Development Bank of The Philippines vs. NLRC: - Third Division

SUPREME COURT REPORTS ANNOTATED VOLUME 236 4/1/20, 4:23 AM
VOL. 236, SEPTEMBER 1, 1994 117

Development Bank of the Philippines vs. NLRC
*
G.R. No. 106655. September 1, 1994.
DEVELOPMENT BANK OF THE PHILIPPINES,

petitioner, vs. THE NATIONAL LABOR RELATIONS
COMMISSION, PINES HOTEL GENERAL WORKERSÊ
UNION-ALU, VIRGINIA ABAD, DOLORES AQUINO,
JOHNNY CASTAÑEDA, ALICE ICASIANO, PATRICIA
MORRISEY, CLARITA OCASIO, EVELYN GENOVE,
EUSEBIO MANIBOG, JULIETA LUNA, ANGELITA
PONCE, EMMANUEL PELAYO, REMEDIOS TABUNDA,
JERRY AQUICIO, GLORIA MAPANAO, EDWIN
ANGWAY, ERNESTO CASTRO, NELSON
CONSTANTINO, FLORENTINO LAGMAN, EMMANUEL
SONGCUYA, RECTO ALAWAS, MARJOE ALEGRE,
OLIVIA ANTIPOLO, LYDIA AQUICIO, RIZALINA
AUXILIO, RENATO AGLUBAT, CHARLES BALDOS,
ERNESTO BILOG, ESTHER BIONGCOG, DIOSDADO
BUAN, MARGARITA CAMPO, LUCRESIA CACHERO,
JUANITA DESEAR, FLORDELIZA DELA PAZ, RENATO
DE VERA, ERIC DIZON, JULIETA ENRIQUEZ,
DOLORES ESCUADRA, HILDA ELLEANA, ARSENIO
FERNANDO, ZALDY GALUZ, BRAULIO GIRON,
MERCEDES GOROSPE,
__________________
* THIRD DIVISION.
118
118 SUPREME COURT REPORTS ANNOTATED
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EVANGELINE GUIMPOL, CARLITO KARGANILLA,

PRESCILO LUNA, AGUSTIN LANUEVO, INOCENSIA
LAYSON, MARINA MEDENILLA, VENANCIO
MENDOZA, JUDY HELEN MENDOZA, FRANCISCO
MIRANDA, PASCUAL RHADELL, JOHN PECSON,
LUZVIMINDA RABANILLO, ALVIN RIVANO, THELMA
TILOS, AMELIA AGUILAR, SUSAN BAGGAO,
FRANCISCO BAHATAN, OLIVER BENITO, CYNTHIA
BILAG, JEFFRY BUGAOAN, DOUGLAS CALASICAS,
LETICIA CASTAÑEDA, ROMEO GAWALING, PEPITO
DELA CRUZ, GABRIEL DE VERA, ANDREW DOMINGO,
ROMULO FELIZARDO, ELVIS JALECO, EVELYN
JINGCO, RANDOLPH HAYA, RUBEN NEMEDEZ,
RODOLFO PARTOSA, GEORGE SISON, SAMUEL
REYES, RENATO RULIAMAS, ROBERTO VILLANDA,
LORETA YUNG, ANTONIO ALBANO, AMADO
ARELIANO, ERNESTO ALBALATE, RUDY AUXILIO,
ENRIQUE AGUINALDO, WILFREDO ANCHETA,
MARIVIC AROMIN, AIDA BAGWAN, ROLANDO
BALBIN, DANILO BALTAZAR, SATURNINO BUCASAS,
ROMEO BUCYOT, ABRAHAM CAALAMAN, CERILO
CARRERA, ALBERTO CREDO, JOSEPHINE
CARBONEL, ANTONIO CONSOLACION, LORETO
CORNEL, ANTONIO CORTEZ, IRENEO CUARESMA,
JOHNSON CENTENO, LOUIE CORNEL, PACIFICO DE
CASTRO, GENARO DELA PAZ, ALFREDO DEL PILAR,
LINO DEUTSCH, LUZVIMINDA DE GUZMAN,
ELIZABETH DANGIAPO, VALENTINO DELA CRUZ,
TERESITA ESPERITU, NOLI ESPERIDA, HERNANDO
ESPERANZA, BARTOLOME FLORES, VIVENCIO
FUENTES, JULIE FAMORCA, DEO GUIMALAN, ANGEL
GRAJO, ANSELMO GOYONE, DEMCY GALIMBA, JOSE
GO, EDWIN GUTIEREZ, LEO HALOG, REYNALDO
JAMISON, GARY JAVATI, ROSANAH LAPID, RODOLFO
LIBAYAN, BALDOMERO LAROYA, REYNALDO LOVINA,
DELIA LIWALIW, JAIME MANGAOANG, SHIRLEY
MANGONON, ANDY MINGOA, CLODUALDO
MEDENILLA, ABRAHAM MORALES, NENITA
MONARES, FERDINAND MACAYAN, ALFONSO MAICO,
RODRIGO MAMANGON, ALETA MILLETE, MANUEL

