1) MAGDALENA C. DE BARRETTO and JOSE G. BARRETTO,vs.
creditors could exclude the creditors of lower order until the claims of the
JOSE G. VILLANUEVA, ET AL., (GR. No. L-14938 December 29, 1962)
RESOLUTION
REYES, J.B.L., J.:
Appellants, spouses Barretto, have filed a motion vigorously urging, for reason
to be discussed in the courts of this resolution, that our decision of 28 January
1961 be reconsidered and set aside, and a new one entered declaring that
their right as mortgagees remain superior to the unrecorded claim of herein
appellee for the balance of the purchase price of her rights, title, and interest in
the mortgaged property.
It will be recalled that, with Court authority, Rosario Cruzado sold all her right,
title, and interest and that of her children in the house and lot herein involved
to Pura L. Villanueva for P19,000.00. The purchaser paid P1,500 in advance,
and executed a promissory note for the balance of P17,500.00. However, the
buyer could only pay P5,500 on account of the note, for which reason the
vendor obtained judgment for the unpaid balance. In the meantime, the buyer
Villanueva was able to secure a clean certificate of title (No. 32526), and
mortgaged the property to appellant Magdalena C. Barretto, married to Jose
G. Barretto, to secure a loan of P30,000.03, said mortgage having been duly
recorded.
Pura Villanueva defaulted on the mortgage loan in favor of Barretto. The latter
foreclosed the mortgage in her favor, obtained judgment, and upon its
becoming final asked for execution on 31 July 1958. On 14 August 1958,
Cruzado filed a motion for recognition for her "vendor's lien" in the amount of
P12,000.00 plus legal interest, invoking Articles 2242, 2243, and 2249 of the
new Civil Code. After hearing, the court below ordered the "lien" annotated on
the back of Certificate of Title No. 32526, with the proviso that in case of sale
under the foreclosure decree the vendor's lien and the mortgage credit of
appellant Barretto should be paid pro rata from the proceeds. Our original
decision affirmed this order of the Court of First Instance of Manila.
Appellants insist that:
(1) The vendor's lien, under Articles 2242 and 2243 of the new Civil
Code of the Philippines, can only become effective in the event of
insolvency of the vendee, which has not been proved to exist in the
instant case; and
(2) That the appellee Cruzado is not a true vendor of the foreclosed
property.
We have given protracted and mature consideration to the facts and law of this
case and have reached the conclusion that our original decision must be
reconsidered and set aside, for the following reasons:
A. The previous decision failed to take fully into account the radical changes
introduced by the Civil Code the Philippines into the system of priorities
among creditors ordained by the Civil Code of 1889.
Pursuant to the former Code, conflicts among creditors entitled to preference
as to specific real property under Article 1923 were to be resolved according to
an order of priorities established by Article 1927, whereby one class of
former were fully satisfied out of the proceeds of the sale of the real property
subject of the preference, and could even exhaust such proceeds if necessary.
Under the system of the Civil Code of the Philippine however, only taxes enjoy
a similar absolute preference. All the remaining thirteen classes of preferred
creditors under Article 2242 enjoy no priority among themselves but must be
paid pro rata, i.e., in proportion to the amount of the respective credits. Thus,
Article 2249 provides:
if there are two or more credits with respect to specific real property or
real rights, they shall be satisfied pro rata, after the payment of the
taxes and assessments upon the immovable property or real right.
But in order to make this prorating fully effective, the preferred creditors
enumerated in Nos. 2 to 14 of Article 2242 (or such of them as have credits
outstanding) must necessarily be convened, and the import of their claims
ascertained. It is thus apparent that the full application of Articles 2249 and
2242 demands that there must first some proceeding where the claims of all
the preferred creditors may be bindingly adjudicated, such as insolvency, the
settlement of a decedent's estate under Rule 87 of the Rules of Court, or other
liquidation proceedings of similar import.
This explains the rule of Article 2243 of the new Civil Code that —
The claims or credits enumerated in the two preceding articles1 shall
be considered as mortgages or pledges of real or personal property or
liens within the purview of legal provision governing insolvency . . . .
(Emphasis supplied).
and the rule is further clarified in the Report of the Code Commission, as
follows:
The question as to whether the Civil Code and the Insolvency Law can
be harmonized is settled by this Article (2243). The preferences named
in Articles 2261 and 2262 (now 2241 and 2242) are to be enforced in
accordance with the Involvency Law. (Emphasis supplied.)
Thus, it becomes evident that one preferred creditor's third-party claim to the
proceeds of a foreclosure sale (as in the case now before us) is not the
proceeding contemplated by law for the enforcement of preferences under
Article 2242, unless the claimant were enforcing a credit for taxes that enjoy
absolute priority. If none of the claims is for taxes, a dispute between two
creditors will not enable the Court to ascertain the pro rata dividend
corresponding to each, because the rights of the other creditors likewise
enjoying preference under Article 2242 can not be ascertained. Wherefore, the
order of the Court of First Instance of Manila now appealed from decreeing
that the proceeds of the foreclosure sale be apportioned only between
appellant and appellee, is incorrect and must be reversed.
In the absence of insolvency proceedings (or other equivalent general
liquidation of the debtor's estate), the conflict between the parties now before
us must be decided pursuant to the well established principle concerning
register lands; that a purchaser in good faith and for value (as the appellant
1
concededly is) takes registered property free from liens and encumbrances
other than statutory liens and those recorded in the certificate of title. There
being no insolvency or liquidation, the claim of the appellee, as unpaid vendor,
did not acquire the character and rank of a statutory lien co-equal to the
mortgagee's recorded encumbrance, and must remain subordinate to the
latter.
We are understandably loath (absent a clear precept of law so commanding)
to adopt a rule that would undermine the faith and credit to be accorded to
registered Torrens titles and nullify the beneficient objectives sought to be
obtained by the Land Registration Act. No argument is needed to stress that if
a person dealing with registered land were to be held to take it in every
instance subject to all the fourteen preferred claims enumerate in Article 2242
of the new Civil Code, even if the existence and import thereof can not be
ascertained from the records, all confidence in Torrens titles would be
destroyed, and credit transactions on the faith of such titles would be
hampered, if not prevented, with incalculable results. Loans on real estate
security would become aleatory and risky transactions, for no prospective
lender could accurately estimate the hidden liens on the property offered as
security, unless he indulged in complicated, tedious investigations. The logical
result might well be contraction of credit to unforeseable proportions that could
lead to economic disaster.
Upon the other hand, it does not appear excessively burdensome to require
the privileged creditors to cause their claims to be recorded in the books of the
Register of Deeds should they desire to protect their rights even outside of
insolvency or liquidation proceedings.
B. The close study of the facts disclosed by the records casts strong doubt on
the proposition that appelle Cruzados should be regarded as unpaid vendors
of the property (land, buildings, and improvements) involved in the case at bar
so as to be entitled to preference under Article 2242. The record on appeal,
specially the final decision of the Court of First Instance of Manila in the suit of
the Cruzados against Villanueva, clearly establishes that after her husband's
death, and with due court authority, Rosario Cruzado, for herself and as
administratrix of her husband's estate, mortgaged the property to the
Rehabilitation Finance Corporation (RFC) to secure repayment of a loan of
P11,000, in installments, but that the debtor failed to pay some of the
installment wherefore the RFC, on 24 August 1949, foreclosed the mortgage,
and acquired the property, subject to the debtors right to redeem or repurchase
the said property; and that on 25 September 1950, the RFC consolidated its
ownership, and the certificate of title of the Cruzados was cancelled and a new
certificate issued in the name of the RFC.
While on 26 July 1951 the RFC did execute a deed selling back the property to
the erstwhile mortgagors and former owners Cruzados in installments, subject
to the condition (among others) that the title to the property and its
improvements "shall remain in the name of the Corporation (RFC) until after
said purchase price, advances and interest shall have been fully paid", as of
27 September 1952, Cruzado had only paid a total of P1,360, and had
defaulted on six monthly amortizations; for which reason the RFC rescinded
the sale, and forfeited the payments made, in accordance with the terms of the
contract of 26 July 1951.
It was only on 10 March 1953 that the Cruzados sold to Pura L. Villanueva all
"their rights, title, interest and dominion on and over" the property, lot, house,
and improvements for P19,000.00, the buyer undertaking to assume payment
of the obligation to the RFC, and by resolution of 30 April 1953, the RFC
approved "the transfer of the rights and interests of Rosario P. Cruzado and
her children in their property herein above-described in favor of Pura L.
Villanueva"; and on 7 May 1953 the RFC executed a deed of absolute sale of
the property to said party, who had fully paid the price of P14,269.03.
Thereupon, the spouses Villanueva obtained a new Transfer Certificate of Title
No. 32526 in their name.
On 10 July 1953, the Villanuevas mortgaged the property to the spouses
Barretto, appellants herein.
It is clear from the facts above-stated that ownership of the property had
passed to the Rehabilitation Finance Corporation since 1950, when it
consolidated its purchase at the foreclosure sale and obtained a certificate of
title in its corporate name. The subsequent contract of resale in favor of the
Cruzados did not revest ownership in them, since they failed to comply with its
terms and conditions, and the contract itself provided that the title should
remain in the name of the RFC until the price was fully paid.
Therefore, when after defaulting in their payments due under the resale
contract with the RFC the appellant Cruzados sold to Villanueva "their rights,
title, interest and dominion" to the property, they merely assign whatever rights
or claims they might still have thereto; the ownership of the property rested
with the RFC. The sale from Cruzado to Villanueva, therefore, was not much a
sale of the land and its improvements as it was a quitclaim deed in favor of
Villanueva. In law, operative sale was that from the RFC to the latter, and it
was the RFC that should be regarded as the true vendor of the property. At the
most, the Cruzados transferred to Villanueva an option to acquire the property,
but not the property itself, and their credit, therefore, can not legally constitute
a vendor's lien on the corpus of the property that should stand on an equal
footing with mortgaged credit held by appellants Barretto.
IN VIEW OF THE FOREGOING, the previous decision of this Court,
promulgated on 28 January 1961, is hereby reconsidered and set aside, and a
new one entered reverse the judgment appealed from and declaring the
appellant Barrettos entitled to full satisfaction of their mortgage credit out of the
proceeds of the foreclosure sale in the hands of the Sheriff of the City of
Manila. No costs.

