6 of RA 6727 merely provides that in case of wage increases
resulting in a salary differential, the liability of the principal and the contractor
shall be joint and several. The same liability attaches under Articles 106, 107
and 109 of the Labor Code, which refer to the prevailing standard minimum
wage.
The Court finds that the NLRC acted correctly in holding petitioner jointly
and severally liable with DMMSU for the payment of the wage increases to
private respondents. Accordingly, no grave abuse of discretion may be
attributed to the NLRC in arriving at the impugned decision.
WHEREFORE, premises considered, the petition is DISMISSED for lack
of merit and the assailed resolution is AFFIRMED. Costs against petitioner.
SO ORDERED.

26. EAGLE SECURITY AGENCY, INC., petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, LABOR ARBITER EDUARDO G. MAGNO,
RODOLFO DEQUINA, AVELINO M. NARVAEZ, JACULO J. JEROME, ROLANDO N. VALENCIA,
CLODUALDO N. ANGRA, JOSE SAMONTE, RUEL A. LAGASTOS, PRISCILO MALDO, JR., R.C.
DELA CRUZ, JOSE AJEDA, JOSE ANASTACIO, LAURO ROBERTO, ISMAEL SALACATA,
ULDARICO CAMU, JESUS CARILLO, and DIORITO BRAGA,respondents.
G.R. No. 81447 May 18,1989
PHILIPPINE TUBERCULOSIS SOCIETY, INC., petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, EAGLE SECURITY AGENCY, INC., RODOLFO
V. DEQUINA, AVELINO M. NARVAEZ, JACULO J. JEROME, ROLANDO N. VALENCIA,
CLODUALDO M. ANGRA, JOSE SAMONTE, RUEL A. LAGASTOS, PRISCILO MALDO, JR., R.C.
DELA CRUZ, JOSE AJEDA, HILARIO V. LLANES, NAPOLEON SAPOLE, WILLIAM ESTOSANE
and AMANTE SOBRETODO, respondents.
Antonio G. Nalapo for Eagle Security Agency, Inc.
Quiason, Makalintal, Barot & Torres for petitioner in G.R. No. 81447.
Wilfredo Espiritu Taganas for private respondents.