NAVALTA, FLORANTE NOVICIO, RUFO NASOL,
SAMUEL NOVESTERA, WILLIAM OLARTE, CONRADO
OLPINDO, ROMULO PADAOAN, JUANITO PERALTA,
ROMEO POSADAS, RAYMUNDO QUIRIT, EDWIN
RABANILLO, ALEXAN
119
VOL. 236, SEPTEMBER 1, 1994 119

DER RANCHEZ, FLORANTE ROTOR, BALLY RAZON,

NIDA RIZO, ROMULO RIMANDO, EMERLINDA
RITUALO, TERESITA ROSALIN, CESAR SAGUN, WILLY
SALINDONG, ROSALINA SARMIENTO, NARDITO
SIBAYAN, DEO TABLIGAN, RODRIGO TORRES,
DAMIANA TOLETE, WILLIAM TORRES, EDUARDO
TABUNDA, DINAH UDAN, JOSEPHINE VALERIO,
OSCAR VALERIO, GREGORIO VELASCO, DANNY
VINLUAN, JIMMY VALERIO, CATALINA ZAMORA,
JUAN ZAMORA, REMEDIOS ABUL, SAMUEL
ALIMBUYAO, MAX ALIGAN, REYNALDO AMADEO,
PEDRITO APILADO, ARTEMIO BARLOLONG, JERRY
BIONGCOG, REYNALDO BUCSIT, VIVINCIO BUNUAN,
RONALDO BUELA, JULIETA CALICDAN, HARRY
CALVO, LORENZO CALASICAS, REMEGIO CAMBA,
RICARDO CARACAS, JAIME CASUGA, SAMUEL
CARIDAD, WILLIAM DE CASTRO, FELIPA DE NIEVA,
GLICERIA ESTANDIAN, NORMAN ELEGADO, JULIANA
FERRER, ROSITA FLORDELIZ, FELICIANO GANZON,
JAIME HULIGANGA, PRECILLA JAVIER, DANILO
JAMINEZ, SALVADOR LALATA, FRANCISCO
LARANANG, BERNARDINO LARANO, PARK FEE
LEONG, MARINA LOVINA, DENNIS LAGO, MOISES
MACADAEG, ELIGEO MACARANAS, GEORGE
MANUEL, MOISES MEDINA, ENRIQUE MADAYAG,
RODOLFO MAYUYO, EDUARDO MANAOIS,
ELIZABETH PANGANIBAN, EDUARDO PERALTA,
ROGELIO PEREZ, GARBIEL PONSO, EDITHA
POSADAS, RODOLFO RAMOS, REYNALDO RIMANDO,

ROLF RUSCHENSCHEMIDT, EFRAIM SARMIENTO,
JOSE SURRO, BEN TAMONDONG, AMANTE TELLES,
JESS VALDEZ, ARNULFO VENTURA, LETECIA VERAY,
JUELITO VIRAY, ILUMINADA ABRERA, ANDRES
BANDAY, ROSARIO BAUTISTA, MILAGROS BILOG,
ROLANDO COCAL, TERESITA CORAL, LOLITA
GARIEJO, AVELINO LAZARTE, FLORENTINA MATA,
LEONARDO MARIANO, JOSE MARZAN, FREDELITO
OMO, VIRGILIO DELA PEÑA, ARNOLD RANTE,
LUCENA TAVARRA, ANTONIA TIBALAO, TOMAS
ABUGAN, URSULA AKIA, JOSE ARCENAL, DIONISIO
APILADO, FELIMON CACCAM, RICARDO CASTILLO,
MAMERTO CALO, ANASTACIO COCAL, ANGELINE
DAMASO, PEDRO DELA PEÑA, ARTURO DE GUZMAN,
ANTONIO DOMINGO, ROLUMO ELEFANTE,
120