2
2) DEVELOPMENT BANK OF THE PHILIPPINES, vs.
NLRC and NATIONAL MINES AND ALLIED WORKERS UNION (G.R. No.
97175 May 18, 1993)
MELO, J.:
Before us is a petition to set aside the NLRC Decision dated November 28,
1990 (Annex "C", p. 41, Rollo), disposing as follows:
WHEREFORE, PREMISES CONSIDERED, the appealed decision is hereby
set aside and a new judgment is entered, holding the Development Bank of the
Philippines liable to the complainants for their separation pay to the extent of
the proceed of the foreclosure sale, subject to the liquidation or bankruptcy
proceeding that may be instituted against Midland Cement Corporation. (pp.
47-48, Rollo).
Herein private respondent labor union filed on January 10, 1986, a complaint,
the allegations of which were paraphrased by the NLRC in this wise:
. . . that the individual complainants were all employees of respondent Midland
Cement Corporation who were terminated from employment on or about July
30, 1981 by reason of the termination of the business operations of the
Construction and Development Corporation of the Philippines (CDCP) now
PNCC, which was brought about by the expiration of the lease contract
between Midland Cement Corporation and CDCP; that at the time of the
separation from the service [of] the individual complainants, the complainant
union was the certified sole and exclusive bargaining agent; that as a
consequence of said termination, the complainant union filed with the then
Ministry of Labor and Employment an opposition to the application for
clearance to terminate their services filed by CDCP, the lessee of the cement
plant owned by Midland Cement Corporation; that on April 27, 1983, the
Ministry of Labor and Employment thru then Deputy Minister Vicente
Leogardo, Jr., ordered applicant CDCP to pay the 175 affected employees
separation pay equivalent to one-half (1/2) month salary for every year of
service; that the employees were paid only based on their length of service
with CDCP from August 1, 1975 up to July 30, 1981; the said employees were
not paid (with) their separation pay when they were employees of respondent
Midland Cement Corporation; that later, respondent DBP foreclosed and
assumed ownership over the cement plant, including land, buildings,
machinery, etc., of Midland Cement Corporation; that the individual
complainants are claiming separation benefits covering the period from date of
hiring up to July 31, 1975 when CDCP took over the operations of Midland
Cement Corporation by virtue of lease contract. (pp. 43-44, Rollo).
After hearing, the Labor Arbiter rendered a decision on January 5, 1990
(Annex "A", p. 26, Rollo), finding DBP jointly and severally liable with Midland
Cement for the payment of the separation pay, as follows:
WHEREFORE, judgment is hereby rendered giving due course to the
complaint thereby ordering the respondents DBP and Midland Cement
Corporation jointly and severally liable for the separation pay of the
affected members of the complainant union.
It appearing that as published in the morning dailies lately that the assets of
Midland Cement Corporation are now being offered for sale through public
bidding by the Asset Privatization Trust, (APT) let copies of this decision be
served upon said APT to protect the interest of the herein complainants. (pp.
30-31, Rollo)
DBP appealed, contending that its acquisition of the mortgaged assets of
Midland through foreclosure sale did not make it the owner of the defunct
Midland Cement, and that the doctrine of successor-employee is not
applicable in this case, since DBP did not continue the business operations of
Midland. The NLRC, while finding merit in DBP's contention, nonetheless held
DBP liable since respondent's claim "constitutes a first preference with respect
to the proceeds of the foreclosure sale" as provided in Article 110 of the Labor
Code:
Art. 110. Worker preference in case of bankruptcy. — In the event of
bankruptcy or liquidation of an employer's business, his workers shall
enjoy first preference as regards their wages and other monetary
claims, any provisions of law to the contrary notwithstanding. Such
unpaid wages and monetary claims shall be paid in full before claims of
the government and other creditors may be paid. (p. 46, Rollo)
Following the denial of its motion for reconsideration, DBP filed the instant
petition.
DBP correctly points out that its mortgage lien should not be classified as a
preferred credit. The issue raised was settled in Republic v. Peralta (150 SCRA
37 [1987]) and reinforced in DBP v. NLRC (183 SCRA 328 [1990]) wherein we
held because of its impact on the entire system of credit, Article 110 of the
Labor Code cannot be viewed in isolation but must be read in relation to the
Civil Code scheme on classification and preference of credits. Thus, a
distinction should be made between a preference of credit or 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.
In the words of Republic vs. Peralta, supra:
Article 110 of the Labor Code does not purport to create a lien in favor
of workers or employees for unpaid wages either upon all of the
properties or upon any particular property owned by their employer.
Claims for unpaid wages do not therefore fall at all within the category
of specially preferred claims established under Articles 2241 and 2242
of the Civil Code, except to the extent that such claims for unpaid
wages are already covered by Article 2241, number 6: claims for
laborer wages, on the goods manufactured or the work done, or by
Article 2242, number 3: "claims of laborers and other workers engaged
in construction, reconstruction or repair of buildings, canals and other
3
 works, upon said buildings, canals and other works." To the extent that
claims for unpaid wages fall outside the scope of Article 2241, number
6 and Article 2242, number 3, they would come within the ambit of the
category of ordinary preferred credits under Article 2244.

