ROMAN VS. HERRIDGE[G.R. No. 22511. December 22, 1924.

1. WHEN CONTRACT IS EXECUTORY. The general rule for determining whether a contract of sale is
executed or executory is if anything remains to be done by either party to the transaction before delivery,
as, for example, to determine the price, quantity or identity of the thing sold, the title does not vest in the
purchaser, and the contract is executory.

2. WHEN NOTARIAL DOCUMENT IS NOT A PUBLIC INSTRUMENT. Where it appears upon the face of a
notarial document that it is an executory contract and that within itself no debts are created or credits
given, and that all of such matters are in futuro and contingent upon the performance of the contract, the
notarial document does not create a preference and is not a public instrument within the meaning of
article 1924 of the Civil Code.

DECISION

Based on a proper proceeding in December 8, 1920, U. de Poli was declared insolvent by the Court of First
Instance of manila. January 4, 1921, the claim of Felisa Roman was presented to the assignee founded
upon what is known in the record as Exhibit A, which is an agreement entered into by and between her and
the insolvent on October 23, 1920. She then claimed that she placed in De Polis bodegas 3,031 quintals
and 7 kilos of tobacco of the value of P78,815.69. That under the terms of the agreement, De Poli had paid
her P15,000 in cash, and had executed four promissory notes for the balance, each for the sum of
P15,953.92, and maturing in order thirty, sixty, ninety and one hundred and twenty days after their
execution. She also claimed that all of the tobacco remained as her own, except that portion represented
by the cash payment of P15,000. In her petition, she prayed for an order of the court that the option of De
Poli to purchase the 2,201 bales and 57 bales of tobacco described in Exhibit A be cancelled, and that she
be declared the sole owner thereof, unless the assignee of the insolvent secure her in the payment of the
agreed purchase price.

January 15, 1921, the assignee filed an answer to her petition in which he claims, among other things, that
the four promissory notes were a valid claim against the insolvent estate and that delivery of the tobacco
had been made and that title to it has passed to the insolvent.

January 18, 1921, the lower court held in legal effect that the transaction was one of purchase and sale,
and that under the provisions of article 1922 of the Civil Code, Felisa Roman, had a preference right for the
amount of the unpaid purchase price on the proceeds from the sale of the tobacco then in the hands of the
assignee, and ordered him to pay her the unpaid purchase price derived from the proceeds of such sale.

April 19, 1921, Felisa Roman filed two other motions: (a) To declare null and void the contract of pledge
between De Poli and the Asia Banking Corporation for 576 bales of the tobacco in question, and (b) to
order the assignee to sell the 2, 777 fardos of tobacco for which the court had decided that she held a
preference at the rate of P10 per quintal. This give rise to the case known as Roman v. Asia Banking
Corporation (46 Phil., 705), decided by the Supreme Court on June 26, 1922, in which it was held in legal
effect that the only lien upon the tobacco which Felisa Roman had claim was a vendors lien, and that the
claim of the Asia Banking Corporation based upon quedans was superior to that of Felisa Roman.

August 3, 1922, through other and different counsel Felisa Roman claimed that Exhibit A made between
the parties on October 23, 1920, was a notarial agreement and, as such, was a public document, and that
the claim of Felisa roman had a preference over all other creditors of her claim was P64,640.96, with
interest at 10 per cent per annum from August 2, 1922, and that she be allowed such preference.

March 8, 1924, the assignee filed written objections to the allowance of the claim as a preference, and
alleged that the proceeds derived from the sale of the remainder of the tobacco had been paid over to the
claimant in accordance with the order of January 18, 1921. That the question of the preference is now res
judicata. That she did not have any preference and that her claim should be denied.

March 18, 1924, and apparently without a hearing or the taking of any testimony, the lower court made an
order that:jgc:chanrobles.com.ph

"The balance still unpaid of the claim of Felisa Roman, viz: the sum of P55,218.52, with interest of 10 per
cent from November 19, 1920, is hereby allowed by this court with the preference due to its being
evidenced by a public document."cralaw virtua1aw library

From this decision the assignee and numerous creditors appeal, contending that the lower court erred in
failing to sustain the plea of res judicata and in applying article 1924 of the Civil code to the claim of Felisa
Roman, in holding that she had a preference over other creditors of the insolvent estate, and in making its
order without notice to the other creditors.

JOHNS, J. :
Numerous other questions are ably discussed in the briefs of opposing counsel, but the storm center of this
case os the legal force and effect of Exhibit A. Among other things, it recites that Felisa Roman is the owner
of from 2,500 to 3,000 quintals of tobacco of different classes.

