Alexander v. Ling-Temco-Vought, Inc. , 1966 Tex. App. LEXIS 2777 ( 1966 )

CHADICK, Chief Justice.

This litigation was initiated by appellant, A. C. Alexander, a plaintiff in a declaratory judgment action to determine ownership of a house trailer; by cross-action ap-pellee, Ling-Temco-Vought, Inc., (successor in interest to M. System, Inc., as a result of a corporate merger) sued Alexander and Pioneer Finance Company to establish and quiet legal and equitable title to the trailer, for possession thereof, and alternatively, to establish a first lien thereon securing a promissory note for its purchase price. Summary judgment was rendered vesting legal and equitable title in Ling-Temco-Vought, Inc., etc. Alexander alone has perfected an appeal. The judgment of the trial court is modified and affirmed.

M. System, Inc., manufactured the subject Ranchero house trailer, serial RN 55-27, in its Texarkana, Texas, plant and at such place on November 16, 1961, sold and delivered possession of the trailer to Stevens Trailer Sales, Inc., a dealer whose place of business was located in Atlanta, Georgia. The sales transaction, in the part entirely evidenced by written instruments, is shown by (1) a Conditional Sales Contract dated November 16, 1961, executed and delivered as to both parties, wherein it is agreed that the “contract, the note given in connection therewith, and the formalities of execution * * * shall be a contract of and construed pursuant to the laws” of the State of Georgia where the instrument provided the trailer would be located; (2) a promissory note dated November 16, 1961, executed by Stevens Trailer Sales, Inc., and delivered to M. System, Inc., in the sum of $4,131.00 payable 30 days from date, or on demand at the holder’s option. The Conditional Sales Contract by express terms retained in the manufacturer the title to the house trailer until the purchase price evidenced by the promissory note was paid.

There appears to have been a collateral parol agreement made at the same time and as a part of the same transaction the Conditional Sales Contract referred to. Involved in the parol agreement are (1) a Bill of Sale and (2) a Manufacturer’s Statement of Origin of a Motor Vehicle, hereafter referred to as a Manufacturer’s Certificate. At completion of the sales transaction M. System, Inc., intentionally withheld delivery of these two instruments. The agreement of the parties concerning the instruments, according to the uncon-troverted affidavit filed by the appellee, was that the manufacturers would retain possession of the Bill of Sale and the Manufacturer’s Certificate until Stevens Trailer Sales, Inc., made full payment of the trailer’s $4,131.00 purchase price.

Stevens Trailer Sales, Inc., sold the trailer to Kenneth E. Smith at Leesville, Louisiana, on January 23, 1962. This sale transaction embraced a trade-in, a cash payment, and a note for deferred payments. Stevens took a mortgage on the trailer securing the note from Smith for the credit part of the purchase price and assigned the note and mortgage to Pioneer Finance Company. Thereafter on July 26, 1962, appellant Alexander purchased the trailer from Smith, paying $100.00 for Smith’s equity and assumed payment of an unpaid balance of $6,890.17 then payable to Pioneer Finance Company. Prior to suit appellant Alexander made monthly payments to the finance company totaling $1,046.76. At the time of purchase Alexander’s title investigation disclosed to him the existence of Pioneer Finance Company’s mortgage lien and the indebtedness it secured; his affidavit says he found “no other liens, claims or rights outstanding in anyone other than the owner, Kenneth E. Smith”. Alexander made application for a Louisiana title certificate but was unsuccessful in securing it. He was first advised Ling-Temco-Vought Inc., asserted some claim or interest in the trailer in October or November, 1963.

The rights and obligations of the parties will be reviewed and ascertained as though the entire transaction occurred in the State of Texas and subject to its laws; the effect, if any, of Georgia or Louisiana law will then be considered. Terms, such as “first sale”, “subsequent sale”, "motor vehicle”, etc., defined in the Certificate of Title Act, Art. 1436-1, § 1 et seq., Vernon’s Ann.Texas P.C., are used in the sense of their statutory definition throughout this opinion.

The Certificate of Title Act is a statute having special application to motor vehicles, which term includes house trailers ; Sec. 41 of the Act declares: “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.” The Conditional Sales Contract mentioned above created a chattel mortgage lien. Art. 5489, Vernon’s Ann.Tex.Civ.St., in part says: “All reservations of the title to or property in chattels, as security for the purchase money thereof, shall be held to be chattel mortgages * * ¹ M. System, Inc.’s sale of the trailer house to Stevens Trailers Inc., is a first sale, and the lien provisions of Sec. 41 of the Act are clearly applicable to the transfer. The lien created by the Conditional Sales Contract was valid and subject to preservation by notation thereof on the manufacturer’s certificate. Motor Inv. Co. v. Knox City (1943), 141 Tex. 530, 174 S.W.2d 482 at page 486. Motor Inv. Co. v. City of Hamlin (1944), 142 Tex. 486, 179 S.W.2d 278. The facts developed reflect that M. System, Inc., retained the Bill of Sale and the Manufacturer’s Certificate without exhibiting them to anyone outside of company personnel handling such matters from the time of sale until suit was filed. No notation of a lien was ever made upon the Manufacturer’s Certificate.

