CONCURRENCE AND PREFERENCE OF CREDITS

1. MAGDALENA S. DE BARRETTO and JOSE G. BARRETTO, plaintiffs-appellants, vs. JOSE

G. VILLANUEVA, ET AL., defendants-appellees
FACTS: Rosario Cruzado sold all her right, title, and interest and that of her children in the
house and lot herein involved to Villanueva for P19K. The purchaser paid P1,500 in advance, and
executed a promissory note for the balance. However, the buyer could only pay P5,500 On
account of the note, for which reason the vendor obtained judgment for the unpaid balance. In
the meantime, the buyer Villanueva was able to secure a clean certificate of title and mortgaged
the property to appellant Barretto to secure a loan of P30K, said mortgage having been duly
recorded.
Villanueva defaulted on the mortgage loan in favor of Barretto. The latter foreclosed the
mortgage in her favor, obtained judgment, and upon its becoming final asked for execution.
Cruzado filed a motion for recognition for her "vendor's lien" invoking Articles 2242, 2243, and
2249 of the new Civil Code. After hearing, the court below ordered the "lien" annotated on the
back of the title, with the proviso that in case of sale under the foreclosure decree the vendor's
lien and the mortgage credit of appellant Barretto should be paid pro rata from the proceeds.
Appellants insist that:
1. The vendor's lien, under Articles 2242 and 2243 of the new, Civil Code of the Philippines, can
only become effective in the event of insolvency of the vendee, which has not been proved to
exist in the instant case; and .
2. That the Cruzado is not a true vendor of the foreclosed property.
Article 2242 of the new Civil Code enumerates the claims, mortgage and liens that constitute
an encumbrance on specific immovable property, and among them are: . (2) For the unpaid price
of real property sold, upon the immovable sold; and (5) Mortgage credits recorded in the Registry
of Property."
Article 2249 of the same Code provides that "if there are two or more credits with respect to
the same specific real property or real rights, they shall be satisfied pro-rata after the payment
of the taxes and assessment upon the immovable property or real rights.
ISSUE: Appellants argument: inasmuch as the unpaid vendor's lien in this case was
not registered, it should not prejudice the said appellants' registered rights over the
property.
HELD: In claiming that the decision of the Court of First Instance of Manila in Civil Case No.
20075 awarding the, amount of P12,000.00 in favor of Rosario Cruzado and her minor children
cannot constitute a basis for the vendor's lien filed by the appellee Rosario Cruzado,
appellants allege that the action in said civil case was merely to recover the balance of a
promissory note. But while, apparently, the action was to recover the remaining obligation of
promisor Pura Villanueva on the note, the fact remains that Rosario P. Cruzado as guardian of her
minor children was an unpaid vendor of the realty in question, and the promissory note was,
precisely, for the unpaid balance of the purchase price of the property bought by said Pura
Villanueva.
Article 2242 of the New Civil Code enumerates the claims, mortgages and liens that constitute
an encumbrance on specific immovable property, and among them are: "(2) For the unpaid price
of real property sold, upon the immovable sold"; and "(5) Mortgage credits recorded in the
Registry of Property."
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Article 2249 of the same Code provides that "if there are two or more credits with respect to the
same specific real property or real rights, they shall be satisfied pro-rata, after the payment of
the taxes and assessments upon the immovable property of real rights. Application of the above-
quoted provisions to the case at bar would mean that the herein appellee Rosario Cruzado as an
unpaid vendor of the property in question has the right to share pro-rata with the appellants the
proceeds of the foreclosure sale.
The appellants, however, argue that inasmuch as the unpaid vendor's lien in this case was not
registered, it should not prejudice the said appellants' registered rights over the property. There
is nothing to this argument. Note must be taken of the fact that article 2242 of the new Civil
Code enumerating the preferred claims, mortgages and liens on immovables, specifically
requires that unlike the unpaid price of real property sold mortgage credits, in order to be
given preference, should be recorded in the Registry of Property. If the legislative intent was to
impose the same requirement in the case of the vendors lien, or the unpaid price of real property
sold, the lawmakers could have easily inserted the same qualification which now modifies the
mortgage credits. The law, however, does not make any distinction between registered and
unregistered vendor's lien, which only goes to show that any lien of that kind enjoys the
preferred credit status.
Appellants also argue that to give the unrecorded vendor's lien the same standing as the
registered mortgage credit would be to nullify the principle in land registration system that prior
unrecorded interests cannot prejudice persons who subsequently acquire interests over the same
property. The Land Registration Act itself, however, respects without reserve or qualification the
paramount rights of alien holders on real property. Thus, section 70 of that Act provides that:
"Registered land, and ownership therein shall in all respects be subject to the same burdens and
incidents attached by law to unregistered land. Nothing contained in this Act shall in any way be
construed to relieve registered land or the owners thereof from any rights incident to the relation
of husband and wife, or from liability to attachment on mesne process or levy on execution, or
from liability to any lien of any description established by law on land and the buildings
thereon, or the interest of the owners of such land or buildings, or to change the laws of descent,
or the rights of partition between co-owners, joint tenants and other co-tenants, or the right to
take the same by eminent domain, or to relieve such land from liability to be appropriated in any
lawful manner for the payment of debts, or to change or affect in any other way any other rights
or liabilities created by law and applicable to unregistered land, except as otherwise expressly
provided in this Act or in the amendments thereof."
As to the point made that the articles of the Civil Code on concurrence and preference of credits
are applicable only to the insolvent debtor, suffice it to say that nothing in the law shows any
such limitation. If we are to interpret this portion of the Code as intended only for insolvency
cases, then other creditor-debtor relationships where there are concurrence of credits would be
left without any rules to govern them, and it would render purposeless the special laws on
insolvency.
2. PHILIPPINE SAVINGS BANK, Petitioner, v. HON. GREGORIO T. LANTIN, Presiding
Judge, Court of First Instance of Manila, Branch VII, and CANDIDO
RAMOS, Respondents.
FACTS: Involved in this case is a duplex-apartment house on a lot covered by TCT No. 86195
situated at San Diego Street, Sampaloc, Manila, and owned by the spouses Filomeno and Socorro
Tabligan. The duplex-apartment house was built for the spouses by private respondent Candido
Ramos, a duly licensed architect and building contractor, at a total cost of P32,927.00. The
spouses paid private respondent the sum of P7,139.00 only. Hence, the latter used his own
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money, P25,788.50 in all, to finish the construction of the duplex apartment.

