G.R. No. Nos.

82763-64 March 19, 1990

DEVELOPMENT BANK OF THE PHILIPPINES, vs. NATIONAL LABOR RELATIONS COMMISSION, LABOR ARBITER
ISABEL P. ORTIGUERRA, and LABOR ALLIANCE FOR NATIONAL DEVELOPMENT,

MELENCIO-HERRERA, J.:

FACTS: Lirag Textile Mills, Inc. (LIRAG) was a mortgage debtor of DBP. Private respondent Labor Alliance for National
Development (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 the National Labor Relations Commission (NLRC) against
LIRAG for illegal dismissal, LAND, on behalf of 180 dismissed members, also filed a Complaint against LIRAG.

In a Decision, Labor Arbiter Apolinar L. Sevilla ordered LIRAG to pay the individual complainants. The NLRC affirmed. Judgment

Writ of Execution was issued. DBP extrajudicially foreclosed the mortgaged properties for failure of LIRAG to pay its mortgage
obligation. As the only bidder at the foreclosure sale, DBP acquired said mortgaged properties. 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. A Notice of Levy on
Execution on the properties of LIRAG was then entered. library

LAND filed a "Motion for Writ of Execution and Garnishment" of the proceeds of the foreclosure sale.

Labor Arbiter Sevilla granted the Writ of Garnishment and directed DBP to remit to the NLRC the sum of P6,292,380.00 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. Public respondent, Labor Arbiter Isabel P. Ortiguerra denied reconsideration. DBP appealed that
denial to the NLRC.

In the meantime, by virtue of Proclamation Nos. 50 and 50-A, 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 (Litex Chapter) whereby APT paid the complainants-
employees, ex gratia, the sum of P750,000.00 "in full settlement of their claims, past and present, with respect to all assets of
LITEX transferred by DBP to APT." That amount was received by LAND's local President. LAND, through its national President,

NLRC affirmed the appealed Order and dismissed the DBP appeal.

ISSUE: WON the proceeds of LIRAG's properties foreclosed by DBP should first satisfy the unpaid wages of the workers.

HELD: NO

RATIO: Development Bank of the Philippines vs. Santos categorically stated:

It is quite clear from the provision that a declaration of bankruptcy or a judicial liquidation must be present before the workers
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.

Art. 110. Worker preference in case of bankruptcy. - In the event of bankruptcy or liquidation of an employer's business, his workers shall enjoy first
preference as regards their unpaid wages and other monetary claims, any provision of law to the contrary notwithstanding. Such unpaid wages and
monetary claims shall be paid in full before the claims of the Government and other creditors may be paid.
Section 10, Rule III, Book III of the Omnibus Rules Implementing the Labor Code:. 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.

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 insolvents’ creditors may be given and
where the claims of preferred creditors may be bindingly adjudicated

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. 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.

A distinction should be made between a preference of credit and a lien. A preference applies only to claims which do not attach to
specific properties. A 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.

The right to preference given to workers under Article 110 of the Labor Code cannot exist in any effective way prior to the time of
its presentation in distribution proceedings. It will find application when, in proceedings such as insolvency, such unpaid wages
shall be paid in full before the "claims of the Government and other creditors" may be paid. But, for an orderly settlement of a
debtor's assets, all creditors must be convened, their claims ascertained and inventoried, and thereafter the 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
[G.R. No. 105827. January 31, 2000]

J.L. BERNARDO CONSTRUCTION, represented by attorneys-in-fact Santiago R. Sugay, Edwin A. Sugay and Fernando
S.A. Erana, SANTIAGO R. SUGAY, EDWIN A. SUGAY and FERNANDO S. A. ERANA, vs. COURT OF APPEALS and MAYOR
JOSE L. SALONGA,

GONZAGA-REYES, J.:

FACTS: the municipal government of San Antonio, Nueva Ecija approved the construction of the San Antonio Public Market. The
construction of the market was to be funded by the Economic Support Fund Secretariat (ESFS).It is claimed by petitioners that they
entered into a business venture for the purpose of participating in the bidding for the public market.

After evaluating the bids, the municipal pre-qualification bids and awards committee, headed by respondent Jose L. Salonga (then
incumbent municipal mayor of San Antonio) awarded the contract to petitioners. A Construction Agreement was entered into by the
Municipality of San Antonio thru respondent Salonga and petitioner J.L. Bernardo Construction.

It is claimed by petitioners that under this Construction Agreement, the Municipality agreed to assume the expenses for the
demolition, clearing and site filling of the construction site and, in addition, to provide cash equity to be remitted directly to
petitioners.

Petitioners allege that, although the whole amount of the cash equity became due, the Municipality refused to pay the same,
despite repeated demands and notwithstanding that the public market was more than 98% complete. Petitioners claim that they
have not been reimbursed for their expenses.

J.L. Bernardo Construction filed a complaint for breach of contract, specific performance, and collection of a sum of money, with
enforcement of contractors lien against the Municipality of San Antonio, Nueva Ecija .

Regional Trial Court granted J.L. Bernardo Construction the right to maintain possession of the public market and to operate the
same. With regards to the contractors lien, the trial court held that since plaintiffs have not been reimbursed for the cash equity and
for the demolition, clearing and site filling expenses, they stand in the position of an unpaid contractor and as such are entitled,
pursuant to articles 2242 and 2243 of the Civil Code, to a lien

The defendants moved for reconsideration but was denied

the Court of Appeals reversed the trial courts decision and ruled in favor of Salonga.