"2d. That she has agreed to sell said quantity of from 2,500 to 3,000 quintals of tobacco aforementioned to
the property of the second part, which purchase and sale is to be governed by the following
conditions:jgc:chanrobles.com.ph

"(a) The party of the first part shall ship to the party of the second part, duly baled, the tobacco of which
she is the owner in bales not less than 50 kilos, all the expenses to be caused by said merchadise up to the
railroad station at Tutuban to be for the account of said party of the first part, in which station the party of
the second part shall take charge of said merchandise and from that moment the risk thereof shall be for
the account of the latter.

"(b) The price for which the party of the first part sells to the party of the second part the aforesaid
tobacco is P26, Philippine currency, per quintal, payable in the manner hereinafter to be stated.

"(c) The party of the second part shall be the consignee of the tobacco in the City of Manila and shall
take charge thereof upon receiving the bill of shipment and the internal revenue stamp, and shall take it to
his warehouse wherein the same shall be held as a deposit until the date on which said party of the second
part shall pay the price thereof, the payment of storage and insurance to be for the account of said party
of the second part."cralaw virtua1aw library

It then recites that upon the last shipment of tobacco, it should all be weight is ascertained, there should
be a liquidation of the price, on the account of which P15,000 should be paid and the balance should be
divided into four promissory notes if equal amount, the first of which should become due thirty days from
date, the second after another thirty days, etc., all of which should draw interest at the rate of ten per cent
per annum. The contract then recites:jgc:chanrobles.com.ph

"The installments granted the purchasers for the payment of the price are subject to the resolutory
condition that, if before the maturity of each installment, the purchaser should sell a part of the tobacco in
proportion to the amount of any of the remaining notes not yet due, or in case he should sell all the
tobacco, the installments shall become due, for it is agreed that in this case from the moment that the
party of the second party of the second part should have sold the tobacco, the deposit thereof as security
for the payment of the price is cancelled and the amount of the part remaining unpaid shall simultaneously
become demandable."cralaw virtua1aw library

As we analyze it the instrument is an executory contract upon which nothing becomes due and payable
until such time as all of the tobacco is shipped, receive and weighed by De Poli, when the amount would
them be ascertained and determined and P15,000 of the amount paid, and the balance divided equally to
be evidenced by four promissory notes. The contract also expressly recites that Felisa Roman is the owner
of from 2,500 to 3,000 quintals of tobacco which she agreed to sell to De Poli upon the conditions above
specified. In other words, the quantity of the tobacco , ranges from 2,500 to 3,000 quintals, and the
amount is not to be fixed or determined until after the arrival of the last shipment, at which time it is all to
be weighed. Hence, the amount which De Poli would owe Felisa Roman was not and could not be
ascertained or determined until after the last shipment was made and the tobacco wa weighed.

Article 1924 of the Civil Code, among other things, provides that "With respect to the other personal and
real property of the debtor, the following credits shall be preferred: . . ." And subdivision 3 is as
follows:jgc:chanrobles.com.ph

"Credits which without a special privilege are evidenced by:jgc:chanrobles.com.ph

"A. A public instrument; or

"B. A final judgment, should they have been the subject of litigation.

"These credits shall have preference among themselves in the order of the priority of dates of the
instruments and of the judgments respectively."cralaw virtua1aw library

Exhibit A is an executory contract. Within itself no debt was created and it is not evidence of any credit. By
its express terms De Poli did not owe Felisa Roman anything and was not to pay her anything until after the
last shipment of the tobacco was received and then weighed. Within the meaning of the word "credit", as
defined by article 1924, there was no debt or liability on the part of De Poli until after Felisa Roman
complied with her part of the contract. If for any reason she had failed to deliver the tobacco, no one would
contend that she would have any claim against De Poli. Her claim would be contingent upon the delivery of
the tobacco. the amount of the tobacco which was to be delivered ranged from 2,500 to 3,000 quintals.
Hence, the amount of the claim could not become certain or definite until the last shipment was made and
the tobacco weighed. In other words, the document itself does not show upon its face that any debt is due
or owing from De Poli to Felisa Roman or the amount of it. The fact should only be determined by matters
outside of the document and would be contingent upon the shipment and weighing of the tobacco, and the
quantity of it which would range from 2,500 to 3,000 quintals at P26 per quintal.