Meanwhile, on December 16, 1966, February 1, 1967, and February 28, 1967, the spouses
Tabligan obtained from petitioner Philippine Savings Bank three (3) loans in the total amount of
P35,000.00, the purpose of which was to complete the construction of the duplex-apartment. To
secure payment of the l2oans, the spouses executed in favor of the petitioner three (3)
promissory notes and three (3) deeds of real estate mortgages over the property subject matter
of this litigation. On December 19, 1966, the petitioner registered the December 16, 1966 deed
of real estate mortgage with the Register of Deeds of Manila. The subsequent mortgages of
February 1, 1967, and February 28, 1967, were registered with the Register of Deeds of Manila
on February 2, 1967 and March 1, 1967, respectively. At the time of the registration of these
mortgages, Transfer Certificate of Title No. 86195 was free from all liens and encumbrances.

The spouses failed to pay their monthly amortizations. As a result thereof, the petitioner bank
foreclosed the mortgages, and at the public auction held on July 23, 1969, was the highest
bidder. On August 5, 1969, the petitioner bank registered the certificate of sale issued in its
favor. On August 9, 1970, the bank consolidated its ownership over the property in question, and
Transfer Certificate of Title No. 101864 was issued by the Register of Deeds of Manila in the
name of the petitioner bank. Upon the other hand, the private respondent filed an action against
the spouses to collect the unpaid cost of the construction of the duplex-apartment before the
Court of First Instance of Manila, Branch I, which case was docketed therein as Civil Case No.
69228. During its pendency, the private respondent succeeded in obtaining the issuance of a writ
of preliminary attachment, and pursuant thereto, had the property in question attached.
Consequently, a notice of adverse claim was annotated at the back of Transfer Certificate of Title
No. 86195.

On August 26, 1968, a decision was rendered in Civil Case No. 69228 in favor of the private
respondent and against the spouses. A writ of execution was accordingly issued but was returned
unsatisfied. As the spouses did not have any properties to satisfy the judgment in Civil Case No.
69228, the private respondent addressed a letter to the petitioner for the delivery to him (private
respondent) of his pro-rata share in the value of the duplex-apartment in accordance with Article
2242 of the Civil Code. The petitioner refused to pay the pro-rata value prompting the private
respondent to file the instant action. As earlier stated, a decision was rendered in favor of the
private Respondent.
ISSUE: Whether or not the private respondent is entitled to claim a pro-rata share in
the value of the property in question.
HELD: The applicable provision, Article 2242 of the Civil Code. Concurrence of credits
occurs when the same specific property of the debtor or all of his property is subjected to the
claims of several creditors. The concurrence of credits raises no questions of consequence where
the value of the property or the value of all assets of the debtor is sufficient to pay in full all the
creditors. However, it becomes material when said assets are insufficient for then some creditors
of necessity will not be paid or some creditors will not obtain the full satisfaction of their claims.
In this situation, the question of preference will then arise, that is to say who of the creditors will
be paid ahead of the others.
Under the system established by Article 2249 of the Civil Code of the Philippines, only taxes and
assessments upon immovable property enjoy absolute preference. All the remaining specified
classes of preferred creditors under Article 2242 enjoy no priority among themselves. Their
credits shall be satisfied pro-rata, i.e., in proportion to the amount of the respective credits.

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Under the De Barreto decision, the full application of Articles 2242 and 2249 demands that there
must first be some proceeding where the claims of all the preferred creditors may be bindingly
adjudicated, such as insolvency, the settlement of a decedents estate under Rule 87 of the Rules
of Court, or other liquidation proceedings of similar import.

The pertinent ruling reads: "Thus, it becomes evident that one preferred creditors third-party
claim to the proceeds of a foreclosure sale (as in the case now before us) is not the proceeding
contemplated by law for the enforcement of preferences under Article 2242, unless the claimant
were enforcing a credit for taxes that enjoy absolute priority. If none of the claims is for taxes, a
dispute between two creditors will not enable the Court to ascertain the pro rata dividend
corresponding to each because the rights of the other creditors likewise enjoying preference
under Article 2242 cannot be ascertained. Wherefore, the order of the Court of First Instance of
Manila now appealed from, decreeing that the proceeds of the foreclosure sale be apportioned
only between appellant and appellee, is incorrect and must be reversed.

