G.R. No. 80593 - Philippine National Bank vs. Cruz

In 1980, Aggregate Mining Exponents (AMEX) laid off about 70% of its employees due to business reverses.
The retained 30% of the workforce continued working despite not receiving their due wages.
The non-payment of salaries persisted until July 1982 when AMEX ceased its operations.

Following the cessation of operations, AMEX entered into an operating agreement with T.M. San Andres Development Corporation to lease out its equipment and machinery.
This arrangement raised questions on the proper channel of satisfying the workers’ claims given the encumbrance of AMEX’s properties by a mortgage held by Philippine National Bank (PNB).

The unpaid employees filed a complaint before the Labor Arbiter, who on August 27, 1986, rendered a decision finding their claims for unpaid wages and separation (termination) pay valid and meritorious.
The award detailed precise amounts for each employee in terms of years of service, separation pay, and back wages, cumulatively amounting to significant monetary relief against AMEX.
The decision provided that the necessary arrangement be made between AMEX, T.M. San Andres Development Corp., and PNB to secure the payment of these awards.
There was also an order to segregate and pay attorney’s fees directly to the counsel of the complainants as per an earlier agreement.

Although AMEX and its President did not appeal, PNB, acting as mortgagee-creditor, interposed an appeal with the National Labor Relations Commission.
PNB questioned whether Article 110 of the Labor Code—which provides that workers enjoy first preference in bankruptcy or liquidation—could be limited to unpaid wages only, thereby excluding termination or separation pay.
The appeal was grounded on the contention that the workers’ lien should not extend to benefits beyond wages, particularly referencing certain Civil Code provisions concerning the classification and preference of credits.

PNB argued that Article 110, when read in conjunction with Civil Code provisions (Articles 2241–2245), did not establish a lien over the entire property of AMEX, but only on wages due for work performed prior to bankruptcy or liquidation.
It was further argued that the financial losses alleged by AMEX should exclude the workers’ entitlement to termination or severance pay.
PNB maintained that even if the worker’s lien applied, it should not cover termination pay, given the reference in certain implementing rules that severance pay is not necessarily part of wages.

Whether Article 110 of the Labor Code, which ensures worker preference in cases of bankruptcy or liquidation, covers not only unpaid wages but also termination or severance pay.

Whether the workers’ lien, as provided under Article 110, takes precedence over other claims—including those of government and other creditors—particularly in view of the encumbrance on AMEX properties by a mortgage held by PNB.
Whether the reference to “any provision of law to the contrary notwithstanding” in Article 110 mandates a full preference for workers’ claims over conflicting provisions in the Civil Code.
Whether the alleged serious financial losses of AMEX can justify the exclusion of termination pay from the workers’ monetary claims.