G.R. No. L-9451 March 29, 1957
OLAF N. BORLOUGH, petitioner, vs. FORTUNE ENTERPRISES, INC. and THE HONORABLE COURT OF APPEALS (2nd DIVISION), respondents.

FACTS

On March 8, 1952, Fortune Enterprises, Inc. sold a 1947 Chevrolet sedan to Salvador Aguinaldo. Aguinaldo executed a promissory note for the unpaid balance and a chattel mortgage over the vehicle to secure payment. The chattel mortgage was registered with the Register of Deeds of Manila on March 11, 1952. Aguinaldo defaulted on his payments. Meanwhile, the same vehicle was sold by the United Car Exchange to O. N. Borlough for P4,000 on April 6, 1952. Borlough registered his purchase with the Motor Vehicles Office on April 7, 1952, and took possession. Fortune Enterprises, Inc. filed an action against Aguinaldo for the balance, and Borlough filed a third-party complaint. Fortune Enterprises then amended its complaint to include Borlough as a defendant. The vehicle was seized by the sheriff. The Court of First Instance ruled in favor of Borlough. The Court of Appeals reversed, holding that the prior chattel mortgage, registered under the Chattel Mortgage Law, was superior to Borlough’s rights acquired through possession and registration under the Motor Vehicles Law. Fortune Enterprises had not reported the mortgage to the Motor Vehicles Office as required by the Revised Motor Vehicles Law.

ISSUE

As between a prior chattel mortgage over a motor vehicle registered only under the Chattel Mortgage Law (without annotation in the Motor Vehicles Office) and a subsequent purchaser who registered his title in the Motor Vehicles Office and took actual possession, which right should prevail?

RULING

The Supreme Court reversed the Court of Appeals and affirmed the judgment of the Court of First Instance in favor of Borlough. The Court held that the recording provisions of the Revised Motor Vehicles Law ( Act No. 3992 ) are complementary to those of the Chattel Mortgage Law ( Act No. 1508 ). For a chattel mortgage on a motor vehicle to affect third persons, it must not only be registered under the Chattel Mortgage Law but must also be recorded in the Motor Vehicles Office as required by Section 5(e) of the Revised Motor Vehicles Law. The failure of Fortune Enterprises to report the mortgage to the Motor Vehicles Office rendered the mortgage ineffective against Borlough, a subsequent purchaser in good faith who registered his purchase with the Motor Vehicles Office. The Revised Motor Vehicles Law, as a special law, imposes an additional requirement for mortgages on motor vehicles. The mortgagee’s failure to comply with this statutory duty to record the lien in the Motor Vehicles Office acts to its peril, and it must suffer the consequences against an innocent purchaser.