"In the absence of insolvency proceedings (or other equivalent general liquidation of the debtors
estate), the conflict between the parties now before us must be decided pursuant to the well-
established principle concerning registered lands; that a purchaser in good faith and for value (as
the appellant concededly is) takes registered property free from liens and encumbrances other
than statutory liens and those recorded in the certificate of title. There being no insolvency or
liquidation, the claim of the appellee, as unpaid vendor, did not acquire the character and rank of
a statutory lien co-equal to the mortgagees recorded encumbrance, and must remain
subordinate to the latter."
The resolution of this petition, therefore, hinges on the determination of whether an insolvency
proceeding or other liquidation proceeding of similar import may be considered to have been
conducted in the court below. The respondent court ruled in the affirmative holding that: "There
were no known creditors, other than the plaintiff and defendant herein, and the proceedings in
the present case may ascertain and bindingly adjudicate the respective claims of the plaintiff and
the defendant, serving as a substantial compliance with what the Supreme Court stated: ". . . it
is thus apparent that the full application of Articles 2242 and 2249 demands that there must be
first some proceeding where the claims of all the preferred creditors may be bindingly
adjudicated, such as insolvency, the settlement of a decedents estate under Rule 87 of the Rules
of Court, or other liquidation proceedings of similar import. A careful considering of this petition
leads us to agree with the petitioner. The conclusions of the lower court are not supported by the
law and the facts. The proceedings in the court below do not partake of the nature of the
insolvency proceedings or settlement of a decedents 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.
3. 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 Personal 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
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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. 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 mortgagee, 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.
HELD: YES. We hold that public respondent gravely abused its discretion in affirming the
decision of the Labor Arbiter. Art. 110 should not be treated apart from other laws but applied in
conjunction with the pertinent provisions of the Civil Code and the Insolvency Law to the extent
that piece-meal distribution of the assets of the debtor is avoided. Art. 110, then prevailing,
provides: 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 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.
Complementing Art. 110, Sec. 10, Rule VIII, Book III, of the Revised Rules and Regulations
Implementing the Labor Code provides: SECTION 10. Payment of wages in case of bankruptcy.
Unpaid wages earned by the employees before the declaration of bankruptcy or judicial
liquidation of the employer's business shall be given first preference and shall be paid in full
before other creditors may establish any claim to a share in the assets of the employer.
We interpreted this provision in Development Bank of the Philippines v. Santos 4 to mean 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.
The rationale is that to hold Art. 110 to be applicable also to extrajudicial 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. 5 Art. 110, which was amended by R.A. 6715 effective
21 March 1989, now reads: 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 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.

