THIRD DIVISION
 
ABUNDIO BARAYOGA and G.R. No. 160073
BISUDECO-PHILSUCOR
CORFARM WORKERS UNION Present:
(PACIWU CHAP-TPC),
Petitioners, Panganiban, J., Chairman,
Sandoval-Gutierrez,
Corona,
- versus - Carpio Morales, and
Garcia, JJ
ASSET PRIVATIZATION Promulgated:
TRUST,*
Respondent. October 24, 2005
 
x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --- -- -- -- -- x
DECISION
 
PANGANIBAN, J.:
 
 

R
esponsibility for the liabilities of a mortgagor towards its employees cannot be
transferred via an auction sale to a purchaser who is also the mortgagee-creditor of
the foreclosed assets and chattels. Clearly, the mortgagee-creditor has no
employer- __________________
* The Privatization and Management Office has succeeded APT. Comment, p. 1; rollo, p. 480.

employee relations with the mortgagors workers. The mortgage constitutes a lien on the
determinate properties of the employer-debtor, because it is a specially preferred credit to
which the workers monetary claims is deemed subordinate.
 
 The Case
 
 
[1]
Before us is a Petition for Review under Rule 45 of the Rules of Court, assailing the
[2] [3]
January 30, 2003 Decision and the August 27, 2003 Resolution of the Court of Appeals
(CA), in CA-GR SP No. 58813. The disposition or fallo of the questioned Decision reads as
follows:

IN VIEW OF ALL THE FOREGOING, the instant petition is GRANTED and the
assailed NLRC Decision dated February 18, 2000 is hereby RECALLED and SET
[4]
ASIDE insofar as herein petitioner APT is concerned. No cost.

[5]
The reversed Decision of the National Labor Relations Commission (NLRC) disposed as
follows:
 
WHEREFORE, premises considered, the decision appealed from is AFFIRMED with
modifications as follows:

1. Complainants are awarded their monetary claims for underpayment of

salaries and payment of allowances per their computation on pp. 97-99 and 142-
144 of the records;

2. Complainants are declared to have been illegally dismissed and should

[6]
be paid their backwages from 01 May 1991 to 30 October 1992.

The challenged August 27, 2003 Resolution denied petitioners Motion for
Reconsideration.
 
 
 The Facts
 
The CA summarized the antecedents in this portion of its Decision, which we quote:

Bisudeco-Philsucor Corfarm Workers Union is composed of workers of

Bicolandia Sugar Development Corporation (BISUDECO), a sugar plantation mill
located in Himaao, Pili, Camarines Sur.

On December 8, 1986, [Respondent] Asset Privatization Trust (APT), a public

trust was created under Proclamation No. 50, as amended, mandated to take title to
and possession of, conserve, provisionally manage and dispose of non-performing
assets of the Philippine government identified for privatization or disposition.

Pursuant to Section 23 of Proclamation No. 50, former President Corazon

Aquino issued Administrative Order No. 14 identifying certain assets of government
institutions that were to be transferred to the National Government. Among the assets
transferred was the financial claim of the Philippine National Bank against BISUDECO
in the form of a secured loan. Consequently, by virtue of a Trust Agreement executed
between the National Government and APT on February 27, 1987, APT was
constituted as trustee over BISUDECOs account with the PNB.

Sometime later, on August 28, 1988, BISUDECO contracted the services of

Philippine Sugar Corporation (Philsucor) to take over the management of the sugar
plantation and milling operations until August 31, 1992.

Meanwhile, because of the continued failure of BISUDECO to pay its

outstanding loan with PNB, its mortgaged properties were foreclosed and subsequently
sold in a public auction to APT, as the sole bidder. On April 2, 1991, APT was issued a
Sheriffs Certificate of Sale.

On July 23, 1991, the union filed a complaint for unfair labor practice, illegal
dismissal, illegal deduction and underpayment of wages and other labor standard
benefits plus damages.

In the meantime, on July 15, 1992, APTs Board of Trustees issued a resolution
accepting the offer of Bicol-Agro-Industrial Cooperative (BAPCI) to buy the sugar
plantation and mill. Again, on September 23, 1992, the board passed another
resolution authorizing the payment of separation benefits to BISUDECOs employees in
the event of the companys privatization. Then, on October 30, 1992, BAPCI purchased
the foreclosed assets of BISUDECO from APT and took over its sugar milling
operations under the trade name Peafrancia Sugar Mill (Pensumil).