The DBP anchors its claim on a mortgage credit. A mortgage directly and
immediately subjects the property upon which it is imposed, whoever the
possessor may be, to the fulfillment of the obligation for whose security it was
constituted (Article 2176, Civil Code). It creates a real right which is
enforceable against the whole world. It is a lien on an identified immovable
property, which a preference is not. A recorded mortgage credit is a special
preferred credit under Article 2242 (5) of the Civil Code on classification of
credits. The preference given by Article 110, when not falling within Article
2241 (6) and Article 2242 (3) of the Civil Code and not attached to any specific
property, is an ordinary preferred credit although its impact is to move it from
second priority to first priority in the order of preference established by Article
2244 of the Civil Code. (Republic vs. Peralta, supra.)
xxx xxx xxx
In fine, the right to preference given to workers under Article 110 of the Labor
Code cannot exist in any effective way prior to the time of its presentation in
distribution proceedings. It will find application when, in proceedings such as
insolvency, such unpaid wages shall be paid in full before the "claims of the
Government and other creditors" may be paid. . . . (DBP vs, NLRC, supra; pp.
337-339.)

The NLRC, therefore, erred in holding DBP liable "to the extent of the
proceeds of the foreclosure sale." And making such liability dependent on a
bankruptcy or liquidation proceedings is really beside the point, for these
proceedings are relevant only to preferred credits, which is not the situation in
the case at bar. To equate DBP's mortgage lien with a preferred credit would
be to render inutile the protective mantle of the mortgage in DBP's favor and
thus in the process wreak havoc to commercial transactions.

WHEREFORE, the petition is GRANTED. The decision of the NLRC dated

November 28, 1990 and the Resolution of February 1, 1991 are hereby SET
ASIDE, and a new judgment is entered absolving Development Bank of the
Philippines of any and all liabilities to private respondent and its members.

No special pronouncement is made as to costs.

SO ORDERED.


