Batong Buhay Gold Mines, Inc. vs. Dela Serna

The Regional Director has jurisdiction over labor standards cases where the employer-employee relationship still exists and the employer has not contested the findings of labor regulation officers with issues requiring evidentiary matters not verifiable in the ordinary course of inspection; RA 7730 is a curative statute that retroactively reinforces this jurisdiction. Properties mortgaged to the Development Bank of the Philippines are exempt from attachment, execution, or any other court process under Section 14 of E.O. 81, and auction sales of such properties are void, rendering any subsequent transfers from such sales incapable of vesting title.

Batong Buhay Gold Mines, Inc. (BBGMI) was a mining company whose assets had been transferred and entrusted to the Asset Privatization Trust (APT) by virtue of Proclamation No. 50 dated December 8, 1986. All of BBGMI's assets were covered by real and chattel mortgages executed in favor of the Philippine National Bank, the Development Bank of the Philippines, and the National Investment and Development Corporation. The employees of BBGMI filed a labor standards complaint before the DOLE Regional Director seeking unpaid wages, allowances, 13th month pay, and leave benefits. The visitorial and enforcement powers of the Regional Director under Article 128(b) of the Labor Code had undergone successive amendments through P.D. 850, P.D. 1691, E.O. 111, R.A. 6715, and ultimately R.A. 7730, each clarification addressing jurisdictional overlaps between Regional Directors and Labor Arbiters over money claims.

On February 5, 1987, Elsie Rosalinda B. Ty, Antonia L. Mendelebar, Ma. Concepcion O. Reyes, and 1,247 other employees filed a complaint against Batong Buhay Gold Mines, Inc. (BBGMI) before the Regional Director of the Department of Labor and Employment, National Capital Region, docketed as Case No. NCR-LSED-CI-2047-87. The complaint alleged non-payment of basic pay and allowances under Wage Order Nos. 2 and 5, unpaid salaries from March 16, 1986 onward, unpaid 13th month pay for 1985, 1986, and 1987, unpaid vacation, sick, and compensatory leave benefits, and unpaid salaries of employees placed on forced leave since November 1985, or in the alternative, separation pay for the affected employees.

The Regional Director set the case for hearing and, upon motion of the complainants, issued an inspection authority. Labor Standards and Welfare Officers conducted an inspection but were not allowed access to BBGMI's records, vouchers, and related documents; the company's officers alleged that BBGMI was under receivership of the Development Bank of the Philippines. The officers nonetheless submitted a report recommending the issuance of a compliance order directing BBGMI to pay P4,818,746.40. On July 31, 1987, Regional Director Luna C. Piezas adopted the recommendation and issued the compliance order. BBGMI was directed to put up a cash or surety bond; when it failed to do so, a writ of execution was issued on September 14, 1987, appointing Special Sheriff John Espiridion C. Ramos.

The Special Sheriff proceeded to execute the writ on September 17, 1987, seizing three Peterbuilt trucks and selling them at public auction. Additional materials and motor vehicles were seized and sold at public auction on September 24, October 2, October 23, October 29, and October 30, 1987, generating total proceeds of P4,389,749.99 to satisfy the judgment award of P4,818,746.00. BBGMI posted a supersedeas bond on December 11, 1987, prompting the issuance of an order on January 26, 1988 restraining the complainants and the sheriff from enforcing the writ. BBGMI appealed the July 31, 1987 Order to Undersecretary Dionisio dela Serna, contending that the Regional Director lacked jurisdiction.

On September 16, 1988, Undersecretary dela Serna upheld the Regional Director's jurisdiction, declared the writ of execution valid, but nullified all five auction sales on the ground that the properties were sold at "scandalously low" prices, ordering the personal properties and proceeds returned. On November 7 and December 2, 1988, MFT Corporation and Salter Holdings Pty., Ltd. filed motions for intervention, claiming rights over properties purchased from Fidel Bermudez, the highest bidder at the October 29, 1987 auction sale. The Undersecretary granted the interventions on December 14, 1988, modifying his earlier order to exclude from annulment the properties sold at the October 29, 1987 auction. Motions for reconsideration by both BBGMI and the employees were denied on February 13, 1989.