On December 17, 1992, the union filed a similar complaint, later to be

consolidated with its earlier complaint and docketed as RAB V Case No. 07-00184-91.
 On March 2, 1993, it filed an amended complaint, impleading as additional party
respondents APT and Pensumil.

In their Position Paper, the union alleged that when Philsucor initially took over
the operations of the company, it retained BISUDECOs existing personnel under the
same terms and conditions of employment. Nonetheless, at the start of the season
sometime in May 1991, Philsucor started recalling workers back to work, to the
exception of the union members. Management told them that they will be re-hired only
if they resign from the union. Just the same, thereafter, the company started to employ
the services of outsiders under the pakyaw system.

BISUDECO, Pensumil and APT all interposed the defense of lack of employer-
employee relationship.

xxxxxxxxx

After due proceedings, on April 30, 1998, Labor Arbiter Fructuoso T. Aurellano
disposed as follows:

WHEREFORE, premises considered, respondent APT is hereby ordered to pay

herein complainants of the mandated employment benefits provided for under
Section 27 of Proclamation No. 50 which benefits had been earlier extended to
other employees similarly situated.

SO ORDERED.

[7]
Both the union and APT elevated the labor arbiters decision before NLRC.

 
The NLRC affirmed APTs liability for petitioners money claims. While no employer-
employee relationship existed between members of the petitioner union and APT, at the
time of the employees illegal dismissal, the assets of BISUDECO had been transferred to
the national government through APT. Moreover, the NLRC held that APT should have
treated petitioners claim as a lien on the assets of BISUDECO. The Commission opined
that APT should have done so, considering its awareness of the pending complaint of
petitioners at the time BISUDECO sold its assets to BAPCI, and APT started paying
separation pay to the workers.
 
Finding their computation to be in order, the NLRC awarded to petitioners their money
claims for underpayment, labor-standard benefits, and ECOLA. It also awarded them their
back wages, computed at the prevailing minimum wage, for the period May 1, 1991 (the
date of their illegal dismissal) until October 30, 1992 (the sale of BISUDECO assets to the
BAPCI). On the other hand, the NLRC ruled that petitioners were not entitled to separation
pay because of the huge business losses incurred by BISUDECO, which had resulted in its
bankruptcy.
 
Respondent sought relief from the CA via a Petition for Certiorari under Rule 65 of the
Rules of Court.

Ruling of the Court of Appeals

 
The CA ruled that APT should not be held liable for petitioners claims for unfair
labor practice, illegal dismissal, illegal deduction and underpayment of wages, as well as
other labor-standard benefits plus damages. As found by the NLRC, APT was not the
employer of petitioners, but was impleaded only for possessing BISUDECOs mortgaged
properties as trustee and, later, as the highest bidder in the foreclosure sale of those assets.
 
[8]
Citing Batong Buhay Gold Mines v. Dela Serna, the CA concluded that petitioners
claims could not be enforced against APT as mortgagee of the foreclosed properties of
BISUDECO.
 
 [9]
Hence, this Petition.
 

Issues
 
 
 
In their Memorandum, petitioners raise the following issues for our consideration:

I. Whether or not the Court of Appeals erred in ruling that Respondent Asset
Privatization Trust (APT) should not be held liable for the petitioner unions claim for
unfair labor practice, illegal dismissal, illegal deduction and underpayment of wages
and other labor standard benefits plus damages.

II. Whether or not the claims of herein petitioners cannot be enforced against
APT/PNB as mortgagee of the foreclosed properties of BISUDECO.

III. Whether or not the entitlement of petitioners upon their claims against Respondent
[10]
APT is recognized under the law.

 
In brief, the main issue raised is whether Respondent APT is liable for petitioners
monetary claims.
 
The Courts Ruling
 
The Petition has no merit.
 
 

Main Issue:
Whether APT Is Liable for the Claims of
Petitioners Against Their Former Employer
 
 
 It should be stressed at the outset that, pursuant to Administrative Order No. 14,
[11]
Series of 1987, PNBs assets, loans and receivables from its borrowers were transferred
to APT as trustee of the national government. Among the liabilities transferred to APT was
PNBs financial claim against BISUDECO, not the latters assets and chattel. Contrary to
petitioners assertions, BISUDECO remained the owner of the mortgaged properties in
August 1988, when the Philippine Sugar Corporation (Philsucor) undertook the operation
and management of the sugar plantation until August 31, 1992, under a so-called Contract
of Lease between the two corporations. At the time, APT was merely a secured creditor of
[12]
BISUDECO.
 