ISSUE WON a contractors lien should be granted to the petitioners.

HELD:NO

RATIO: Articles 2241 and 2242 of the Civil Code enumerates certain credits which enjoy preference with respect to specific
personal or real property of the debtor. Specifically, the contractors lien claimed by petitioners is granted under the third paragraph
of Article 2242 which provides that the claims of contractors engaged in the construction, reconstruction or repair of buildings or
other works shall be preferred with respect to the specific building or other immovable property constructed

However, Article 2242 only finds application when there is a concurrence of credits, i.e. when the same specific property of the
debtor is subjected to the claims of several creditors and the value of such property of the debtor is insufficient to pay in full all the
creditors. In such a situation, the question of preference will arise, that is, there will be a need to determine which of the creditors
will be paid ahead of the others. Fundamental tenets of due process will dictate that this statutory lien should then only be enforced
in the context of some kind of a proceeding where the claims of all the preferred creditors may be bindingly adjudicated, such as
insolvency proceedings.

This is made explicit by Article 2243 which states that the claims and liens enumerated in articles 2241 and 2242 shall be
considered as mortgages or pledges of real or personal property, or liens within the purview of legal provisions governing
insolvency.

The action filed by petitioners in the trial court does not partake of the nature of an insolvency proceeding. It is basically for specific
performance and damages.\ Thus, even if it is finally adjudicated that petitioners herein actually stand in the position of unpaid
contractors and are entitled to invoke the contractors lien granted under Article 2242, such lien cannot be enforced in the present
action for there is no way of determining whether or not there exist other preferred creditors with claims over the San Antonio
Public Market. The records do not contain any allegation that petitioners are the only creditors with respect to such property. The
fact that no third party claims have been filed in the trial court will not bar other creditors from subsequently bringing actions and
claiming that they also have preferred liens against the property involved
 [G.R. No. 126773. April 14, 1999]

RUBBERWORLD (PHILS.), INC., or JULIE YAP ONG, Petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION et.al

PANGANIBAN, J.:

FACTS: Petitioner is a domestic corporation which used to be in the business of manufacturing footwear, bags and garments. It
filed with the Securities and Exchange Commission a petition for suspension of payments praying that it be declared in a state of
suspension of payments and that the SEC accordingly issue an order restraining its creditors from enforcing their claims against
petitioner corporation. It further prayed for the creation of a management committee as well as for the approval of the proposed
rehabilitation plan and memorandum of agreement between Petitioner Corporation and its creditors.

SEC favorably ruled on the petition for suspension of payments. A accordingly, with the creation of the Management Committee, all
actions for claims against Rubberworld Philippines, Inc. pending before any court, tribunal, office, board, body Commission of
Sheriff were suspended.

Private respondents, who claim to be employees of petitioner corporation, filed against petitioners their complaints for illegal
dismissal, unfair labor practice, damages and payment of separation pay, retirement benefits, 13th month pay and service
incentive pay.

Petitioners moved to suspend the proceedings in the labor cases on the strength of the SEC Order .

In an Order the Labor Arbiter denied the motion holding that the injunction contained in the SEC Order applied only to the
enforcement of established rights and did not include the suspension of proceedings involving claims against petitioner which have
yet to be ascertained. The Labor Arbiter further held that the order of the SEC suspending all actions for claims against petitioners
does not cover the claims of private respondents in the labor cases because said claims and the concomitant liability of petitioners
still had to be determined, thus carrying no dissipation of the assets of petitioners.

Petitioners appealed to NLRC which dismissed the appeal and sustained the rulings of the Labor Arbiter.

ISSUE: WON the automatic stay under PD 902-A is not applicable to the instant case; otherwise, the preference granted to
workers by Article 110 of the Labor Code would be rendered ineffective.

HELD:

RATIO:The preferential right of workers and employees under Article 110 of the Labor Code may be invoked only upon the
institution of insolvency or judicial liquidation proceeding.Indeed, it is well-settled that "a declaration of bankruptcy or a judicial
liquidation must be present before preferences over various money claims may be enforced." But debtors resort to preference of
credit -- giving preferred creditors the right to have their claims paid ahead of those of other claimants -- only when their assets are
insufficient to pay their debts fully. The purpose of rehabilitation proceedings is precisely to enable the company to gain a new
lease on life and thereby allow creditors to be paid their claims from its earnings. In insolvency proceedings, on the other hand, the
company stops operating, and the claims of creditors are satisfied from the assets of the insolvent corporation. The present case
involves the rehabilitation, not the liquidation, of petitioner-corporation. Hence, the preference of credit granted to workers or
employees under Article 110 of the Labor Code is not applicable.

NOTE:
Presidential Decree 902-A, as amended, provides that "upon the appointment of a management committee, rehabilitation receiver board or body
pursuant to this Decree, all actions for claims against corporations, partnerships, or associations under management or receivership pending,
before any court, tribunal, board or body shall be suspended accordingly."[1 Such suspension is intended to give enough breathing space for the
management committee or rehabilitation receiver to make the business viable again, without having to divert attention and resources to litigations in
various fora. Among, the actions suspended are those for money claims before labor tribunals, like the National Labor Relation Commission
(NLRC) and the Labor arbiters.