FLORENCIO FINULIAR, ARNULFO GALVEZ, CAMILO

GARCIA, RODOLFO GARCIA, LAMBERTO GERALDE,
ERNESTO GONZALES, JUAN GRIBA, VALENTIN
GANSOWEN, DOMINADOR GUTIEREZ, LARRY HAYA,
JOHN INIGUID, JOSEPH LAM-OSEM, MENANDRO
MALONZO, FELIPE MAPILE, VENANCIO
MACADANGDAND, ALBINO MALIBAGO, ROMEO
OLIVA, MARIANO PASCUA, RENATO PAYONGAYONG,
ROBERTO PERALTA, DOMINIC PUCKETT, ISABELO
RAMOS, MIGUEL RIVERA, BERNARDO TIAM, JAIME
VALENCIANO, JR., NATY AGOO, CRISTINA ALEO,
NORMA ANTOC, JIMMY AMBATCAN, DAVID
ABELLERA, RICARDO BANCUYO, AMADOR
BAUTISTA, ENRIQUE BAUTISTA, GEORGE
CALDERON, SAMUEL CACDAC, RUDY CAMBOD, JOSE
CASTILLO, ALFREDO CATBAGAN, CONCHITA
CASTILLO, FLORENCIO CORPUZ, ORLANDO
CONDAYA, JOSEPHINE CULBENGAN, EMPERATRIZ
DELIGERO, SINFOROSO DELA PEÑA, MARIANO DELA

PEÑA, CYNTHIA DE VERA, EDWIN DUCAT, ORLANDO
ESTIPONA, FELIX FERNANDEZ, RICARDO
FONTANOSA, VICTORINA GACAYAN, NICOLAS
GARCIA, CELEDONIO HALILI, ELIZA IBEA, AIDA
ITLIONG, EFREN ITLIONG, PAUL LAM-OSEN, FELIPE
LOBIEN, ARNEL MANDAP, REY OJASCASTRO,
JACINTO PACLAYAN, TEOTIMO PAGALAN,
HERMINIGILDO ROSARIO, SUSAN SAN JOSE, JOSE
SANCHEZ, CELSO SORIANO, RODOLFO SOTERO,
ERWIN URBIEN, and FLORENTINO ZACARIAS,
respondents.
Labor Law; Wages; Civil Law; Preference of Credits; Article 110

of the Labor Code must be read in relation to the provisions of Civil
Code concerning the classification, concurrence and preference of
credits.·Evidently, the NLRC erred in its application of the
provisions of Article 110 of the Labor Code. In Republic vs. Peralta
(150 SCRA 37, 38-40), this Court ruled: „Article 110 of the Labor
Code, in determining the reach of its terms, cannot be viewed in
isolation. Rather, Article 110 must be read in relation to the
provisions of the Civil Code concerning the classification,
concurrence and preference of credits, which provisions find
particular application in insolvency proceedings where the claims of
all creditors, preferred or non-preferred, may be adjudicated in a
binding manner.
121
VOL. 236, SEPTEMBER 1, 1994 121
Same; Same; Same; Same; To the extent that claims for unpaid
wages fall outside the scope of Articles 2241, number 6 and 2242,
number 3, they would come within the ambit of the category of
ordinary preferred credits under Article 2244.·„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 Articles 2241, number 6: Âclaims for
laborersÊ wages, on the goods manufactured or the work done;Ê or by
Article 2242, number 3: Âclaims 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.Ê
To the extent that claims for unpaid wages fall outside the scope of
Articles 2241, number 6 and 2242, number 3, they would come
within the ambit of the category of ordinary preferred credits under
Article 2244.‰
Same; Same; Same; Same; Article 110 of the Labor Code cannot
be viewed in isolation but must be read in relation to the Civil Code
scheme on classification and preference of credits.·Because of its
impact on the entire system of credit, Article 110 of the Labor Code
cannot be viewed in isolation but must be read in relation to the
Civil Code scheme on classification and preference of credits. „x x x
x x x x x x. „2. In the same way that the Civil Code provisions on
classification of credits and the Insolvency Law have been brought
into harmony, so also must the kindred provisions of the Labor Law
be made to harmonize with those laws.
Same; Same; Same; Same; 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 a
right to a first preference in the discharge of the funds of the
judgment debtor.·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
insolventÊs assets. It is a right to a first preference in the discharge
of the funds of the judgment debtor.
122
Same; Same; Same; Same; Article 110 and its implementing