BBGMI's properties had been mortgaged to the Development Bank of the Philippines through a series of mortgage instruments executed between 1973 and 1981, all prior to the filing of the employees' complaint. By virtue of Proclamation No. 50 dated December 8, 1986, all of BBGMI's assets had been transferred and entrusted to the Asset Privatization Trust, and were covered by real and chattel mortgages in favor of PNB, DBP, and NIDC. A certification from the Associate Executive Trustee of APT confirmed that all BBGMI assets were exempt from writs of execution, attachment, or any other court processes under Section 14 of E.O. 81, the 1986 Revised Charter of the DBP.

• Lack of Jurisdiction of the Regional Director: Petitioner theorized that the Regional Director was without jurisdiction over the labor standards case, relying on the rulings in Zambales Base, Inc. vs. Minister of Labor and Oreshoot Mining Company vs. Arellano.
• Absence of Employer-Employee Relationship: In its Appeal Memorandum dated January 14, 1988, petitioner argued that the Regional Director lacked jurisdiction because the employer-employee relationship had ceased, since BBGMI had stopped doing business since 1985.
• Erroneous Impleader: Petitioner contended that it was erroneously impleaded as the sole party respondent and that the complaint should have been directed also against the Asset Privatization Trust.
• Inadequacy of Price in Auction Sales: Petitioner asserted that the value of the auctioned properties was more than the price bid, supporting the nullification of the auction sales.

• Jurisdiction of the Regional Director: Respondent Undersecretary dela Serna upheld the jurisdiction of Regional Director Luna C. Piezas by relying on E.O. 111, emphasizing that the employer-employee relationship still existed, the case involved violations of labor standards provisions, and the issues could be resolved without considering evidentiary matters not verifiable in the normal course of inspection.
• Worker Preference over Mortgage Credits: Private respondents contended that even if the subject properties were mortgaged to DBP, Article 110 of the Labor Code, as amended by R.A. 6715, grants preference to money claims of workers over and above all credits of the petitioner.
• Validity of October 29, 1987 Auction Sale: Intervenors MFT Corporation and Salter Holdings Pty., Ltd. claimed that as purchasers for value, they acquired legal title over the subject properties, arguing that the sales took place during the interregnum after the auction sale and before the first disputed Order declared all auction sales null and void.

• Jurisdiction of the Regional Director: Whether the Regional Director has jurisdiction over the complaint filed by the employees of BBGMI.
• Validity of the Auction Sales: Whether the auction sales conducted by Special Sheriff Ramos are valid.

• Jurisdiction of the Regional Director: Yes. The Regional Director has jurisdiction over the labor standards case, RA 7730 being a curative statute that retroactively reinforces the visitorial and enforcement powers of the Secretary of Labor and duly authorized representatives, and petitioner having failed to invoke the exception clause under Article 128(b) by contesting the labor officers' findings with issues not verifiable in the ordinary course of inspection.
• Validity of the Auction Sales: No. All auction sales are null and void, not because of inadequacy of price, but because the auctioned properties were mortgaged to DBP and exempt from attachment and execution under Section 14 of E.O. 81; the December 14, 1988 Order validating the October 29, 1987 auction sale was set aside because title cannot rise higher than its source.