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Obviously, the amendment expanded the concept of "worker preference" to cover not only
unpaid wages but also other monetary claims to which even claims of the Government must be
deemed subordinate. The Rules and Regulations Implementing R.A. 6715, approved 24 May
1989, also amended the corresponding implementing rule, and now reads: SECTION 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.
Although the terms "declaration" (of bankruptcy) or "judicial" (liquidation) have been notably
eliminated, still in Development Bank of the Philippines v. NLRC , this Court did not alter its
original position that the right to preference given to workers under Art. 110 cannot exist in any
effective way prior to the time of its presentation in distribution proceedings. In effect, we
reiterated our previous interpretation in Development Bank of the Philippines v. Santos where we
said:
It (worker preference) 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 preferences 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 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.
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 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. The rationale therefore has
been expressed in the recent case of DBP v. 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. 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. NLRC . . . 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
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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 2242, number 3, they would come within the ambit of the category of ordinary
preferred credits under Article 2244.
4. A.C. RANSOM LABOR UNION-CCLU, petitioner, vs. NATIONAL LABOR RELATIONS
COMMISSION, First Division A.C. RANSOM (PHIIS.) CORPORATION RUBEN HERNANDEZ,
MAXIMO C. HERNANDEZ, SR., PORFIRIO R. VALENCIA, LAURA H. CORNEJO, FRANCISCO
HERNANDEZ, CELESTINO C. HERNANDEZ and MA. ROSARIO HERNANDEZ, respondents.
FACTS: The backwages due the 22 employees having been computed at P 199,276.00 by the
(CIR) Examiner, successive Motions for Execution were filed by the UNION on January 27, 1973
and March 1, 1973, all of which RANSOM opposed stressing its "precarious financial position if
immediate execution of the backwages would be ordered." Upon the UNION's Motion of April 22,
1973 asking the CIR that RANSOM be ordered to deposit with the Court the backwages due them.
RANSOM manifested that it did not have the necessary funds to deposit and asked that the
employees' earnings elsewhere during this suspension be deducted. After several hearings, a
recomputation was made and the award of P199,276.00 was reduced to P 164,984.00.
The records show that, upon application filed by RANSOM on April 2, 1973, it was granted
clearance by the Secretary of Labor on June 7, 1973 to cease operation and terminate
employment effective May 1, 1973, without prejudice to the right of subject employees to seek
redress of grievances under existing laws and decrees. The reasons given by RANSOM for the
clearance application were financial difficulties on account of obligations incurred prior to 1966.
On January 21, 1974, the UNION filed another Motion for Execution alleging that although
RANSOM had assumed a posture of suffering from business reverse, its officers and principal
stockholders had organized a new corporation, the Rosario Industrial Corporation (thereinafter
called ROSARIO), using the same equipment, personnel, business stocks and the same place of
business. For its part, RANSOM declared that ROSARIO is a distinct and separate corporation,
which was organized long before these instant cases were decided adversely against RANSOM.
It appears that sometime in 1969, ROSARIO, a closed corporation, was, in fact, established. It
was engaged in the same line of business as RANSOM with the same Hernandez family as the
owners, the same officers, the same President, the same counsel and the same address at 555
Quirino Avenue, Paranaque, Rizal. The compound, building, plant, equipment, machinery,
