In a labor dispute where a company’s assets are levied to satisfy a judgment, a third-party claim based on a mortgage must be substantiated with clear and convincing evidence to prevail. The Supreme Court’s decision in Cameron Granville 3 Asset Management, Inc. v. UE Monthly Associates emphasizes that a mere assertion of a mortgage lien is insufficient; the claimant must prove that the specific properties levied are indeed covered by the mortgage. This ruling underscores the importance of meticulous documentation and the claimant’s burden of proof in establishing their rights over contested assets, ensuring that labor claims are not unduly hindered by unsubstantiated third-party interests.

When Labor Rights Clash with Mortgage Claims: Did the Bank Prove Its Lien?

This case revolves around a dispute stemming from the levy and execution sale of UE Automotive Manufacturing, Inc. (UEAMI)’s assets to satisfy a labor judgment in favor of UEAMI Monthly Associates and UE Automotive Workers Union-NFL. Metropolitan Bank and Trust Company (Metrobank), Cameron Granville 3 Asset Management, Inc.’s predecessor-in-interest, filed a third-party claim asserting that the levied properties were subject to a mortgage in its favor. The Labor Arbiter (LA) denied Metrobank’s claim due to insufficient evidence, a decision affirmed by both the National Labor Relations Commission (NLRC) and the Court of Appeals (CA). The core legal question is whether Metrobank adequately proved its mortgage lien over the specific assets levied by the NLRC sheriff, thereby entitling it to priority over the labor claims.

The factual backdrop begins with an illegal dismissal case against UEAMI, resulting in a judgment of P53,729,534 in favor of the employees. To enforce this judgment, the NLRC sheriff levied certain machinery, equipment, tools, and implements owned by UEAMI. Metrobank, claiming a superior right over these assets, filed an Affidavit of Third-Party Claim, asserting that the levied items were covered by three mortgage documents. The employees contested this claim, arguing that the mortgage agreements were not registered and, therefore, had no effect on third parties. Metrobank countered by emphasizing the superiority of its claim and requesting a hearing to present evidence of its mortgage lien. However, the LA denied the third-party claim, citing a failure to establish actual ownership of the contested properties.

After a careful perusal of the records of the case and contending positions of the protagonists, this Office denies all the third-party claims filed by claimants for failure to [establish] proof of their actual ownership of the contested properties owned by respondent UE Automotive Manufacturing, Inc.

Metrobank’s appeal to the NLRC met a similar fate. The NLRC affirmed the LA’s decision, adding further reasons for rejecting the claim. These included the lack of a board resolution authorizing Ramon S. Miranda to file the Affidavit of Third-Party Claim, the absence of evidence of due registration of the mortgage documents and payment of documentary stamp taxes, and, crucially, the failure to incorporate a schedule or description of the chattels covered by the mortgage. The NLRC highlighted that Metrobank failed to prove that the chattels allegedly covered by the mortgage were the same properties attached and sold at public auction. The NLRC also pointed out that Metrobank had not foreclosed on the chattels due to UEAMI’s default, further weakening its claim to possession and, consequently, its third-party claim.

Furthermore, Metrobank failed to incorporate in its Third-party Claim and in its mortgage documents a schedule, enumeration and/or description of the chattels supposedly covered by the same.

Besides, Metrobank was not able to prove with any substantial documents that the chattels allegedly covered by the mortgage documents are the very same properties attached and sold at public auction.

Undeterred, Metrobank sought reconsideration, arguing that the NLRC had raised issues not presented by the parties and that it had been denied due process by the LA’s failure to hold a hearing. Metrobank asserted that a hearing would have allowed it to present evidence of Miranda’s authority, the registration of the mortgage documents, and the inclusion of the levied chattels in the mortgage list. Despite submitting additional documentary evidence, the NLRC denied the motion, maintaining that the evidence was insufficient to prove Miranda’s authority or the bank’s right to claim the properties. The NLRC also stated that the issue of due process was moot since all of Metrobank’s documentary proofs had already been considered.

