Title
Philippine National Bank vs. Cruz
Case
G.R. No. 80593
Decision Date
Dec 18, 1989
AMEX employees won unpaid wages and termination pay claims, with Supreme Court ruling workers' lien under Labor Code takes precedence over other creditors, including PNB.
workers
unpaid wages
termination pay

Case Summary (G.R. No. 80593)

Factual Background

Sometime in 1980, AMEX laid off about seventy percent (seventy percent) of its employees due to business reverses. The retained thirty percent (thirty percent) were not paid their wages despite the continuation of work for a time, and the non-payment persisted until July 1982, when AMEX completely ceased operations. Thereafter, AMEX entered into an operating agreement with T.M. San Andres Development Corporation, under which the latter would lease AMEX’s equipment and machineries.

The employees sought redress before the Labor Arbiter, asserting entitlement to unpaid wages and separation pay (also referred to in the decision as termination or severance pay), arising from the employer’s failure to pay wages and its eventual cessation of operations.

Labor Arbiter Proceedings

On August 27, 1986, the Labor Arbiter Raymundo R. Valenzuela rendered a decision declaring the employees’ claims valid and meritorious. The dispositive portion ordered Aggregate Mining Exponent and its president Luis Tirso Revilla to pay each complainant unpaid wages, separation pay, and backwages in stated amounts, for a total of P219,452.03, inclusive of the unpaid wages, separation pay, and backwages.

The Labor Arbiter further directed that arrangements be made among AMEX, T.M. San Andres Development Corporation, and PNB to effectuate payment. The Labor Arbiter explained that if the principal respondent could not satisfy the awards, payment could be sourced from the proceeds or fruits of AMEX’s machineries and equipment operated by T.M. San Andres Development Corporation, either through the operating agreement or through lease of the equipment from PNB.

In addition, the Labor Arbiter ordered the segregation and payment of attorney’s fees to counsel, referencing the charging lien and the parties’ agreement.

AMEX and its president did not appeal. However, PNB, as mortgagee-creditor of AMEX, appealed to the NLRC, contending that the workers’ lien should cover unpaid wages only, and should not extend to the termination or severance pay that the employees likewise claimed.

NLRC Ruling and Subsequent Petition

In a resolution dated October 27, 1987, the NLRC affirmed the Labor Arbiter’s decision. The NLRC rejected PNB’s limitation of the workers’ lien to unpaid wages only.

PNB then filed the present petition for certiorari, raising two principal grounds: first, that Article 110 of the Labor Code must be read in relation to Articles 2241 to 2245 of the Civil Code on the classification, concurrence, and preference of credits; and second, that Article 110 does not create a lien in favor of workers for unpaid wages either over all properties or any particular property owned by the employer.

The petition, according to the ponencia, lacked merit.

The Parties’ Contentions

PNB maintained that the workers’ preference should be confined to unpaid wages and should exclude termination or separation pay. It anchored its theory on its understanding that Article 110 refers to wages due for services rendered prior to bankruptcy or liquidation, and it invoked implementing rules and regulations to argue that separation from work for just cause does not entitle the employee to termination pay.

PNB also argued that the Civil Code provisions on the order of preference of credits should control and that Article 110 should be construed to yield to those provisions, particularly in relation to mortgagee-creditor rights.

The private respondents, through the Labor Arbiter and as upheld by the NLRC, relied on the statutory command of Article 110 that workers enjoy first preference with respect to unpaid wages and other monetary claims, despite contrary legal provisions.

Legal Basis: Article 110 and the Civil Code Conflict

The Court began by observing that PNB, in its earlier positions, did not dispute the validity of the employees’ claims as to unpaid wages involving the mortgaged properties of AMEX, provided the coverage remained limited to unpaid wages and excluded termination pay. The Court then treated PNB’s attempt to recast the scope of the workers’ preference at the certiorari stage as an impermissible alteration of its stance, pointing out that the records showed PNB had failed to question the portion of the Labor Arbiter’s decision concerning unpaid wages on appeal.

Even assuming PNB’s attempt to seek relief were considered, the Court held that Article 110 of the Labor Code, as worded, controlled. The Court quoted Article 110: in the event of bankruptcy or liquidation of the employer’s business, workers shall enjoy first preference as regards unpaid wages and other monetary claims, any provision of law to the contrary notwithstanding; and such unpaid wages and monetary claims shall be paid in full before claims of the Government and other creditors may be paid.