4
3) DEVELOPMENT BANK OF THE PHILIPPINES, vs.
THE NATIONAL LABOR RELATIONS COMMISSION, PINES HOTEL
GENERAL WORKERS' UNION-ALU, et al (G.R. No. 106655 September 1,
1994)
VITUG, J.:
This petition for certiorari, invoking Rule 65 of the Rules of Court, challenges
the decision, dated 16 April 1991, as well as the resolution, dated 31 July
1992, of respondent National Labor Relations Commission ("NLRC").
Resort Hotel Corporation ("RHC") was the former owner and operator of the
Pines Hotel in Baguio City, where private respondents were employed. The
property was hypothecated to petitioner Development Bank of the Philippines
("DBP"). When RHC failed to comply with its obligations, DPB foreclosed on
the mortgage. Following the foreclosure, Hotel Development Corporation
("HDC"), a subsidiary of DBP, assumed the management and operations of the
hotel. Private respondents were rehired by HDC.
On 23 October 1984, Pines Hotel, unfortunately, was razed by fire. On 05
November 1985, private respondents filed a complaint against RHC for money
claims still outstanding in their favor at the time the foreclosure was effected.
HDC and DBP were also impleaded upon the thesis that, should RHC be
bereft of sufficient property to answer for those claims, the foreclosed property
could be levied against in accordance with Article 110 of the Labor Code.
On 13 May 1988, the Labor Arbiter rendered judgment thusly:
IN THE LIGHT OF THE FOREGOING OBSERVATIONS, judgment is
hereby rendered with the following dispositions:
1. That the foreclosure of the assets of the Resort Hotels Corporation
by the Development Bank of the Philippines had the effect of placing
the workers in a situation similar to that of establishments that are
bankrupt, or those that are dissolved, hence workers claims should be
paid in full before the Development Bank of the Philippines may
establish any claim over the assets of the RHC;
2. That the Development Bank of the Philippines is hereby ordered to
deliver the complainants claims for separation pay, earned vacation
and sick leave benefits, meal provisions service charge share pay
claims and March 1984 service charge claims all of which having a
total of TWO MILLION ONE HUNDRED EIGHTY ONE THOUSAND,
SIX HUNDRED NINETY NINE PESOS AND FIFTY SIX CENTAVOS
(P2,181,699.56), plus ten percent (10%) of which as attorney's fees
and the legal interest to be computed from March 31, 1984 up to its
actual payment;
3. The prayer of the respondent RHC calling for the dismissal of this
case for lack of merit is denied, with the qualification that the cross
claim is granted, and the DBP should deliver to the complainants their
claims; and
4. That the Hotel Development Corporation does not have any liability
to the complainants, in so far as the claims for separation pay, earned
vacation and sick leave benefits, meal provisions service charge share
pay claim and March 1984 service charge claims are concerned, hence
it should dropped from this complaint.
SO ORDERED. (Rollo, pp. 85-86).
On appeal to the NLRC, the latter, on 15 April 1991, rendered its decisions
which, among other things, said:
RHC's contention that its liability to herein complainants was
transferred to DBP as a consequence of the foreclosure of the Hotel, is
untenable. As aptly expounded by DBP, the obligation to pay
complainants money claims, the subject matter of this complaint, is
personal to RHC.
WHEREFORE, the instant appeals are DISMISSED for lack of merit
and the appealed Decision is hereby AFFIRMED.
SO ORDERED. (Rollo, p. 107).
No appeal was interposed by either party.
On 03 October 1991, private respondents filed a motion for the issuance of a
merit of execution. On 15 October 1991, DBP submitted, in turn, with the Labor
Arbiter a motion for clarification to resolve an averred inconsistency between
the body (i.e., that RHC, not DBP, is liable to herein private respondents for
their money claims [see aforequoted decision]) and the dispositive portion
(which dismissed DBP's appeal [ibid.]) of the NLRC decision. On 31 July 1992,
the NLRC issued a resolution denying the motion for clarificationn for lack of
merit. The NLRC said:
There is no inconsistency between the findings in the April 25, 1991 Decision
of this Commission and the dispositive portion thereof as perceived by
respondent DBP.
It needs to be stressed that DBP was impleaded in this case for reason that it
foreclosed the assets of RHC. And, the complainants, who were employees of
RHC, would like to ensure the enforcement of their money claims against the
foreclosed properties of their employer invoking Art. 110 of the Labor Code
which provides that:
Art. 110 — Workers preference in case of bankruptcy. — In the event of
bankruptcy or liquidation of an employer's business, his workers shall
enjoy first preference as regards their wages and other monetary
claims, any provisions of law to the contrary notwithstanding. Such
unpaid wages and monetary claims shall be paid in full before claims of
the government and other creditors may be paid.
Before complainants' money claims could enjoy preference under the
aforesaid provision of the Labor Code, the same should be first established.
That is, it must be shown with sufficient evidence that they are legally entitled
thereto or, that their employer is legally bound to pay their money claims.
Precisely, this is the thrust of our findings when we declared RHC liable to
complainants' money claims. Unfortunately, DBP interpreted this finding
separately. It failed to take into consideration the other portion of the decision
of which it forms a part.
WHEREFORE, the instant motion is hereby DENIED for lack of merit.
SO ORDERED. (Rollo, pp. 130-131).
5
Hence, the instant petition for certiorari, which asserts that:
1. The National Labor Relations Commission committed grave abuse of
discretion amounting to lack or in excess of jurisdiction when it promulgated its
resolution of July 31, 1992 erroneously sustaining the dispositive portion of its
Decision of April 15, 1991, instead of following its (Decision) body which
correctly absolves DBP from liability in favor of the private respondents.
2. The National Labor Relations Commission committed grave abuse of
discretion amounting to lack or in excess of jurisdiction when it affirmed the
erroneous conclusion of Labor Arbiter Irenarco R. Rimando that private
respondents (complainants workers) claims against RHC enjoys first
preference over the mortgage credit of DBP;
3. The National Labaor Relations Commission and the Labor Arbiter committed
grave abuse of discretion amounting to lack or in excess of jurisdiction when it
declared that bankruptcy proceedings should not be a condition before
workers claims are paid of their claims in view of the amendment of Art. 110 by
Republic Act No. 6715;
4. The National Labor Relations Commission committed grave abuse of
discretion amounting to lack or in excess jurisdiction when it affirmed the
conclusion of Labor Arbiter Irenarco R. Rimando that because of DBP's
foreclosure of RHC assets, complainants workers lien should now be enforced
against DBP." (Rollo, pp. 22-23).
Evidently, the NLRC erred in its application of the provisions of Article 110 of
the Labor Code. In Republic vs. Peralta (150 SCRA 37, 38-40), this Court
ruled:
Article 110 of the Labor Code, in determining the reach of its terms,
cannot be viewed in isolation. Rather, Article 110 must be read in
relation to the provisions of the Civil Code concerning the classification,
concurrence and preference of credits, which provisions find particular
application in insolvency proceedings where the claims of all creditors,
preferred or non-preferred, may be adjudicated in a binding manner.
xxx xxx xxx
Article 110 of the Labor Code does not purport to create a lien in favor of
workers or employees for unpaid wages either upon all of the properties or
upon any particular property owned by their employer. Claims for unpaid
wages do not therefore fall at all within the category of specially preferred
claims established under Articles 2241 and 2242 of the Civil Code, except to
the extent that such claims for unpaid wages are already covered by Article
2241, number 6: 'claims for laborers' wages, on the goods manufactured or the
work done;' or by Article 2242, number 3: 'claims of laborers and other workers
engaged in the construction, reconstruction or repair of buildings, canals and
other works, upon said buildings, canals or other works.' To the extent that
claims for unpaid wages fall outside the scope of Article 2241, number 6 and
2242, number 3, they would come within the ambit of the category of ordinary
preferred credits under Article 2244."
On 21 March 1989, Article 110 of the Labor Code was amended by Republic
Act No. 6715 to read:
Art. 110. Worker preference in case of bankruptcy. — In the event of
bankruptcy or liquidation of an employer's business, his workers shall enjoy
first preference as regards their wages and other monetary claims, any
provisions of law to the contrary notwithstanding. Such unpaid wages and
monetary claims shall be paid in full before claims of the Government and
other creditors may be paid."
In Development Bank of the Philippines vs. National Labor Relations
Commission (183 SCRA 328, 336- 339), this Court expounded on the effects
of the amendment, in this wise:
The amendment expands worker preference to cover not only unpaid wages
but also other monetary claims to which even claims of the Government must
be deemed subordinate.
xxx xxx xxx
Notably, the terms 'declaration' of bankruptcy or 'judicial' liquidation have been
eliminated. Does this mean then that liquidation proceedings have been done
away with?
We opine in the negative, upon the following considerations:
1. Because of its impact on the entire system of credits, Article 110 of the
Labor Code cannot be viewed in isolation but must be read in relation to the
Civil Code scheme on classification and preference of credits.
xxx xxx xxx
2. In the same way that the Civil Code provisions on classification of credits
and the Insolvency Law have been brought into harmony, so also must the
kindred provisions of the Labor Law be made to harmonize with those laws.
3. 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' creditors may be given and where the claims of preferred creditors
may be bindingly adjudicated (De Barretto vs. Villanueva, No. L-14938,
December 29, 1962, 6 SCRA 928). 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:
xxx xxx xxx
4. 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 specificy 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.
xxx xxx xxx
6. Even if Article 110 and its Implementing Rule, as amended, should be
interpreted to mean 'absolute preference,' the same should be given only
prospective effect in line with the cardinal rule that laws shall have no
retroactive effect, unless the contrary is provided (Article 4, Civil Code).
Thereby, any infringement on the constitutional guarantee on non-impairment
of the obligation of contracts (Section 10, Article III, 1987 Constitution) is also
6
avoided. In point of fact, DBP's mortgage credit antedated by several years the
amendatory law, RA No. 6715. To give Article 110 retroactive effect would be to
wipe out the mortgage in DBP's favor and expose it to a risk which it sought to
protect itself against by requiring a collateral in the form of real property.
In fine, the right to preference given to workers under Article 110 of the Labor
Code cannot exist in any effective way prior to the time of its presentation in
distribution proceedings. It will find application when, in proceedings such as
insolvency, such unpaid wages shall be paid in full before the 'claims of the
Government and other creditors' may be paid. But, for an orderly settlement of
a debtor's assets, all creditors must be convened, their claims ascertained and
inventoried, and thereafter the preferences determined in the course of judicial
proceedings which have for their object the subjection of the property of the
debtor to the payment of his debts or other lawful obligations. Thereby, an
orderly determination of preference of creditors' claims is assured (Philippine
Savings Bank vs. Lantin, No. L-33929, September 2, 1983, 124 SCRA 476);
the adjudication made will be binding on all parties-in-interest, since those
proceedings are proceedings in rem; and the legal scheme of classification,
concurrence and preference of credits in the Civil Code, the Insolvency Law,
and the Labor Code is preserved in harmony.
. . . (W)hen a final judgment becomes executory, it thereby becomes
immutable and unalterable. The judgment may no longer be modified in
any respect, even if the modification is meant to correct what is
perceived to be an erroneous conclusion of fact or law, and regardless
of whether the modification is attempted to be made by the Court
rendering it or by the highest Court of the land."
The rule of immutability of final judgments is adhere to by necessity
notwithstanding occasional errors that result thereby (Francisco vs. Bautista,
192 SCRA 388). Litigations must somehow come to an end for, otherwise, it
would "be even more intolerable than the wrong and injustice it is designed to
correct" (Reinsurance Company vs. Court of Appeals, 198 SCRA 19, 33).
WHEREFORE, the petition for certiorari is DISMISSED. Costs against
petitioner.
SO ORDERED.