CORTES, J .:
The core issue in these two consolidated cases is the liability of the principal and the contractor for
the payment of the minimum wage and cost of living allowance increases to security guards under
Wage Order Nos. 2, 3, 5 and 6.
The antecedent facts are undisputed.
In 1980, petitioners Philippine Tuberculosis Society, Inc. (hereinafter referred to as PTSI) and Eagle
Security Agency, Inc. (hereinafter referred to as EAGLE) entered into a "Contract for Security
Services" wherein the latter agreed to provide security services in the formers premises. The
contract covered the period from November 2, 1979 to July 31, 1985. Pursuant to this agreement,
private respondents were assigned by EAGLE to PTSI as security guards.
Subsequently, on November 5, 1985, a complaint was filed by private respondents Rodolfo Dequina,
Avelino Narvaez, Jaculo Jerome, Rolando Valencia, Clodualdo Angra Jose Samonte, Raul
Lagastos, Priscilo Maldo, Jr., R.C. dela Cruz, Jose Ajeda and others against PTSI and EAGLE for
unpaid wage and allowance increases under Wage Order Nos. 2, 3, 5 and 6" ** with interest plus
damages and attorney's fees.
On September 30, 1986, while the case was still pending, ten (10) additional complainants, namely:
Jose Anastacio, Lauro Roberto, Ismael Salacata, Uldarico Camu, Jesus Carrillo, Diorito Braga,
Hilario Llanes, Napoleon Sepole, William Estosane and Amante Sobretodo, joined in the suit.
However, the labor arbiter dropped the names of Hilario Llanes, Napoleon Sapole, William Estosane
and Amante Sobretodo as complainants on the ground that only those who signed the verified
complaint and reply should be recognized. [Labor Arbiter's Decision, p. 1; G.R. No. 81447, Rollo, p.
74.]
On April 6, 1987, the labor arbiter rendered a decision, the dispositive portion of which reads as
follows:
IN VIEW OF THE FOREGOING, respondent Eagle Security Agency, Inc. and
Philippine Tuberculosis Society, Inc. are hereby ordered to pay jointly and severally
the sixteen (16) complainants of (sic) their unpaid wages and allowances under
Wage Order Nos. 2, 3, 5 and 6. The office of the Socio-Economic Analyst is hereby
ordered to examine the records and payrolls of the two (2) respondents to determine
their liabilities.
The claim for damages and attorney's fees are hereby DISMISSED for lack of merit.
SO ORDERED. [Labor Arbiter's Decision , pp. G.R. No. 81447, Rollo, pp. 79-80.]
PTSI, EAGLE and the four (4) security guards whose names where dropped from the complaint filed
their appeals to the National Labor relations Commission (hereinafter referred to as NLRC).
The NLRC, on November 27, 1987, rendered its decision granting the appeal as to the four (4)
security guards whose names were dropped and denying PTSI and EAGLE's appeals. The
dispositive portion of its decision reads as follows:
WHEREFORE, the premises considered, let the appealed decision be, as it is
hereby, Modified in that respondent Eagle Security Agency, Inc. and yhe Philippine
Tuberculosis Society, In c. are hereby ordered to pay jointly and severally the twenty
(20) complainants of (sic) their unpaid wages and allowances under Wage Order
Nos. 2, 3, 5 and 6. In all other respects, the decision is affirmed.
SO ORDERED. [NLRC Decision, p. 8; G.R. No. 81447, Rollo, p. 27.]
Both PTSI and EAGLE filed their motions for reconsideration. In a resolution dated December 29,
1987 , the NLRC denied these motions for lack of merit.
PTSI and EAGLE filed separate petitions for certiorari with this Court. PTSI's petition was docketed
as G.R. No. 81447 while that of EAGLE, G.R. No. 81314.
On motion of PTSI, the court, on april 6, 1988, resolved to consolidate the two (2) petitions.
Thereafter, on May 25, 1988, the Court, also upon motion of PTSI, resolved to issue a temporary
restraining order enjoining the NLRC from enforcing and/or carrying out its decision dated November
27, 1987 and resolution of December 29, 1987.
1 Petitioners PTSI and EAGLE, in this special civil action of certiorari, impugn the decision of the
NLRC as having been issued with grave abuse of discretion amounting to lack or excess of
jurisdiction. Petitioners assail the decision of the NLRC finding them jointly and severally liable to the
security guards for payment of the minimum wage and cost of living allowance increases under the
wage orders. Both PTSI and EAGLE point to the other as the one who should be solely liable for
paying the increases.
Petitioner PTSI alleges that payment of the wage and allowance increases under Wage Order Nos.
2, 3, 5 and 6 should be borne exclusively by EAGLE, pursuant to the following provision in the
"Contract for Security Services":
3 AGENCY hereby binds itself to pay its employees in accordance with the provision
of the New Labor Code, as amended, Eight Hour Labor Law, the Minimum Wage
Law, and the other laws, and/or decrees governing security agency. AGENCY shall
be solely responsible for the payment of all indemnities to its employees which may
arise under PD No. 442, as amended, and shall comply with the provisions of all
other Philippine Laws relative to its employees.... [Article VII sec. 3 of the Contract for
Security Services; G.R. No. 81447, Rollo, p. 34; Emphasis supplied].
Petitioner EAGLE, on the other hand, invokes the following provision common to Wage Order Nos.
3, 5 and 6 to support its theory that it is PTSI that should be held liable for the increases:
In case of contracts for construction projects and for security, janitorial and similar
services, the increase in the minimum wage and allowance rates of the workers shall
be borne by the principal or client of the construction/service contractor and the
contract shall be deemed amended accordingly...
The Court finds that the NLRC acted correctly in ordering the two petitioners to jointly and severally
pay the wage and allowance increases to the security guards.
Petitioners' solidary liability for the amounts due the security guards finds support in Articles
106,..107 and 109 of the Labor Code which state that:
ART. 106. Contractor or subcontractor. Whenever an employer enters into a
contract with another person for the performance of the former's work, the employees
of the contractor and of the latter's subcontractor, if any, shall be paid in accordance
with the provisions of this Code.
In the event that the contractor or subcontractor fails to pay the wages his employees
in accordance with this Code, the employer shall be jointly and severally liable with
his contractor or subcontractor to such employees to the extent that he is liable to
employees directly employed by him.
x x x
ART. 107. Indirect employer. The provisions of the immediately preceding Article
shall likewise apply to any person, partnership, association or corporation which, not
being an employer, contracts with an independent contractor for the performance of
any work, task, job or project.
x x x
ART. 109. Solidary liability. The provisions of existing laws to the contrary not
withstanding, every employer or indirect employer shall be held responsible with his
contractor or subcontractor for any violation of this Code. For purposes of
determining the extent of the civil liability under this Chapter, they shall be
considered as direct employers.
This joint and several liability of the contractor and the principal is mandated by the Labor Code to
assure compliance of the provisions therein including the statutory minimum wage [Article 99, Labor
Code]. The contractor is made Liable by virtue of his status as direct employer. The principal, on the
other hand, is made the indirect employer of the contractor's employees for purposes of paying the
employees their wages should the contractor be unable to pay them. This joint and several liability
facilitates, if not guarantees, payment of the workers' performance of any work, task, job or project,
thus giving the workers ample protection as mandated by the 1987 Constitution [See Article II Sec.
18 and Article XIII Sec. 3].
