PHILIPPINE NATIONAL BANK, petitioner, vs.
TERESITA CRUZ Nevertheless, under Article 110 of the Labor Code as amended, the unpaid wages and
G.R. No. 80593 December 18, 1989-GANCAYCO, J.:
FACTS:
Sometime in 1980 Aggregate Mining Exponents (AMEX) laid-off about seventy percent
(70%) of its employees because it was experiencing business reverses. The retained
employees constituting thirty percent (30%) of the work force however, were not paid
their wages. This non-payment of salaries went on until July 1982 when AMEX
completely ceased operations and instead entered into an operating agreement with
T.M. San Andres Development Corporation whereby the latter would be leasing the
equipment and machineries of AMEX.
The unpaid employees sought redress from the Labor ArbiteR, and decided in favor of
complainants.
AMEX and its President, Tirso Revilla did not appeal from this decision. But PNB, in its
capacity as mortgagee-creditor of AMEX interposed an appeal with the respondent
Commission, not being satisfied with the outcome of the case. The appeal was primarily
based on the allegation that the workers' lien covers unpaid wages only and not the
termination or severance pay which the workers likewise claimed they were entitled to.
In a resolution 3 dated October 27, 1987, the National Labor Relations Commission
affirmed the decision appealed from.
ISSUE:
I. ARTICLE 110 OF THE LABOR CODE MUST BE READ IN RELATION TO ARTICLES 2241,
2242, 2243, 2244 AND 2245 OF THE CIVIL CODE CONCERNING THE CLASSIFICATION,
CONCURRENCE AND PREFERENCE OF CREDITS.
II. 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.
HELD:
The petition is devoid of merit.
This Court must uphold the preference accorded to the private respondents in view of
the provisions of Article 110 of the Labor Code which are clear and which admit of no
other interpretation. The phrase "any provision of law to the contrary notwithstanding"
indicates that such preference shall prevail despite the order set forth in Articles 2241 to
2245 of the Civil Code. 6-a No exceptions were provided under the said article,
henceforth, none shall be considered. Furthermore, the Labor Code was signed into Law
decades after the Civil Code took effect.
In the instant petition, the Civil Code provisions cited by the petitioner must yield to
Article 110 of the Labor Code.
other monetary claims of workers should be paid in full before the claims of the
Government and other creditors. Thus not even tax claims could have preference over
the workers' claim.
Consistent with the ruling of this Court in Volkschel Labor Union vs. Bureau of Labor
Relations, 11 this court adopts the doctrine that "(i)n the implementation and
interpretation of the provisions of the Labor Code and its implementing regulations, the
workingman's welfare should be the primordial and paramount consideration." 12
Bearing this in mind, this Court must reiterate the dictum laid down in A.C. Ransom that
the conflict between Article 110 of the Labor Code and Article 2241 to 2245 of the Civil
Code must be resolved in favor of the former. A contrary ruling would defeat the
purpose for which Article 110 was intended; that is, for the protection of the working
class, pursuant to the never-ending quest for social justice.
II
Petitioner next advances the theory that "even if the worker's lien applies in the instant
case, the same should cover only unpaid wages excluding termination or severance pay.
This contention is, again, bereft of merit.
The respondent Commission noted that "AMEX failed to adduce convincing evidence to
prove that the financial reverses were indeed serious." 15 After a careful study of the
records of the case, this Court finds no reason to alter the findings of the respondent
Commission.
In Garcia vs. National Labor Relations Commission ,16 it was held that "it is essentially
required that the alleged losses in business operations must be proved. " 17 This policy
was adopted to obviate the possibility of an employer fabricating business reverses in
order to ease out employees for no apparent reason.
Furthermore, in Peralta, this Court held that for purposes of the application of Article
110, "termination 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..." 20 Hence, separation pay must be considered as part of
remuneration for services rendered or to be rendered.
Indeed Article 110 of the Labor Code, as amended, aforecited, now provides that the
workers' preference covers not only unpaid wages but also other monetary claims.
The respondent Commission was, therefore, not in error when it awarded the
termination pay claimed by the private respondents. As far as the latter are concerned,
the termination pay which they so rightfully claim is an additional remuneration for
having rendered services to their employer for a certain period of time. Noteworthy also
is the relationship between termination pay and services rendered by an employee, that
in computing the amount to be given to an employee as termination pay, the length of
service of such employee is taken into consideration such that the former must be
considered as part and parcel of wages. Under these circumstances then, this Court
holds that the termination or severance pay awarded by the respondent Commission to
the private respondents is proper and should be sustained.
