Case Digest: Development Bank of the Philippines v. Secretary of Labor, G.R. No. 79351, November 28, 1989


  • Private respondents filed a complaint for illegal dismissal, unfair labor practices, illegal salary deductions, and violation of minimum wage laws against Riverside Mills Corporation (RMC).
  • RMC was ordered to pay backwages and separation benefits to private respondents. A writ of execution was issued but returned unserved and unsatisfied, as RMC's premises had been padlocked and foreclosed by Development Bank of the Philippines (DBP) due to RMC's loan default.
  • Private respondents filed a motion requesting the delivery of RMC's properties in DBP's possession for proper disposition, citing Article 110 of the Labor Code. The motion was granted stating that Article 110 supported their preferential lien.
  • DBP filed a motion for reconsideration, arguing that Article 110 did not apply because the properties had been foreclosed, sold, and delivered to third parties, and there were no bankruptcy or insolvency proceedings against RMC.
  • Undersecretary of Labor and Employment: Denied DBP's motion for reconsideration.

WoN by virtue of Article 110 of the Labor Code, an "automatic first lien" was created in favor of private respondents on RMC properties. NO

It is clear from the wording of the law that the preferential right accorded to employees and workers under Article 110 may be invoked only during bankruptcy or judicial liquidation proceedings against the employer. The law is unequivocal and admits of no other construction. Article 110 of the Labor Code may not be invoked by employees or workers in the absence of a formal declaration of bankruptcy or a judicial liquidation order of RMC.

What Article 110 of the Labor Code establishes is not a lien, but a preference of credit in favor of employees.  This simply means that during bankruptcy, insolvency or liquidation proceedings involving the existing properties of the employer, the employees have the advantage of having their unpaid wages satisfied ahead of certain claims which may be proved therein.

Unlike a lien, a preference of credit does not create in favor of the preferred creditor a charge or proprietary interest upon any particular property of the debtor. Neither does it vest as a matter of course upon the mere accrual of a money claim against the debtor. 


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