In the case at bar, it is beyond dispute that the security guards are the employees of EAGLE [See
Article VII Sec. 2 of the Contract for Security Services; G.R. No. 81447, Rollo, p. 34]. That they were
assigned to guard the premises of PTSI pursuant to the latter's contract with EAGLE and that neither
of these two entities paid their wage and allowance increases under the subject wage orders are
also admitted [See Labor Arbiter's Decision, p. 2; G.R. No. 81447, Rollo, p. 75]. Thus, the application
of the aforecited provisions of the Labor Code on joint and several liability of the principal and
contractor is appropriate [See Del Rosario & Sons Logging Enterprises, Inc. v. NLRC, G. R. No.
64204, May 31, 1985, 136 SCRA 669].
The solidary liability of PTSI and EAGLE, however, does not preclude the right of reimbursement
from his co-debtor by the one who paid [See Article 1217, Civil Code]. It is with respect to this right
of reimbursement that petitioners can find support in the aforecited contractual stipulation and Wage
Order provision.
The Wage Orders are explicit that payment of the increases are "to be borne" by the principal or
client. "To be borne however, does not mean that the principal, PTSI in this case, would directly pay
the security guards the wage and allowance increases because there is no privity of contract
between them. The security guards' contractual relationship is with their immediate employer,
EAGLE. Eagle an employer, EAGLE is tasked, among others, with the payment of their wages [See
Article VII Sec. 3 of the Contract for Security Services, supra and Bautista v. Inciong, G.R. No.
52824, March 16, 1988, 158 SCRA 665].
On the other hand, there existed a contractual agreement between PTSI and EAGLE wherein the
former availed of the security services provided by the latter. In return, the security agency collects
from its client payment for its security services. This payment covers the wages for the security
guards and also expenses for their supervision and training, the guards' bonds, firearms with
ammunitions, uniforms and other equipments, accessories, tools, materials and supplies necessary
for the maintenance of a security force.
Premises considered, the security guards' immediate recourse for the payment of the increases is
with their direct employer, EAGLE. However, in order for the security agency to comply with the new
wage and allowance rates it has to pay the security guards, the Wage Orders made specific
Provision to amend existing contracts for security services by allowing the adjustment of the
consideration paid by the principal to the security agency concerned. What the Wage Orders require,
therefore, is the amendment of the contract as to the consideration to cover the service contractor's
payment of the increases mandated. In the end, therefore, ultimate liability for the payment of the
increases rests with the principal.
In view of the foregoing, the security guards should claim the amount of the increases from EAGLE.
Under the Labor Code, in case the agency fails to pay them the amounts claimed, PTSI should be
held solidarily liable with EAGLE [Articles 106,107 and 109]. Should EAGLE pay, it can claim an
adjustment from PTSI for an increase in consideration to cover the increases payable to the security
guards.
However, in the instant case, the contract for security services had already expired without being
amended consonant with the Wage Orders. It is also apparent from a reading of a record that
EAGLE does not now demand from PTSI any adjustment in the contract price and its main concern
is freeing itself from liability. Given these peculiar circumstances, if PTSI pays the security guards, it
cannot claim reimbursement from EAGLE. But in case it is EAGLE that pays them, the latter can
claim reimbursement from PTSI in lieu of an adjustment, considering that the contract, had expired
and had not been re-newed.
2. PTSI also alleges that it is exempt from payment under the subject Wage Orders because it is a
public sector employer while the Wage Orders cover only employers and employees in the private
sector [G.R. No. 81447, Petition, p. 9; Rollo, p. 10]. This is unmeritorious. The definition of a public
sector employer **** relied upon by PTSI is relevant only for purposes of coverage under the
Employees' Compensation. Moreover, the Labor Code provides that as used in Book Three, Title II
on Wages, the term employer includes "the Government and all its branches, subdivisions and
instrumentalities, all government-owned or controlled corporations and institutions . . . [Article 97 (b),
Labor Code.]
3. It is further contended by PTSI that to uphold the ruling of the NLRC would be violative of the
Constitutional prohibition against impairment of the obligation of contracts [Article III sec. 10 of the
1987 Constitution]. Time and again, this Court has rejected this line of reasoning in sustaining the
validity and constitutionality of labor and social legislations like the Blue Sunday Law [Asia Bed
Factory v. National Bed and Kapok Industries Workers' union, et al., 100 Phil. 837 (1957)],
compulsory coverage of private sector employees in the Social Security System [Phil. Blooming Mills
Co., Inc. v. Social Security System, G.R. No. L-21223, August 31, 1966, 17 SCRA 1077], and the
abolition of share tenancy [Vda. de Genuino v. Court of Agrarian Relations, G.R. No. L-25035,
February 26, 1968, 22 SCRA 792] enacted pursuant to the police power of the State.
The Wage Orders are no different from the aforecited laws. They are labor standard legislations
enacted to alleviate the plight of the workers whose wages barely meet the spiralling costs of their
basic needs. The increase in the minimum wage and the cost of living allowance was ordered
precisely to ensure the workers' health, efficiency and well-being towards achieving the country's
goal of ensuring increased productivity and viability of business and industry [See Whereas Clause
of the Wage Orders].
4. Petitioner EAGLE would moreover ascribe grave abuse of discretion to both the Labor Arbiter and
the NLRC for the inclusion of certain security guards in the complaint.
Firstly, EAGLE contends that the names of Rodolfo Dequina and R.C. dela Cruz should have been
dropped from the complaint as they had already resigned from its employ and signed a quitclaim in
favor of the security agency [G.R. No. 81314, Petition, p. 6; Rollo, p. 7].
However, no grave abuse of discretion can be ascribed to the labor arbiter for not dropping their
names from the complaint it appearing that the alleged resignation letters are not of record [Labor
Arbiter's Decision, p. 6; G.R. No. 81314, Rollo, p. 18].
Secondly, EAGLE assails the NLRC's inclusion of the four (4) security guards whose names were
dropped by the labor arbiter in the complaint. However, these four (4) security guards are part of the
ten (10) additional complainants denominated as "and others" in the complaint and who were
identified in their Manifestation dated September 30, 1986. Further, they submitted individual
computations in their "Reply to Separate Position Papers Filed by Respondents." Accordingly, the
Court finds no grave abuse of discretion committed by the NLRC in granting their appeal.
WHEREFORE, in view of the foregoing, the petitions in G.R. No. 81314 and G.R. No. 81447 are
hereby DISMISSED and the decision and resolution of the NLRC in NLRC-NCR-11-3652-85 dated
November 27, 1987 and December 29, 1987, respectively, are AFFIRMED. The temporary
restraining order issued by the Court on June 20, 1988 is hereby LIFTED and SET ASIDE.
SO ORDERED.
Fernan, C.J., Gutierrez, Jr., Feliciano and Bidin, JJ., concur.
27. MEYCAUAYAN COLLEGE, petitioner,
vs.
HONORABLE FRANKLIN M. DRILON, in his capacity as Secretary of the Department of Labor
and Employment and MEYCAUAYAN COLLEGE FACULTY AND PERSONNEL ASSOCIATION
(MCFPA),respondents.
Froilan M. Bacungan & Associates for petitioner.
Rodel Gil B. Villarico for private respondent.