Lastly, it must be noted that the amount claimed by petitioner PNB for the satisfaction
of the obligations of AMEX is relatively insubstantial and is not significant enough as to
drain its coffers. By contrast, that same amount could mean subsistence or starvation
for the workingman. Quoting further from Philippine Commercial and Industrial Bank,
this Court supports the equitable principle that "it is but humane and partakes of the
divine that labor, as human beings, must be treated over and above chattels,
machineries and other kinds of properties and the interests of the employer who can
afford and survive the hardships of life better than their workers. Universal sense of
human justice, not to speak of our specific social justice and protection to labor
constitutional injunctions dictate the preferential lien that the above provision accord to
labor. 21 In line with this policy, measures must be undertaken to ensure that such
constitutional mandate on protection to labor is not rendered meaningless by an
erroneous interpretation of the applicable laws.
G.R. No. 108031 March 1, 1995--BELLOSILLO, J.:
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. NATIONAL LABOR
RELATIONS COMMISSION and LEONOR A ANG, respondents.
FACTS:
On 21 March 1977 private respondent Leonor A. Ang started employment as Executive
Secretary with Tropical Philippines Wood Industries, Inc. (TPWII), a corporation engaged
in the manufacture and sale of veneer, plywood and sawdust panel boards. In 1982 she
was promoted to the position of Personnel Officer.
In September 1983 petitioner Development Bank of the Philippines, as mortgagee of
TPWII, foreclosed its plant facilities and equipment. Nevertheless TPWII continued its
business operations interrupted only by brief shutdowns for the purpose of servicing its
plant facilities and equipment. In January 1986 petitioner took possession of the
foreclosed properties. From then on the company ceased its operations. As a
consequence private respondent was on 15 April 1986 verbally terminated from the
service.
On 14 December 1987 aggrieved by the termination of her employment, private
respondent filed with the Labor Arbiter a complaint for separation pay, 13th month pay,
vacation and sick leave pay, salaries and allowances against TPWII, its General Manager,
and petitioner.
After hearing the Labor Arbiter found TPWII primarily liable to private respondent but
only for her separation pay and vacation and sick leave pay because her claims for
unpaid wages and 13th month pay were later paid after the complaint was filed.1 The
General Manager was absolved of any liability. But with respect to petitioner, it was held
subsidiarily liable in the event the company failed to satisfy the judgment. The Labor
Arbiter rationalized that the right of an employee to be paid benefits due him from the
properties of his employer is superior to the right of the latter's mortgage, citing this
Court's resolution in PNB v. Delta Motor Workers Union.
On 16 November 1992 public respondent National Labor Relations Commission affirmed
the ruling of the Labor Arbiter.
ISSUE:
Whether public respondent committed grave abuse of discretion in holding that Art. 110
of the Labor Code, as amended, which refers to worker preference in case of
bankruptcy or liquidation of an employer's business is applicable to the present case
notwithstanding the absence of any formal declaration of bankruptcy or judicial
liquidation of TPWII.
Is declaration of bankruptcy or judicial liquidation required before the worker's
preference may be invoked under Art. 110 of the Labor Code?
HELD:
In ruling, as we did, in Development Bank of the Philippines v. Santos, we took into
account the following pronouncements:
In the event of insolvency, a principal objective should be to effect an equitable
distribution of the insolvents 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.
In the present case, there is as yet no declaration of bankruptcy nor judicial liquidation
of TPWII. Hence, it would be premature to enforce the worker's preference.
The additional ratiocination of public respondent that "under Article 110 of the Labor
Code complainant enjoys a preference of credit over the properties of TPWII being held
in possession by DBP," is a dismal misconception of the nature of preference of credit, a
subject matter which we have already discussed in clear and simple terms and even
distinguished from a lien in Development Bank of the Philippines v. NLRC8 —
. . . A preference applies only to claims which do not attach to specific properties. A lien
creates a charge on a particular property. The right of first preference as regards unpaid
wages recognized by Article 110 does not constitute a lien 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 method 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 v. 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 and other works . . . . To the extent that claims for unpaid wages fall
outside the scope of Article 2241, number 6, and 22421 number 3, they would come
within the ambit of the category of ordinary preferred credits under Article 2244.
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 1l0, when not falling within
Article 2241 (6) and Article 2242 (3), of the Civil Code and not attached to any specific
property, is all 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.
WHEREFORE, the petition is GRANTED. The decision of public respondent National
Labor Relations Commission affirming the decision of the Labor Arbiter insofar as it held
petitioner Development Bank of the Philippines liable for the monetary claims of private
respondent Leonor A. Ang is SET ASIDE. The temporary restraining order we issued on 8
February 1993 10 enjoining the execution of the decision of public respondent against
petitioner is made PERMANENT.
