      OFFICE OFTHEATTORNEY        GENERALOFTEXAS
                         AUSTIN




Bonorrble 2onmr Barrlson, Jr., Dfrecfor,
Department of Flmio 2&u&y
Calnoww
AuatAn, Texae
mar   Mr. fhrrieon)          Attention8




                                                   utee of texao
                                                           Arti-

                                      lb&r   of date June 21,
                                     or alarlfbation of our
                                      the 8lme-8aptloned

                                     red in the affl.rnnt&Ll
                                  sd by the Eanldng Wmdaeioner

                         be6iree to adTane0 am-   $0
                            to be
                                     lea vtliuhare
                                      A--M-
                                     mrtgage aholr-
       lag the funds were a&aut?ed for the pnwhase
       of the cara, and (88 an aaatbnal   plmautlon)
       proper regAetratl.onat the Wwtgage, aml n0k
       tlon themof on.the numf%Mtarer~e, &SnpOrter8
       or title aert%f'iioate,
                             8511 the banHa lbn Be
      ,ralid a&net   a plrahaaer who in fact had no
       aataal kmml~e    of the erSeteme of the nmrt-
       tivwP
IionorableSiomcrGarrison, Jr. - Fage 2




          The point as to which you request a rcconsidera-
tion or a clarificationis shown by the following quota-
tion from your letter:
               WInsofar as your opinion refers to
     the notation of dealer-financingliens against
     used cars upon an importer*s oertifioateor
     Certificate of Title, this    Department is not
     concerned, inasnmch as such cars, being rc-
     quircd to be registeredin the State of Taxas
     and thus ooming under the prwisions of the
     Certificateof Title Ast, would, of nousssity,
     unon the issuancn of 2 Certificateof Title
                                otation made upon any
                                ued. However, that
                                oh holds that a
                                *floor planning' or
                                 automobilesmay make
                                inst such automobiles
                                certificateis of
                                partment and to every

         By way of illustratingthe impraotioabilityof
following our opinion,you say,
               s-Q stated above, a following out of
     the opinion in this case would result in the
     virtual stoppage of ner ear sales. For ex-
     ample let us assume that the SmithvllleAuto
     Company of Smithville,Texas, is a Ford deal-
     era& is financed, or *floor planned'by the
     Universal Credit Co. of Houston. The Univer-
     sal Credit Co. forces a notation of its lien
     against each individual,new automobile offer-
     ed for sale by the Smithvilleduto Co. upon
     the xmnufacturer*scertificateissued by the
     Ford hiotorCo. against such car. A rstail
     purchaser appears on the scene at five otclock
     Saturday afternoon desiring to pay cash for a
     new car. Under the opinion before the Smith-
     ville Auto Co. can give a clear tit13 to this
     retail 'purchaser,it nil1 be necessary to se-
     cur3 a release of the mortgage against the
     particular car dasir3d as noted upon the manu-
     facturor's certificate,from the Universal
     Credit Co. of Houston, 3 prooedur3which in
Honorable Homer Garrison, 3r. - Page 3




     the ordinary Course of busPness would take from
     three to five days. As a practical and obvious
     result, a salt is l0st.v
          Xeither your department nor our departmentis
oonoernedwith the wisdom of the Title CertificateAct,
but we are ooncernedwith the validity, construction,in-
terpretation, and proper adminIstration of the law.    If
the dlfflcultiespointed out by you should emus in the
adsd.niotrationof the law, the fault is not that of your
departnmnt nor of our depart=&, but is that of ,thoLegie-
lature alone.
          The situation,however, is not as bad as you
appear to &ink. The Title CertificateAct Is a whole-
some one, the chief purpose of which is tomafford a cow
plete system of registrationaff33ting th3 tit13 to motor
vehicles for the protection of all persons dealing in,
selling or purchasingsuch vehicles or aoquiring li3n3
thereon.
          We think it was the purpose of the Legislaturein
passing the Aot to prwlde for a suitable expositionof
eaoh a& every lien affooting the title to a motor vehicle
transferredor oonveyed in Texas, upon the instruments,or
some of the instruments,authorized to be exeautedby the
Act.  If the Act has not done this, it has fallen short of
the primary plrpoee of Its enaotment.
          Undoubtedly,Article 4000 of the Revised Clvll
Statutes, and Article 548128of Vernon*8 Codificationof
the Oivll Statutes,have been to some extent at least,
affeotadby.the passage of the Certificate of Title A&.
          Article 4000 declares broadly thatc
               m5very mortgage,deed of trust, or
     other form of lien attempted to be given by
     the owner of any stock of goods, wares or
     merchandisedaily exposed to sale, in par-
     cels, in the regular oourse of business of
     such merchandise,and contemplatinga con-
     tinuance of the possession of said goods by
     said owner, shall be deemed fraudulent and
     void; provided that this Article shall not
     apply to farm poducte when offered for
     sale by the producer.*
iionorablc
         Homer Garrison, Jr. - Trtge4