rule should be given only prospective effect. Thereby, any
infringement on the constitutional guarantee on non-impairment of
the obligation of contracts is avoided.·Even if Article 110 and its
Implementing Rule, as amended, should be interpreted to mean
Âabsolute preference,Ê the same should be given only prospective
effect in line with the cardinal rule that laws shall have no
retroactive effect, unless the contrary is provided (Article 4, Civil
Code). Thereby, any infringement on the constitutional guarantee
on non-impairment of the obligation of contracts (Section 10, Article
III, 1987 Constitution) is also avoided. In point of fact, DBPÊs
mortgage credit antedated by several years the amendatory law, RA
No. 6715. To give Article 110 retroactive effect would be to wipe out
the mortgage in DBPÊs favor and expose it to a risk which it sought
to protect itself against by requiring a collateral in the form of real
property.
Civil Law; Preference of Credits; For an orderly settlement of a
debtorÊs ASSETS, all creditors must be convened, their claims
ascertained and inventoried, and thereafter the preferences
determined in the course of judicial proceedings.·In fine, the right
to preference given to workers under Article 110 of the Labor Code
cannot exist in any effective way prior to the time of its
presentation in distribution proceedings. It will find application
when, in proceedings such as insolvency, such unpaid wages shall
be paid in full before the Âclaims of the Government and other
creditorsÊ may be paid. But, for an orderly settlement of a debtorÊs
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 creditorsÊ claims is assured (Philippine Savings Bank
vs. Lantin, No. L-33929, September 2, 1983, 124 SCRA 476); the
adjudication made will be binding on all parties-in-interest, since
those proceedings are proceedings in rem; and the legal scheme of
classification, concurrence and preference of credits in the Civil
Code, the Insolvency Law, and the Labor Code is preserved in
harmony.‰
Labor Law; Appeal; NLRCÊs error could have been rectified had
there been a timely appeal. Decision of the Commission shall be final
and executory after ten (10) calendar days from receipt thereof by the
parties.·The 15th April 1991 decision of the NLRC has not been
appealed; having become final, it cannot now be challenged.
PetitionerÊs belated motion for clarification on 15 October 1991
itself does not appear to have been improperly denied. Like the
NLRC, we fail to see any inconsistency in its questioned decision. In
effect, the NLRC has
123
VOL. 236, SEPTEMBER 1, 1994 123
ruled that while the liability to private respondents for their money
claims pertains to RHC and not to DBP, petitionerÊs appeal should,
nevertheless, be dismissed since, in its view (albeit incorrectly),
Article 110 of the Labor Code has created a workerÊs preference
superior to even that of DBPÊs mortgage lien. NLRCÊs error could
have been rectified had there been a timely appeal. Article 223 of
the Labor Code is explicit: „x x x The decision of the Commission
shall be final and executory after ten [10] calendar days from
receipt thereof by the parties.‰
SPECIAL CIVIL ACTION in the Supreme Court.

Certiorari.
The facts are stated in the opinion of the Court.

Bonifacio M. Abad and Vicente T. Cuison for
petitioner DBP.
Domogan, Lockey, Orate, Dao-ayan, Boquiren,
Adquilen and Cascolan Law Offices for private
respondents.
VITUG, J.:
This petition for certiorari, invoking Rule 65 of the Rules of