DEVELOPMENT BANK OF THE PHILIPPINES, vs. NLRC
G.R NO. 82763-64
FACTS:
LIRAG was a mortgage debtor of DBP. LAND was the bargaining representative of the
more or less 800 former rank and file employees of LIRAG., LIRAG started terminating
the services of its employees on the ground of retrenchment. LIRAG has since ceased
operations presumably due to financial reverses.
Joselito Albay, one of the employees dismissed, filed a complaint before NLRC against
LIRAG for illegal dismissal . LAND also filed a Complaint against LIRAG seeking
separation pay, 13th month pay, gratuity pay, sick leave and vacation leave pay and
emergency allowance . These two cases were consolidated and jointly heard by the
NLRC. Labor Arbiter ordered LIRAG to pay the individual complainants. The NLRC
affirmed . That judgment became final and executory. A Writ of Execution was issued.
DBP extrajudicially foreclosed the mortgaged properties for failure of LIRAG to pay its
mortgage obligation. DBP acquired said mortgaged properties for P31 Since DBP was
the sole mortgagee, no actual payment was made, the amount of the bid having been
merely credited in partial satisfaction of LIRAG's indebtedness.
By reason of said foreclosure, the Writ of Execution issued in favor of the complainants
remained unsatisfied. LAND filed a "Motion for Writ of Execution and Garnishment" of
the proceeds of the foreclosure sale. Labor Arbiter granted the Writ of Garnishment and
directed ÜBP to remit to the NLRC the sum of out of the proceeds of the foreclosed
properties of LIRAG sold at public auction in order to satisfy the judgment previously
rendered. DBP sought reconsideration which was denied. DBP appealed that denial to
the NLRC which affirmed the appealed Order and dismissed the DBP appeal.
The Asset Privatization Trust (APT) became the transferee of the DBP foreclosed assets
of LIRAG. A partial Compromise Agreement was entered into between APT and LAND
whereby APT paid the complainants-employees, ex gratia, the sum of P750,000.00 'fin
full settlement of their claims, past and present, with respect to all assets of LITEX
transferred by DBP to APT". However LAND filed its opposition to the Compromise
Agreement for being contrary to law, morals and public policy.
ISSUE:
Whether or not the NLRC gravely abused its discretion in affirming the Order of the
Labor Arbiter granting the
Writ of Garnishment out of the proceeds of LIRAG's properties foreclosed by DBP to
satisfy the judgment in these cases.
RULING:
We are constrained to rule in the affirmative.
Article 110 of the Labor Code provides: 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 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.
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.
In the event of insolvency, a principal objective should be to effect an equitable
distribution ofthe insolvent's property among his creditors. To accomplish this there
must first be some proceeding where notice to all of the insolvents's creditors may be
given and where the claims of preferred creditors may be bindingly
A distinction should be made bebween a preference of credit and a lien. A preference
applies only to claims which do not attach to specific properties. A lien creates a charge
on a particular property. The right of first preference as regards unpaid wages
recognized by Article 110 does not constitute a lien 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 method 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.
G.R. No. L-56568 May 20, 1987---FELICIANO J.
REPUBLIC v. PERALTA
FACTS:
In the voluntary insolvency proceedings commenced in May 1977 by private respondent
Quality Tobacco Corporation (the "Insolvent"), the claims of creditors were filed. 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.
ISSUE:
HELD:
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 — .
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.
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.
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.
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 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.
BARAYOGA V. ASSETSPRIVATIZATION TRUST
Oct. 24, 2005—Panganiban, J.
FACTS:
Asset Privatization Trust (APT) is a public trust whose mandate is to provisionally
manage and dispose of non-performing assets of the government. When former
President Aquino issued AO No. 14, which identified certain assets of government
institutions that were to be transferred to the National government, among those
transferred assets were the financial claim of PNB against Bicolandia Sugar
Development Corp. (BISUDECO) in a form of a secured loan. BISUDECO is a sugar
plantation mill located in Camarines Sur. Consequently, APT was constituted as trustee
over BISUDECO’s account with PNB by virtue of a trust agreement between the
government and APT.
In August 1988, BISUDECO contacted the services of Philippine Sugar Corp (Philsucor) to
take over management of the sugar plantation and milling operation until August 1992.
And because of the continued failure of BISUDECO to pay its outstanding loan with PNB,
its mortgage properties were foreclosed and subsequently sold in a public auction to
APT. In July 1992, APT accepted the offer of Bicol-Agro-Industrial Coop (BAPCI) to buy
the sugar plantation and mill. And in the event of the company’s privatization, ATP
authorized the payment of separation benefit’s to BISUDECO’s employees. Then BAPCI
purchased the foreclosed assets of BISUDECO and took over its sugar milling operations
under the trade name Peñafrancia Sugar Mill (Pensumil).