• Jurisdiction of the Regional Director: The subject labor standards case was filed on February 5, 1987, at which time Article 128(b) of the Labor Code, as amended by E.O. 111 dated December 24, 1986, governed. E.O. 111 empowered the Minister of Labor and duly authorized representatives, including Regional Directors, to order compliance with labor standards provisions in cases where the employer-employee relationship still exists. The Court in Maternity Children's Hospital vs. Secretary of Labor treated E.O. 111 as a curative statute with retrospective application, reinforcing that Regional Directors already had enforcement powers over money claims even prior to E.O. 111, effective under P.D. 850. Petitioner's reliance on Zambales Base, Inc. vs. Minister of Labor was misplaced because that ruling was expressly superseded by E.O. 111. Petitioner's reliance on Oreshoot Mining Company vs. Arellano was likewise inapposite, as that case involved money claims of illegally dismissed employees where the employer-employee relationship had ceased and reinstatement was sought—matters falling under Labor Arbiter jurisdiction—whereas the present case involved labor standards claims. The exception clause in Article 128(b), which would divest the Regional Director of jurisdiction, requires the concurrence of three elements: (a) the employer contests the findings of the labor regulation officers and raises issues thereon; (b) resolving such issues requires examination of evidentiary matters; and (c) such matters are not verifiable in the normal course of inspection. Petitioner never raised any of these grounds; it merely questioned the Regional Director's jurisdiction and impleader of parties, which does not constitute the contest contemplated by the exception clause. Petitioner's refusal to allow inspection of its premises and failure to file a position paper constituted a waiver of its right to contest the employees' claims. The subsequent enactment of R.A. 7730 on June 2, 1994 further reinforced the Regional Director's jurisdiction and was treated as a curative statute, retroactively applicable to the case, as it was intended to rectify the jurisdictional limitations imposed by the Servando's ruling and settle lingering doubts on the visitorial and enforcement powers of the Secretary of Labor.

• Validity of the Auction Sales: The Undersecretary declared the auction sales null and void on the ground that the properties were sold at "scandalously low" prices. This constituted grave abuse of discretion, as the finding was made without evidentiary support and rested merely on petitioner's self-serving assertion that the value of the properties exceeded the bid prices. The presumption of regularity in the performance of official function applies, and mere inadequacy of price is not sufficient to set aside an execution sale where the sale is otherwise regular and free from fraud, unfairness, or oppression. However, the auction sales were nonetheless void for a different and decisive reason: the auctioned properties were mortgaged to the Development Bank of the Philippines through a series of mortgage instruments executed between 1973 and 1981, all prior to the filing of the employees' complaint. Section 14 of E.O. 81, the 1986 Revised Charter of the DBP, expressly exempts securities on loans and accommodations granted by the Bank from attachment, execution, or any other court process. A certification from the Asset Privatization Trust confirmed that all BBGMI assets were covered by this exemption. Private respondents' contention that Article 110 of the Labor Code grants workers' claims preference over mortgage credits was rejected; in DBP vs. NLRC, the Court held that the worker preference under Article 110 contemplates bankruptcy or liquidation proceedings and does not disregard the preferential lien of mortgagees under the New Civil Code. The December 14, 1988 Order validating the October 29, 1987 auction sale was likewise void. As regards personal properties, title cannot rise higher than its source; a seller without valid title cannot transfer better title than he holds. MFT Corporation and Salter Holdings traced their title from Fidel Bermudez, the highest bidder at a void auction sale over properties exempt from execution. The subsequent sales by Bermudez were therefore incapable of vesting title or ownership in the vendees.

• Curative Statutes — Curative statutes are intended to supply defects, abridge superfluities in existing laws, and curb certain evils. They enable persons to carry into effect that which they designed and intended but which failed of expected legal consequence by reason of some statutory disability or irregularity. They make valid that which, before enactment, was invalid. The Court treated E.O. 111, R.A. 6715, and R.A. 7730 as curative statutes with retroactive application, each rectifying jurisdictional infirmities or ambiguities in the visitorial and enforcement powers of the Secretary of Labor and Regional Directors over labor standards cases.

• Exception Clause Under Article 128(b) of the Labor Code — To divest the Regional Director or his representatives of jurisdiction over a labor standards case, three elements must concur: (a) the employer contests the findings of the labor regulation officers and raises issues thereon; (b) resolving such issues requires examination of evidentiary matters; and (c) such matters are not verifiable in the normal course of inspection. Merely raising lack of jurisdiction in a motion to dismiss does not constitute the contest contemplated by the exception clause.