laboratory and bodega were the same as those occupied and used by RANSOM. The UNION
claims that ROSARIO thrives to this day.
Writs of execution were issued successively against RANSOM on June 23, 1976, and February 17,
1977, to no avail. On December 18, 1978, the UNION again filed an ex-parte Motion for Writ of
Execution and Garnishment praying that the Writ issue against the Officers/Agents of RANSOM
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personally and or their estates, as the case may be, considering their success in hiding or
shielding the assets of said company. RANSOM countered that the CIR Decision, dated August 19,
1972, could no longer be enforced by mere Motion because more than five (5) years had already
lapsed.
ISSUE:
HELD: The foregoing, however, limits the scope of liability and deviates from the CIR Decision,
affirmed by this Court in 1973, holding the officers and agents of RANSOM liable. In other words,
the officers and agents listed in the Genilo Order except for those who have since passed away,
should, as affirmed by this Court, be held jointly and severally liable for the payment of
backwages to the 22 strikers.
This finding does not ignore the legal fiction that a corporation has a personality separate and
distinct from its stockholders and members, for, as this Court had held "where the incorporators
and directors belong to a single family, the corporation and its members can be considered as
one in order to avoid its being used as an instrument to commit injustice," or to further an end
subversive of justice. In the case of Claparols vs. CIR involving almost similar facts as in this
case, it was also held that the shield of corporate fiction should be pierced when it is deliberately
and maliciously designed to evade financial obligations to employees. To the same effect was
this Court's rulings in still other cases:
When the notion of legal entity is used as a means to perpetrate fraud or an illegal act or as a
vehicle for the evasion of an existing obligation, the circumvention of statutes, and or confuse
legitimate issues the veil which protects the corporation will be lifted.
The alleged bankruptcy of RANSOM furnishes no justification for non-payment of backwages to
the employees concerned taking into consideration Article 110 of the Labor Code. The foregoing
provisions are but in consonance with the principles of social justice and protection to labor
guaranteed by past and present Constitutions and are not really being given any retroactive
effect when applied herein.
The Decision of the CIR was rendered on August 19, 1972. Clearance to RANSOM to cease
operations and terminate employment granted by the Secretary of Labor was made effective on
May 1, 1973. The right of the employees concerned to back wages awarded them, therefore, had
already vested at the time and even before clearance was granted. Note should also be taken of
the fact that the clearance was without prejudice to the right of subject employees to seek
redress of grievances under existing laws and decrees.
The worker preference applies even if the employer's properties are encumbered by means of a
mortgage contract, as in this case. So that, when machinery and equipment of RANSOM were
sold to Revelations Manufacturing Corporation for P 2M in 1975, the right of the 22 laborers to be
paid from the proceeds should have been recognized, even though it is claimed that those
proceeds were turned over to the Commercial Bank and Trust Company (Comtrust) in payment of
RANSOM obligations, since the workers' preference is over and above the claim of other
creditors.
... even if the employer's properties are encumbered by means of a mortgage contract, still the
workers' wages which enjoy first preference in case of bankruptcy or liquidation are duly
protected by an automatic first lien over and above all other earlier encumbrances on the said
properties. Otherwise, workers' wages may be imperiled by foreclosure of mortgages, and as a
consequence, the aforecited provision of the New Labor Code would be rendered meaningless.