The Bisudeco-Philsucor Corfarm Workers Union filed a complaint for unfair labor
practice, illegal dismissal, illegal deduction and underpayment of wages and other labor
standard benefits plus damages in 1991. The again they filed a similar complaint in 1992.
Then in 1993, they filed an amended complaint impleading as additional party
respondents APT and Pensumil.
In 1998 Labor Arbiter ordered APT to pay complainants of the mandatory employment
benefits. The NLRC affirmed APT’s liability for petitioners’ money claims. Respondent
sought relief from the CA and they ruled that APT should not be held liable for
petitioners’ claim.
ISSUE:
Whether or not the liabilities of the previous owners to their employees are enforceable
against the buyer or transferee who purchased the company’s assets.
Whether or not ordinary preferred credits is the first choice over special preferred
credit.
HELD:
Petition is DENIED and the assailed decision is AFFIRMED.
Any assumption of liability must be specifically and categorically agreed upon. Unless,
expressly assumed, labor contracts like collective bargaining agreements are not
enforceable against the transferee of an enterprise. Labor contracts are in personam
and thus binding only between the parties. The liabilities of the previous owner to its
employees are not enforceable against the buyer or transferee, unless (1) the latter
unequivocally assumes them; or (2) the sale or transfer was made in bad faith.
Under Art 2241 and 2242 of the Civil Code, a mortgage credit is a special preferred credit
that enjoys preference with respect to a specific/determinate property of a debtor. On
the other hand, the workers preference under Art 110 of the Labor code is an ordinary
preferred credit. While this provision raises the worker’s money claim to first priority in
the order of preference established in Art 2244 of the Civil Code, the claim has no
preference over special preferred credits. Being a mortgage credit APT’s lien on
BISUDECO’s mortgaged assets is a special preferred lien that must be satisfied first
before the claims of the workers.
ASSOCIATED LABOR UNIONS (ALU) and DIVINE WORD UNIVERSITY EMPLOYEES
UNION-ALU (DWUEU-ALU), v. COURT OF APPEALS
G.R. No. 156882---October 31, 2008---Velasco, J.
FACTS:
The Roman Catholic Archbishop of Palo, Leyte (RCAP) is a corporation sole which sold
to Societas Verbum Dei (SVD) or the Society of the Divine Word the subject 13 parcels of
land. The Deed of Sale2 executed on October 1, 1958 contained the following conditions
and restrictions, among others:
IV. That the SOCIETY OF THE DIVINE WORD shall use these lands and properties for
educational purposes, especially and as far as possible, for the maintenance and further
development of the institution known as the ST. PAUL’S COLLEGE.
While the conveying document was not notarized, the SVD was able to secure the
corresponding transfer certificates of title (TCTs) over the subject lots, but the deed
conditions, restrictions, and reversionary right of the RCAP were not annotated on the
new titles.
Due to labor unrest, DWUT, run by the SVD, and petitioners engaged in a protracted
legal battle from 1988 until the finality of the decision in the Divine Word University of
Tacloban case on February 11, 1994, or shortly after the Court denied DWUT’s motion for
reconsideration on January 19, 1994. By then, DWUT’s liability to petitioners amounted
to PhP 200 million, more or less.
On April 27, 1995, the RCAP filed a petition3 before the Regional Trial Court (RTC),
Branch 8 in Tacloban City, docketed as Cadastral Case No. 95-04-08 and entitled "In the
Matter of the Annotation of Encumbrances on Certain Titles [in the Name of Divine
Word University of Tacloban] to Show Restrictions on Use and a Reversionary Interest
Therein." In it, the RCAP prayed for an order directing the Registry of Deeds of Tacloban
City to register the October 1, 1958 Deed of Sale and annotate on the corresponding SVD
titles the conditions, restrictions, and a reversionary interest of the RCAP stipulated in
the deed.
Prompted by the closure of DWUT and the resulting termination of its members’
services, the Union filed a complaint, as later amended,4 against DWUT, its Board of
Trustees, and the RCAP for Unfair Labor Practice, Illegal Dismissal, and Damages before
the Regional Arbitration Branch (RAB) No. VIII in Tacloban City, docketed as NLRC Case
No. RCB-VIII-7-0299-95. The Union alleged in its complaint that the sale of the subject
properties over which the DWUT is located was incomplete due to the adverted
conditions, restrictions, and a reversionary right of the RCAP over the subject
properties. What is more, the RCAP did not, despite the sale, sever its employment
relations with DWUT which, thus, rendered the RCAP solidarily liable with DWUT for the
payment of the benefits of the Union members.
