Honorable 0. P= Lockhart, Chairman
Board of Insurance Commissioners
Austin, Texas
Dear Sir:                  l33fnionNo. O-4258
                                Written transfer and recording
                                of vendor's lien notes deposit-
                                ed with the Board of Insurance
                                Commissioners or the State
                                Treasurer as securities by
                                certain corporations.

          We have your letter of recent date requesting the
opinion of this Department, as follows:
            "In Articles 1302a,Secs. 2, 6; 4739;
    4740; 4741. 4743; 4777; 4859f, Sec. 7;
    4875a-5 (5J; 925; 4969;~4983; 4993; 5017e;
                  5); 5025; 5029; and 5068-1,
    5022a;~3023a 't
    Sec. 6, R. C. S. of 1925 as amended, various
    provisions are made for the deposit by in-
    surance companies of securities either with
    the State Treasurer, or with this Board, or
    subject to the joint control of the State
    Treasurer and this Board, or in the join,t
    control of attorneys-in-fact for Lloyds and
    Reciprocals and custodians designated by
    this Board or the Chairman thereof. Under
    the statutes it is permissible in come cir-
    cumstances for these deposited securities
    to consist of notes and other types of ob-
    ligations secured by liens upon real estate,
    and in most or all instances the discretion
    is vested in this Board to approve such se-
    curities as sufficient for the purposes
    designated.
                                                            1      .




 Honorable O.,P. Lockhart,   Chairman, - page 2 O-4258


           "'We-desireyour opinion upon whether we or
      the State-Treasurer, as the case,may be, are,by
      law required or authorized to insist upon the
      execution and recording of legally sufficient
      formal transfers of the obligations and liens
      to the approp-iate depository officer and to
      formally release or retransfer the same upon
      their lawful withdrawal, or whether it is suf-
      ficient that more manual possession of the se-
      curities ant;their supporting papers be deliver-
      ed to the depository officer, thus constituting
      in effect only a 'pledge'.
           11** **'I

           Under the various statutes cited by you, the Legisla-
ture has provided that the corporations, foreign and domestic
named, must, in order to transact business, execute bonds or
 ive securities to insure the carrying out of the contracts
fhey make with the citizens of Texas.

           Such statutes provide that in lieu of bonds or cash,
or other named securities, the various corporations may.deposit
vender's lien notes, or notes or debentures secured by first
mortgages or deeds of trust, on land of the appraised value
named in the statute.
           In Moran v. tidheeler,27 S. W. 54, 87 Tex. 179, the
Supreme Court again reviewed the question and cited with a -
proval the case of Henderson v. Pilgrim. In the case of krf:
                                                           ran
v. Wheeler it appears that Moran purchased a vender's lien note
against a section of land without taking a written transfer of
the lien and having same recorded. The party who gave the ven-
dort~slien note obtained a release of the note, and placed same
on record, and then mortgaged the land to the mortgage company.
The Supreme.Court, in holding that the mortgage company had a
superior lien to the holder of the vender's lien note, used this
language:
           "The case of Henderson v. Pilgrim, 22 Tex.,
      464, settles the law in this state that assign-
      ments of mortgages must be recorded in order to
      affect subsequent purchasers without'notice for
      a valuable consideration. * * *
           "In Henderson v. Pilgrim the court said:
Honorable 0. P. Lockhart, -page 3 O-4258


