Honorable 0. P= Lockhart,Chairman

Board of InsuranceCommissioners Austin, Texas

Dear Sir: l33fnion No. O-4258 Written transfer and recording of vendor's lien notes deposited with the Board of Insurance Commissionersor the State Treasurer as securitiesby certain corporations.

We have your letter of recent date requesting the opinion of this Department, as follows:

"InArticles 1302a,Secs. 2, 

### 6; 4739; 4740;4741.4743;4777;4859f,Sec.7; 4875a-5 (5J; 5022a;~3023a 

### 't

925;4969;~

4983;4993; 5017e; 5); 5025; 5029;

### and 5068-1, Sec. 6, R. C. S. of 1925 as amended,various provisions are made for the depositby insurance companies of securitieseitherwith the State Treasurer, or with this Board, or subject to the joint control of the State Treasurerand this Board, or in the join,t control of attorneys-in-factfor Lloyds and Reciprocals and custodiansdesignatedby this Board or the Chairman thereof. Under the statutes it is permissible in come circumstances for these deposited securities to consist of notes and other types of obligations secured by liens upon real estate, and in most or all instancesthe discretion isvested in this Board to approve such securities as sufficient for the purposes designated.1

.

HonorableO.,P. Lockhart,

"'We-desire

your the State-Treasurer, Chairman, - page 2 O-4258

opinion uponwhether we or as the case,maybe, are,by law required or authorized to insistupon the executionand recording of legally sufficient formal transfers of the obligationsand liens to the approp-iate depository officer and to formally release or retransfer the same upon their lawfulwithdrawal, or whether it is sufficient that more manual possessionof the securitiesant;their supportingpapersbe delivered to the depository officer, thus constituting in effect only a 'pledge'. 11* * **'I

Under the various statutes cited by you, the Legislature has provided that the corporations,foreign and domestic named,must, in order to transactbusiness, execute bonds or five securities to insure the carrying out of the contracts hey make with the citizens of Texas.

Such statutesprovide that in lieu of bonds or cash, or othernamed securities, the various corporationsmay.deposit vender's lien notes, or notes or debentures securedby first mortgages or deeds of trust, on land of the appraisedvalue named in the statute.

In Moran v. tidheeler, 27 S.W. 54, 87 Tex. 179, the Supreme Court again reviewed the questionand citedwith a rf: - proval the case of Hendersonv. Pilgrim. In the case of k ran v. Wheeler it appears that Moran purchased a vender's lien note againsta section of landwithout takinga written transfer of the lien and having same recorded. The party who gave the vendort~s lien 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 assignments of mortgages must be recorded in order to affect subsequentpurchaserswithout'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 instrumentof writing of and concerning land',within the meaning of our registry laws, suchas ought to be recorded, to make it effectualagainst subsequent purchasers for avaluable consideration, without notice, 'Ifan as:iipnment of a mortgage, because it conveysa 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 characterof lien, should not be?' * * *

"It is the policy of the law to require that all matters affecting the title to lands ~shouldbe placed upon public records so that one who seeks to purchase itmay faithfully judge the validity of the title."

InWood v. Sparks, 59 S. W. (2)361, the Supreme Court of Texas againwrote 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 executeda mechanicls lien note and made same payable to the Davis Lumber Co. The Davis Lumber Companymade a written assignmentof the mechanic's lien,but instead of delivering the original note, delivered a forgednote to Wood, and the transferwas properly filed and recorded. The question arose as to who had the superior title--klr. Wood, who obtained a forgednote but obtained the written assignment of this mechanic's lien, or the holder of the originalnote. 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 assertedby Hubby. It is evident that the instruments including tht lien contract proper and the instrumentdesignated as a 'promissory note' created and evidencednothing but a bare lien against the real property therein included. These facts clearly appear upon the face of both instru- .Honorable 0,.PO Lockhart, Chairmanpage 4 O-4258

ments. Therewas no personal obligatpn creat~ed

at all. It follows that the avis Lumber Company had nothing to convey to either Nood or Hubby but a barelien 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 recordnotice that the Davis Lumber Company had already conveyedaway the only thing they ever had to transfer. An examination of the recordwould have fully apprisedhim of all these facts. If the lien had been releasedat the time Hubby purchased it under the circumstanceshe did, there couldbe no questionbut that he would have been chargedwith notice of such release. We kan see no reasonwhy'the same rule would notapply to a conveyance of the lien that applies to its release."
Under the authorities above cited, it is our oninion that before the State Treasurer or the Board of In&-- ante Commissionerscan accept vendor's lien or mortgage lien notes as securities, it is necessary to have the lien securing same transferred in writing, and samemust be recorded in the countywhere the land is located.

To hold otherwisewould nullify the requirement of the Legislature that the lien notes must be securedby real estate in most instances of at least double the value of the notes. As was said in the Hendersonv. Pilgrim case supra, a transfer of +.he

note carrieswith it an equitable assignment of‘the lien, but it does not carrywith it a Zegal assignment.

You are therefore advised thatwhere the statute requires 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 saidnotes with the transfer so recorded in his possessinn, under the terms of the statute.. -

Honorable0, P. Lockhart, Chairman-page 5 0-4258

If the statute requires the Board of Insurance Commissionersto 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 shouldbe 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 retransferthe notes. Practically all of said statutesreferred to by you require the Board of InsuranceCommissionersto pass upon the security,and in most instancesthe statute requires the value of the land to be appraisedat at least double the amount of the vender's lien or mortgage lien note being depositedas security. In order to be certain that the notes are a first lien on the land, itwill, of course,be necessary for the Board of InsuranceCommissioners to require an abstract tobe furnishedby the depositor. The Abstract when examined shouldalso be held by the departmentholding the notes until same have been paid or redeemed.
Very trulyyours
ATTORNEY GENERAL OF TEXAS

Geo. W. Barcus Assistant GWB-MR/pam

APPROVEDAPR 24 1942 EFi#3R~iii!ik%~~~ ATTORNEY GENERAL

APPROVEDOPINION COMMITTEE BY BWB, CHAIRMAN