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Aggravating RANSOM's clear evasion of payment of its financial obligations is the organization of
a "run-away corporation," ROSARIO, in 1969 at the time the unfair labor practice case was
pending before the CIR by the same persons who were the officers and stockholders of RANSOM,
engaged in the same line of business as RANSOM, producing the same line of products,
occupying the same compound, using the same machineries, buildings, laboratory, bodega and
sales and accounts departments used by RANSOM, and which is still in existence. Both
corporations were closed corporations owned and managed by members of the same family. Its
organization proved to be a convenient instrument to avoid payment of backwages and the
reinstatement of the 22 workers. This is another instance where the fiction of separate and
distinct corporate entities should be disregarded.
It is very obvious that the second corporation seeks the protective shield of a corporate fiction
whose veil in the present case could, and should, be pierced as it was deliberately and
maliciously designed to evade its financial obligation to its employees. ... When a notion of legal
entity is used to. defeat public convenience, justify wrong, protect fraud, or defend crime, the law
will regard the corporation as an association or persons, or, in the case of two corporations, will
merge them into one.
The corporation will be treated merely as an aggregation of individuals or, where there are two
corporations, they will be merged as one, the one being merely regarded as part of the
instrumentality of the other. The UNION's plea, therefore, for the reinstatement of the 22 strikers
in ROSARIO should be favorably heard. However, ROSARIO shall have the option to award them
separation pay equivalent to one-half month for every year of service actually rendered by the
22 strikers.
The plea of the UNION for the restoration of the original computation of P199,276.00 or to grant
the 22 Union members three (3) years backwages is rejected. It is the amount of P164,984.00 as
backwages, which was the subject of the Writ of Execution issued by the Labor Arbiter pursuant
to the CIR Decision of 1972. With the conclusions arrived at, the UNION's Urgent Motion for a Writ
of Preliminary Mandatory Injunction directing private respondents to deposit the amount due as
backwages in the meantime, need no longer be acted on.

5. PHILIPPINE NATIONAL BANK, petitioner, vs. TERESITA CRUZ, JOSE AGRIPINO,

BERNARDO BAUZON, LUCRECIA BILBAO, MA. LUISA CABRERA, FRANCIS BAACLO,
GUADALUPE CAMACHO, LUZ DE LEON, MIKE VILLAVERDE, NEPOMUCENO MEDINA,
EDGARDO MENDOZA, JENNIFER VELEZ, AMELIA MEDINA, EDUARDO ESPEJO and
RICARDO BATTO ,respondents
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. 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 or 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.
ISSUE: Whether or not Art 110 should apply and workers lien should take precedence
over any other claim.