FERNAN, C.J .:
The pivotal issue in this petition for certiorari is whether increases in employees' salaries resulting
from the implementation of presidential decrees and wage orders, which are over and above the
agreed salary scale contracted for between the employer and the employees in a collective
bargaining agreement, preclude the employees from claiming the difference between their old
salaries and those provided for under said salary scale.
Petitioner is a private educational institution duly organized and existing under Philippine laws, and
operating in Meycauayan, Bulacan. On January 16, 1987, its board of trustees recognized the
Meycauayan College Faculty and Personnel Association as the employees' union in the
Meycauayan College.
Prior to said recognition or on July 17, 1983, petitioner and the union, then headed by Mrs. Teresita
V. Lim, entered into a collective bargaining agreement for 1983-1986. Article IV thereof provides:
SALARY SCALE
IV. 4.0 ANG ANTAS NG PAGPAPASUWELDO SA MGA GURO SA MATAAS NG
PAARALAN AY UMAALINSUNOD SA PARAAN NG PAGRARANGGONG KALAKIP
NITO BILANG "TAKDA" AT AYON PA RIN SA SUMUSUNOD NA HALAGA NG
PAGPAPASUWELDO (IPATUTUPAD SA AO-ESCOLAR 1983-1986):
PAGSUBOK A (1-3 TAON) P51.50
KLASE 1 (4-5 TAON) P52.00
(6-8 TAON) P53.00
KLASE II (9-12 TAON) P54.00
KLASE III (13-14 TAON) P57.00
KLASE IV (15-17 TAON) P60.00
KLASE V (18-21 TAON) P63.00
(22 PATAAS) P70.00
When the collective bargaining agreement was entered into, the following presidential decrees were
in effect: (a) P.D No. 1389 dated May 29, 1978 adjusting the existing statutory minimum wages; (b)
P.D. No. 1713 dated August 18, 1980 providing for an increase in the minimum daily wage rates and
for additional mandatory living allowances, and (c) P.D. No. 1751 dated May 14, 1980 increasing the
statutory daily minimum wage at all levels by P4.00 after integrating the mandatory emergency living
allowance under P.D. Nos. 525 and 1123 into the basic pay of all covered workers. Wage Order No.
2 increasing the mandatory basic minimum wage and living allowance was also issued on July 6,
1983 just before the collective bargaining agreement herein involved was entered into.
During the lifetime of the collective bargaining agreement, the following were issued: (a) Wage Order
No. 3 dated November 7, 1983 increasing the minimum daily living allowance in the private sector;
(b) Wage Order No. 4 dated May 1, 1984 integrating as of said date the emergency cost of living
allowances under P.D. Nos. 1614, 1634 and 1713 into the basic pay of covered workers in the
private sector; (c) Wage Order No. 5 dated June 11, 1984 increasing the cost of living allowance of
workers in the private sector whose basic salary or wage is not more than P1,800 a month; and (d)
Wage Order No. 6 dated October 26, 1984 increasing the daily living allowances.
The union admits herein that its members were paid all these increases in pay mandated by law. It
appears, however, that in 1987, shortly after union president Mrs. Teresita V. Lim, who held the
managerial position of registrar of the college, had turned over the presidency of the union to Mrs.
Fe Villarico, the latter unintentionally got a copy of the collective bargaining agreement and
discovered that Article IV thereof had not been implemented by the petitioner.
1