Court, challenges the decision, dated 16 April 1991, as well
as the resolution, dated 31 July 1992, of respondent
National Labor Relations Commission („NLRC‰).
Resort Hotel Corporation („RHC‰) was the former owner
and operator of the Pines Hotel in Baguio City, where

private respondents were employed. The property was
hypothecated to petitioner Development Bank of the
Philippines („DBP‰). When RHC failed to comply with its
obligations, DBP foreclosed on the mortgage. Following the
foreclosure, Hotel Development Corporation („HDC‰), a
subsidiary of DBP, assumed the management and
operations of the hotel. Private respondents were rehired
by HDC.
On 23 October 1984, Pines Hotel, unfortunately, was
razed by fire. On 05 November 1985, private respondents
filed a complaint against RHC for money claims still
outstanding in their favor at the time the foreclosure was
effected. HDC and DBP were also impleaded upon the
thesis that, should RHC be bereft of sufficient property to
answer for those claims, the foreclosed property could be
levied against in accordance with Article 110 of the Labor
Code.
124

On 13 May 1988, the Labor Arbiter rendered judgment

thusly:
„IN THE LIGHT OF THE FOREGOING OBSERVATIONS,

judgment is hereby rendered with the following dispositions:
„1. That the foreclosure of the assets of the Resort Hotels

Corporation by the Development Bank of the Philippines
had the effect of placing the workers in a situation similar
to that of establishments that are bankrupt, or those that
are dissolved, hence workers claims should be paid in full
before the Development Bank of the Philippines may
establish any claim over the assets of the RHC;
„2. That the Development Bank of the Philippines is hereby
ordered to deliver the complainants claims for separation
pay, earned vacation and sick leave benefits, meal
provisions service charge share pay claims and March 1984
service charge claims all of which having a total of TWO
MILLION ONE HUNDRED EIGHTY ONE THOUSAND,

SIX HUNDRED NINETY NINE PESOS AND FIFTY SIX
CENTAVOS (P2,181,699.56), plus ten percent (10%) of
which as attorneyÊs fees and the legal interest to be
computed from March 31, 1984 up to its actual payment;
„3. The prayer of the respondent RHC calling for the dismissal
of this case for lack of merit is denied, with the qualification
that the cross claim is granted, and the DBP should deliver
to the complainants their claims; and
„4. That the Hotel Development Corporation does not have any
liability to the complainants, in so far as the claims for
separation pay, earned vacation and sick leave benefits,
meal provisions service charge share pay claim and March
1984 service charge claims are concerned, hence it should
dropped from this complaint.
„SO ORDERED.‰ (Rollo, pp. 85-86).
On appeal to the NLRC, the latter, on 15 April 1991,

rendered its decision which, among other things, said:
„RHCÊs contention that its liability to herein complainants was

transferred to DBP as a consequence of the foreclosure of the Hotel,
is untenable. As aptly expounded by DBP, the obligation to pay
complainants money claims, the subject matter of this complaint, is
personal to RHC.
„WHEREFORE, the instant appeals are DISMISSED for lack of
merit and the appealed Decision is hereby AFFIRMED.
„SO ORDERED.‰ (Rollo, p. 107).
No appeal was interposed by either party.
125
VOL. 236, SEPTEMBER 1, 1994 125

On 03 October 1991, private respondents filed a motion for

the issuance of a writ of execution. On 15 October 1991,
DBP submitted, in turn, with the Labor Arbiter a motion
for clarification to resolve an averred inconsistency
between the body (i.e., that RHC, not DBP, is liable to
herein private respondents for their money claims [see

aforequoted decision]) and the dispositive portion (which
dismissed DBPÊs appeal [ibid.]) of the NLRC decision. On
31 July 1992, the NLRC issued a resolution denying the
motion for clarification for lack of merit. The NLRC said:
„There is no inconsistency between the findings in the April 25,

1991 Decision of this Commission and the dispositive portion
thereof as perceived by respondent DBP.
„It needs to be stressed that DBP was impleaded in this case for
reason that it foreclosed the assets of RHC. And, the complainants,
who were employees of RHC, would like to ensure the enforcement
of their money claims against the foreclosed properties of their
employer invoking Art. 110 of the Labor Code which provides that:
„ ÂArt. 110·Workers preference in case of bankruptcy.·In the event of

bankruptcy or liquidation of an employerÊs business, his workers shall
enjoy first preference as regards their wages and other monetary claims,
any provisions of law to the contrary notwithstanding. Such unpaid
wages and monetary claims shall be paid in full before claims of the
government and other creditors may be paid.Ê
„Before complainantsÊ money claims could enjoy preference under