9
HELD: At the outset, petitioner PNB did not question the validity of the workers' claim for unpaid
wages with respect to the mortgaged properties of AMEX, provided that the same be limited to
the unpaid wages, and to the exclusion of termination pay. In the instant petition however, PNB
starts off with the question of whether or not the workers' lien take precedence over any other
claim considering that this Court has ruled otherwise in Republic vs. Peralta.
This Court cannot allow the petitioner to alter its stance at this stage inasmuch as it is deemed to
have acquiesced in the decision of the labor arbiter concerning payment of unpaid wages. The
records reveal that the petitioner failed to question the same on appeal. Hence, it is now barred
from claiming that the workers' lien applies only to the products of their labor and not to other
properties of the employer which are encumbered by mortgage contracts or otherwise.
Notwithstanding the foregoing, an attempt on the part of the petitioner to seek relief from that
portion of the decision would still be in vain.
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.6a
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 Herman vs. Radio Corporation of the Philippines, this Court declared that whenever two
statutes of different dates and of contrary tenor are of equal theoretical application to a
particular case, the statute of later date must prevail being a later expression of legislative will.
Applying the aforecited case in the instant petition, the Civil Code provisions cited by the
petitioner must yield to Article 110 of the Labor Code.
Moreover, Our pronouncement in A.C. Ransom Labor Union-CCLU vs. NLRC, reinforces the
above-mentioned interpretation where this Court, speaking through Associate Justice Melencio-
Herrera, explicitly stated that "(t)he worker preference applies even if the employer's properties
are encumbered by means of a mortgage contract . . . . So that, when (the) machinery and
equipment of RANSOM were sold to Revelations Manufacturing Corporation for P2 M in 1975, the
right of the 22 laborers to be paid from the proceeds should have been recognized.
Reliance by the petitioners on Republic vs. Peralta is without basis. The said case involved a
question of workers' preference as against the tax claims of the State. In the said case the Court
held that the State must prevail in that instance since "it has been 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."
Nevertheless, under Article 110 of the Labor Code as amended, the unpaid wages and 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,
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." 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.

10
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." To support this
contention, petitioner cites Section 7, Rule I, Book VI of the Rules and Regulations implementing
the Labor Code which provides that: "The just causes for terminating the services of an employee
shall be those provided under Article 283 of the Code. The separation from work of an employee
for a just cause does not entitle him to termination pay provided in the Code,
Based on that premise, petitioner contends that the claim for termination pay should not be
enforced against AMEX properties mortgaged to petitioner PNB because Article 110 of the Labor
Code refers only to "wages due them for services rendered during the period prior to bankruptcy
or liquidation." Citing serious financial losses as the basis for the termination of the private
respondents, petitioner alleges that the employees are not entitled to the termination pay which
they claim. 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." After a careful study of the records of the case,
this Court finds no reason to alter the findings of the respondent Commission.
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.
6. DBP VS. SANTOS
FACTS: 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, 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. 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
11
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.
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.
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. Hence, this petition.
ISSUE: Whether or not the Labor Arbiter commited grave abuse of discretion in ruling
that the private respondents may enforce their first preference of claims.

