Case Name: CITY OF HAMLIN v. MOTOR INV. CO.
Court: Texas Courts of Civil Appeals
Jurisdiction: Texas
Decision Date: 1943-12-03
Citations: 177 S.W.2d 101
Docket Number: No. 13377
Parties: CITY OF HAMLIN v. MOTOR INV. CO.
Judges: 
Reporter: South Western Reporter Second Series
Volume: 177
Pages: 101–106

Head Matter:
CITY OF HAMLIN v. MOTOR INV. CO.
No. 13377.
Court of Civil Appeals of Texas. Dallas.
Dec. 3, 1943.
Rehearing Denied Jan. 7, 1944.
James D. O’Connor, of Dallas, for appellant.
Irion & Cain, of Dallas, for appellee.

Opinion:
BOND, Chief Justice.
On October 22, 1940, Ford Motor Company sold to Elkins Motor Company, of Nocona, Texas, a Ford dealer, a 1941, 95 H.P., 158" motor truck chassis and delivered to said dealer a "manufacturer's certificate" covering same; soon thereafter, the Elkins Motor Company sold the truck to Simplex Fire Apparatus Company of Dallas, Texas, trade name of R. M. Hedrick, and transferred the manufacturer's certificate to Hedrick or his Company; no lien or reservation of title was noted on the certificate. On November 4, 1940, Hedrick, or his Company, borrowed from J. Earl Presley $876, evidenced by note with chattel mortgage on the truck, and simultaneously therewith, Presley noted the mortgage lien in the margin on back of the manufacturer's certificate, opposite the "First assignment" blank, in the following language: "Nov. 4, 1940. The motor vehicle herein described is mortgaged to J. Earl Presley, 2201 Commerce Street, Dallas, Texas, for $876.00," with a diagonal arrow drawn across the "First assignment," pointing to the notation on the margin. Thereafter, Presley returned the certificate to Hedrick, and forthwith, on November 10, 1940, filed the chattel mortgage in the office of the County Clerk of Dallas County, Texas. On March 22, 1941, Hedrick made, executed and delivered to Presley his further mortgage as a renewal and extension of the first mortgage covering the truck chassis, and in addition, recited, "Any and all equipment attached thereto or built thereon." At the time of these transactions, Hedrick's business was a manufacturer and retail dealer of fire trucks-acquired motor chassis, rebuilt or assembled into fire fighting apparatuses, with booster tanks, hose, hose racks, and other necessary equipment incidental to fire trucks; thus changing the chassis in such manner that their character is lost, that is, they are transformed into mobile vehicles, regulated by Subd. (b) of Sec. 37, Art. 1436 — 1, Vernon's Ann.P.C. of the State of Texas; and after rebuilding or assembling such vehicles into fire trucks, Hedrick advertised and exposed them to the public for sale in the regular course of business.
In the instant case, it is admitted in pleadings and evidence that the chassis acquired by Hedrick from Elkins Motor Company was thus assembled and transformed, and the resultant fire truck taken in a convoy van from Hedrick's place of business in Dallas, Texas, to the City of Hamlin, Jones County, Texas, and there exhibited and displayed by him for the purpose of sale. Mr. Culberson, Mayor of the City of Hamlin, on investigation and inspection, ascertained that the fire truck was a new motor vehicle owned by Hedrick, and that Hedrick was in the fire apparatus business in Dallas. Culberson made inquiry of and was advised by Hed-rick that the equipment and truck were clear of liens, that he had the manufacturer's certificate in his office at Dallas and would mail it to Culberson. Relying upon such representations, and legal advice further obtained that municipalities such as the City of Hamlin were not required by law to get "certificates of title," Culberson, for the City, consummated the deal, paid Hedrick $3,500 in cash and received the truck. The manufacturer's certificate was never delivered to Culberson or the City, and the officials had no actual knowledge of the purported mortgage liens on the motor chassis and equipment.
Appellee, Motor Investment Company, owner and holder of the note and mortgage, instituted this suit against J. Earl Presley and R. M. Hedrick, individually, for debt and foreclosure of the mortgage lien on the motor chassis as it existed on November 4, 1940, vouching in the suit the City of Hamlin. On trial to the court, without the intervention of a jury, judgment was entered in favor of appellee against the defendants J. Earl Presley and R. M. Hedrick, for debt, and for foreclosure of the chattel mortgage against the motor chassis as to all defendants. The City of Hamlin alone appeals, assigning error on the action of the court in rendering judgment foreclosing the mortgage against the motor vehicle, in effect challenging (1) the validity of the mortgage as against appellant, and (2), that it was an innocent purchaser for value.
On the second issue above, the Mayor, representative of appellant City at the time the fire truck was purchased, knew that Hedrick was doing business at Dallas, Dallas County; that Hedrick had brought the truck to Hamlin, Jones County, for the purpose of displaying and demonstrating it for sale; that the truck was out of Dallas County only temporarily, and would be returned should sale not be consummated. Under these facts, the City, through its proper officials, had constructive notice of the mortgage of record in Dallas County covering the motor chassis afterwards purchased by the City; therefore, was not a purchaser in good faith under terms of Art. 5490, R.S. See First Nat. Bank v. Thompson, Tex.Com.App., 265 S.W. 884.
