DEVELOPMENT BANK OF THE PHILIPPINES, PETITIONER, VS. THE MINISTER OF LABOR AND SAMAHANG PAGKAKAISANG MANGGAGAWA SA RMC-GATCORD, RESPONDENTS.

Development Bank of the Philippines versus the Minister of Labor and Samahang Pagkakaisang Manggagawa sa RMC-Gatcord

The Case

This is a petition for certiorari brought by the Development Bank of the Philippines against the Minister of Labor and a labor union representing the workers of Riverside Mills Corporation. The union had obtained a favorable labor judgment for unpaid wage increases and emergency cost of living allowances, and it sought to satisfy that judgment by garnishing money that a buyer had paid to the bank for foreclosed properties of the employer. The case matters because it fixes the reach of the worker's statutory preference: the Court holds that this preference cannot be invoked against a creditor's own funds in the absence of a formal declaration of bankruptcy or a judicial order of liquidation, and that a sheriff may garnish only property unquestionably belonging to the judgment debtor.

Procedural History

The union filed a complaint for non-payment of wage benefits before the Ministry of Labor and Employment. The Director of the National Capital Region issued an order in favor of the workers, which the Deputy Minister of Labor affirmed on appeal by the company. The total balance of the award was later recomputed in a subsequent order of the Director. The bank, which had earlier foreclosed on the employer's properties, was then summoned to a conference and afterwards served with a notice of garnishment. The bank elevated the matter to the Supreme Court by petition for certiorari, and the Court granted the petition, reversing and setting aside the assailed order of the Ministry of Labor and making the restraining order permanent.

Facts

On 3 February 1981, the union, in representation of its one thousand worker-members, filed a complaint against Riverside Mills Corporation for non-payment of the daily wage increase and the monthly emergency cost of living allowance. After trial, the Regional Director ordered the company to pay the additional allowance and the minimum wage increase. The Deputy Minister of Labor affirmed that order on appeal. The total balance of the judgment award was later recomputed at three million three hundred one thousand nine hundred ninety seven pesos and seventy five centavos.

Meanwhile, the bank had instituted extra-judicial foreclosure proceedings as early as 1983 on the properties and other assets of the company, arising from the company's failure to meet its loan obligations. The foreclosed properties were sold to Rosario Textile Mills.

On 21 January 1986, the bank received a notice of conference from the Ministry of Labor and Employment, ordering it to appear to testify in the labor case. It was only at that conference that the bank learned of the decision in favor of the union, which the union wanted to enforce against the bank. On 21 April 1986, a notice of garnishment was served upon the bank for the full amount of the award, directed at the money paid by Rosario Textile Mills to the bank as partial installment of the sales price of the foreclosed properties.

Issues

• Whether or not a writ of garnishment may be issued against the proceeds of the employer's properties foreclosed by the bank and sold to a third party, by application of the worker's right of preference under Article 110 of the Labor Code.
• Whether or not the sheriff, in garnishing funds paid to the bank, acted within the authority vested in him by the writ of execution.

Applicable Provisions

Article 110 of the Labor Code, as amended by Republic Act Number 6715, provides:

Article 110. Worker's preference in case of bankruptcy. In the event of bankruptcy or liquidation of the employer's business, his workers shall enjoy first preference as regards their unpaid wages and other monetary claims shall be paid in full before the claims of the Government and other creditors may be paid.

This is the provision the union invoked to justify the garnishment, and the Court construes its scope.

Section 10, Rule III, Book III of the Omnibus Rules Implementing the Labor Code, as amended, provides:

Section 10. Payment of wages and other monetary claims in case of bankruptcy. In case of bankruptcy or liquidation of the employer's business, the unpaid wages and other monetary claims of the employees shall be given first preference and shall be paid in full before the claims of the Government and other creditors may be paid.

This implementing rule tracks the statutory preference and, like the statute, presupposes a bankruptcy or liquidation of the employer's business.

Ruling

On the first issue, the Court held that the writ of garnishment was not justified. Although the amendments to Article 110 eliminated the terms declaration of bankruptcy and judicial liquidation, the Court adhered to its earlier interpretation that the worker's preference may be invoked only in the event of a formal declaration of bankruptcy or a judicial order of liquidation. The Court stressed that, because of its impact on the entire system of credit, Article 110 cannot be viewed in isolation but must always be reckoned with the provisions of the Civil Code on concurrence and preference of credits. In the absence of such a declaration or order, the workers of the company could not invoke the preference against the bank's funds.

On the second issue, the Court held that the sheriff exceeded his authority. The power of a court or tribunal in the execution of its judgment extends only over properties unquestionably belonging to the judgment debtor. The money garnished had been paid by Rosario Textile Mills to the bank as partial installment of the sales price of the foreclosed properties; it therefore belonged not to the company but to the bank. When the sheriff garnished those funds, he garnished property of the bank, not of the judgment debtor. When the Deputy Minister of Labor sustained the garnishment, he acted with grave abuse of discretion correctible by certiorari.

Doctrine

The worker's preference under Article 110 of the Labor Code, even as amended by Republic Act Number 6715, may be invoked only in the event of a formal declaration of bankruptcy or a judicial order of liquidation of the employer's business. The provision must be read together with the Civil Code rules on concurrence and preference of credits and cannot be applied in isolation. Execution reaches only properties unquestionably belonging to the judgment debtor; a garnishment of funds belonging to a third person, such as a creditor bank holding the proceeds of a foreclosure sale, is void for exceeding the sheriff's authority.

Disposition

The petition was granted; the assailed order of the Ministry of Labor was reversed and set aside, and the restraining order was made permanent, in favor of the bank.

Remember This

Memorize the line that the worker's preference under Article 110 requires a formal declaration of bankruptcy or a judicial order of liquidation, and that execution may reach only property unquestionably belonging to the judgment debtor. Examiners use this case to test the scope of the labor preference against creditors and the limits of a sheriff's writ of execution.