• Waiver Through Refusal to Participate — An employer's refusal to allow labor regulation officers to inspect premises and records, and its failure to file a position paper despite proper notice and opportunity, constitute a waiver of the right to contest the claims of employees and to invoke the exception clause under Article 128(b).

• Inadequacy of Price in Execution Sales — Mere inadequacy of price is not, by itself, sufficient ground to set aside an execution sale where the sale is regular and legal in other respects, the parties stand on equal footing, there is no confidential relationship, fraud, unfairness, oppression, misconduct, accident, mistake, or surprise. The presumption of regularity in the performance of official function applies, and any party alleging irregularity must present clear and convincing proof.

• Exemption of DBP-Mortgaged Properties from Execution — Under Section 14 of E.O. 81, securities on loans and accommodations granted by the DBP are exempt from attachment, execution, or any other court process. Properties specially exempted by law are exempt from execution under Rule 39, Section 13(m) of the Revised Rules of Court.

• Title Cannot Rise Higher Than Its Source — As regards personal properties, a seller without valid title cannot transfer title better than what he holds. A purchaser at a void auction sale acquires no title, and any subsequent transfer from such purchaser is incapable of vesting ownership in the vendee.

• Worker Preference Under Article 110 of the Labor Code — The worker preference regarding wages and other monetary claims under Article 110 contemplates bankruptcy or liquidation proceedings of the employer's business and does not disregard the preferential lien of mortgagees considered as preferred credits under the New Civil Code.

• "Raising lack of jurisdiction in a Motion to Dismiss is not the contest contemplated by the exception clause under Article 128(b) of the Labor Code which would take the case out of the jurisdiction of the Regional Director and bring it before the Labor Arbiter." — This passage defines the scope of the exception clause in Article 128(b), clarifying that a jurisdictional challenge alone does not constitute the kind of contest that divests the Regional Director of authority.

• "Mere inadequacy of price is not, of itself sufficient ground to set aside an execution sale where the sale is regular, proper and legal in other respects, the parties stand on an equal footing, there are no confidential relation between them, there is no element of fraud, unfairness, or oppression, and there is no misconduct, accident, mistake or surprise connected with, and tending to cause, the inadequacy." — This is the canonical formulation of the doctrine on inadequacy of price in execution sales, frequently cited in subsequent jurisprudence.

• "As regards personal properties, the general rule is that title, like a stream, cannot rise higher than its source. Consequently, a seller without title cannot transfer a title better than what he holds." — This passage articulates the nemo dat quod non habet principle as applied to void auction sales, establishing that purchasers at void sales acquire no transferrable title.

• "The present law, RA 7730, can be considered a curative statute to reinforce the conclusion that the Regional Director has jurisdiction over the present labor standards case." — This statement establishes R.A. 7730 as a curative statute with retroactive application, resolving the jurisdictional question in favor of the Regional Director's visitorial and enforcement powers.

• Maternity Children's Hospital vs. Secretary of Labor, 174 SCRA 632 — Followed. The Court upheld the Regional Director's jurisdiction over a labor standards complaint, treating E.O. 111 as a curative statute with retrospective application and recognizing that Regional Directors already had enforcement powers over money claims under P.D. 850.

• Zambales Base, Inc. vs. Minister of Labor, 146 SCRA 51 — Distinguished and held no longer good law. The Court expressly stated that in view of the promulgation of E.O. 111, Zambales Base is no longer controlling precedent.

• Oreshoot Mining Company vs. Arellano, 156 SCRA 498 — Distinguished. That case involved money claims of illegally dismissed employees where the employer-employee relationship had ceased and reinstatement was sought, placing jurisdiction with the Labor Arbiter; the present case involved labor standards claims where the relationship still existed.

