G.R. No. 76537 August 28, 1989
QUEZON BEARING & PARTS CORPORATION, petitioner, vs. HONORABLE COURT OF APPEALS and TOP RATE INTERNATIONAL SERVICES, INC., respondents.

FACTS

Petitioner Quezon Bearing & Parts Corporation filed a complaint to recover an unpaid sum from Consolidated Mines, Inc. (CMI) and secured a writ of preliminary attachment. On December 9, 1981, the sheriff levied on CMI’s interest in two real properties. These properties were, however, already encumbered by a prior real estate mortgage in favor of a consortium of banks, annotated on the titles in 1978. Subsequently, in an insolvency proceeding against CMI, the court authorized the sale of these mortgaged properties to respondent Top Rate International Services, Inc. The sale was evidenced by a Deed of Confirmation dated September 17, 1982, confirming a contract dated December 10, 1981.
Top Rate filed a third-party claim over the properties, leading the trial court to lift the writ of attachment. It ruled that CMI only held an equity of redemption due to the prior mortgage, and that Top Rate, as vendee who assumed the mortgage with the banks’ consent, stepped into the mortgagee’s shoes. The Court of Appeals affirmed this decision, prompting petitioner’s appeal to the Supreme Court.

ISSUE

The main issue is whether the petitioner’s attachment lien on the mortgaged properties of CMI is superior to the rights acquired by Top Rate through its subsequent purchase of those properties.

RULING

The Supreme Court modified the appellate court’s decision, ruling in favor of the petitioner. The Court clarified that a levy on attachment over a mortgaged property attaches only to the judgment debtor’s residual interest—specifically, the equity or right of redemption—and not to the property itself, which is conditionally conveyed to the mortgagee. The sheriff’s levy on December 9, 1981, therefore, attached only CMI’s right to redeem the properties from the mortgagee banks.
The sale to Top Rate, even if authorized by the insolvency court and involving the mortgagee banks’ consent, did not constitute an assignment of the banks’ mortgage rights. The banks, as mortgagees, could not directly sell the property except through foreclosure, as a direct sale would constitute a void pactum commissorium. Consequently, Top Rate did not acquire a status superior to the attaching creditor. The petitioner’s attachment lien on CMI’s equity of redemption is superior to Top Rate’s rights derived from the sale. However, this lien remains inferior to the prior mortgage rights of the consortium of banks. Top Rate, as CMI’s successor-in-interest, must first discharge this attachment lien by satisfying the petitioner’s claim before it can redeem the properties from the mortgage. The validity of the sale to Top Rate should be resolved in a separate proceeding. The levy by attachment was thus upheld but limited to CMI’s (or its successor’s) right of redemption.