Appellant not being an innocent purchaser, we will next consider whether the mortgage was void as to the City of Hamlin. Art. 4000 provides: "Every 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 course of business of such merchandise, and contemplating a continuance of the possession of said goods and control of said business, by sale of said goods by said owner, shall be deemed fraudulent and void." It will be seen that this statute declares broadly that such mortgages "shall be deemed fraudulent and void," intended for the protection of the public, dealing with the owner of any stock of goods, wares or merchandise daily exposed to sale in the regular course of business, without distinction as. to the character thereof or the nature of the business carried on. The statute forbids such mortgages where they represent an effort of a manufacturer, wholesaler, jobber, or retailer to retain the title as security for debt or contract. In the case of First Nat. Bank v. Thompson, supra, opinion by the Commission of Appeals, adopted by the Supreme Court, on facts very similar to those here, the court held that automobiles, like wagons, buggies and farm implements, are treated as goods, wares and merchandise, and that a mortgage given thereon by the retailer was obnoxious to the provision of the statute. So, under the facts stated in the case at bar, the chattel mortgage sought to be enforced is void under the statute, unless it can be held valid and enforceable against appellant under the Certificate of Title Act, Art. 1436 — 1, Vernon's P.C., enacted by the Legislature of this State in 1939. It. will be seen that the motor truck was a part of Hedrick's stock in trade; he was a manufacturer of and retail dealer in fire equipment. The chassis attempted to be mortgaged was part and parcel of his manufactured product, as much so as the booster tank, hose, hose racks, and other necessary equipment incident to the completed fire apparatus sold to the City of Hamlin. Manifestly, Hedrick was a retail dealer in motor fire trucks, rebuilt and assembled for resale at retail to owners. Sec. 19, Art. 1436 — 1, Certificate of Title Act, Vernon's Ann.P.C. Hedrick acquired good title to the vehicle from Elkins Motor Company, without any liens retained by the seller. Motor Inv. Co. v. Knox City, Tex.Sup., 174 S.W.2d 482. The City of Hamlin was an "owner," as defined in Sec. 4, Art. 1436 — 1, supra; purchasing at retail the truck exposed for sale in the open market; therefore, the sale by the dealer (Hedrick) to the owner (City of Hamlin) was a "first sale," as defined in Sec. 7 of the Act (Motor Inv. Co. v. Knox City, supra).
The further sections of Art. 1436 — 1 provide:
"Sec. 37(b). Any person rebuilding or assembling a motor vehicle, shall, before using same or operating same, or permitting the operation of same, or disposing of same, procure a certificate of title for same from the Department. "
"Sec. 41. No lien shall be valid on any motor vehicle which is hereafter the subject of a first sale, or be enforceable against any such motor vehicle unless there is noted on the importer's or manufacturer's certificate the date, name, and address of the mortgagees whose rights arise out of or are incident to such first sale by reason of the execution of any written instrument by the transferee." (Emphasis supplied)
"Sec. 42. No lien on any motor vehicle shall be valid as against third parties without actual knowledge thereof or enforceable against the motor vehicle of any such third parties as the issuance of a certificate of title thereof, unless an application for a new title is made as prescribed in this Act and all first and subsequent liens noted by the Department thereon."
Taking the entire Act under review, though not free from obscurity, we are of opinion that the Legislature did not repeal, by implication or otherwise, the statute (Art. 4000, R.S.) forbidding mortgages, deed of trust or other form of lien to be given upon goods, wares or merchandise intended for exposure to sale in the usual course of business. They are declared to be fraudulent and void as against third parties. At most, the Certificate of Title Act, supra, represents an effort to permit manufacturers, wholesalers, jobbers and retail dealers to retain title to motor vehicles or create liens thereon, where the motor vehicles are the subjects of first sales and such liens arise out of or are incident to such sales. Such liens are required to be noted on the manufacturer's certificates (Sec. 41). We are unable to find anything in the statute authorizing a manufacturer of or dealer in goods, wares or merchandise to mortgage stock in trade, open to the general public for sale. Indeed, such law would engulf the buying public in a mass of vexation. It is conceivable that the statute does not hinder manufacturers, distributors or dealers from creating, as between themselves, a lien or reservation of title in a motor vehicle, and that such lien or reservation is enforceable against an "owner," where such lien arises out of the transaction of sale between the parties and was duly noted on manufacturer's certificate passing to the transferee. Indeed, in this instance, the Ford Motor Company might well have retained a lien on the motor chassis when sold to Elkins Motor Company, and likewise with Elkins and Hedrick, if such lien had arisen in the transactions between the parties and had been noted on the certificate; such lien would have been enforceable against the City of Hamlin. It will be noted that Hedrick procured no certificate of title from Texas Highway Department after building and assembling the various parts that made up the fire truck, as required by Sec. 37(b); and the mortgage sought to be foreclosed neither arose out of nor was incident to either of the three transactions involving the sales of the truck. The mortgage was an independent, separate transaction between Hedrick and J. Earl Presley, made subsequent to the purchase by Hed-rick from Elkins Motor Company. We do not believe the Certificate of Title Act generally permits the creation of liens by successive purchasers on goods open to retail trade, unless such liens arise out of sale transactions and are noted on the certificate.
Therefore, in absence of actual knowledge by the City of the mortgage lien and its recognition in the purchase of the truck, we are of the opinion, under the facts of this case, that the trial court was not warranted in foreclosing the mortgage against the fire truck in the hands of appellant; accordingly, the judgment of the court below is reversed and judgment here rendered in favor of appellant.
Reversed and rendered.