The Court emphasized the phrase “any provision of law to the contrary notwithstanding” as an explicit legislative directive that the worker preference prevails despite the order set forth in Articles 2241 to 2245 of the Civil Code. The Court reasoned that because Article 110 provided no exceptions, none could be judicially supplied. Further, the Court invoked the rule that when two statutes of different dates and contrary tenor apply in a given situation, the later statute prevails as the latest expression of legislative will, citing Herman vs. Radio Corporation of the Philippines.

The Court also cited A.C. Ransom Labor Union - CCLU vs. NLRC, which had expressly held that worker preference applies even where the employer’s properties are encumbered by a mortgage contract. In that precedent, the Court had ruled that laborers’ right to payment from the proceeds should be recognized notwithstanding that the machinery and equipment had been sold to another entity.

Rejection of Reliance on Republic v. Peralta

PNB’s reliance on Republic vs. Peralta was rejected. The Court explained that Peralta addressed workers’ preference vis-à-vis the tax claims of the State, where the Court held that the State prevailed because tax collection was of the highest importance for sovereign survival. Nonetheless, the ponencia noted that Article 110 of the Labor Code, as amended, now mandates payment of unpaid wages and other monetary claims of workers in full before the claims of the Government and other creditors. Thus, under the amended Article 110, even tax claims could not override the workers’ preference. The Court therefore viewed Peralta as inapplicable in light of the statutory amendment and Article 110’s express supremacy.

Consistent with the Court’s longstanding approach, it also cited Volkschel Labor Union vs. Bureau of Labor Relations for the doctrine that in the implementation and interpretation of the Labor Code, the welfare of the workingman is paramount. The Court then reiterated the dictum in A.C. Ransom that the conflict between Article 110 and Articles 2241 to 2245 must be resolved in favor of Article 110, because a contrary ruling would undermine the protective purpose of the provision for the working class and would frustrate the constitutional quest for social justice.

Scope of the “Workers’ Lien”: Unpaid Wages vs. Termination/Severance Pay

PNB further insisted that even if a workers’ lien applied, it should cover only unpaid wages and exclude termination or severance pay. PNB relied on Section 7, Rule I, Book VI of the Rules and Regulations implementing the Labor Code, which provides that separation for a just cause does not entitle the employee to termination pay provided in the Code.

The Court, however, found PNB’s argument unpersuasive. It stated that the NLRC had noted AMEX’s failure to present convincing evidence proving that its business reverses were serious. After reviewing the records, the Court found no reason to depart from the NLRC’s findings and relied on Garcia vs. National Labor Relations Commission to underscore that alleged losses in business operations must be proved to prevent fabricated claims of business reverses as a device to ease out employees without apparent reason.

More importantly, the Court addressed the definitional issue of whether termination or severance pay is part of “wages” within the meaning of Article 110. It cited Philippine Commercial and Industrial Bank vs. National Mines and Allied Workers Union (NAMAWU-MIF) for the proposition that the term “wages” includes not only remunerations or earnings for services rendered or to be rendered, but also all benefits under a collective bargaining agreement such as severance pay, educational allowances, accrued vacation leave earned but not enjoyed, and workmen’s compensation awards, as well as unpaid salaries for services rendered. The Court reasoned that all these benefits fall under “wages” and enjoy first preference over other claims against the employer.

The Court also invoked Peralta for the proposition that for purposes of Article 110, termination pay is reasonably regarded as forming part of the remuneration or other money benefits accruing to employees because they had previously rendered services. From this, the Court concluded that separation pay must be treated as part of remuneration for services rendered or to be rendered.

Thus, the Court held that the NLRC committed no error in awarding termination or severance pay to the private respondents. The Court characterized termination or severance pay as additional remuneration linked to the period of service used in computing the employee’s entitlement. Accordingly, the termination or severance pay formed part of the monetary claims covered by Article 110’s worker preference.

Disposition and Equitable Considerations

The Court also addressed the practical impact urged by PNB. It noted that the amount PNB claimed for satisfying AMEX’s obligations was relatively insubstantial and not significant enough to drain PNB’s coffers. By cont

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