On August 3, 1995, petitioners filed their Motion to Intervene in Cadastral Case No. 95-
04-08, asserting their legal interest over the subject properties, such interest, according
to them, emanating from a judgment lien over the subject properties based on the Entry
of Final Judgment dated February 11, 1994 under G.R. No. 91915. And relying on Article
110 of the Labor Code in relation to Arts. 2242, 2243, and 2244 of the Civil Code on
concurrence and preference of credits, they asserted preferential rights over the subject
properties now owned by and registered under the name of the SVD.
RTC:Dismissing the petition in Cadastral Case No. 95-04-08
CA: disagreed with the trial court’s finding.
ISSUE:
WHETHER THE COURT OF APPEALS ERRED IN ALLOWING THE ANNOTATION OF
ENCUMBRANCE ON CERTAIN [TITLES] TO SHOW RESTRICTIONS ON USE AND
REVERSIONARY INTERESTS THEREIN?
HELD:
We answer issues in negative.
The instant petition will nevertheless fail even if we concede that the Union has legal
personality to institute it. The judgment lien over the subject properties is really non-
existent as it has not been shown that a levy on execution has been imposed over the
subject properties. While the Decision in G.R. No. 91915 is indeed final and executory,
such reality does not ipso facto burden all the lands and properties owned by the SVD
over which the DWUT is erected, absent proof that the SVD cannot pay its adjudicated
obligations and that a levy on execution was indeed made over the subject properties.
We agree with the RCAP that a judgment lien over the subject properties has not legally
attached and that Art. 11015 of the Labor Code, in relation to Arts. 2242, 2243, and 2244
of the Civil Code on concurrence and preference of credits, does not cover the subject
properties. Art. 110 of the Labor Code applies only to cases of bankruptcy and
liquidation. Likewise, the abovementioned articles of the Civil Code on concurrence and
preference of credits properly come into play only in cases of insolvency. Since there is
no bankruptcy or insolvency proceeding to speak of, much less a liquidation of the
assets of DWUT, the Union cannot look to said statutory provisions for support.
Moreover, we note the utter lack of showing that DWUT has no other assets to answer
its obligations. DWUT may have liquidity problems hampering its ability to meet its
judicially-imposed obligations. The school, however, appears to have other properties it
can and in fact did use to settle its obligations as shown in the February 24, 1997 MOA
between DWUT, the Union, and RCAP. A scrutiny of the MOA readily shows that the
subject properties were not included in the assets or properties earmarked to settle
DWUT’s obligations.
The Court takes judicial notice of the fact that the Union has judicially admitted the
existence, due execution, and validity of the October 1, 1958 Deed of Sale with the
conditions, restrictions, and a reversionary right of the RCAP embodied in it. In its
complaint before the RAB for Unfair Labor Practice, Illegal Dismissal, and Damages, the
Union impleaded the RCAP as solidarily liable with the DWUT on the Union’s monetary
claims precisely on the basis of said conditions, restrictions, and a reversionary right of
the RCAP. Such averment is a clear admission against the interests of the Union.
The Union likewise cannot be permitted to take two opposite positions on the issue of
the stipulated reversionary right of RCAP over the subject properties. It cannot invoke
such reversionary right of RCAP to render the RCAP solidarily liable with the DWUT in
the RAB case while, at the same time, resisting the annotation of that reversionary right
in the instant case.
G.R. No. 200678, June 04, 2018---LEONEN, J.
BANCO FILIPINO SAVINGS AND MORTGAGE BANK, Petitioner, v. BANGKO SENTRAL NG
PILIPINAS AND THE MONETARY BOARD, Respondents.
FACTS:
On December 11, 1991, this Court promulgated Banco Filipino Savings & Mortgage Bank
v. Monetary Board and Central Bank of the Philippines,4 which declared void the
Monetary Board's order for closure and receivership of Banco Filipino Savings &
Mortgage Bank (Banco Filipino). This Court also directed the Central Bank of the
Philippines and the Monetary Board to reorganize Banco Filipino and to allow it to
resume business under the comptrollership of both the Central Bank and the Monetary
Board.5
Banco Filipino subsequently filed several Complaints before the Regional Trial Court,
among them a claim for damages in the total amount of P18,800,000,000.00.6
On June 14, 1993, Congress passed Republic Act No. 7653,7 providing for the
establishment and organization of Bangko Sentral as the new monetary authority.