Consequently, on March 27, 1987, the union filed with the Department of Labor and Employment,
Regional Office No. III in San Fernando, Pampanga, a notice of strike on the ground of unfair labor
practice alleging therein violation of the collective bargaining agreement particularly the provisions of
Article IV thereof on salary scale.
2

The union having struck and picketed the petitioner's premises on May 20, 1987, the Secretary of
Labor assumed jurisdiction over the labor dispute and, in his order of May 26, 1987, instructed
Regional Office No. III to hear and receive the evidence of the parties and to submit a report
thereon.
In his report, the Director of Regional Office No. III stated that the management had indeed complied
with the salary and allowance increases ordained by law. However, he observed that the college's
compliance with said increases in salary and allowance were "not an ipso facto compliance with the
collective bargaining agreement without violating the very aims and purpose of free collective
bargaining for better terms and conditions of employment." According to the Director, the two should
be distinguished from each other. Thus, while compliance with increases provided by law was
mandatory, compliance with the provisions of a collective bargaining agreement was contractual and
obligatory.
He added: "Non-compliance with the mandate of a standards law or decree may give rise to an
ordinary action for recovery while violation of a collective bargaining agreement may even give rise
to a criminal action for unfair labor practice. And while the relief sought for violation of a standards
law or decree is primarily for restitution of (an) unpaid benefits, the relief sought for violating a CBA
is ordinarily for compliance and desistance. Moreover, there is no provision in the aforecited
Presidential Decrees providing that compliance thereto is sufficient compliance with a provision of a
collective bargaining agreement and vice-versa."
To illustrate his finding that the collective bargaining agreement had not been complied with by the
college, the Director cited the example of a union member who had been with the college for twenty
years. Under the standards law, she was entitled to a rate of P58.65 per period whereas under the
collective bargaining agreement, she should receive P63.00 per period considering that the ranking
system is observed therein.
Accordingly, the Director recommended that the management of Meycauayan College be directed to
immediately comply with the salary scale provision of the collective bargaining agreement and "to
pay all covered union members their salary differential both during regular classes and summer
vacations as well as the 13th month differential pay for the school years 1983-1984, 1984-1985 and
1985-1986 utilizing the computations" mentioned in the report.
3

Upon review of said report and the record of the case, the Secretary of Labor agreed with the
Director's findings noting further that the college "failed to controvert the assertion of the faculty
members that: (a) the salary period being paid to them is always P7.00 less than that provided for in
the CBA; (b) the salary for the extra period handled is almost always P4.00 more than the salary per
period but still less than P3.00 as provided in the CBA.
4
The dispositive portion of the Secretary's order
of September 9, 1987 states:
WHEREFORE, the Management of Meycauayan College is hereby ordered to:
1) Strictly effect the payment of salaries of the union members in accordance with the
provisions of the collective bargaining agreement;
2) Pay the covered union members salary differential computed by subtracting the
salary actually paid and received by them per period provided in the collective
bargaining agreement for school years 1983-1984; 1984-1985 and 1985-1986
including the differential for the 13th month pay for the same period.
5

Its motion for reconsideration having been denied on December 3, 1987, Meycauayan College filed
the instant petition for certiorari with prayer for the issuance of a writ of preliminary injunction and/or
a temporary restraining order enjoining the Secretary of Labor from enforcing his orders of
September 9, 1987 and December 3, 1987. On February 15, 1988, the Court issued said temporary
restraining order.
6

In this petition, Meycauayan College contends that the Secretary of Labor abused his discretion
when he ruled that "the college did not pay its teachers what was due them under the collective
bargaining agreement" and when, in the "unfair labor practice strike case," he promulgated a
decision "with a retroactive effect beyond the one-year period provided in Art. 290 of the Labor
Code."
7

The petition has no merit.
As correctly ruled by public respondent, a collective bargaining agreement is a contractual
obligation. It is distinct from an obligation imposed by law. The terms and conditions of a collective
bargaining contract constitute the law between the parties. Beneficiaries thereof are therefore, by
right, entitled to the fulfillment of the obligation prescribed therein.
8
Consequently, to deny binding
force to the collective bargaining agreement would place a premium on a refusal by a party thereto to
comply with the terms of the agreement. Such refusal would constitute an unfair labor practice.
9

Moreover, compliance with a collective bargaining agreement is mandated by the expressed policy
to give protection to labor.
10
Unless otherwise provided by law, said policy should be given paramount
consideration. Hence, inasmuch as the petitioner has failed to point to any provision of law or even of the
collective bargaining agreement itself to the effect that benefits provided by the former encompass those
provided by the latter, benefits derived from either the law of a contract should be treated as distinct and
separate from each other.
What seems to be the life-force of petitioner's case is its contention that an agreement on a
salary scale should be distinguished from an agreement on a salary increase. Thus, it argues in fine
that an agreement on a salary scale should be considered as an addition to the salary increase
imposed by law and viceversa.
11
This contention is fallacious.
Increments to the laborers' financial gratification, be they in the form of salary increases or changes
in the salary scale are aimed at one thing improvement of the economic predicament of the
laborers. As such, they should be viewed in the light of the State's avowed policy to protect labor.
Thus, having entered into an agreement with its employees, an employer may not be allowed to
renege on its obligation under a collective bargaining agreement should, at the same time, the law
grant the employees the same or better terms and conditions of employment. Employee benefits
derived from law are exclusive of benefits arrived at through negotiation and agreement unless
otherwise provided by the agreement itself or by law.
12

