Case Summary (G.R. No. 56568)
Petitioner and Respondents
Petitioner: Republic of the Philippines (Bureau of Customs; Bureau of Internal Revenue)
Respondents: CFI Judge Peralta; Quality Tobacco Corporation; Francisco Candelaria; FOITAF; USTC-PTGWO
Key Dates
• May 1977 – Insolvency petition filed by Quality Tobacco Corporation
• November 17, 1980 – Trial court order preferring union separation-pay claims
• January 19, 1981 – Denial of government motion for reconsideration
• May 20, 1987 – Supreme Court decision
Applicable Law
• 1987 Philippine Constitution (in force as of decision date)
• Labor Code, Article 110 (worker preference in insolvency); Article 97(f) (definition of wages)
• Civil Code, Articles 2241–2242 (special preferred credits); Article 2244 (ordinary preferred credits); Articles 2246–2249 (application and concurrence of liens)
• Tariff and Customs Code, Section 1204 (customs-duty lien)
• National Internal Revenue Code, Section 315 (old Code) / Section 301 (1977 Code) (internal-revenue tax lien)
Insolvency Proceedings and Creditor Claims
Quality Tobacco Corporation’s voluntary insolvency drew four principal claims:
- USTC-PTGWO: ₱2,806,729.92 separation pay (+ ₱280,672.99 attorney’s fees) awarded by NLRC
- FOITAF: ₱53,805.05 separation pay awarded by NLRC
- Bureau of Internal Revenue: ₱1,085,188.22 tobacco inspection fees (1967–1973)
- Bureau of Customs: ₱276,161.00 customs duties and taxes (secured by surety bonds; some goods still in custody)
Trial Court’s Priority Ruling
The trial court, relying on Labor Code Article 110, held that union claims for separation pay (as “wages”) enjoyed first preference over government tax claims.
Government’s Argument on “Wages”
The Solicitor General contended that “wages” under Article 110 excludes separation pay, which is a penalty or damage for separation rather than remuneration for services.
Definition and Scope of “Wages”
Labor Code Article 97(f) defines wages broadly as “remuneration or earnings . . . payable by an employer to an employee under a contract of employment for work done . . . and includes the fair and reasonable value . . . of board, lodging, or other facilities.”
Separation Pay as Remuneration
Relying on Philippine Commercial & Industrial Bank v. National Mines & Allied Workers Union, the Court agrees that separation pay functions as additional remuneration tied to services rendered and thus falls within “wages” for the purposes of Article 110.
Civil Code Credit Classification
The Civil Code sorts insolvent-estate claims into:
• Special preferred credits (liens on specific assets) under Articles 2241–2242
• Ordinary preferred credits (no specific liens) under Article 2244
• Common credits under Article 2245
Special Preferred Credits under Articles 2241–2242
Tax liens on particular movable or immovable property (e.g., customs duties; internal-revenue taxes) rank first and must be satisfied from the proceeds of the encumbered assets. Non-tax liens on those assets share a second tier, payable pro rata.
Ordinary Preferred Credits under Article 2244
Claims for wages earned in the year before insolvency rank second in the order of free (unencumbered) property, following administrative costs and ordinary unsecured claims.
Customs Lien for Unpaid Duties (Tariff Code §1204)
Customs duties and taxes create a personal debt and a lien on the specific imported articles still in government custody. Unpaid duties on released goods become ordinary preferred claims (ninth priority under Article 2244).
Internal-Revenue Lien for Tobacco Inspection Fees
Tobacco inspection fees, classified as internal-revenue taxes, give rise to a lien on all of the taxpayer’s properties from assessment until payment, meriting first preference under Articles 2241(1) and 2242(1).
Liens for Separation Pay (Civil Code Application)
Union claims for separation pay do not generate general liens on all assets. They fall under Article 2241(6) as liens on manufactured goods (processed tobacco products) and are ordinary preferred claims under Article 2244 for free property.
Impact of Labor Code Article 110 on Civil-Code Scheme
Article 110’s “first preference” modifies only the priority established in Article 2244 for free property:
- It removes the one-year limitation for wage claims in Article 2244(2).
- It elevates un
Case Syllabus (G.R. No. 56568)
Facts
- Quality Tobacco Corporation (“Insolvent”) filed voluntary insolvency proceedings in May 1977.
- Creditors’ claims filed in insolvency:
• USTC Association of Employees and Workers Union-PTGWO: ₱2,806,729.92 for separation pay (plus ₱280,672.99 attorney’s fees) awarded by NLRC.
• Federacion Obrero de la Industria Tabaquera y Otros Trabajadores de Filipinas (FOITAF): ₱53,805.05 for separation pay from the same NLRC case.
• Bureau of Internal Revenue (BIR): ₱1,085,188.22 for tobacco inspection fees (Oct 1967–Feb 1973).
• Bureau of Customs (BOC): ₱276,161.00 for customs duties and taxes on various importations, secured by surety bonds; some imported articles remain in BOC custody.
Procedural History
- Court of First Instance of Manila, Branch XVII, issued an Order on 17 November 1980 preferring the Unions’ separation-pay claims over BIR and BOC claims under Article 110 of the Labor Code.
- Motion for reconsideration by the BIR and BOC was denied on 19 January 1981.
- The Republic of the Philippines filed a petition for review on certiorari before the Supreme Court (G.R. No. 56568, May 20, 1987).
Issue
- Whether “separation pay” falls within the term “wages” under Article 110 of the Labor Code, thus entitling the Unions’ claims to first preference over the government’s tax and customs liens in insolvency.
Applicable Law
- Article 110, Labor Code: workers’ wages in bankruptcy/liquidation enjoy “first preference,” “any provision of law to the contrary notwithstanding.”
- Article 97(f), Labor Code: definition of “wages” as remuneration or earnings for services rendered.
- Civil Code Articles 2241–2243, 2246–2249: classification of credits in insolvency—special preferred (liens on specific property), ordinary preferred (priority on f