The above pronouncement was reiterated in Bolinao, Jr. vs. Padolina (186
SCRA 368), Development Bank of the Philippines vs. National Labor Relations
Commission (186 SCRA 841), Development Bank of the Philippines vs.
National Labor Relations Commission (218 SCRA 183) and, more recently, in
Development Bank of the Philippines vs. National Labor Relations Commission
(G.R. No. 86227, 19 January 1994) and Hautea vs. National Labor Relations
Commission (G.R. No. 96149, 16 February 1994).

The instant petition, nonetheless, cannot be granted for a different and

overriding reason.
The 15th April 1991 decision of the NLRC has not been appealed; having
become final, it cannot now be challenged. Petitioner's belated motion for
clarification on 15 October 1991 itself does not appear to have been
improperly denied. Like the NLRC, we fail to see any inconsistently in its
questioned decision. In effect, the NLRC has ruled that while the liability to
private respondents for their money claims pertains to RHC and not to DBP,
petitioner's appeal should, nevertheless, be dismissed since, in its view (albeit
incorrectly), Article 110 of the Labor Code has created a worker's preference
superior to even that of DBP's mortgage lien. NLRC's error could have been
rectified had there been a timely appeal. Article 223 of the Labor Code is
explicit: ". . . The decision of the Commission shall be final and executory after
ten [10] calendar days from receipt thereof by the parties."

The questioned decision was promulgated on 15 April 1991. Petitioner filed a

motion for clarification (ostensibly but essentially a motion for reconsideration)
only on 15 October 1991. In Manning International Corporation vs. National
Labor Relations Commission (195 SCRA 155), reiterated in Nuñal vs. Court of
Appeals (221 SCRA 26, 32), this Court ruled:

7
4) REPUBLIC OF THE PHILIPPINES, represented by the Bureau of
Customs and the Bureau of Internal Revenue vs.
HONORABLE E.L. PERALTA, PRESIDING JUDGE OF THE COURT OF
FIRST INSTANCE OF MANILA, BRANCH XVII, QUALITY TABACCO
CORPORATION, FRANCISCO, FEDERACION OBRERO DE LA INDUSTRIA
TABAQUERA Y OTROS TRABAJADORES DE FILIPINAS (FOITAF) USTC
EMPLOYEES ASSOCIATION WORKERS UNION-PTGWO, (GR. No.
L-56568 May 20, 1987)
FELICIANO, J.:
The Republic of the Philippines seeks the review on certiorari of the Order
dated 17 November 1980 of the Court of First Instance of Manila in its Civil
Case No. 108395 entitled "In the Matter of Voluntary Insolvency of Quality
Tobacco Corporation, Quality Tobacco Corporation, Petitioner," and of the
Order dated 19 January 1981 of the same court denying the motion for
reconsideration of the earlier Order filed by the Bureau of Internal Revenue
and the Bureau of Customs for the Republic.
In the voluntary insolvency proceedings commenced in May 1977 by private
respondent Quality Tobacco Corporation (the "Insolvent"), the following claims
of creditors were filed:
(i) P2,806,729.92, by the USTC Association of Employees and workers Union-
PTGWO USTC as separation pay for their members. This amount plus an
additional sum of P280,672.99 as attorney's fees had been awarded by the
National Labor Relations Commission in NLRC Case No. RB-IV-9775-77. 1
(ii) P53,805.05 by the Federacion de la Industria Tabaquera y Otros
Trabajadores de Filipinas ("FOITAF), as separation pay for their members, an
amount similarly awarded by the NLRC in the same NLRC Case.
(iii) P1,085,188.22 by the Bureau of Internal Revenue for tobacco inspection
fees covering the period 1 October 1967 to 28 February 1973;
(iv) P276,161.00 by the Bureau of Customs for customs duties and taxes
payable on various importations by the Insolvent. These obligations appear to
be secured by surety bonds. 2 Some of these imported items are apparently
still in customs custody so far as the record before this Court goes.
In its questioned Order of 17 November 1980, the trial court held that the
above-enumerated claims of USTC and FOITAF (hereafter collectively referred
to as the "Unions") for separation pay of their respective members embodied in
final awards of the National Labor Relations Commission were to be preferred
over the claims of the Bureau of Customs and the Bureau of Internal Revenue.
The trial court, in so ruling, relied primarily upon Article 110 of the Labor Code
which reads thus:
Article 110. Worker preference in case of bankruptcy — In the event of
bankruptcy or liquidation of an employer's business, his workers shall
enjoy first preference as regards wages due them for services rendered
during the period prior to the bankruptcy or liquidation, any provision of
law to the contrary notwithstanding. Union paid wages shall be paid in
full before other creditors may establish any claim to a share in the
assets of the employer.
The Solicitor General, in seeking the reversal of the questioned Orders, argues
that Article 110 of the Labor Code is not applicable as it speaks of "wages," a
term which he asserts does not include the separation pay claimed by the
Unions. "Separation pay," the Solicitor General contends, is given to a laborer
for a separation from employment computed on the basis of the number of
years the laborer was employed by the employer; it is a form of penalty or
damage against the employer in favor of the employee for the latter's dismissal
or separation from service.
Article 97 (f) of the Labor Code defines "wages" in the following terms:
Wage' paid to any employee shall mean the remuneration or earnings,
however designated, capable of being expressed in terms of money,
whether fixed or ascertained on a time, task, piece, or commission
basis, or other method of calculating the same, which is payable by an
employer to an employee under a written or unwritten contract of
employment for work done or to be done, or for services rendered or to
be rendered, and includes the fair and reasonable value, as determined
by the Secretary of Labor, of board, lodging, or other facilities
customarily furnished by the employer to the employee. 'Fair and
reasonable value' shall not include any profit to the employer or to any
person affiliated with the employer.(emphasis supplied)
We are unable to subscribe to the view urged by the Solicitor General. We
note, in this connection, that in Philippine Commercial and Industrial Bank
(PCIB) us. National Mines and Allied Workers Union, 4 the Solicitor General
took a different view and there urged that the term "wages" under Article 110 of
the Labor Code may be regarded as embracing within its scope severance pay
or termination or separation pay. In PCIB, this Court agreed with the position
advanced by the Solicitor General.5 We see no reason for overturning this
particular position. We continue to believe that, for the specific purposes of
Article 110 and in the context of insolvency termination or separation pay is
reasonably regarded as forming part of the remuneration or other money
benefits accruing to employees or workers by reason of their having previously
rendered services to their employer; as such, they fall within the scope of
"remuneration or earnings — for services rendered or to be rendered — ."
Liability for separation pay might indeed have the effect of a penalty, so far as
the employer is concerned. So far as concerns the employees, however,
separation pay is additional remuneration to which they become entitled
because, having previously rendered services, they are separated from the
employer's service. The relationship between separation pay and services
rendered is underscored by the fact that separation pay is measured by the
amount (i.e., length) of the services rendered. This construction is sustained
both by the specific terms of Article 110 and by the major purposes and basic
policy embodied in the Labor Code. 6 It is also the construction that is
suggested by Article 4 of the Labor Code which directs that doubts —
assuming that any substantial rather than merely frivolous doubts remain-in
the interpretation of the provisions of the labor Code and its implementing rules
and regulations shall be "resolved in favor of labor."
8
The resolution of the issue of priority among the several claims filed in the
insolvency proceedings instituted by the Insolvent cannot, however, rest on a
reading of Article 110 of the labor Code alone.
Article 110 of the Labor Code, in determining the reach of its terms, cannot be
viewed in isolation. Rather, Article 110 must be read in relation to the
provisions of the Civil Code concerning the classification, concurrence and
preference of credits, which provisions find particular application in insolvency
proceedings where the claims of all creditors, preferred or non-preferred, may
be adjudicated in a binding manner. 7 It is thus important to begin by outlining
the scheme constituted by the provisions of the Civil Code on this subject.
Those provisions may be seen to classify credits against a particular insolvent
into three general categories, namely:
(a) special preferred credits listed in Articles 2241 and 2242,
(b) ordinary preferred credits listed in Article 2244; and
(c) common credits under Article 2245.
Turning first to special preferred credits under Articles 2241 and 2242, it should
be noted at once that these credits constitute liens or encumbrances on the
specific movable or immovable property to which they relate. Article 2243
makes clear that these credits "shall be considered as mortgages or pledges
of real or personal property, or liens within the purview of legal provisions
governing insolvency." It should be emphasized in this connection that "duties,
taxes and fees due [on specific movable property of the insolvent] to the State
or any subdivision thereof" (Article 2241 [1]) and "taxes due upon the
[insolvent's] land or building (2242 [1])"stand first in preference in respect of
the particular movable or immovable property to which the tax liens have
attached. Article 2243 is quite explicit: "[T]axes mentioned in number 1, Article
