Jan.

19, 1994

DBP v. NLRC

Vitug, J.

Development Bank of the Philippines, petitioner, vs. The National Labor Relations Commission and Malayang Samahan ng mga Mangagawa sa Atlas Textile Development Corporation, respondents. Facts: The private respondents were employees of ATLAS, a textile firm, which hypothecated its certain assets to DBP. After ATLAS defaulted in its obligations, DBP foreclosed on the mortgage in March 1985. The latter acquired the mortgaged assets by virtue of the foreclosure sale. The private respondents filed their claim for wage differentials, "illegal" salary deductions, separation pay, and similar money claims against both ATLAS and DBP. The Labor Arbiter and NLRC ruled for the private respondents. Issue: W/N the workers' preference under Article 110 of the Labor Code should be considered over that of DBP's mortgage lien Held: NO. Ratio: Republic vs. Peralta: Claims for unpaid wages does not fall 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. Art. 110, LC: 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. DBP v. NLRC (J. Melencio-Herrera): o 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. In summary: 1) Article 110 of the Labor Code, as amended, must be viewed and read in conjunction with the provisions of the Civil Code on concurrence and preferences of credits; 2) The aforesaid provisions of the Civil Code, including Article 110 of the Labor Code, require judicial proceedings in rem in adjudication of creditors' claims against the debtor's assets to become operative; 3) Republic Act No. 6715 has the effect of expanding the "worker preference" to cover not only unpaid wages but also other monetary claims of laborers, to which even claims of the Government must be deemed subordinate; 4) The amendatory provisions of Republic Act 6715, which took effect on 21 marches 1989, should only be given prospective application.

28 Jan 1961
Facts:

de Barretto vs. Villanueva

Gutierrez David, J.

Rosario Cruzado mortgaged a parcel of land as security for a Php11,000.00 she obtained from Rehabilitation Finance Corporation (RFC). It was foreclosed when she failed to pay certain installments. RFC acquired the land, subject to Cruzados right to repurchase the property. Cruzado exercised such right but before full payment of the amount, she sold all her rights, interest, title and dominion over the land and the improvements therein free from all charges, except the unpaid balance to RFC of Php11,009.52 with interest, to Pura Villanueva. Villanueva paid Php500.00 in advance and executed a promissory note for the remaining Php17,500.00 of the purchase price. She later made an additional Php5,500.00 payment on the promissory note and was able to secure a TCT covering the property in her name. Villanueva then mortgaged the same property to Magdalena Barretto as security for a Php30,000.00 loan. Villanueva failed to pay her balance in the promissory note in Cruzados favor. The latter then instituted a complaint for recovery of the property in question. Cruzado was able to obtain a lien on the property which was annotated at the TCTs back. o TC: Villanueva sentenced to pay deficiency, with interest from filing of complaint, to Cruzado. Villanueva also failed to pay her loan to Barretto. The latter filed an action to foreclose the mortgage (on the same property). Cruzado was also impleaded as party defendant. o TC: Cruzado was absolved, Villanueva ordered to pay her indebtedness. Barretto moved for the issuance of a writ of execution while Cruzad filed a Vendors Lien (for the Php12,000.00 unpaid by Villanueva). o TC: should the property in question be sold at an auction, Cruzado shall be entitled to her pro rata share in the proceeds, pursuant to NCC Arts. 2248 and 2249, in relation to 2242, par.2. The property was sold in a public auction wherein Barretto won, subject however to the vendors lien of Cruzado. Barretto questioned, and later moved to reconsider, the courts order giving due course to Cruzados vendors lien but was denied. Hence, this appeal.

Issue: WON the vendors lien on Cruzado must stand. Held: Yes. TC order appealed from affirmed. Ratio: Cruzado was an unpaid vendor of the property in question and the promissory note Villanueva executed in her favor was in fact the unpaid balance of the price of the said property. The NCC in Art.2242 enumerates the claims, mortgage and liens constituting an encumbrance on specific immovable property, including the following: (2) For the unpaid price of real property sold, upon the immovable sold; and (5) Mortgage credits recorded in the Registry of Property. Art.2249 also 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. Applying the said provisions of law, Cruzado, as an unpaid seller, has the right to share pro-rata with Barretto with the proceeds of the foreclosure sale. Contrary to appellant Barrettos argument, the unpaid vendors lien need not be registered for it to be given preference, unlike in mortgage credits, as it was not required by the law. The law does not distinguish between unregistered and registered vendors lien in giving a preferred credit status. Barrettos argument that giving an unrecorded vendors lien the same standing as a registered mortgage credit would nullify the land registration system principle that prior unrecorded interests cannot prejudice persons who subsequently acquires interest over the same property must fail as well because the Land Registration Act itself respects without qualification the paramount rights of lien holders on real property. The NCC provisions on concurrence and preference of credits are not only applicable to an insolvent debtor as nothing in the law limits its application to said situation. Ruling otherwise would lead to other creditor-debtor relationships involving concurrence of credits would be left without any governing rules.

28 Jan 1961

de Barretto vs. Villanueva

Gutierrez David, J.

Resolution on Motion to Reconsider Date: 29 December 1962 Ponente: Reyes, JBL, J. The previous decision on this case was reversed for failure to take fully into account the changes introduced by the NCC to the CC of 1889. Under the old Code, conflicts of creditors entitled to preference as to specific real property under Old CC Art.1923 were to be resolved according to an order of priorities established in Art.1927. In this case, the more preferred creditors could exclude lower order creditors until the formers claims were fully satisfied. Under the NCC, only taxes enjoy absolute preference. The remaining classes of preferred creditors enumerated in Art.2242 enjoy no priority among themselves but must be paid pro-rata, as provided in Art.2249. The preferred creditors in numbers 2 to 14 of Art.2242 must be convened in a proceeding where their claims will be ascertained and bindingly adjudicated, like an insolvency or settlement of a decedents estate or other liquidation proceedings of similar import, pursuant to Art.2243. A preferred creditors third-party claim to the foreclosure sale proceed (as in the case at bar), thus, is not the proceeding contemplated by law for the enforcement of preferences under Art.2242. And in the absence of an insolvency proceeding and the like, the conflict between preferred creditors must be decided in accordance with the principle concerning registered lands- a purchaser in good faith and for value (like Barrettos case herein) takes registered property free from liens and encumbrances other than statutory liens and those recorded in the TCT. Privileged creditors must have their claims recorded in the books of the Register of Deeds in order to protect their rights even outside insolvency or liquidation proceedings. Cruzado cannot be considered the unpaid seller of the property in question as what she was able to sell to Villanueva was only an option to buy said property because the ownership of it resided with RFC since Cruzado was not able to fully repurchase the property from said corporation. Thus, Cruzados credit cannot be considered a vendors lien on the property and consequently cannot stand on equal footing with Barrettos mortgage credit.