Title
Borlough vs. Fortune Enterprises, Inc.
Case
G.R. No. L-9451
Decision Date
Mar 29, 1957
A 1947 Chevrolet sold twice led to a dispute over ownership between a prior chattel mortgage holder and a subsequent buyer. The Supreme Court ruled in favor of the buyer, holding that failure to register the mortgage with the Motor Vehicles Office rendered it ineffective against a bona fide purchaser.
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Case Digest (G.R. No. L-9451)

Facts:

  1. Sale of the Vehicle:

    • On March 8, 1952, United Car Exchange sold a 1947 Chevrolet sedan (Motor No. EAA-20834) to Fortune Enterprises, Inc.
    • Fortune Enterprises, Inc. then sold the same car to Salvador Aguinaldo, who executed a promissory note for P2,400 payable in 20 installments.
    • To secure payment, Aguinaldo executed a chattel mortgage over the car, which was registered with the Register of Deeds of Manila on March 11, 1952.

  2. Default and Subsequent Sale:

    • Aguinaldo defaulted on the installments, prompting Fortune Enterprises, Inc. to demand payment.
    • Meanwhile, the car was sold again by United Car Exchange to O. N. Borlough on April 6, 1952, for P4,000. Borlough registered the car with the Motor Vehicles Office on April 7, 1952, and took possession of it.

  3. Legal Proceedings:

    • On July 10, 1952, Fortune Enterprises, Inc. filed a case against Aguinaldo for the unpaid balance. Borlough intervened, claiming ownership of the car.
    • Fortune Enterprises, Inc. amended its complaint, alleging Borlough was in connivance with Aguinaldo to hide the car.
    • The car was seized by the sheriff on August 4, 1952, and later sold at public auction.

  4. Judgments:

    • The Court of First Instance ruled in favor of Borlough, ordering Fortune Enterprises, Inc. to pay him P4,000 plus damages.
    • The Court of Appeals modified the judgment, holding that the chattel mortgage was superior to Borlough’s claim due to its prior registration.

Issue:

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Ruling:

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Ratio:

  1. Complementary Laws:

    • The Revised Motor Vehicles Law (Act No. 3992) and the Chattel Mortgage Law (Act No. 1508) are complementary. The former requires additional reporting of mortgages on motor vehicles to the Motor Vehicles Office.
    • Failure to comply with the Revised Motor Vehicles Law’s reporting requirement renders the mortgage ineffective against third parties, such as a subsequent purchaser in good faith.

  2. Priority of Rights:

    • A chattel mortgage must be registered under both the Chattel Mortgage Law and reported to the Motor Vehicles Office to affect third parties.
    • Since Fortune Enterprises, Inc. failed to report the mortgage to the Motor Vehicles Office, Borlough’s rights as a bona fide purchaser with proper registration prevailed.

  3. Legal Principles:

    • The Revised Motor Vehicles Law does not repeal the Chattel Mortgage Law but adds an extra layer of protection for motor vehicle transactions.
    • A lienholder’s failure to comply with statutory requirements for recording liens on motor vehicles results in the loss of priority over innocent purchasers.


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