2241 and number 1, Article 2242 shall first be satisfied. " The claims listed in
numbers 2 to 13 in Article 2241 and in numbers 2 to 10 in Articles 2242, all
come after taxes in order of precedence; such claims enjoy their privileged
character as liens and may be paid only to the extent that taxes have been
paid from the proceeds of the specific property involved (or from any other
sources) and only in respect of the remaining balance of such proceeds. What
is more, these other (non-tax) credits, although constituting liens attaching to
particular property, are not preferred one over another inter se. Provided tax
liens shall have been satisfied, non-tax liens or special preferred credits which
subsist in respect of specific movable or immovable property are to be treated
on an equal basis and to be satisfied concurrently and proportionately. 8 Put
succintly, Articles 2241 and 2242 jointly with Articles 2246 to 2249 establish a
two-tier order of preference. The first tier includes only taxes, duties and fees
due on specific movable or immovable property. All other special preferred
credits stand on the same second tier to be satisfied, pari passu and pro rata,
out of any residual value of the specific property to which such other credits
relate.
Credits which are specially preferred because they constitute liens (tax or non-
tax) in turn, take precedence over ordinary preferred credits so far as concerns
the property to which the liens have attached. The specially preferred credits
must be discharged first out of the proceeds of the property to which they
relate, before ordinary preferred creditors may lay claim to any part of such
proceeds. 9
If the value of the specific property involved is greater than the sum total of the
tax liens and other specially preferred credits, the residual value will form part
of the "free property" of the insolvent — i.e., property not impressed with liens
by operation of Articles 2241 and 2242. If, on the other hand, the value of the
specific movable or immovable is less than the aggregate of the tax liens and
other specially preferred credits, the unsatisfied balance of the tax liens and
other such credits are to the treated as ordinary credits under Article 2244 and
to be paid in the order of preference there set up.
In contrast with Articles 2241 and 2242, Article 2244 creates no liens on
determinate property which follow such property. What Article 2244 creates are
simply rights in favor of certain creditors to have the cash and other assets of
the insolvent applied in a certain sequence or order of priority.
Only in respect of the insolvent's "free property" is an order of priority
established by Article 2244. In this sequence, certain taxes and assessments
also figure but these do not have the same kind of overriding preference that
Articles 2241 No. 1 and 2242 No. I create for taxes which constituted liens on
the taxpayer's property. Under Article 2244,
(a) taxes and assessments due to the national government, excluding
those which result in tax liens under Articles 2241 No. 1 and 2242 No. 1
but including the balance thereof not satisfied out of the movable or
immovable property to which such liens attached, are ninth in priority;
(b) taxes and assessments due any province, excluding those
impressed as tax liens under Articles 2241 No. 1 and 2242 No. 1, but
including the balance thereof not satisfied out of the movable or
immovable property to which such liens attached, are tenth in priority;
and
(c) taxes and assessments due any city or municipality, excluding those
impressed as tax liens under Articles 2241 No. I and 2242 No. 2 but
including the balance thereof not satisfied out of the movable or
immovable property to which such liens attached, are eleventh in
priority.
It is within the framework of the foregoing rules of the Civil Code that the
question of the relative priority of the claims of the Bureau of Customs and the
Bureau of Internal Revenue, on the one hand, and of the claims of the Unions
for separation pay of their members, on the other hand, is to be resolved. A
related vital issue is what impact Article 110 of the labor Code has had on
those provisions of the Civil Code.
A. Claim of the Bureau of Customs for Unpaid Customs Duties and
Taxes-
Under Section 1204 of the Tariff and Customs Code, 12 the liability of an
importer for duties, taxes and fees and other charges attaching on importation
constitute a personal debt due from the importer to the government which can
be discharged only by payment in full of all duties, taxes, fees and other
charges legally accruing It also constitutes a lien upon the articles imported
9
which may be enforced while such articles are in the custody or subject to the
control of the government. (emphasis supplied)
Clearly, the claim of the Bureau of Customs for unpaid customs duties and
taxes enjoys the status of a specially preferred credit under Article 2241, No. 1,
of the Civil Code. only in respect of the articles importation of which by the
Insolvent resulted in the assessment of the unpaid taxes and duties, and which
are still in the custody or subject to the control of the Bureau of Customs. The
goods imported on one occasion are not subject to a lien for customs duties
and taxes assessed upon other importations though also effected by the
Insolvent. Customs duties and taxes which remain unsatisfied after levy upon
the imported articles on which such duties and taxes are due, would have to
be paid out of the Insolvent's "free property" in accordance with the order of
preference embodied in Article 2244 of the Civil Code. Such unsatisfied
customs duties and taxes would fall within Article 2244, No. 9, of the Civil Code
and hence would be ninth in priority.
B. Claims of the Bureau of Internal Revenue for Tabacco Inspection Fees
— category of ordinary preferred credits under Article 2244.
Under Section 315 of the National Internal Revenue Code ("old Tax Code"), 13
later reenacted in Identical terms as Section 301 of the Tax Code of 1977, 14
an unpaid "internal revenue tax," together with related interest, penalties and
costs, constitutes a lien in favor of the Government from the time an
assessment therefor is made and until paid, "upon all property and rights to
property belonging to the taxpayer."
Tobacco inspection fees are specifically mentioned as one of the
miscellaneous taxes imposed under the National Internal Revenue Code,
specifically Title VIII, Chapter IX of the old Tax Code and little VIII, Chapter VII
of the Tax Code of 1977. 15 Tobacco inspection fees are collected both for
purposes of regulation and control and for purposes of revenue generation:
half of the said fees accrues to the Tobacco Inspection Fund created by
Section 12 of Act No. 2613, as amended by Act No. 3179, while the other half
accrues to the Cultural Center of the Philippines. Tobacco inspection fees, in
other words, are imposed both as a regulatory measure and as a revenue-
raising measure. In Commissioner of Internal Revenue us. Guerrero, et al 16
this Court held, through Mr. Chief Justice Concepcion, that the term "tax" is
used in Section 315 of the old Tax Code:
not in the limited sense [of burdens imposed upon persons and/or
properties, by way of contributions to the support of the Government, in
consideration of general benefits derived from its operation], but, in a
broad sense, encompassing all government revenues collectible by the
Commissioner of Internal Revenue under said Code, whether involving
taxes, in the strict technical sense thereof, or not. x x x As used in Title
IX of said Code, the term 'tax' includes 'any national internal revenue
tax, fee or charge imposed by the Code. 17
It follows that the claim of the Bureau of Internal Revenue for unpaid tobacco
inspection fees constitutes a claim for unpaid internal revenue taxes 18 which
gives rise to a tax lien upon all the properties and assets, movable and
immovable, of the Insolvent as taxpayer. Clearly, under Articles 2241 No. 1,
2242 No. 1, and 2246-2249 of the Civil Code, this tax claim must be given
preference over any other claim of any other creditor, in respect of any and all
properties of the Insolvent. 19