On November 6, 1993, pursuant to this Court's 1991 Banco Filipino Decision, the
Monetary Board issued Resolution No. 427, which allowed Banco Filipino to resume its
business.8
In 2002, Banco Filipino suffered from heavy withdrawals, prompting it to seek the help
of Bangko Sentral. In a letter dated October 9, 2003, Banco Filipino asked for financial
assistance of more than P3,000,000,000.00 through emergency loans and credit
easement terms.9 In a letter10 dated November 21, 2003, Bangko Sentral informed
Banco Filipino that it should first comply with certain conditions imposed by Republic
Act No. 7653 before financial assistance could be extended. Banco Filipino was also
required to submit a rehabilitation plan approved by Bangko Sentral before emergency
loans could be granted.
On October 20, 2010, Banco Filipino filed a Petition For Certiorari and Mandamus with
prayer for issuance of a temporary restraining order and writ of preliminary injunction34
before Branch 66, Regional Trial Court, Makati City, docketed as Civil Case No. 10-1042. It
assailed the alleged "arbitrary, capricious and illegal acts"35 of Bangko Sentral and of
the Monetary Board in coercing Banco Filipino to withdraw all its present suits in
exchange of the approval of its Business Plan. In particular, Banco Filipino alleged that
Bangko Sentral and the Monetary Board committed grave abuse of discretion in
imposing an additional condition in Resolution No. 1668 requiring it to withdraw its
cases and waive all future cases since it was unconstitutional and contrary to public
policy. It prayed that a writ of mandamus be issued to compel Bangko Sentral and the
Monetary Board to approve and implement its business plan and release its Financial
Assistance and Regulatory Reliefs package.
RTC:approved the TRO.
On November 25, 2010, Bangko Sentral and the Monetary Board filed another Petition
for Certiorari50 with prayer for temporary restraining order and writ of preliminary
injunction with the Court of Appeals, this time assailing the November 17, 2010 Order. n
its December 28, 2010 Resolution,54 the Court of Appeals granted55 Bangko Sentral and
the Monetary Board's Urgent Motion to Admit Attached Amended Petition in CA-G.R. SP
No. 116905.
ISSUE:
whether or not petitioner Banco Filipino, as a closed bank under receivership, could file
this Petition for Review without joining its statutory receiver, the Philippine Deposit
Insurance Corporation, as a party to the case?
HELD:
A closed bank under receivership can only sue or be sued through its receiver, the
Philippine Deposit Insurance Corporation.
Under Republic Act No. 7653,97 when the Monetary Board finds a bank insolvent, it may
"summarily and without need for prior hearing forbid the institution from doing
business in the Philippines and designate the Philippine Deposit Insurance Corporation
as receiver of the banking institution."
In Republic Act No. 7653, this provision is substantially altered. Section 30 now states, in
part:
The receiver shall immediately gather and take charge of all the assets and liabilities of
the institution, administer the same for the benefit of its creditors, and exercise the
general powers of a receiver under the Revised Rules of Court but shall not, with the
exception of administrative expenditures, pay or commit any act that will involve the
transfer or disposition of any asset of the institution: Provided, That the receiver may
deposit or place the funds of the institution in non-speculative investments. The receiver
shall determine as soon as possible, but not later than ninety (90) days from take-over,
whether the institution may be rehabilitated or otherwise placed in such a condition so
that it may be permitted to resume business with safety to its depositors and creditors
and the general public: Provided, That any determination for the resumption of business
of the institution shall be subject to prior approval of the Monetary Board.
If the receiver determines that the institution cannot be rehabilitated or permitted to
resume business in accordance with the next preceding paragraph, the Monetary Board
shall notify in writing the board of directors of its findings and direct the receiver to
proceed with the liquidation of the institution.
The law likewise grants the receiver "the general powers of a receiver under the Revised
Rules of Court."106 Under Rule 59, Section 6 of the Rules of Court, "a receiver shall have
the power to bring and defend, in such capacity, actions in his [or her] own name."107
Thus, Republic Act No. 7653 provides that the receiver shall also "in the name of the
institution, and with the assistance of counsel as [it] may retain, institute such actions as
may be necessary to collect and recover accounts and assets of, or defend any action
against, the institution."108 Considering that the receiver has the power to take charge
of all the assets of the closed bank and to institute for or defend any action against it,
only the receiver, in its fiduciary capacity, may sue and be sued on behalf of the closed
bank.