It was only in April 1991 that APT foreclosed the assets and chattels of BISUDECO
because of the latters continued failure to pay outstanding loan obligations to PNB/APT.
The properties were sold at public auction to APT, the highest bidder, as indicated in the
Sheriffs Certificate of Sale issued on April 2, 1991. It was only in September 1992 (after the
expiration of the lease/management Contract with Philsucor in August 1992), however,
when APT took over BISUDECO assets, preparatory to the latters privatization.
 
In the present case, petitioner-unions members who were not recalled to work by
Philsucor in May 1991 seek to hold APT liable for their monetary claims and allegedly illegal
dismissal. Significantly, prior to the actual sale of BISUDECO assets to BAPCI on October
30, 1992, the APT board of trustees had approved a Resolution on September 23, 1992. The
Resolution authorized the payment of separation benefits to the employees of the
corporation in the event of its privatization. Not included in the Resolution, though, were
petitioner-unions members who had not been recalled to work in May 1991.
 

The question now before the Court is whether APT is liable to pay petitioners
monetary claims, including back wages from May 1, 1991, to October 30, 1992 (the date of
the sale of BISUDECO assets to BAPCI).
 
We rule in the negative. The duties and liabilities of BISUDECO, including its
monetary liabilities to its employees, were not all automatically assumed by APT as
purchaser of the foreclosed properties at the auction sale. Any assumption of liability must
[13]
be specifically and categorically agreed upon. In Sundowner Development Corp. v. Drilon, the
Court ruled that, unless expressly assumed, labor contracts like collective bargaining
agreements are not enforceable against the transferee of an enterprise. Labor contracts are in
personam and thus binding only between the parties.
 
No succession of employment rights and obligations can be said to have taken place
between the two. Between the employees of BISUDECO and APT, there is no privity of
contract that would make the latter a substitute employer that should be burdened with the
obligations of the corporation. To rule otherwise would result in unduly imposing upon
APT an unwarranted assumption of accounts not contemplated in Proclamation No. 50 or
in the Deed of Transfer between the national government and PNB.
 
Furthermore, under the principle of absorption, a bona fide buyer or transferee of all, or
substantially all, the properties of the seller or transferor is not obliged to absorb the latters
[14]
employees. The most that the purchasing company may do, for reasons of public policy
and social justice, is to give preference of reemployment to the selling companys qualified
separated employees, who in its judgment are necessary to the continued operation of the
[15]
business establishment.
 
In any event, the national government (in whose trust APT previously held the mortgage
credits of BISUDECO) is not the employer of petitioner-unions members, who had been
dismissed sometime in May 1991, even before APT took over the assets of the corporation.
Hence, under existing law and jurisprudence, there is no reason to expect any kind of
[16]
bailout by the national government. Even the NLRC found that no employer-employee
relationship existed between APT and petitioners. Thus, the Commission gravely abused its
discretion in nevertheless holding that APT, as the transferee of the assets of BISUDECO,
was liable to petitioners.
 
[17]
Petitioners also contend that in Central Azucarera del Danao v. Court of Appeals, this
Court supposedly ruled that the sale of a business of a going concern does not ipso facto
terminate the employer-employee relations insofar as the successor-employer is concerned,
and that change of ownership or management of an establishment or company is not one of
[18]
the just causes provided by law for termination of employment[.]
 
 A careful reading of the Courts Decision in that case plainly shows that it does not
contain the words quoted by counsel for petitioners. At this juncture, we admonish their
[19]
counsel of his bounden duty as an officer of the Court to refrain from misquoting or
[20]
misrepresenting the text of its decisions. Ever present is the danger that, if not faithfully
and exactly quoted, they may lose their proper and correct meaning, to the detriment of
[21]
other courts, lawyers and the public who may thereby be misled.
 
In that case, contrary to the assertions of petitioners, the Court held as follows:

There can be no controversy for it is a principle well-recognized, that it is within the

employers legitimate sphere of management control of the business to adopt economic
policies or make some changes or adjustments in their organization or operations that
would insure profit to itself or protect the investment of its stockholders. As in the
exercise of such management prerogative, the employer may merge or consolidate its
business with another, or sell or dispose all or substantially all of its assets and
properties which may bring about the dismissal or termination of its employees in the
process. Such dismissal or termination should not however be interpreted in such a
manner as to permit the employer to escape payment of termination pay. x x x.

