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:

    Transactions Involving the Motor Vehicle

    • On March 8, 1952, the United Car Exchange sold a 1947 Chevrolet sedan (Plate No. 43-1465; Motor No. EAA-20834) to Fortune Enterprises, Inc.
    • After its acquisition, Fortune Enterprises, Inc. subsequently sold the same vehicle to Salvador Aguinaldo.

    Financing and Security Arrangement

    • Salvador Aguinaldo, unable to pay the full purchase price in cash, executed a promissory note amounting to P2,400, payable in 20 installments with interest at 12% per annum.
    • To secure the payment of the promissory note, Aguinaldo executed a deed of chattel mortgage over the vehicle, which was duly registered with the Register of Deeds of Manila on March 11, 1952.

    Default and Demand for Payment

    • Aguinaldo defaulted on his installment payments.
    • On May 16, 1952, counsel for Fortune Enterprises, Inc. sent a letter demanding the necessary payment to bring the account up to date, warning that failure to do so would prompt judicial action.

    Subsequent Sale and Registration

    • The vehicle eventually found its way back to the United Car Exchange.
    • On April 6, 1952, O. N. Borlough purchased the vehicle in cash for P4,000 and took immediate possession.
    • Borlough registered his purchase with the Motor Vehicles Office on April 7, 1952, obtaining a certificate of registration.

    Litigation and Third-Party Involvement

    • On July 10, 1952, Fortune Enterprises, Inc. initiated an action against Salvador Aguinaldo to recover the balance of the purchase price.
    • In response, Borlough filed a third-party complaint claiming ownership of the vehicle.
    • Fortune Enterprises, Inc. subsequently amended its complaint to include Borlough as a defendant, alleging his connivance with Aguinaldo and accusing him of concealing the vehicle to evade judicial seizure.

    Legal Proceedings and Seizure of the Vehicle

    • Borlough maintained that he purchased the vehicle in good faith, had paid the full price, and was in legal possession supported by a registration certificate from the Motor Vehicles Office.
    • The vehicle was seized by the sheriff of Manila on August 4, 1952, and later sold at public auction.

    Decisions Rendered by Lower Courts

    • The Court of First Instance ruled in favor of Borlough, ordering Fortune Enterprises, Inc. to pay him P4,000 plus interest and additional attorney’s fees.
    • The Court of Appeals modified the decision, reaffirming the entitlement of Borlough to the amount and further ordering adjustments regarding any excess credits and judicial expenses.

    Statutory and Legal Framework

    • The legal dispute centered on the comparison of two recording laws:
    • The Chattel Mortgage Law (Act No. 1508) under which the mortgage was originally executed and registered.
    • The Revised Motor Vehicles Law (Act No. 3992) which governs the registration, sale, transfer, and recording of transactions affecting motor vehicles.
    • Key provisions of the Revised Motor Vehicles Law required:
    • Dealers to report monthly details of every vehicle sale.
    • Mortgage parties to notify the Motor Vehicles Office within seven days about the hypothecation or mortgage of a motor vehicle.
    • The Revised Motor Vehicles Law supplements, rather than replaces, the Chattel Mortgage Law by adding a reporting requirement intended to inform third parties of existing liens.

Issue:

    Priority of Rights Between Competing Interests

    • Whether the prior chattel mortgage executed by Salvador Aguinaldo and registered under the Chattel Mortgage Law, though not reported to the Motor Vehicles Office, held priority over Borlough’s subsequent purchase and registration.

    Effect of Non-Compliance with the Revised Motor Vehicles Law

    • Whether Fortune Enterprises, Inc.’s failure to report the mortgage in accordance with the Revised Motor Vehicles Law rendered its mortgage ineffective against a bona fide purchaser in possession (Borlough), who complied with the statutory registration requirements.

    Interpretation of Statutory Provisions

    • How the express provisions of the Revised Motor Vehicles Law interact with the general principles of the Civil Code regarding priorities and the effect of non-registration.
    • Whether the additional reporting requirement under the Revised Motor Vehicles Law constitutes a mandatory condition for the mortgage’s effectiveness against subsequent purchasers.

Ruling:

  • (Subscriber-Only)

Ratio:

  • (Subscriber-Only)

Doctrine:

  • (Subscriber-Only)
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