Balayan Bay Rural Bank summarized, thus:
[T]he legal personality of the petitioner bank is not ipso facto dissolved by insolvency; it
is not divested of its capacity to sue and be sued after it was ordered by the Monetary
Board to cease operation. The law mandated, however, that the action should be
brought through its statutory liquidator/receiver which in this case is the PDIC. The
authority of the PDIC to represent the insolvent bank in legal actions emanates from the
fiduciary relation created by statute which reposed upon the receiver the task of
preserving and conserving the properties of the insolvent for the benefit of its
creditors.114
Petitioner's suit concerned its Business Plan, a matter that could have affected the
status of its insolvency. Philippine Deposit Insurance Corporation's participation would
have been necessary, as it had the duty to conserve petitioner's assets and to examine
any possible liability that petitioner might undertake under the Business Plan.
Philippine Deposit Insurance Corporation also safeguards the interests of the depositors
in all legal proceedings. Most bank depositors are ordinary people who have entrusted
their money to banks in the hopes of growing their savings. When banks become
insolvent, depositors are secure in the knowledge that they can still recoup some part of
their savings through Philippine Deposit Insurance Corporation.121 Thus, Philippine
Deposit Insurance Corporation's participation in all suits involving the insolvent bank is
necessary and imbued with the public interest.
When petitioner was placed under receivership, the powers of its Board of Directors and
its officers were suspended. Thus, its Board of Directors could not have validly
authorized its Executive Vice Presidents to file the suit on its behalf. The Petition, not
having been properly verified, is considered an unsigned pleading.124 A defect in the
certification of non-forum shopping is likewise fatal to petitioner's cause.125
Considering that the Petition was filed by signatories who were not validly authorized to
do so, the Petition does not produce any legal effect.126 Being an unauthorized
pleading, this Court never validly acquired jurisdiction over the case. The Petition,
therefore, must be dismissed.
G.R. No. 191939, March 14, 2018---MARTIRES, J.
ALLIED BANKING CORPORATION, Petitioner,1v. IN THE MATTER OF THE PETITION TO
HAVE STEEL CORPORATION OF THE PHILIPPINES PLACED UNDER CORPORATE
REHABILITATION WITH PRAYER FOR THE APPROVAL OF THE PROPOSED
REHABILITATION PLAN, EQUITABLE PCI BANK, INC., Respondent.
FACTS:
On 11 September 2006, Equitable PCI Bank, Inc. (EPCIB), as creditor, filed a petition for
the corporate rehabilitation of its debtor SCP with the RTC.
EPCIB alleged, among others, that due to the onslaught of the 1997 Asian Financial
Crisis, SCP began experiencing a downward trend in its financial condition which
prompted various banks and financial institutions to grant it with term loan facilities and
working capital lines; that SCP failed to make timely payments on its term loan facilities;
that SCP also defaulted on its loan obligations under the December 2002 Omnibus
Agreement,4 where lending banks and other financial institutions agreed to reschedule
and restructure SCP's payments on the principal loan and interest, reinstate its working
capital lines and establish a new trade financing line; and that the petition for corporate
rehabilitation is grounded on Section 1, Rule 4 of the Interim Rules of Corporate
Rehabilitation, which provides that "any debtor who foresees the impossibility of
meeting its debts when they respectively fall due, or any creditor or creditors holding at
least twenty-five percent (25%) of the debtor's total liabilities, may petition the proper
Regional Trial Court to have the debtor placed under rehabilitation."
Apart from the foregoing agreements, Allied Banking Corporation (ABC) granted SCP
with a revolving credit facility denominated as a letter of credit/trust receipt line in the
amount of P100 million, which SCP availed of to finance the importation of its raw
materials. Pursuant to this arrangement, SCP executed a trust receipt (TR),5 which
authorizes ABC to charge SCP's account in its possession under instances specified in
paragraph 9 thereof, viz:
In the event of any bankruptcy, insolvency, suspension of payment, or failure, or
assignment for the benefit of creditors, on my/our part, or of the non-fulfillment of any
obligation, or of the non-payment at maturity of any acceptance specified hereon or
under any credit issued by the ALLIED BANKING CORPORATION for my/our account, or
of the non-payment of any indebtedness on my/our part to the said bank, all obligations,
acceptances, indebtedness, and liabilities whatsoever shall thereupon (with or without
notice) mature and become due and payable. The ALLIED BANKING CORPORATION is
hereby constituted my/our attorney-in-fact, with authority to examine my/our books
and records, to charge my/our account or to sell any other property of mine/ours in its
possession, and to liquidate any or all of my/our obligations under this Trust Receipt.
RTC issued an Order6 (the subject order) granting EPCIB's petition.
Aggrieved, ABC filed a petition for review under Rule 43 with the CA.