The case then moved to the CA via a Petition for Certiorari, where Metrobank argued that the NLRC had committed grave abuse of discretion by disregarding the lack of a hearing and resolving matters not raised by the parties. The CA dismissed the petition, ruling that the NLRC Rules of Procedure did not mandate a hearing for third-party claims. The appellate court emphasized that due process was satisfied as long as the parties had an opportunity to present their side of the story. The CA also rejected Metrobank’s argument that its mortgage lien was a specially preferred credit that took precedence over the employee’s labor claim.

The Supreme Court (SC) ultimately denied the petition, agreeing with the CA that a hearing was not mandatory for resolving a third-party claim, albeit for a different reason. The SC clarified that Rule IV, Section 2 of the 1993 NLRC Manual on Execution of Judgment was not repealed by the 2002 NLRC Rules but was superseded by a new version of the same manual enacted in July 2002. This new manual gave the LA discretion to decide whether additional evidence was needed before resolving the claim. The Court emphasized that Metrobank had ample opportunity to submit evidence supporting its claim, even after the 2002 Manual took effect.

The SC reiterated the core issue: Metrobank failed to provide sufficient evidence that the properties subject to the chattel mortgage were among those levied and sold by the NLRC sheriff. Despite repeated opportunities to present this crucial evidence, Metrobank never identified which of the levied items were included in the list of properties mortgaged to it. The Court emphasized that third-party claimants bear the burden of proving their right or title to the subject properties, and Metrobank failed to meet this burden. Therefore, the SC found sufficient justification for the LA to deny the third-party claim, and for the NLRC and the CA to affirm that ruling.

This case serves as a reminder of the importance of diligently documenting and substantiating claims in legal proceedings. It underscores the principle that mere assertions are not enough; concrete evidence is required to establish a right or title to property, especially when it comes to third-party claims in execution proceedings. The Supreme Court’s decision reinforces the need for meticulous record-keeping and the claimant’s responsibility to prove their case, thus safeguarding the rights of judgment creditors while ensuring fairness to all parties involved.

FAQs

What was the key issue in this case?	The key issue was whether Metrobank provided sufficient evidence to prove that the properties levied by the NLRC sheriff were subject to a valid chattel mortgage in its favor, thus entitling it to priority over the labor claims.
Was a hearing required for the Labor Arbiter to decide the third-party claim?	No, the Supreme Court clarified that a hearing was not mandatory. The Labor Arbiter had the discretion to determine whether additional evidence was needed based on the submitted documents.
What evidence did Metrobank fail to provide?	Metrobank failed to provide evidence that the specific properties levied by the NLRC sheriff were actually included in the list of properties covered by the chattel mortgage.
What is the burden of proof for third-party claimants in execution proceedings?	Third-party claimants have the burden of proving their right or title to the subject properties. They must show not only the basis of their entitlement but also that the properties they are claiming were indeed subject to the execution.
What was the effect of the 2002 NLRC Rules on the requirement for a hearing?	The 2002 NLRC Rules, specifically the amended manual on execution, superseded the earlier manual and gave the Labor Arbiter discretion to decide whether additional evidence was needed, making a hearing not mandatory.
Why was Metrobank’s claim of denial of due process rejected?	Metrobank was given ample opportunity to present its case through written submissions before the LA, NLRC, and CA. The lack of a formal hearing did not constitute a denial of due process, as the essence of due process is the opportunity to be heard.
What is the practical implication of this case for mortgage holders?	Mortgage holders must maintain meticulous records and be prepared to provide clear and convincing evidence that the specific properties levied in an execution proceeding are indeed covered by their mortgage.
Can a mortgage holder claim priority over labor claims simply by asserting a mortgage lien?	No, a mere assertion is insufficient. The mortgage holder must substantiate the claim with concrete evidence linking the levied properties to the mortgage agreement.
What is the significance of registering mortgage documents?	While the case mentions registration, the primary issue was the lack of evidence linking the levied properties to the mortgage. However, registration typically provides notice to third parties and can strengthen a mortgage holder’s claim.

In conclusion, the Supreme Court’s decision underscores the critical importance of presenting sufficient evidence to support a third-party claim in execution proceedings. Mortgage holders must be diligent in documenting their liens and prepared to demonstrate a clear connection between the levied properties and the mortgage agreement to successfully assert their rights against competing claims.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Cameron Granville 3 Asset Management, Inc. vs. UE Monthly Associates, G.R. No. 181387, September 05, 2016