12
HELD: YES. 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. 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.
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.
7. JERRY ONG, petitioner, vs. COURT OF APPEALS and RURAL BANK OF OLONGAPO,
INC., represented by its Liquidator, GUILLERMO G. REYES, JR. and Deputy Liquidator
ABEL ALLANIGUE, respondents
FACTS: On 5 February 1991 Jerry Ong filed with the Regional Trial Court of Quezon City a petition
for the surrender of TCT Nos. 13769 and 13770 pursuant to the provisions of Secs. 63(b) and
107of P.D. 1529 against Rural Bank of Olongapo, Inc. (RBO), represented by its liquidator
Guillermo G. Reyes, Jr., and deputy liquidator Abel Allanigue.
The petition averred inter alia that 2. The RBO was the owner in fee simple of two
parcels of land including the improvements thereon situated in Tagaytay City . . . particularly
described in TCT Nos. 13769 and 13770 . . .; 3. Said parcels of land were duly mortgaged by RBO
in favor of petitioner on December 29, 1983 to guarantee the payment of Omnibus Finance, Inc.,
which is likewise now undergoing liquidation proceedings of its money market obligations to
petitioner in the principal amount of P863,517.02 . . .
4. Omnibus Finance, Inc., not having seasonably settled its obligations to petitioner, the latter
proceeded to effect the extrajudicial foreclosure of said mortgages, such that on March 23, 1984,
the City Sheriff of Tagaytay City issued a Certificate of Sale in favor of petitioner . . ; 5. Said
Certificate of Sale . . . was duly registered with the Registry of Deeds of Tagaytay City on July 16,
1985, as shown in the certified true copies of the aforementioned titles . . .
6. Respondents failed to seasonably redeem said parcels of land, for which reason, petitioner has
executed an Affidavit of Consolidation of Ownership which, to date, has not been submitted to
13
the Registry of Deeds of Tagaytay City, in view of the fact that possession of the aforesaid titles
or owner's duplicate certificates of title remains with the RBO. RBR; 7. To date, petitioner has not
been able to effect the registration of said parcels of land in his name in view of the persistent
refusal of respondents, despite demand, to surrender RBO's copies of its owner's
certificates of title for the parcels of land covered by TCT Nos. 13769 and 13770.
Respondent RBO filed a motion to dismiss on the ground of res judicata alleging that petitioner
had earlier sought a similar relief from Br. 18 of the Regional Trial Court of Tagaytay City, which
case was dismissed with finality on appeal before the Court of Appeals. In a supplemental motion
to dismiss, respondent RBO contended that it was undergoing liquidation and, pursuant to
prevailing jurisprudence, it is the liquidation court which has exclusive jurisdiction to take
cognizance of petitioner's claim.
On 7 May 1991 the trial court denied the motion to dismiss because it found that the
causes of action in the previous and present cases were different although it was silent on the
jurisdictional issue. Accordingly, respondent RBO filed a motion for reconsideration but the same
was similarly rejected in the order of June 11, 1991 holding that: (a) subject parcels ofland were
sold to petitioner through public bidding on 23 March 1984 and, consequently, said
pieces of realty were no longer part of the assets of respondent RBO; and, (b) in the same token,
subject lots were no longer considered assets of respondent RBO when its liquidation was
commenced by the Central Bank on 9 November 1984 and when the petition for assistance in its
liquidation was approved by the Regional Trial Court of Olongapo City on 30 May 1985.
ISSUE: The Jurisdiction of a regular court over a bank undergoing liquidation is the
issue in this petition for review of the decision of the Court of Appeals.
HELD: We find no merit in the petition. Section 29, par. 3, of R.A. 265 as amended by P.D.
1827 provides If the Monetary Board shall determine and confirm within (sixty days) that the
bank . . . 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 7 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 . . . 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
(italics supplied).
Applying the aforequoted provision in Hernandez v. Rural Bank of Lucena, Inc., this Court ruled
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 (italics supplied).
We explained therein the rationale behind the provision, i.e., the judicial liquidation is
intended to prevent multiplicity of actions against the insolvent bank. It 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. 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 of Banks and regulate his operations.

14
The phrase "(T)he court shall have jurisdiction in the same proceedings to adjudicate disputed
claims against the bank" appears to have misled petitioner. He argues that to the best of his
personal knowledge there is no pending action filed before any court or agency which contests
his right over subject properties. Thus his petition before the Regional Trial Court of Quezon City
cannot be considered a "disputed claim" as contemplated by law.
It is not necessary that a claim be initially disputed in a court or agency before it is filed with the
liquidation court. As may be gleaned in the Hernandez case, the term "disputed claim" in the
provision simply connotes that [i]n 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 (now
Regional Trial Court) . . . assist and supervise the liquidation and . . . act as umpire or arbitrator in
the allowance and disallowance of claims.
Petitioner must have overlooked the fact that since respondent RBO is insolvent other claimants
not privy to their transaction may be involved. As far as those claimants are concerned, in the
absence of certificates of title in the name of petitioner, subject lots still form part of the
assets of the insolvent bank.
8. 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.
FACTS: 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 "all 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

15
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 payment outside 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.
She further argues that an action could not be maintained against an insolvent bank after it had
been ordered liquidated.
ISSUE:
HELD: 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 quasi-banking functions 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
16
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.
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 . . .
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 of 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."
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.
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.

17
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.
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.

18