As this court held, after the tobacco was delivered, under the terms of the contract, Felisa Roman had a
vendors lien, but she would not have such a lien until after the delivery of the tobacco. A fortiori she would
not have a preferred lien under the provisions of article 1924 until after such delivery. Until the contract
was actually consummated by both parties, either had a right to rescind. The plaintiff could refuse to make
delivery, and De Poli could refuse to accept delivery of the tobacco. It was a contract to be performed in
the future, contingent upon delivery and acceptance.

A preference is an exception to the general rule, and is what its name implies. By it one person is given a
superior right or claim over another. For such reason the law as to preferences should be strictly construed.

The following definitions are given of the words "executory contract" in Words & Phrases, volume 3, pages
2572, 2573:jgc:chanrobles.com.ph

"An agreement to sell is an executory contract.

x x x

"An agreement to sell and convey lands, but which is not a conveyance operating as a present transfer of
legal estate in seisin, is at law wholly executory, and produces no effects upon the estates and parties, and
creates no lien or charge on the land itself, yet it confers and estate and right in equity.

x x x

"Executory agreement, as used in the law of sales, means agreement for the sale of a thing where it is
not specified, or the article is not manufactured, or the agreement is relative to a certain quantity of goods
in general without any identification or appropriation of the dame to the contract, or when something
remains to be done to put the goods in a deliverable state, or to ascertain the price to be paid by the
buyer.

x x x

"Mr. Story says that an executory contract of sale is absolutely to sell at a future time, while a conditional
contract of sales conditionally to sell. In the one case, he says, the performance of the contract is
suspended and deferred to a future time; in the other the very existence and performance of the contract
depends upon a contingency.

x x x

"The general rule for determining whether a contract of sale executed or executory is if anything remains
to be done by either party to the transaction before delivery-as, for example, to determine the price,
quantity, or identity of the thing sold the title does not vest in the purchaser, and the contract is merely
executory. If the sale is complete, and the goods perish without the fault of the seller, and purchaser is
bound to pay the agreed price. (Foley v. Felrath, 98 Ala., 176; 13 South., 485;39 Am. St. Rep., 39) Thus, a
contract for the sale of cotton out of a certain number of bales, nothing to be taken below middlings, the
number of bales not being ascertained, was executory, . . ."cralaw virtua1aw library

In the instant case, the contract Exhibit A was made in October 23, 1920. Neither the original nor copies of
the four promissory notes are in the record. But is very apparent that they were executed on the 19th of
November, 1920. Prior to that time there were not any credits or existing debts between the parties within
the meaning of article 1924. An examination of Exhibit A would nor disclose the debtor the amount of the
notes or credits or the actual amount of the tobacco to be delivered. Such fact could only be determined
by the delivery of the tobacco, the weighing and acceptance of it. At the time Exhibit A was executed,
there were no credits and there was not any debt. All of such matters were in futuro, contingent upon the
performance of the contract.

Under such a state of facts, Exhibit A was not a public document within the meaning of article 1924, and
the plaintiff does not have a preferred lien for the unpaid balance of the contract.

The judgment of the lower court is reversed, and one will be entered here that the plaintiff does not have a
preference, and that her existing claim can only be paid out of the general fund to be prorated in common
with unsecured creditors. So ordered.
DBP Vs. NLRC (G.R. No. 86932 June 27, 1990)

The present petition for certiorari seeks the reversal of the decision of the National Labor Relations
Commission (NLRC) in, NLRC-NCR Case No. 00-07-02500-87, dated January 16, 1986, 1 which dismissed
the appeal of the Development Bank of the Philippines (DBP) from the decision of the labor arbiter ordering
it to pay the unpaid wages, 13th month pay, incentive pay and separation pay of herein private
respondents.

Philippine Smelters Corporation (PSC), a corporation registered under Philippine law, obtained a loan in
1983 from the Development Bank of the Philippines, a government-owned financial institution created and
operated in accordance with Executive Order No. 81, to finance its iron smelting and steel manufacturing
business. To secure said loan, PSC mortgaged to DBP real properties with all the buildings and
improvements thereon and chattels, with its President, Jose T. Marcelo, Jr., as co-obligor.

By virtue of the said loan agreement, DBP became the majority stockholder of PSC, with stockholdings in
the amount of P31,000,000.00 of the total P60,226,000.00 subscribed and paid up capital stock.
Subsequently, it took over the management of PSC.

When PSC failed to pay its obligation with DBP, which amounted to P75,752,445.83 as of March 31, 1986,
DBP foreclosed and acquired the mortgaged real estate and chattels of PSC in the auction sales held on
February 25, 1987 and March 4, 1987.

