OFFICE OFTHEATTORNEY GENERALOFTEXAS

AUSTIN

Bonorrble 2onmr Barrlson, Jr., Dfrecfor, Department of Flmio 2&u&y Calnoww AuatAn, Texae

mar Mr. fhrrieon) Attention8



## utee of texaoArtilb&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 vtliuh areA--Mmrtgage aholrlag the funds 

### were a&aut?ed for the pnwhase of the cara, and (88 an aaatbnal plmautlon) proper regAetratl.on at 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 nmrttivwPIionorable Siomcr Garrison,Jr. - Fage 2

The point as to which you request a rcconsideration or a clarification is shown by the followingquotation from your letter:

WInsofaras your opinionrefers to the notation of dealer-financing liens against used cars upon an importer*soertifioateor Certificateof Title, this Department is not concerned,inasnmchas such cars, being rcquircd to be registeredin the State of Taxas and thus oomingunder the prwisions of the Certificateof Title Ast, would, of nousssity,
unon the issuancn of 2 Certificateof Title otationmade upon any ued. However, that oh holds that a *floorplanning'or automobiles

may make inst such automobiles certificateis of partmentand to every

By way of illustrating the impraotioability of following our opinion,you say,

s-Q stated above, a following out of the opinion in this case would result in the virtual stoppageof ner ear sales. For example let us assume that the SmithvllleAuto Company of Smithville, Texas, is a Ford dealera& is financed,or *floor planned'by the Universal Credit Co. of Houston. The Universal Credit Co. forces a notation of its lien against each individual, new automobileoffered for sale by the Smithville duto Co. upon the xmnufacturer*s certificateissuedby the Ford hiotor

Co. against such car. A rstail purchaserappears on the scene at five otclock Saturdayafternoondesiring to pay cash for a new car. Under the opinionbefore the Smithville Auto Co. can give a clear tit13 to this retail 'purchaser,

it nil1 be necessary to secur3 a release of the mortgage against the particularcar dasir3d as noted upon the manufacturor's certificate, from the Universal Credit Co. of Houston, 3 prooedur3 which inHonorableHomer Garrison, 3r. - Page 3

the ordinaryCourse of busPness would take from three to five days. As a practicaland obvious result, a salt is l0st.v
Xeitheryour departmentnor our departmentis oonoerned

with the wisdom of the Title Certificate Act, but we are ooncernedwith the validity, construction,interpretation, and proper adminIstration of the law. If the dlfflculties

pointed out by you should emus in the adsd.niotration

of the law, the fault is not that of your departnmntnor of our depart=&, but is that of ,thoLegielature alone.

The situation,

however, is not as bad as you appear to &ink. The Title Certificate Act Is a wholesome one, the chief purpose of which is tom afford a cow plete system of registration aff33ting th3 tit13 to motor vehicles for the protectionof all personsdealing in, selling or purchasingsuch vehicles or aoquiringli3n3 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, authorizedto 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 548128 of Vernon*8 Codificationof the Oivll Statutes, have been to some extent at least, affeotadby.the passage of the Certificateof Title A&.

Article 4000 declaresbroadly 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 merchandise

daily exposed to sale, in parcels, in the regular oourse of business of such merchandise,

and contemplating

a continuanceof the possessionof said goods by said owner, shall be deemed fraudulent and void; providedthat this Article shall not apply to farm poducte when offered for sale by the producer.*iionorablc Homer Garrison,Jr. - Trtge 4

Article 5497s declares8

*That all chattelnortqageshereafter given as securityfor money dvnnced for the wchase of motor vehicles shall, when registeredas requiredby lau of chattel 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 chattelmortgage shall be void as to bona fide ~rchasetinhen such motor vehicles are daily exposed for sale."

It will be seen this Article is a special statute dealing with chattelmrtgages upon motor vehicles daily exposed for sale. It will further be seen that such mortgages ape not 00.i.d

exoept rsa to bona fiae purchasers.* The Article, therefore,recognizesthe validity of such mortgsges, with the exceptionnoted. Clearly, the subjectmstter of such mortgages comss within the purview of the Title Certificate Act providingp system of registrationand notice.

lf'rom the practicalviewpoint, srnl, of course, this is not unimportantin the considerration, no bank or finance company would make a loan upon such vetioles daily exposed for sale,without

provklingin the instrumentitself, or otherwise,for the sale of suoh vehiclesby the mortgagor, for this, ordinarily, would be the only way the bank or finance company tould realize on its lonns. Where such provisionfor sales is thus made, of course, the purchaser at the sale thus authorized would take title free of the mortgage, if. he is a bona fide plrohaser. The assent of the miortgagee

to such sale may be as well given in the instrument of mortgageor before such sale, as afterwardby
a release or acquiftance of the particular

vehicle sold.
, Such a mortgageemight be willing to take the risk of the rxWtgagorls not accountingfor such sales,but yet unwilling to assume the risk ?f a subsequentmortgage by the mortgagor,or of a levy by attachmentor 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.

Yhlsra such a stock mortgage is shown upon the instrumentsof title to a vehicle sold to a first ;xlrchaser,HonorableHomer Garrison,Jr. - Page 5

he is, of course, charged throughaotual notice with 3 knowledgeof the existenceof such mortgage,but that knowleageis of the very terms of the i-natrumont.

Where those terms proviae that the mortgagor may sell the vehicle, then purchasertakes title free from tho mortgageby the very terms of the instrument, and
no further release is required from the mortgagee. Whether the mortgageeeowill evidencehis assent to a sale in the instrrmsntof mortgage itself, or will evidencehis assent to such sale oniy by an indiviciual release, is a matter of choice upen his part.

We are yet of the opinion that a proper interpretation of the Title Certificate Act contemplatesthat such liens shouldbo WidenCed in an appropriateentry upon the instrument~s

evidencingthe 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 mortgagorand the mortgagee.

**We** thsnk you for your very full letter discussion of the prscticalsicle of the questions

here involved,and trust that what we have said vi11 have Ol&Udfiedthe situation **that** otherwisendght have **been** confusing.

Very truly yours

ATTORNET GEWIERAIJ OF TEX$$j

BY Ooie Gpder

Assistant OS-Am