In a number of cases on this point, the rule has been laid down that the sale or
disposition must be motivated by good faith as an element of exemption from liability.
Indeed, an innocent transferee of a business establishment has no liability to the
employees of the transferor to continue employing them. Nor is the transferee liable for
past unfair labor practices of the previous owner, except, when the liability therefor is
assumed by the new employer under the contract of sale, or when liability arises
because of the new owners participation in thwarting or defeating the rights of the
[22]
employees. (Citations omitted.)

In other words, the liabilities of the previous owner to its employees are not enforceable
against the buyer or transferee, unless (1) the latter unequivocally assumes them; or (2) the
sale or transfer was made in bad faith. Thus, APT cannot be held responsible for the
monetary claims of petitioners who had been dismissed even before it actually took over
BISUDECOs assets.
 
Moreover, it should be remembered that APT merely became a transferee of BISUDECOs
assets for purposes of conservation because of its lien on those assets -- a lien it assumed as
assignee of the loan secured by the corporation from PNB. Subsequently, APT, as the
highest bidder in the auction sale, acquired ownership of the foreclosed properties.
 
Relevant to this transfer of assets is Article 110 of the Labor Code, as amended by Republic
Act No. 6715, which reads:
Article 110. Workers preference in case of bankruptcy. In the event of bankruptcy or
liquidation of the employers business, his workers shall enjoy first preference as
regards their unpaid wages and other monetary claims shall be paid in full before the
[23]
claims of the Government and other creditors may be paid.

[24]
This Court has ruled in a long line of cases that under Articles 2241 and 2242 of
the Civil Code, a mortgage credit is a special preferred credit that enjoys preference with
respect to a specific/determinate property of the debtor. On the other hand, the workers
preference under Article 110 of the Labor Code is an ordinary preferred credit. While this
provision raises the workers money claim to first priority in the order of preference
established under Article 2244 of the Civil Code, the claim has no preference over special
preferred credits.
 
 Thus, the right of employees to be paid benefits due them from the properties of their
employer cannot have any preference over the latters mortgage credit. In other words, being
a mortgage credit, APTs lien on BISUDECOs mortgaged assets is a special preferred lien
that must be satisfied first before the claims of the workers.
 
[25]
Development Bank of the Philippines v. NLRC explained the rationale of this ruling as
follows:

x x x. 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 insolvents
assets. It is a right to a first preference in the discharge of the funds of the judgment
debtor. x x x

 
Furthermore, workers claims for unpaid wages and monetary benefits cannot be paid
[26]
outside of a bankruptcy or judicial liquidation proceedings against the employer. It is
settled that the application of Article 110 of the Labor Code is contingent upon the
institution of those proceedings, during which all creditors are convened, their claims
[27]
ascertained and inventoried, and their preferences determined. Assured thereby is an
orderly determination of the preference given to creditors claims; and preserved in harmony
is the legal scheme of classification, concurrence and preference of credits in the Civil Code,
the Insolvency Law, and the Labor Code.
 
 The Court hastens to add that the present Petition was brought against APT alone. In
holding that the latter, which has never really been an employer of petitioners, is not liable
for their claims, this Court is not reversing or ruling upon their entitlement to back wages
and other unpaid benefits from their previous employer.
 
On the basis of the foregoing clarification, the Court finds no reversible error in the
questioned CA Decision, which set aside the February 8, 2000 Decision of the NLRC. As a
mere transferee of the mortgage credit and later as the purchaser in a public auction of
BISUDECOs foreclosed properties, APT cannot be held liable for petitioners claims against
BISUDECO: illegal dismissal, unpaid back wages and other monetary benefits.
 
WHEREFORE, the Petition is hereby DENIED, and the assailed Decision and Resolution
AFFIRMED. Costs against petitioners.
SO ORDERED.
 
 
 
ARTEMIO V. PANGANIBAN
Associate Justice
Chairman, Third Division
 
W E C O N C U R:
 
 
ANGELINA SANDOVAL-GUTIERREZ RENATO C. CORONA
Associate Justice Associate Justice
 
 
 
CONCHITA CARPIO MORALES CANCIO C. GARCIA
Associate Justice Associate Justice
 
 
 
ATTESTATION
 
 
I attest that the conclusions in the above Decision had been reached in consultation before
the case was assigned to the writer of the opinion of the Courts Division.
 