• Briad Agro Development Corporation vs. De La Cerna, 174 SCRA 524 — Followed. R.A. 6715 was held to be a curative statute applicable to pending cases, rectifying the overlapping jurisdiction between Labor Arbiters and Regional Directors over money claims.

• Servando's, Inc. vs. Secretary of Labor and Employment, 184 SCRA 664 — Distinguished and effectively overturned by R.A. 7730. The Servando ruling expanded the jurisdictional limitation of R.A. 6715 to include labor standards cases under Article 128(b) and imposed the P5,000 limit on the visitorial power of the Regional Director; R.A. 7730 was enacted specifically to do away with the jurisdictional limitations imposed through said ruling.

• Francisco Guico, Jr. vs. Secretary of Labor Leonardo A. Quisumbing, G.R. No. 131750, November 16, 1998 — Followed. The Court upheld the jurisdiction of the Regional Director notwithstanding that the amounts awarded exceeded P5,000, applying R.A. 7730.

• M. Ramirez Industries vs. Secretary of Labor and Employment, 266 SCRA 111 — Followed. An employer's refusal to allow inspection or to submit records constitutes a waiver of the right to present evidence under Article 128(a) of the Labor Code.

• DBP vs. NLRC, 183 SCRA 328 — Followed. The worker preference under Article 110 of the Labor Code contemplates bankruptcy or liquidation proceedings and does not disregard the preferential lien of mortgagees under the New Civil Code.

• Progressive Workers' Union vs. Aguas, 150 SCRA 429 — Followed. The interpretation by officers of laws entrusted to their administration is entitled to great respect, particularly when later events prove said interpretation to be in accord with legislative intent.

• Article 128(b), Labor Code — Defines the visitorial and enforcement powers of the Secretary of Labor or duly authorized representatives, including Regional Directors, to order compliance with labor standards provisions based on findings of labor regulation officers, subject to the exception clause where the employer contests the findings and raises issues not verifiable in the ordinary course of inspection. Applied to sustain the Regional Director's jurisdiction.

• Executive Order No. 111 — Amended Article 128(b) to expressly empower the Minister of Labor and duly authorized representatives to order compliance with labor standards provisions in cases where the employer-employee relationship still exists. Treated as a curative statute with retrospective application.

• Republic Act No. 6715 — Imposed jurisdictional limitations on the Regional Director's power to adjudicate money claims, including a P5,000 ceiling per employee. Treated as a curative statute rectifying overlapping jurisdiction between Labor Arbiters and Regional Directors.

• Republic Act No. 7730 — Further strengthened the visitorial and enforcement powers of the Secretary of Labor under Article 128(b), removing the P5,000 limitation imposed through the Servando ruling. Treated as a curative statute with retroactive application to the case.

• Section 14, Executive Order No. 81 (1986 Revised Charter of the DBP) — Exempts securities on loans and accommodations granted by the DBP from attachment, execution, or any other court process. Applied to declare the auction sales void because BBGMI's properties were mortgaged to DBP.

• Section 13(m), Rule 39, Revised Rules of Court — Provides that properties specially exempted by law are exempt from execution. Applied in conjunction with Section 14 of E.O. 81 to confirm the exemption of DBP-mortgaged properties.

• Article 110, Labor Code (as amended by R.A. 6715) — Grants workers first preference as regards wages and other monetary claims in the event of bankruptcy or liquidation of the employer's business. Rejected as a basis for overriding the DBP's mortgage lien, as the provision contemplates bankruptcy or liquidation proceedings and does not disregard preferred credits under the Civil Code.

• Section 14, Rules on the Disposition of Labor Standards Cases — Provides that where the employer fails or refuses to appear during investigation despite proper notice for two consecutive hearings, the hearing officer may recommend issuance of a compliance order based on evidence at hand. Applied to uphold the issuance of the compliance order despite BBGMI's refusal to participate.

Justices Melo, Vitug, Panganiban, and Gonzaga-Reyes concurred.