Nevertheless, as the key to the interpretation of contracts, including collective bargaining
agreements, is the intention of the parties,
13
we examined the record and found the undisputed
allegation of private respondent that the collective bargaining agreement herein involved was entered into
by the parties to improve the plight of the teachers byincreasing their salary. The parties increased the
teachers' salary or rate per period, by drafting a salary scale "based on the length of service" of the
teachers and eventually came up with Article IV aforequoted.
14
From this unrebutted allegation, it is clear
that the parties wanted to attain one goal increase the salaries of the teachers on the basis of their
length of service. Hence, it is immaterial that the means by which said goal is achieved is through the
alteration of the salary scale.
On the issue of prescription, Article 291 (now Art. 290) of the Labor Code herein invoked by
petitioner, provides:
Offenses. Offenses penalized under this Code and the rules and regulations
issued pursuant thereto shall prescribe in three (3) years.
All unfair labor practices arising from Book V shall be filed with the appropriate
agency within one (1) year from accrual of such unfair labor practice; otherwise, they
shall be forever barred.
Petitioner herein asserts that under said article, the Secretary of Labor abused his discretion when
he promulgated a decision applicable even to school years 1983-1984 and 1984-1985 when in fact
he assumed jurisdiction over the strike only on May 26, 1987 or more than a year from the accrual of
the unfair labor practice. It further avers that the labor dispute herein involved was not presented by
the union "as a money claim which would make the strike illegal since a money claim is not a
strikable issue under the Labor Code, nor is it under the original jurisdiction of the Secretary of
Labor."
15

The one-year prescriptive period is inapplicable in this case because of peculiar factual
circumstances which petitioner has not denied. Although the collective bargaining agreement covers
school years 1983 to 1986, a copy of the agreement was only made available to the union in 1987.
Immediately thereafter, the union sought its implementation. The union members might have been
aware of the existence of the collective bargaining agreement but that fact that their president was
actually a management employee being petitioner's registrar, they must have been deterred from
demanding its implementation earlier. Hence, to apply the provisions of Article 290 (Art. 291) would
be unfair and prejudicial to the union members particularly those who have served petitioner for a
number of years who stand to benefit most from the salary scale.
Article 264(g), now Article 263(g) of the Labor Code is broad enough to give the Secretary of Labor
the power to take jurisdiction over what appears at first blush to be an ordinary money claim. Claims
for pay differentials may have that character but, as earlier stated, if they arise out of a violation of a
collective bargaining agreement, they assume the character of an unfair labor practice and are,
therefore, well within the ambit of the jurisdiction of the Secretary of Labor to decide.
WHEREFORE, the decision of the Secretary of Labor is hereby AFFIRMED and the temporary
restraining order of February 15,1989 is LIFTED.
This decision is immediately executory. Costs against the petitioner.
SO ORDERED.
Gutierrez, Jr., Feliciano, Bidin and Cortes, JJ., concur.