the aforesaid provision of the Labor Code, the same should be first
established. That is, it must be shown with sufficient evidence that
they are legally entitled thereto or, that their employer is legally
bound to pay their money claims. Precisely, this is the thrust of our
findings when we declared RHC liable to complainantsÊ money
claims. Unfortunately, DBP interpreted this finding separately. It
failed to take into consideration the other portion of the decision of
which it forms a part. „WHEREFORE, the instant motion is hereby
DENIED for lack of merit.
„SO ORDERED.‰ (Rollo, pp. 130-131).
Hence, the instant petition for certiorari, which asserts

that:
„1. The National Labor Relations Commission committed grave

abuse of discretion amounting to lack or in excess of
jurisdiction when it promulgated its resolution of July 31,
1992 erroneously sustaining
126

the dispositive portion of its Decision of April 15, 1991,

instead of following its (Decision) body which correctly
absolves DBP from liability in favor of the private
respondents.
jurisdiction when it affirmed the erroneous conclusion of
Labor Arbiter Irenarco R. Rimando that private
respondents (complainants workers) claims against RHC
enjoys first preference over the mortgage credit of DBP;
„3. The National Labor Relations Commission and the Labor
Arbiter committed grave abuse of discretion amounting to
lack or in excess of jurisdiction when it declared that
bankruptcy proceedings should not be a condition before
workers claims are paid of their claims in view of the
amendment of Art. 110 by Republic Act No. 6715;
jurisdiction when it affirmed the conclusion of Labor Arbiter
Irenarco R. Rimando that because of DBPÊs foreclosure of
RHC assets, complainants workers lien should now be
enforced against DBP.‰ (Rollo, pp. 22-23).
Evidently, the NLRC erred in its application of the

provisions of Article 110 of the Labor Code. In Republic vs.
Peralta (150 SCRA 37, 38-40), this Court ruled:
„Article 110 of the Labor Code, in determining the reach of its

terms, cannot be viewed in isolation. Rather, Article 110 must be
read in relation to the provisions of the Civil Code concerning the
classification, concurrence and preference of credits, which
provisions find particular application in insolvency proceedings
where the claims of all creditors, preferred or non-preferred, may be
adjudicated in a binding manner.
„x x x x x x x x x.
„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: Âclaims for laborersÊ wages, on the goods manufactured or
the work done;Ê or by Article 2242, number 3: Âclaims 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.Ê 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.‰
127
VOL. 236, SEPTEMBER 1, 1994 127

On 21 March 1989, Article 110 of the Labor Code was

amended by Republic Act No. 6715 to read:
„Article 110. Worker preference in case of bankruptcy.·In the event

of bankruptcy or liquidation of an employerÊs business, his workers
shall enjoy first preference as regards their wages and other
monetary claims, any provisions of law to the contrary
notwithstanding. Such unpaid wages and monetary claims shall be
paid in full before claims of the Government and other creditors
may be paid.‰
In Development Bank of the Philippines vs. National Labor

Relations Commission (183 SCRA 328, 336-339), this Court
expounded on the effects of the amendment, in this wise:
„The amendment expands worker preference to cover not only

unpaid wages but also other monetary claims to which even claims
of the Government must be deemed subordinate.
„Notably, the terms ÂdeclarationÊ of bankruptcy or ÂjudicialÊ
liquidation have been eliminated. Does this mean then that
liquidation proceedings have been done away with?
„We opine in the negative, upon the following considerations:
„1. Because of its impact on the entire system of credit, Article

110 of the Labor Code cannot be viewed in isolation but
must be read in relation to the Civil Code scheme on

classification and preference of credits.
„2. In the same way that the Civil Code provisions on
classification of credits and the Insolvency Law have been
brought into harmony, so also must the kindred provisions
of the Labor Law be made to harmonize with those laws.
„3. In the event of insolvency, a principal objective should be to
effect an equitable distribution of the insolventÊs property
among his creditors. To accomplish this there must first be
some proceeding where notice to all of the insolventsÊ
creditors may be given and where the claims of preferred
creditors may be bindingly adjudicated (De Barretto vs.
Villanueva, No. L-14938, December 29, 1962, 6 SCRA 928).
The rationale therefore has been expressed in the recent
case of DBP vs. Secretary of Labor (G.R. No. 79351, 28
November 1989), which we quote:
„4. A distinction should be made between a preference of credit
and a lien. A preference applies only to claims which do not
attach to
128