C. Claims of the Unions for Separation Pay of Their Members —
Article 110 of the Labor Code does not purport to create a lien in favor of
workers or employees for unpaid wages either upon all of the properties or
upon any particular property owned by their employer. Claims for unpaid
wages do not therefore fall at all within the category of specially preferred
claims established under Articles 2241 and 2242 of the Civil Code, except to
the extent that such claims for unpaid wages are already covered by Article
2241, number 6. "claims for laborers' wages, on the goods manufactured or
the work done;" or by Article 2242, number 3: "claims of laborers and other
workers engaged in the construction, reconstruction or repair of buildings,
canals and other works, upon said buildings, canals or other works." To the
extent that claims for unpaid wages fall outside the scope of Article 2241,
number 6 and 2242, number 3, they would come within the ambit of the
Applying Article 2241, number 6 to the instant case, the claims of the Unions
for separation pay of their members constitute liens attaching to the processed
leaf tobacco, cigars and cigarettes and other products produced or
manufactured by the Insolvent, but not to other assets owned by the Insolvent.
And even in respect of such tobacco and tobacco products produced by the
Insolvent, the claims of the Unions may be given effect only after the Bureau of
Internal Revenue's claim for unpaid tobacco inspection fees shall have been
satisfied out of the products so manufactured by the Insolvent.
Article 2242, number 3, also creates a lien or encumbrance upon a building or
other real property of the Insolvent in favor of workmen who constructed or
repaired such building or other real property. Article 2242, number 3, does not
however appear relevant in the instant case, since the members of the Unions
to whom separation pay is due rendered services to the Insolvent not (so far
as the record of this case would show) in the construction or repair of buildings
or other real property, but rather, in the regular course of the manufacturing
operations of the Insolvent. The Unions' claims do not therefore constitute a
lien or encumbrance upon any immovable property owned by the Insolvent,
but rather, as already indicated, upon the Insolvent's existing inventory (if any
of processed tobacco and tobacco products.
We come to the question of what impact Article 110 of the Labor Code has had
upon the complete scheme of classification, concurrence and preference of
credits in insolvency set out in the Civil Code. We believe and so hold that
Article 110 of the Labor Code did not sweep away the overriding preference
accorded under the scheme of the Civil Code to tax claims of the government
or any subdivision thereof which constitute a lien upon properties of the
Insolvent. It is frequently said that taxes are the very lifeblood of government.
The effective collection of taxes is a task of highest importance for the
sovereign. It is critical indeed for its own survival. It follows that language of a
10
much higher degree of specificity than that exhibited in Article 110 of the Labor
Code is necessary to set aside the intent and purpose of the legislator that
shines through the precisely crafted provisions of the Civil Code. It cannot be
assumed simpliciter that the legislative authority, by using in Article 110 the
words "first preference" and "any provision of law to the contrary
notwithstanding" intended to disrupt the elaborate and symmetrical structure
set up in the Civil Code. Neither can it be assumed casually that Article 110
intended to subsume the sovereign itself within the term "other creditors" in
stating that "unpaid wages shall be paid in full before other creditors may
establish any claim to a share in the assets of employer." Insistent
considerations of public policy prevent us from giving to "other creditors" a
linguistically unlimited scope that would embrace the universe of creditors save
only unpaid employees.
We, however, do not believe that Article 110 has had no impact at all upon the
provisions of the Civil Code. Bearing in mind the overriding precedence given
to taxes, duties and fees by the Civil Code and the fact that the Labor Code
does not impress any lien on the property of an employer, the use of the
phrase "first preference" in Article 110 indicates that what Article 110 intended
to modify is the order of preference found in Article 2244, which order relates,
as we have seen, to property of the Insolvent that is not burdened with the
liens or encumbrances created or recognized by Articles 2241 and 2242. We
have noted that Article 2244, number 2, establishes second priority for claims
for wages for services rendered by employees or laborers of the Insolvent "for
one year preceding the commencement of the proceedings in insolvency."
Article 110 of the Labor Code establishes "first preference" for services
rendered "during the period prior to the bankruptcy or liquidation, " a period not
limited to the year immediately prior to the bankruptcy or liquidation. Thus, very
substantial effect may be given to the provisions of Article 110 without
grievously distorting the framework established in the Civil Code by holding, as
we so hold, that Article 110 of the Labor Code has modified Article 2244 of the
Civil Code in two respects: (a) firstly, by removing the one year limitation found
in Article 2244, number 2; and (b) secondly, by moving up claims for unpaid
wages of laborers or workers of the Insolvent from second priority to first
priority in the order of preference established I by Article 2244.
case, upon the other hand, the Insolvent no longer has any inventory of
processed or manufactured product, then the claim of the Unions for
separation pay would have to be satisfied out of the "free property" of the
Insolvent under Article 2244 of the Civil Code. as modified by Article 110 of the
Labor Code.
Turning to (b), should the Bureau of Customs no longer have any importations
by the Insolvent still within customs custody or control, or should the
importations still held by the Bureau of Customs be or have become
insufficient in value for the purpose, customs duties and taxes remaining
unpaid would have only ninth priority by virtue of Article 2244, number 9. In
respect therefore of the Insolvent's "free property, " the claims of the Unions
will enjoy first priority under Article 2244 as modified and will be paid ahead of
the claims of the Bureau of Customs for any customs duties and taxes still
remaining unsatisfied.
It is understood that the claims of the Unions referred to above do not include
the 10% claim for attorney's fees. Attorney's fees incurred by the Unions do not
stand on the same footing as the Unions' claims for separation pay of their
members.
WHEREFORE, the petition for review is granted and the Orders dated 17
November 1980 and 19 January 1981 of the trial court are modified
accordingly. This case is hereby remanded to the trial court for further
proceedings in insolvency compatible with the rulings set forth above. No
pronouncement as to costs.
SO ORDERED.

Accordingly, and by way of recapitulating the application of Civil Code and

Labor Code provisions to the facts herein, the trial court should inventory the
properties of the Insolvent so as to determine specifically: (a) whether the
assets of the Insolvent before the trial court includes stocks of processed or
manufactured tobacco products; and (b) whether the Bureau of Customs still
has in its custody or control articles imported by the Insolvent and subject to
the lien of the government for unpaid customs duties and taxes.

In respect of (a), if the Insolvent has inventories of processed or manufactured

tobacco products, such inventories must be subjected firstly to the claim of the
Bureau of Internal Revenue for unpaid tobacco inspection fees. The remaining
value of such inventories after satisfaction of such fees (or should such
inspection fees be satisfied out of other properties of the Insolvent) will be
subject to a lien in favor of the Unions by virtue of Article 2241, number 6. In
11