28. MINDANAO TERMINAL AND BROKERAGE SERVICE,
INC., petitioner, vs. HON. MA. NIEVES ROLDAN-CONFESOR, in
her capacity as Secretary of Labor and Employment, and
ASSOCIATED LABOR UNIONS (ALU-TUCP), respondents.
D E C I S I O N
MENDOZA, J .:
This is a petition for certiorari to set aside the order of respondent
Honorable Secretary of Labor and Employment, declaring (1) wage increases
granted by petitioner to its employees not creditable as compliance by the
company with future mandated wage increases, and (2) the increases to be
retroactive, in the case of the fourth year wage increase, to August 1, 1992 to
be implemented until July 31, 1993 and, in the case of the fifth year wage
increase, to August 1, 1993 to be implemented until the expiration of the CBA
on July 31, 1994.
Petitioner Mindanao Terminal and Brokerage Service, Inc., (hereafter
referred to as the Company) and respondent Associated Labor Unions,
(hereafter referred to as the Union) entered into a collective bargaining
agreement for a period of five (5) years, starting on August 1, 1989 and
ending July 31, 1994.
On the third year of the CBA on August 1, 1992, the Company and the
Union met to renegotiate the provisions of the CBA for the fourth and fifth
years. The parties, however, failed to resolve some of their differences, as a
result of which a deadlock developed.
On November 12, 1992, a formal notice of deadlock was sent to the
Company on the following issues: wages, vacation leave, sick leave,
hospitalization, optional retirement, 13th month pay and signing bonus.
On November 18, 1992, the Company announced a cost-cutting or
retrenchment program.
Charging unfair labor practice and citing the deadlock in the negotiations,
the Union filed, on December 3, 1992, a notice of strike with the National
Conciliation and Mediation Board (NCMB).
On December 18, 1992, as a result of a conference called by the NCMB,
the Union and the Company went back to the bargaining table and agreed on
the following provisions:
a. Wage Increase (Article V, Section 2, CBA) - P3.00/day for the fourth year of the
CBA and P3.00/day for the fifth year of the CBA;
b. Vacation and Sick Leaves (Article VII, Section 1(c), CBA) - 1,100 hours of
aggregate service instead of the existing 1,500 hours within a year to be entitled to
leave benefits but subject to reversion to the previous CBA if majority of the gangs
average eight (8) vessels a month;
c. Hospitalization (Article VIII, Section 1, CBA) - Maximum aggregate of 1,100
hours instead of the 1,500 hours and up to be entitled to the benefit of P2,500.00 with
the lower brackets adjusted accordingly but subject to reversion to the previous CBA
if majority of the gangs average eight (8) vessels a month;
d. 13th Month Pay (Article XIII, Section 1, CBA) - Average of six (6) vessels instead
of the existing eight (8) vessels to be entitled to eleven (11) days basic pay but subject
to reversion to the previous CBA if majority of the gangs average eight (8) vessels a
month;
e. Signing bonus; and
f. Seniority.
The agreement left only one issue for resolution of the parties, namely,
retirement. Even this issue was soon settled as the parties met before the
NCMB on January 14, 1993 and then agreed on an improved Optional
Retirement Clause by giving the employees the option to retire after rendering
eighteen (18) years of service instead of the previous twenty (20) years, and
granting the employees retirement benefits equivalent to sixteen (16) days for
every year of service. Thus, as the Med-Arbiter noted in the record of the
January 14, 1993 conference, the issues raised by the notice of strike had
been settled and said notice is thus terminated.
But no sooner had he stated this than the Company claimed that the wage
increases which it had agreed to give to the employees should be creditable
as compliance with future mandated wage increases. In addition, it
maintained that such increases should not be retroactive.
Reacting to this development, the Union again filed a Notice of Strike on
January 28, 1993, with the NCMB. On March 7, 1993, the Union staged a
strike.
The NCMB tried to settle the issues of creditability and retroactivity, calling
for this purpose a conciliation conference on March 9, 1993. As conciliation
proved futile, the Company petitioned respondent Secretary of Labor and
Employment (hereafter Secretary of Labor) to assume jurisdiction over the
dispute. On March 10, 1993, respondent assumed jurisdiction over the
dispute and ordered the parties to submit their respective position papers on
the two unresolved issues.
After submission by the parties of their position papers, the Secretary of
Labor issued an Order dated May 14, 1993, ordering the Company and the
Union to incorporate into their existing collective bargaining agreement all
improvements reached by them in the course of renegotiations. The
Secretary of Labor held that the wage increases for the fourth and fifth years
of the CBA were not to be credited as compliance with future mandated
increases. In addition, the fourth year wage increase was to be retroactive to
August 1992 and was to be implemented until July 31, 1993, while the fifth
year wage increase was to take effect on August 1, 1993 until the expiration of
the CBA.
[1]

On May 31, 1993, the Company sought reconsideration of the May 14,
1993 order. The motion was denied for lack of merit by the Secretary of Labor
in a resolution dated July 7, 1993. Hence, this petition for certiorari, alleging
grave abuse of discretion on the part of respondent Secretary of Labor.
The petitioner contends that respondent erred in making the fourth year
wage increase retroactive to August 1, 1992. It denies the power of the
Secretary of Labor to decree retroaction of the wage increases, as the
respondent herself had stated in her order subject of this petition, that it had
been more than six (6) months since the expiration of the third anniversary of
the CBA and, therefore, the automatic renewal clause of Art. 253-A of the
Labor Code had no application. Although petitioner originally opposed giving
retroactive effect to their agreement, it subsequently modified its stand and
agreed that the fourth year wage increase and the other provisions of the CBA
be made retroactive to the date the Secretary of Labor assumed jurisdiction of
the dispute on March 10, 1993.
The petition is without merit. Art. 253-A of the Labor Code reads:
Terms of a collective bargaining agreement. - Any Collective Bargaining Agreement
that the parties may enter into shall, insofar as the representation aspect is concerned,
be for a term of five (5) years. No petition questioning the majority status of the
incumbent bargaining agent shall be entertained and no certification election shall be
conducted by the Department of Labor and Employment outside of the sixty-day
period immediately before the date of expiry of such five year term of the Collective
Bargaining Agreement. All other provisions of the Collective Bargaining Agreement
shall be renegotiated not later than three (3) years after its execution. Any agreement
on such other provisions of the Collective Bargaining Agreement entered into within
six (6) months from the date of expiry of the term of such other provisions as fixed in
such Collective Bargaining Agreement, shall retroact to the day immediately
following such date. If any such agreement is entered into beyond six months, the
parties shall agree on the duration of retroactivity thereof. In case of a deadlock in the
renegotiation of the collective bargaining agreement, the parties may exercise their
rights under this Code.
The respondent indeed stated in her order of May 14, 1993 that this case
is clearly beyond the scope of the automatic renewal clause,
[2]
but she also
stated in the same order that the parties have reached an agreement on all
the renegotiated provisions of the CBA on January 14, 1993, i.e., within six
(6) months of the expiration of the third year of the CBA.
The signing of the CBA is not determinative of the question whether the
agreement was entered into within six months from the date of expiry of the
term of such other provisions as fixed in such collective bargaining
agreement within the contemplation of Art. 253-A.
As already stated, on November 12, 1992, the Union sent the Company a
notice of deadlock in view of their inability to reconcile their positions on the
main issues,
[3]
particularly on wages. The Union filed a notice of strike.
However, on December 18, 1992, in a conference called by the NCMB, the
Union and the Company agreed on a number of provisions of the CBA,
including the provision on wage increase,
[4]
leaving only the issue of retirement
to be threshed out. In time, this, too, was settled, so that in his record of the
January 14, 1993 conference, the Med-Arbiter noted that the issues raised by
the notice of strike had been settled and said notice is thus terminated. It
would therefore seem that at that point, there was already a meeting of the
minds of the parties, which was before the February 1993 end of the six-
month period provided in Art. 253-A.
The fact that no agreement was then signed is of no moment. Art. 253-A
refers merely to an agreement which, according to Blacks Law Dictionary is
a coming together of minds; the coming together in accord of two minds on a
given proposition.
[5]
This is similar to Art. 1305 of the Civil Codes definition of
contract as a meeting of minds between two persons.
The two terms, agreement and contract, are indeed similar, although
the former is broader than the latter because an agreement may not have all
the elements of a contract. As in the case of contracts, however, agreements
may be oral or written.
[6]
Hence, even without any written evidence of the
Collective Bargaining Agreement made by the parties, a valid agreement
existed in this case from the moment the minds of the parties met on all
matters they set out to discuss. As Art. 1315 of the Civil Code states:
Contracts are perfected by mere consent, and from that moment, the parties are bound
not only to the fulfillment of what has been expressly stipulated but also to all the
consequences which, according to their nature, may be in keeping with good faith,
usage and law.
The Secretary of Labor found that as early as January 14, 1993, well
within the six (6) month period provided by law, the Company and the Union
have perfected their agreement.
[7]
The claim of petitioner to the contrary
notwithstanding, this is a finding of an administrative agency which, in the
absence of evidence to the contrary, must be affirmed.
Moreover, the order of the Secretary of Labor may be considered in the
nature of an arbitral award, pursuant to Art. 263(g) of the Labor Code, and,
therefore, binding on the parties. After all, the Secretary of Labor assumed
jurisdiction over the dispute because petitioner asked the Secretary of Labor
to do so after the NCMB failed to make the parties come to an agreement. It is
also conceded that the industry in which the petitioner is engaged is vital to
the national interest. As stated in the Order issued by the Secretary of Labor
on March 10, 1993:
[8]