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 insolventÊs assets. It is a
right to a first preference in the discharge of the funds of
the judgment debtor.
„x x x xxx x x x.
„6. Even if Article 110 and its Implementing Rule, as amended,

should be interpreted to mean Âabsolute preference,Ê the
same should be given only prospective effect in line with the

cardinal rule that laws shall have no retroactive effect,
unless the contrary is provided (Article 4, Civil Code).
Thereby, any infringement on the constitutional guarantee
on non-impairment of the obligation of contracts (Section
10, Article III, 1987 Constitution) is also avoided. In point of
fact, DBPÊs mortgage credit antedated by several years the
amendatory law, RA No. 6715. To give Article 110
retroactive effect would be to wipe out the mortgage in
DBPÊs favor and expose it to a risk which it sought to
protect itself against by requiring a collateral in the form of
real property.
„In fine, the right to preference given to workers under Article

110 of the Labor Code cannot exist in any effective way prior to the
time of its presentation in distribution proceedings. It will find
application when, in proceedings such as insolvency, such unpaid
wages shall be paid in full before the Âclaims of the Government and
other creditorsÊ may be paid. But, for an orderly settlement of a
debtorÊs 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 creditorsÊ claims is assured
(Philippine Savings Bank vs. Lantin, No. L-33929, September 2,
1983, 124 SCRA 476); the adjudication made will be binding on all
parties-in-interest, since those proceedings are proceedings in rem;
and the legal scheme of classification, concurrence and preference of
credits in the Civil Code, the Insolvency Law, and the Labor Code is
preserved in harmony.‰
The above pronouncement was reiterated in Bolinao, Jr. vs.

Padolina (186 SCRA 368), Development Bank of the
Philippines vs. National Labor Relations Commission (186
SCRA 841), Development Bank of the Philippines vs.
National Labor Relations Commission (218 SCRA 183) and,
more recently, in Development Bank of the Philippines vs.
National Labor Relations Commission
129
VOL. 236, SEPTEMBER 1, 1994 129
(G.R. No. 86227, 19 January 1994) and Hautea vs. National

Labor Relations Commission (G.R. No. 96149, 16 February
1994).
The instant petition, nonetheless, cannot be granted for
a different and overriding reason.
The 15th April 1991 decision of the NLRC has not been
appealed; having become final, it cannot now be challenged.
PetitionerÊs belated motion for clarification on 15 October
1991 itself does not appear to have been improperly denied.
Like the NLRC, we fail to see any inconsistency in its
questioned decision. In effect, the NLRC has ruled that
while the liability to private respondents for their money
claims pertains to RHC and not to DBP, petitionerÊs appeal
should, nevertheless, be dismissed since, in its view (albeit
incorrectly), Article 110 of the Labor Code has created a
workerÊs preference superior to even that of DBPÊs
mortgage lien. NLRCÊs error could have been rectified had
there been a timely appeal. Article 223 of the Labor Code is
explicit: „x x x The decision of the Commission shall be
final and executory after ten [10] calendar days from
receipt thereof by the parties.‰
The questioned decision was promulgated on 15 April
1991. Petitioner filed a motion for clarification (ostensibly
but essentially a motion for reconsideration) only on 15
October 1991. In Manning International Corporation vs.
National Labor Relations Commission (195 SCRA 155),
reiterated in Nuñal vs. Court of Appeals (221 SCRA 26, 32),
this Court ruled:
„x x x (W)hen a final judgment becomes executory, it thereby

becomes immutable and unalterable. The judgment may no longer
be modified in any respect, even if the modification is meant to
correct what is perceived to be an erroneous conclusion of fact or
law, and regardless of whether the modification is attempted to be
made by the Court rendering it or by the highest Court of the land.‰
The rule of immutability of final judgments is adhered to

by necessity notwithstanding occasional errors that may
result thereby (Francisco vs. Bautista, 192 SCRA 388).
Litigations must somehow come to an end for, otherwise, it
would „be even more intolerable than the wrong and

injustice it is designed to correct‰ (Reinsurance Company
vs. Court of Appeals, 198 SCRA 19, 33).
WHEREFORE, the petition for certiorari is
DISMISSED. Costs against petitioner.
130

