DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs.

THE NATIONAL LABOR RELATIONS COMMISSION and MALAYANG SAMAHAN NG MGA MANGAGAWA SA ATLAS TEXTILE DEVELOPMENT CORPORATION, respondents.

FACTS: The private respondents were employees of ATLAS, a textile firm, which hypothecated its certain assets to DB . After ATLAS defa!lted in its o"li#ations, DB foreclosed on the mort#a#e in $arch %&'(. The latter ac)!ired the mort#a#ed assets "y virt!e of the foreclos!re sale. The private respondents filed their aforementioned claim, on *+ ,cto"er %&'(, a#ainst "oth ATLAS and DB . The La"or Ar"iter r!led for the private respondents. ,n appeal "y DB , the decision was s!stained "y the -L.C. /SS01: 2hether or not the it is an error on the part of -L.C to consider the wor3ers4 preference !nder Article %%+ of the La"or Code over that of DB 4s mort#a#e lien. 51LD: Beca!se of its impact on the entire system of credit, Article %%+ of the la"or Code cannot "e viewed in isolation "!t m!st "e read in relation to the Civil Code scheme on classification and preference of credits. /n the event of insolvency, a principal o"6ective sho!ld "e to effect an e)!ita"le distri"!tion of the insolvent4s property amon# his creditors. To accomplish this there m!st first "e some proceedin# where notice to all of the insolvent4s creditors may "e #iven and where the claims of preferred creditors may "e "indin#ly ad6!dicated. 1ven if Article %%+ and its /mplementin# .!le, as amended, sho!ld "e interpreted to mean 7a"sol!te preference,7 the same sho!ld "e #iven only prospective effect in line with the cardinal r!le that laws have no retroactive effect, !nless the contrary is provided 8Article 9, Civil Code:. There"y, any infrin#ement on the constit!tional #!arantee on non; impairment of the o"li#ation of contracts 8Section %+, Article ///, %&'< Constit!tion: is also avoided. /n point of fact, DB 4s mort#a#e credit antedated "y several years the amendatory law, .A -o. =<%(. To #ive Article %%+ retroactive effect wo!ld "e to wipe o!t the mort#a#e in DB 4s favor and expose it to a ris3 which is so!#ht to protect itself a#ainst "y re)!irin# a collateral in the form of real property. /n fine, the ri#ht of preference #iven to wor3ers !nder Article %%+ of the La"or Code cannot exist in any effective way prior to the time of its presentation in distri"!tion proceedin#s. /t will find application when, in proceedin#s s!ch as insolvency, s!ch !npaid wa#es shall "e paid in f!ll "efore the 7claims of the >overnment and other creditors7 may "e paid. But, fo an o d! "# $!tt"!%!nt of a d!&to '$ a$$!t$, a"" ( !d)to $ %u$t &! (on*!n!d, t+!) ("a)%$ a$(! ta)n!d and )n*!nto )!d, and t+! !aft! t+! , !f! !n(!$ d!t! %)n!d )n t+! (ou $! of -ud)()a" , o(!!d)n.$ /+)(+ +a*! fo t+!) o&-!(t t+! $u&-!(t)on of t+! , o,! t# of t+! d!&to of t+! ,a#%!nt of +)$ d!&t$ and ot+! "a/fu" o&").at)on$0 T+! !&#, an o d! "# d!t! %)nat)on of , !f! !n(! of ( !d)to $' ("a)%$ )$ a$$u !d0 t+! ad-ud)(at)on %ad! /)"" &! &)nd)n. on a"" ,a t)!$1)n1)nt! !$t, $)n(! t+o$! , o(!!d)n.$ a ! , o(!!d)n. in rem2 and t+! "!.a" $(+!%! of ("a$$)f)(at)on, (on(u !n(! and , !f! !n(! of ( !d)t$ )n t+! C)*)" Cod!, t+! In$o"*!n(# La/, and t+! La&o Cod! )$ , !$! *!d )n +a %on#0