The services being provided by the Company evidently reflect their indispensability to
the normal operations of the Davao City Pier where millions of crates and boxes of
goods are loaded and unloaded monthly. The current disruption, therefore, of the
Companys services, if allowed to continue, will cause serious prejudice and damages
to the agricultural exporters, the cargo handlers, the vessel owners, the foreign buyers
of agricultural products and the entire business sector in the area. These
considerations and the disputes implications on the national economy warrant the
intervention by this Office to exercise its power under Article 263(g) of the Labor
Code, as amended.
In St. Lukes Medical Center, Inc. v. Torres,
[9]
a deadlock also developed
during the CBA negotiations between management and the union. The
Secretary of Labor assumed jurisdiction and ordered the retroaction of their
CBA to the date of expiration of the previous CBA. As in this case, it was
alleged that the Secretary of Labor gravely abused his discretion in making his
award retroactive. In dismissing this contention this Court held:
Therefore, in the absence of a specific provision of law prohibiting retroactivity of the
effectivity of arbitral awards issued by the Secretary of Labor pursuant to Article
263(g) of the Labor Code, such as herein involved, public respondent is deemed
vested with plenary and discretionary powers to determine the effectivity thereof.
This case is controlled by the ruling in that case.
With respect to the issue of the creditability of the fourth and fifth year
wage increases, the Court takes cognizance of the fact that the question was
raised by the Company only when the six-month period was almost over and
all that was left to be done by the parties was to sign their agreement. Before
that, the Company did not qualify its position. It should have known that
crediting of wage increases in the CBA as compliance with future mandated
increases is the exception rather than the rule. For the general rule is that
such increases are over and above any increase that may be granted by law
or wage order. As held in Meycauayan College v. Drilon:
[10]

Increments to the laborers financial gratification, be they in the form of salary
increases or changes in the salary scale are aimed at one thing - improvement of the
economic predicament of the laborers. As such they should be viewed in the light of
the States avowed policy to protect labor. Thus, having entered into an agreement
with its employees, an employer may not be allowed to renege on its obligation under
a collective bargaining agreement should, at the same time, the law grant the
employees the same or better terms and conditions of employment. Employee
benefits derived from law are exclusive of benefits arrived at through negotiation and
agreement unless otherwise provided by the agreement itself or by law.
For making a belated issue of creditability, petitioner is correctly said to
have delay[ed] the agreement beyond the six (6) month period so as to
minimize its expenses to the detriment of its workers and its conduct to
smack of bad faith and [to run counter] to the good faith required in Collective
Bargaining.
[11]
If petitioner wanted to be given credit for the wage increases in
the event of future mandated wage increases, it should have expressly stated
its reservation during the early part of the CBA negotiations.
WHEREFORE, the instant petition is hereby DISMISSED for lack of merit.
SO ORDERED.