Manalo vs. Gloria
SO ORDERED.
Feliciano (Chairman), Romero and Melo, JJ.,

concur.
Bidin, J., On leave.
Petition dismissed.
Note.·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 creditors, including tax claims. (Philippine
National Bank vs. Cruz, 180 SCRA 206 [1989])
··o0o··
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SUPREME COURT REPORTS ANNOTATED VOLUME 236 4/1/20, 4:23 AM

VOL. 236, SEPTEMBER 1, 1994 117

DEVELOPMENT BANK OF THE PHILIPPINES,

118 SUPREME COURT REPORTS ANNOTATED

Development Bank of the Philippines vs. NLRC

EVANGELINE GUIMPOL, CARLITO KARGANILLA,

RODRIGO MAMANGON, ALETA MILLETE, MANUEL

VOL. 236, SEPTEMBER 1, 1994 119

DER RANCHEZ, FLORANTE ROTOR, BALLY RAZON,

POSADAS, RODOLFO RAMOS, REYNALDO RIMANDO,

120 SUPREME COURT REPORTS ANNOTATED

FLORENCIO FINULIAR, ARNULFO GALVEZ, CAMILO

DELIGERO, SINFOROSO DELA PEÑA, MARIANO DELA

Labor Law; Wages; Civil Law; Preference of Credits; Article 110

VOL. 236, SEPTEMBER 1, 1994 121

Development Bank of the Philippines vs. NLRC

specially preferred claims established under Articles 2241 and 2242

122 SUPREME COURT REPORTS ANNOTATED

Development Bank of the Philippines vs. NLRC

Same; Same; Same; Same; Article 110 and its implementing

VOL. 236, SEPTEMBER 1, 1994 123

Development Bank of the Philippines vs. NLRC

SPECIAL CIVIL ACTION in the Supreme Court.

The facts are stated in the opinion of the Court.

This petition for certiorari, invoking Rule 65 of the Rules of

and operator of the Pines Hotel in Baguio City, where

124 SUPREME COURT REPORTS ANNOTATED

On 13 May 1988, the Labor Arbiter rendered judgment

„IN THE LIGHT OF THE FOREGOING OBSERVATIONS,

„1. That the foreclosure of the assets of the Resort Hotels

MILLION ONE HUNDRED EIGHTY ONE THOUSAND,

„SO ORDERED.‰ (Rollo, pp. 85-86).

On appeal to the NLRC, the latter, on 15 April 1991,

„RHCÊs contention that its liability to herein complainants was

No appeal was interposed by either party.

VOL. 236, SEPTEMBER 1, 1994 125

On 03 October 1991, private respondents filed a motion for

herein private respondents for their money claims [see

„There is no inconsistency between the findings in the April 25,

„ ÂArt. 110·Workers preference in case of bankruptcy.·In the event of

„Before complainantsÊ money claims could enjoy preference under

Hence, the instant petition for certiorari, which asserts

„1. The National Labor Relations Commission committed grave

126 SUPREME COURT REPORTS ANNOTATED

the dispositive portion of its Decision of April 15, 1991,

Evidently, the NLRC erred in its application of the

„Article 110 of the Labor Code, in determining the reach of its

within the category of specially preferred claims established under

VOL. 236, SEPTEMBER 1, 1994 127

On 21 March 1989, Article 110 of the Labor Code was

„Article 110. Worker preference in case of bankruptcy.·In the event

In Development Bank of the Philippines vs. National Labor

„The amendment expands worker preference to cover not only

„1. Because of its impact on the entire system of credit, Article

must be read in relation to the Civil Code scheme on

128 SUPREME COURT REPORTS ANNOTATED

specific properties. A lien creates a charge on a particular

„6. Even if Article 110 and its Implementing Rule, as amended,

same should be given only prospective effect in line with the

„In fine, the right to preference given to workers under Article

The above pronouncement was reiterated in Bolinao, Jr. vs.

VOL. 236, SEPTEMBER 1, 1994 129

Development Bank of the Philippines vs. NLRC