         Article 5497s declares8
              *That all chattel nortqages here-
    after given as securityfor money dvnnced
    for the wchase   of motor vehicles shall,
    when registered as required by lau of chat-
    tel mortgages,be and are superior to the
    claim or ololms of other creditors even
    though such motor vehicle or vehicles are
    aaily exposed for sale. Provided, however,
    any such chattel mortgage shall be void as
    to bona fide ~rchasetinhen such motor ve-
    hicles are daily exposed for sale."
          It will be seen this Article is a special statute
dealing with chattel mrtgages upon motor vehicles daily ex-
posed for sale. It will further be seen that such mortgages
             exoept rsa to bona fiae purchasers.* The Arti-
ape not 00.i.d
cle, therefore,recognizes the validity of such mortgsges,
with the exception noted. Clearly, the subject mstter of
such mortgages comss within the purview of the Title Certifi-
cate Act providing p system of registration and notice.
          lf'rom
               the practicalviewpoint, srnl,of course, this
is not unimportant in the considerration,no bank or finance
company would make a loan upon such vetioles daily exposed
for sale,withoutprovklingin the instrument itself, or
otherwise,for the sale of suoh vehicles by the mortgagor,
for this, ordinarily,would be the only way the bank or
finance company tould realize on its lonns. Where such
provision for sales is thus made, of course, the purchaser
at the sale thus authorizedwould take title free of the
mortgage, if. he is a bona fide plrohaser. The assent of
the miortgageeto such sale may be as well given in the in-
strument of mortgage or before such sale, as afterwardby
a release or acquiftanceof the particularvehicle sold.      ,
          Such a mortgagee might be willing to take the
risk of the rxWtgagorlsnot accounting for such sales, but
yet unwilling to assume the risk ?f a subsequentmortgage
by the mortgagor, or of a levy by attachment or execution
of some other creditor. Such a mortgage is not entirely
YOiCl-- it is valid between the parties, and likewise
valid as to the claim or claims of other creditors.
         Yhlsrasuch a stock mortgage is shown upon the
instrumentsof title to a vehicle sold to a first ;xlrchaser,
Honorable Homer Garrison, Jr. - Page 5




he is, of course, charged through aotual notice with 3
knowledge of the existenceof such mortgage, but that
knowleage is of the very terms of the i-natrumont.
          Where those terms proviae that the mortgagor
may sell the vehicle, thenpurchaser takes title free
from tho mortgage by the very terms of the instrument,and
no further release is required from the mortgagee. Whether
the mortgageeeowillevidence his assent to a sale in the in-
strrmsnt of mortgage itself, or will evidence his assent to
such sale oniy by an indiviciualrelease, is a matter of
choice upen his part.
          We are yet of the opinion that a proper interpre-
tation of the Title CertificateAct contemplatesthat such
liens should bo WidenCed  in an appropriateentry upon the
instrument~sevidencingthe title to such csr sold, and
that the detail of effectuatingthe sale and releaso of the
mortgaged cars is one to be workea out by the wties most
at interest, to-wit, the mortgagor and the mortgagee.
          We thsnk you for your very full letter discussion
of the prsctical sicleof the questionshere involved, and
trust that what we have said vi11 have Ol&Udfied the situa-
tion that otherwise ndght have been confusing.

                                Very truly yours
                           ATTORNET GEWIERAIJ    OF   TEX$$j



                           BY
                                                Ooie Gpder
                                                 Assistant
 OS-Am