On February 10, 1987, forty (40) petitioners filed a Petition for Involuntary Insolvency in the Regional Trial
Court, Branch 61 at Makati, Metropolitan Manila, docketed therein as Special Proceeding No. M-1359, 2
against PSC and DBP, impleading as co-respondents therein Olecram Mining Corporation, Jose Panganiban
Ice Plant and Cold Storage, Inc. and PISO Bank, with said petitioners representing themselves as unpaid
employees of said private respondents, except PISO Bank.

On February 13, 1987, herein private respondents filed a complaint with the Department of Labor against
PSC for nonpayment of salaries, 13th month pay, incentive leave pay and separation pay. On February 20,
1987, the complaint was amended to include DBP as party respondent. The case was thereafter indorsed
to the Arbitration Branch of the National Labor Relations Commission (NLRC). DBP filed its position paper
on September 7, 1987, invoking the absence of employer-employee relationship between private
respondents and DBP and submitting that when DBP foreclosed the assets of PSC, it did so as a foreclosing
creditor.

On January 30, 1988, the labor arbiter rendered a decision, the dispositive portion of which directed that
"DBP as foreclosing creditor is hereby ordered to pay all the unpaid wages and benefits of the workers
which remain unpaid due to PSC's foreclosure." 3

On appeal by DBP, the NLRC sustained the ruling of the labor arbiter, holding DBP liable for unpaid wages
of private respondents "not as a majority stockholder of respondent PSC, but as the foreclosing creditor
who possesses the assets of said PSC by virtue of the auction sale it held in 1987." In addition, the NLRC
held that the labor arbiter is correct in assuming jurisdiction because "the worker's preference to the
amount secured by DBP by virtue of said foreclosure sales of PSC properties arose out of or are connected
or interwoven with the labor dispute brought forth by appellees against PSC and DBP. 4 Hence, the present
petition by DBP.

DBP contends that the labor arbiter and the NLRC committed a grave abuse of discretion (1) in assuming
jurisdiction over DBP; (2) in applying the provisions of Article 110 of the Labor Code, as amended; and (3)
in not enforcing and applying Section 14 of Executive Order No. 81.

We find merit in the petition.

It is to be noted that in their comment, private respondents tried to prove the existence of employer-
employee relationship based on the fact that DBP is the majority stockholder of PSC and that the majority
of the members of the board of directors of PSC are from DBP. 5 We do not believe that these
circumstances are sufficient indicia of the existence of an employer-employee relationship as would confer
jurisdiction over the case on the labor arbiter, especially in the light of the express declaration of said labor
arbiter and the NLRC that DBP is being held liable as a foreclosing creditor. At any rate, this jurisdictional
defect was cured when DBP appealed the labor arbiter's decision to the NLRC and thereby submitted to its
jurisdiction.
The pivotal issue for resolution is whether DBP, as foreclosing creditor, could be held liable for the unpaid
wages, 13th month pay, incentive leave pay and separation pay of the employees of PSC.

We rule in the negative.

During the dates material to the foregoing proceedings, Article 110 of the Labor Code 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 wages due them for services
rendered during the period prior to the bankruptcy or liquidation, any provision of law to the contrary
notwithstanding. Unpaid wages shall be paid in full before other creditors may establish any claim to a
share in the assets of the employer.

In conjunction therewith, Section 10, Rule VIII, Book III of the Implementing Rules and Regulations of the
Labor Code provided:

Sec. 10. Payment of wages in mm of bankruptcy.-Unpaid wages earned by the employees before the
declaration of bankruptcy or judicial liquidation of the employer's business shall be given first preference
and shall be paid in full before other creditors may establish any claim to a share in the assets of the
employer.

Interpreting the above provisions, this Court, in Development Bank of the Philippines vs. Hon. Labor Arbiter
Ariel C. Santos, et al., 6 explicated as follows:

It is quite clear from the provisions that a declaration of bankruptcy or a judicial liquidation must be
present before the worker's preference may be enforced. ... .

xxx xxx xxx

Moreover, the reason behind the necessity for a judicial proceeding or a proceeding in rem before the
concurrence and preference of credits may be applied was explained by this Court in the case of Philippine
Savings Bank v. Lantin (124 SCRA 476 [1983]). We said:

The proceedings in the court below do not partake of the nature of the insolvency proceedings or
settlement of a decedent's estate. The action filed by Ramos was only to collect the unpaid cost of the
construction of the duplex apartment. It is far from being a general liquidation of the estate of the Tabligan
spouses.