 
ARTEMIO V. PANGANIBAN
Associate Justice
Chairman, Third Division

CERTIFICATION
 
 
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairmans
Attestation, it is hereby certified that the conclusions in the above Decision had been
reached in consultation before the case was assigned to the writer of the opinion of the
Courts Division.
 
 
HILARIO G. DAVIDE, JR.
Chief Justice
 

[1]
Rollo, pp. 20-61.
[2]
Annex A of Petition; id., pp. 62-67. Penned by Justice Conrado M. Vasquez, Jr. (Eighth Division chair) and
concurred in by Justices Elvi John S. Asuncion and Sergio L. Pestao (members).
[3]
Annex B of Petition; id., p. 70.
[4]
CA Decision, p. 6; id., p. 67.
[5]
Annex N of Petition; id., pp. 199-205. Penned by Commissioner Alberto R. Quimpo and concurred in by
Presiding Commissioner Rogelio I. Rayala and Commissioner Vicente S. E. Veloso.
[6]
NLRC Decision, p. 7; id., p. 205.
[7]
CA Decision, pp. 1-4; id., pp. 62-65. Citations omitted.
[8]
312 SCRA 22, August 6, 1999.
[9]
This case was deemed submitted for decision on October 6, 2004, upon this Courts receipt of petitioners
Memorandum, signed by Atty. Lilia M. Reyta Jra. Respondents Memorandum, signed by Attys. Juan G.
Raola Jr. and Reginald I. Bacolor, was received by this Court on September 6, 2004.
[10]
Petitioners Memorandum, p. 9. Original in uppercase.
[11]
Approving the Identification and Transfer to the National Government of Certain Assets and Liabilities of
the x x x Philippine National Bank. This AO was implemented by the Deed of Transfer, Series of 1987,
between the Government of the Republic of the Philippines and the Philippine National Bank (PNB); and
the Trust Agreement, Series of 1987, between the National Government and the Asset Privatization Trust.
[12]
At most, APTs participation -- if any -- would have consisted simply in concurring or not concurring in the
lease/management Contract.
[13]
180 SCRA 14, 18, December 6, 1989; Robledo v. NLRC, 238 SCRA 52, November 9, 1994.
[14]
Manlimos v. NLRC, 312 Phil. 178, March 2, 1995; E. Razon, Inc. v. Secretary of Labor and Employment, 222 SCRA
1, May 13, 1993; The New Valley Times Press v. NLRC, 211 SCRA 509, July 15, 1992; Associated Labor Unions
VIMCONTU v. NLRC, 204 SCRA 913, December 20, 1991; MDII Supervisors and Confidential Employees
Association (FFW) v. Presidential Assistant on Legal Affairs, 79 SCRA 40, September 9, 1977.
[15]
Manlimos v. NLRC, supra; The New Valley Times Press v. NLRC, supra.
[16]
North Davao Mining Corp. v. NLRC, 325 Phil. 202, 213, March 13, 1996.
[17]
137 SCRA 295, June 29, 1985.
[18]
Petition, pp. 29-30; rollo, pp. 48-49.
[19]
The Petition was signed by Atty. P.M. Gerardo Borja as counsel for petitioners.
[20]
Rule 10.02, Code of Professional Responsibility.
[21]
The Insular Life Assurance Co., Ltd. Employees Association-NATU v. The Insular Life Assurance Co., Ltd., 37 SCRA
244, January 30, 1971.
[22]
Central Azucarera del Danao v. CA, supra, pp. 304-305, per Cuevas, J.
[23]
Amendments italicized.
[24]
Development Bank of the Philippines v. NLRC, 312 Phil. 70, March 1, 1995; Hautea v. National Labor Relations
Commission, 230 SCRA 119, February 16, 1994; Banco Filipino Savings and Mortgage Bank v. NLRC, 188 SCRA
700, August 20, 1990; Batong Buhay Gold Mines, Inc. v. Dela Serna, 312 SCRA 22, August 6, 1999.
[25]
183 SCRA 328, 337-338, March 19, 1990, per Melencio Herrera, J.
[26]
Development Bank of the Philippines v. NLRC, supra (citing Development Bank of the Philippines v. Santos, March 8,
1989, 171 SCRA 138; Development Bank of the Philippines v. Minister of Labor, 195 SCRA 463, March 20, 1991).
[27]
Development Bank of the Philippines v. NLRC, supra; Bolinao Jr. v. Padolina, 186 SCRA 368, June 6, 1990 (citing Republic
v. Peralta, 150 SCRA 37, May 20, 1987).