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    DBP vs. NLRC

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    Mildred Mendoza
    While Article 110 grants employees preference for unpaid wages in bankruptcy, this must be read with the Civil Code scheme on credit classification and preference. A preference applies only to claims without a lien on specific property. The employees' preference here is not a lien but applies in the distribution of an insolvent debtor's assets. Insolvency proceedings are needed where all creditors' claims can be determined.

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    DBP vs. NLRC

    Uploaded by

    Mildred Mendoza
    219 views2 pages
    While Article 110 grants employees preference for unpaid wages in bankruptcy, this must be read with the Civil Code scheme on credit classification and preference. A preference applies only to claims without a lien on specific property. The employees' preference here is not a lien but applies in the distribution of an insolvent debtor's assets. Insolvency proceedings are needed where all creditors' claims can be determined.

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    Case Digest rel. to Art. 110 of the Labor Code

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    While Article 110 grants employees preference for unpaid wages in bankruptcy, this must be read with the Civil Code scheme on credit classification and preference. A preference applies only to claims without a lien on specific property. The employees' preference here is not a lien but applies in the distribution of an insolvent debtor's assets. Insolvency proceedings are needed where all creditors' claims can be determined.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    219 views2 pages

    DBP vs. NLRC

    Uploaded by

    Mildred Mendoza
    While Article 110 grants employees preference for unpaid wages in bankruptcy, this must be read with the Civil Code scheme on credit classification and preference. A preference applies only to claims without a lien on specific property. The employees' preference here is not a lien but applies in the distribution of an insolvent debtor's assets. Insolvency proceedings are needed where all creditors' claims can be determined.

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    © All Rights Reserved
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    of 2

    DBP vs. NLRC DBP appealed with the NLRC which was however dismissed.

    Hence the
    G.R. Nos. 82763-64 | March 19, 1990 present action seeking for review and reversal.
    By: Dred Mendoza
    ISSUE:
    DOCTRINE:
    WHETHER OR NOT DBP may be compelled to remit the sum P6.3M from
    Article 110 of the Labor Code cannot be viewed in isolation but must be read the proceeds of the foreclosed property of Lirag to satisfy the monetary claims
    in relation to the Civil Code scheme on classification and preference of of the employees.
    credits.
    RULING:

    FACTS: NO, DBP may not be so compelled.

    This involved two consolidated cases filed by former employees of Lirag Art. 110 of the Labor Code as amended provides that:
    Textile Mills, Inc. (Ligrag) for illegal dismissal and claim for monetary
    benefits such as separation pay, 13th month pay, gratuity pay, sick leave and Worker preference in case of bankruptcy.—In the event of bankruptcy or
    vacation leave pay against Lirag. The employees were separated from their liquidation of an employer’s business, his workers shall enjoy first preference
    service presumably due to financial reverses. as regards their unpaid wages and other monetary claims, any provision of
    law to the contrary notwithstanding. Such unpaid wages and monetary claims
    Lirag was a mortgage debtor of petitioner DBP. shall be paid in full before the claims of the Government and other creditors
    may be paid.”
    The LA rendered judgment ordering Lirag to pay the individual complainants.
    This decision was affirmed by the NLRC and became final and executory. Section 10, Rule III, Book III of the Omnibus Rules Implementing the Labor
    Code has also been amended by Section 1 of the Rules and Regulations
    A Writ of Execution was issued. However, it remained unsatisfied since on Implementing RA 6715 as approved by the then Secretary of Labor and
    the same day, DBP extrajudicially foreclosed the mortgaged properties for Employment on 24 May 1989, and now provides:
    failure of Lirag to pay its mortgage obligation.
    “Section 10. Payment of wages and other monetary claims in case of
    Subsequently, LAND, the bargaining representative of the employees, filed a bankruptcy.—In case of bankruptcy or liquidation of the employer’s business,
    Motion for Writ of Execution and Garnishment of the proceeds of the the the unpaid wages and other monetary claims of the employees shall be given
    foreclosure sale. first preference and shall be paid in full before the claims of government and
    other creditors may be paid.”
    The LA then ordered that DBP be impleaded in the interest of justice and due
    process and required it to intervene. However, the Court added that despite the amendment, it doesn’t mean that
    the declaration of bankruptcy or judicial liquidation have been eliminated.
    Thereafter the LA granted the writ of garnishment and directed DBP to remit According to the SC, Article 110 of the Labor Code cannot be viewed in
    to the NLRC the sum of almost P6.3M out of the proceeds of the foreclosed isolation but must be read in relation to the Civil Code scheme on
    properties of Lirag in order to satisfy the judgment in favor of the complainant classification and preference of credits.
    employees. DBP’s motion for recon was denied.
    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’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 vs.
    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.

    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.

    Assailed decision of NLRC is SET ASIDE. DBP and other creditors are
    hereby directed to institute insolvency proceedings before the proper Court
    where all the assets of Lirag may be inventoried, the preferences of all its
    creditors determined, and their claims discharged in a binding and conclusive
    manner.

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