Insolvency proceedings and settlement of a decedent's estate are both proceedings in rem which are
binding against the whole world. All persons having interest in the subject matter involved, whether they
were notified or not, are equally bound. Consequently, a liquidation of similar import or 'other equivalent
general liquidation must also necessarily be a proceeding in rem so that all interested persons whether
known to the parties or not may be bound by such proceeding.

In the case at bar, although the lower court found that 'there were no known creditors other than the
plaintiff and the defendant herein,' this can not be conclusive. It will not bar other creditors in the event
they show up and present their claim against the petitioner bank, claiming that they also have preferred
liens against the property involved. Consequently, Transfer Certificate of Title No. 101864 issued in favor of
the bank which is supposed to be indefeasible would remain constantly unstable and questionable. Such
could not have been the intention of Article 2243 of the Civil Code although it considers claims and credits
under Article 2242 as statutory fines. Neither does the De Barreto case ...

The claims of all creditors whether preferred or non- preferred, the Identification of the preferred ones and
the totality of the employer's asset should be brought into the picture. There can then be an authoritative,
fair, and binding adjudication instead of the piece meal settlement which would result from the questioned
decision in this case.

Republic Act No. 6715, which took effect on March 21, 1989, amended Article 110 of the Labor Code to
read as follows:

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 unpaid wages and other
monetary claims, any provision of law to the contrary notwithstanding. Such unpaid wages and monetary
claims shall be paid in full before the claims of the Government and other creditors may be paid.

As a consequence, Section 1 0, Rule VIII, Book III of the Implementing Rules and Regulations of the Labor
Code was likewise amended, to wit:
Sec. 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 government and other creditors
may be paid.

Despite said amendments, however, the same interpretation of Article 110 as applied in the aforesaid case
of Development Bank of the Philippines vs. Hon. Labor Arbiter Ariel C. Santos, et al., supra, was adopted by
this Court in the recent case of Development Bank of the Philippines vs. National Labor Relations
Commission, et. al., 7 For facility of reference, especially the rationalization for the conclusions reached
therein, we reproduce the salient portions of the decision in this later case.

Notably, the terms "declaration" of bankruptcy or "judicial" liquidation have been eliminated. Does this
means then that liquidation proceedings have been done away with?

We opine m the negative, upon the following considerations:

1. 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.

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 ... (Republic vs. Peralta (G.R. No. L-56568, May 20, 1987, 150 SCRA 37).

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 insolvent's 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 therefor has been expressed in the recent case of DBP vs. Secretary of Labor (G.R. No. 79351, 28
November 1989), which we quote:

A preference of credit bestows upon the preferred creditor an advantage of having his credit satisfied first
ahead of other claims which may be established against the debtor. Logically, it becomes material only
when the properties and assets of the debtors are insufficient to pay his debts in full; for if the debtor is
amply able to pay his various creditors, in full, how can the necessity exist to determine which of his
creditors shall be paid first or whether they shall be paid out of the proceeds of the sale of the debtor's
specific property? Indubitably, the preferential right of credit attains significance only after the properties
of the debtor have been inventoried and liquidated, and the claims held by his various creditors have been
established (Kuenzle & Streiff [Ltd.] vs. Villanueva, 41 Phil. 611 [1916]; Barretto vs. Villanueva, G.R. No.
14038, 29 December 1962, 6 SCRA 928; Philippine Savings Bank vs. Lantin, G.R. 33929, 2 September
1983,124 SCRA 476).

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 hen creates a charge on a particular property. The right
of first preference as regards unpaid wages recognize by Article 110 does not constitute a hen 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 met-hod 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 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 Article 2242, number 3, they would come within the ambit of the category of ordinary preferred credits
under Article 2244.'

5. 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).

In fact, under the Insolvency Law (Section 29) a creditor holding a mortgage or hen of any kind as security
is not permitted to vote in the election of the assignee in insolvency proceedings unless the value of his
security is first fixed or he surrenders all such property to the receiver of the insolvent's estate.

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 obligation of contracts (Section 10, Article III, 1987
Constitution) is also 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
DBPs 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 preference
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.

On the foregoing considerations and it appearing that an involuntary insolvency proceeding has been
instituted against PSC, private respondents should properly assert their respective claims in said
proceeding. .

WHEREFORE, the petition is GRANTED. The decision of public respondent is hereby ANNULLED and SET
ASIDE.

SO ORDERED.