Honorable 0. P= Lockhart, Chairman 

Board of Insurance Commissioners 

Austin, Texas 

Dear Sir: l33fnion No. O-4258 

Written transfer and recording 

of vendor's lien notes deposited 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; 

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 deposit by insurance 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 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 instances the discretion 

is vested in this Board to approve such securities as sufficient for the purposes 

designated. 
1 . 

Honorable O., P. Lockhart, 

"'We-desire your 

the State-Treasurer, 

Chairman, - page 2 O-4258 

opinion upon whether we or 

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 sufficient that more manual possession of the securities ant; their supporting papers be 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 transact business, execute bonds or 

f 

ive securities to insure the carrying out of the contracts 

hey 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 

rf: 

- 

proval the case of Henderson v. Pilgrim. In the case of k 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 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 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 writing of and concerning land', within the meaning of our registry laws, such as ought to be 

recorded, to make it effectual against subsequent purchasers for a valuable consideration, 

without notice, 'If an as:iipnment of a mortgage, 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 assignment 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 contract proper and the instrument designated as a 'promissory 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~ed at 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 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 Commissioners can accept vendor's lien or mortgage lien 

notes as securities, it is necessary to have the lien securing 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 +.he note 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 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 

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 requires 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 Commissioners 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