The CA affirmed the resolution of the RTC
ISSUE:
HELD:
The central argument to the present petition is that the RTC could not invalidate an act
already consummated prior to the date that the subject order was published, since it
was only on said date that the court acquired jurisdiction over ABC. ABC primarily bases
its assertion on Section 1, Rule 3 of the Interim Rules,7 which considers rehabilitation
proceedings as in rem and jurisdiction over all those affected acquired only upon
publication of the notice commencing proceedings.
In Philippine Bank of Communications v. Basic Polyprinters and Packaging
Corporation,12 the Court said that rehabilitation proceedings seek to give insolvent
debtors the opportunity to reorganize their affairs and to efficiently and equitably
distribute its remaining assets, viz:
Rehabilitation proceedings in our jurisdiction have equitable and rehabilitative purposes.
On the one hand, they attempt to provide for the efficient and equitable distribution of
an insolvent debtor's remaining assets to its creditors; and on the other, to provide
debtors with a "fresh start" by relieving them of the weight of their outstanding debts
and permitting them to reorganize their affairs. The purpose of rehabilitation
proceedings is to enable the company to gain a new lease on life and thereby allow
creditors to be paid their claims from its earnings. (emphasis supplied)
The filing of a petition for the rehabilitation of a debtor, when the court finds that it is
sufficient in form and substance, is both (1) an acknowledgment that the debtor is
presently financially distressed; and (2) an attempt to conserve and administer its assets
in the hope that it will eventually return to its former state of successful financial
operation and liquidity.13 The inherent purpose of rehabilitation is to find ways and
means to minimize the expenses of the distressed corporation during the rehabilitation
period by providing the best possible framework for the corporation to gradually regain
or achieve a sustainable operating form.14
Certainly, when a petition for rehabilitation is filed and subsequently granted by the
court, its purpose will be defeated if the debtors are still allowed to arbitrarily dispose of
their property and pay their liabilities, outside of the ordinary course of business and
what is allowed by the court, after the filing of the said petition. Such a scenario does
not promote an environment where the debtor could regain its operational footing,
contrary to the dictates of rehabilitation.
The petition itself, when granted by the court, is already a recognition of the debtor's
distressed financial status not only at the time the order is issued, but also at the time
the petition is filed. It is, therefore, more consistent with the objectives of rehabilitation
to recognize that the effects of an order commencing rehabilitation proceedings and
staying claims against the debtor should retroact to the date the petition is filed.
Accordingly, the Court finds that application of the Rehabilitation Rules to the case at
bar is proper, insofar as it clarifies the effect of an order staying claims against a debtor
sought to be rehabilitated.
The publication requirement only means that all affected persons must, to satisfy the
requirements of due process, be notified that as of a particular date, the debtor in
question requires rehabilitation and should temporarily be exempt from paying its
obligations, unless allowed by the court. Once due notice is made, the rehabilitation
court may nullify actions inconsistent with the stay order but which may have been
taken prior to publication, precisely because prior to publication, creditors may not yet
be aware that they are to desist from pursuing claims against the insolvent debtor.

Rehabilitation proceedings are considered in rem.21In rem actions are against the thing
itself and they are binding upon the whole world,22 unlike in personam actions, which
are against a person on the basis of his personal liability.23 "Against the thing" means
that the resolution of the case affects the direct or indirect interests of others and
assumes that those interests attach to the thing which is the subject matter of the
litigation.24

The Court has consistently held that in actions in personam, jurisdiction over the parties
is required since they seek to impose personal liability. On the other hand, courts need
not acquire jurisdiction over the person of the defendant in actions in rem because they
are not directed against a specific person. The court need only acquire jurisdiction over
the res.25 Nonetheless, some form of notice to all affected parties is required to satisfy
the requirements of due process. Under both the Rehabilitation Rules and the Interim
Rules, publication of the notice of the commencement of rehabilitation proceedings is
the operative act which vests the court with jurisdiction over all affected parties. As
discussed earlier, once jurisdiction is acquired, the court can subject all those affected to
orders consistent with the rehabilitation of the insolvent debtor, including the reversal
of any transfer, payment, or sale made after the filing of the petition.

It is not disputed that the 12 September 2006 Order of the rehabilitation court was duly
published on 16 September 2006; that said order contained a directive for all creditors
to file their verified comment on the petition within a stated period; and that ABC filed
its verified comment on 17 October 2006.

It is therefore evident that petitioner was notified of the rehabilitation proceedings and
given an opportunity to be heard, as in fact it filed a comment thereon, thereby
satisfying due process requirements. Moreover, as previously discussed, there was no
undue deprivation of property because SCP's obligation to ABC remains.