          "'We are of opinion that assignment of a
     mortgage is a lien affecting the title to land;
     * *'* written contract in relation to land;
     * * * an agreement; * * * an instrument of writ-
     ing of and concerning land', within the mean-
     ing of our registry laws, such as ought to be
     recorded, to make it effectual against subse-
     quent purchasers for a valuable consideration,
     without notice, 'If an as:iipnmentof a mort-
     gage, because it conveys a lien upon land, is
     required to be recorded, how can it be said
     that an assignment of a vendor's lien note,
     which conveys the same character of lien,
     should not be?' * * *
          "It is the policy of the law to require
     that all matters affecting the title to lands
    ~should be placed upon public records so that
     one who seeks to purchase it may faithfully
     judge the validity of the title."
          In Wood v. Sparks, 59 S. W. (2) 361, the Supreme
Court of Texas again wrote en the question, and reviewed the
cases of Henderson V. Pilgrim 22 Tex. 464, and Moran v.
Wheeler, 87 Tex. 179, and foliowed those decisions.
            In the Wood v. Sparks case it appears that Sparks
executed a mechanicls lien note and made same payable to the
Davis Lumber Co. The Davis Lumber Company made a written as-
signment of the mechanic's lien, but instead of delivering
the original note, delivered a forged note to Wood, and the     .
transfer was properly filed and recorded. The question arose
as to who had the superior title--klr.Wood, who obtained a
forged note but obtained the written assignment of this
mechanic's lien, or the holder of the original note. The
Supreme Court held that by virtue of the written assignment
Wood obtained the superior lien on the property, although he
did not have the original note. In so holding the court used
this lan uage:
     ,“(6 F: When we apply the above rule of law to the
   facts of the case at bar, there is no escape from the
   conclusion that Wood's title to the lien in question
   is superior to the title here asserted by Hubby. It is
   evident that the instruments including tht lien con-
   tract proper and the instrument designated as a 'pro-
   missory note' created and evidenced nothing but a bare
   lien against the real property therein included. These
   facts clearly appear upon the face of both instru-
Honorable 0,.PO Lockhart, Chairman page 4 O-4258



    ments. There was no personal obligatpn
    creat~edat all. It follows that the avis
    Lumber Company had nothing to convey to
    either Nood or Hubby but a bare lien or
    claim in rem against the land. At the
    time Hubby purchaeed this lien he had
    full record notice   that it had already
    been transfel.red  and conveyed to idood,
    In other words he had fulL record notice
    that the Davis Lumber Company had already
    conveyed away the only thing they ever
    had to transfer. An examination of the
    record would have fully apprised him of
    all these facts. If the lien had been
    released at the time Hubby purchased it
    under the circumstances he did, there
    could be no question but that he would
    have been charged with notice of such
    release. We kan see no reason why'the
    same rule would not apply to a convey-
    ance of the lien that applies to its re-
    lease."
          Under the authorities above cited, it is our onin-
ion that before the State Treasurer or the Board of In&--
ante Commissioners can accept vendor's lien or mortgage lien
notes as securities, it is necessary to have the lien secur-
ing same transferred in writing, and same must be recorded in
the county where the land is located.
          To hold otherwise would nullify the requirement of
the Legislature that the lien notes must be secured by real
estate in most instances of at least double the value of the
notes. As was said in the Henderson v. Pilgrim case supra, a
transfer of +.henote carries with it an equitable assignment
of‘the lien, but it does not carry with it a Zegal assignment.
          You are therefore advised that where the statute re-
quires the Treasurer to hold the vendor's lien or mortgage
lien notes, it is his duty to require a written transfer of
the lien securing said notes, duly recorded, and then hold
said notes with the transfer so recorded in his possessinn,
under the terms of the statute.
.    -




    Honorable 0, P. Lockhart, Chairman- page 5 0-4258


              If the statute requires the Board of Insurance
    Commissioners to retain custody of said notes, then it
    is the duty of said Board to require a written transfer
    of the lien securing same duly recorded.
              The transfer should be made in trust to the
    party holding the note, being either the State Treasurer
    or the Board of Insurance Commissioners, and when the
    notes are paid, or the depositor decides to take same
    down, the trustee can either release or retransfer the
    notes. Practically all of said statutes referred to by
    you require the Board of Insurance Commissioners to pass
    upon the security, and in most instances the statute re-
    quires the value of the land to be appraised at at least
    double the amount of the vender's lien or mortgage lien
    note being deposited as security. In order to be certain
    that the notes are a first lien on the land, it will, of
    course, be necessary for the Board of Insurance Commis-
    sioners to require an abstract to be furnished by the
    depositor. The Abstract when examined should also be
    held by the department holding the notes until same
    have been paid or redeemed.

                                  Very truly yours
                              ATTORNEY GENERAL OF TEXAS
                                          Geo. W. Barcus
                                               Assistant
    GWB-MR/pam
    APPROVED APR 24 1942
    EFi#3R~iii!ik%~~~
    ATTORNEY GENERAL
    APPROVED OPINION COMMITTEE
    BY BWB, CHAIRMAN