The preservation and priority of liens on motor vehicles is governed by the Certificate of Title Act. The Act’s provisions superseded inconsistent provisions of the chattel mortgage registration laws in this field. Commercial Credit Co. v. American Mfg. Co. (Tex.Civ.App.), 155 S.W. 2d 834, writ ref.; Bank of Atlanta v. Fretz, 148 Tex. 551, 226 S.W.2d 843; “Automobiles”, 7 T.J.2d 396, Sec. 71. While the cases last cited authoritatively determined the Act’s primacy where certificates of title are concerned, the same conclusion with respect to manufacturer’s certificates is not so pointedly settled, but there can be little doubt of it. The emphasized language from Motor Investment Co. v. Knox City, supra clearly recognizes a similar predominance in manufacturer’s certificates, to-wit:

“It is true that Section 41 provides that no lien shall be valid on any motor vehicle unless there is noted on the manufacturer’s certificate certain evidence of the existence of such a lien, and, by implication at least, s"ch statute charges purchasers with notice of such a lien if it is so noted on the certificate. For this reason it is necessary for purchasers, in order to protect themselves against any outstanding liens shown on the certificate, to obtain such certificate before buying the vehicle; but the mere failure to obtain such a certificate on a first sale does not invalidate the sale, particularly where, as in this case, no evidence of any lien had been noted on the certificate at the time of the sale.” (Emphasis added).

See also Motor Inv. Co. v. City of Hamlin, supra. This construction is in harmony with the purposes of the Act and necessarily will be followed in this case.

The lien of a lender having exclusive physical possession of a certificate of title is superior to the equities of subsequent purchasers or lien holders, although the lien is not noted on the certificate as directed in the Certificate of Title Act, when the subsequent sale transaction is not influenced by the omission of the lien notation from the certificate. Associates Investment Co. v. National City Bank of Waco (Tex.Civ.App.1950), 231 S.W.2d 661, no writ; First State Bank of Corpus Christi v. H. Austin Motors (Tex.Civ.App.1958), 315 S.W.2d 390, wr. ref.; Ballard v. Associates Investment Co. (Tex.Civ.App. 1963), 368 S.W.2d 232, wr. ref., n. r. e.; Southwestern Investment Co. v. American Nat. Bank of Amarillo (Tex.Civ.App.1963), 374 S.W.2d 318, wr. ref., n. r. e.; Clade v. National City Bank of Waco (Tex.Civ.App.1950), 229 S.W.2d 815, wr. ref., n. r. e. The facts of this case do not show that M. System Inc.’s failure to note its lien on the manufacturer’s certificate or the omission of the notation played any part'in, influenced or had a bearing upon the subsequent sales transactions between Stevens Trailer Sales Inc., and Smith or Smith’s sale to Alexander. The reasoning of the certificate of title cases cited leads to a similar conclusion that the Conditional Sales Contract lien should not be regarded as waived or forfeited by omission of a notation thereof on the manufacturer’s certificate which M. System, Inc., retained in possession at all relevant times and never exhibited to Smith or Alexander. In Motor Investment Co. v. Knox City, supra, the original Manufacturer’s Certificate was delivered to the dealer without a notation of a lien upon it, and the dealer was permitted to and did exhibit it to the purchaser, Knox City. A fraudulently obtained duplicate Manufacturer’s Certificate issued after sale to Knox City, bore a notation of a lien securing indebtedness contracted after Knox City purchased the vehicle. These facts decisively distinguish the present from that case.

Appellant Alexander claims title to the trailer house as an innocent purchaser for value. This claim is based in part upon a contention that the law of Georgia governs the transaction. The proposition is not sustained by the record. Earlier it was mentioned that the Conditional Sales Contract between M. System, Inc., and Stevens Trailer Sales, Inc., provided that the instrument was to be deemed a Georgia contract and construed in conformity with the laws of that state. Such provision is an effort to impart to the agreement the attributes and effect of a contract made and executed in the State of Georgia. The evidence is uncontradicted that the trailer house was located in Texas at the time the contract was consummated in Texas. Also, it is shown that the trailer was at Lees-ville, Louisiana, when Stevens Trailer Sales, Inc., sold it to Kenneth E. Smith, and Smith resold to Alexander. There is no evidence the trailer house reached the State of Georgia after removal from Texas. The situation presented by the record is analogous to that existing when a mortgage is executed in one jurisdiction on property in another jurisdiction. “Re-statement, Conflict of Laws,” § 265 espouses the application of the following rule in such instances, to-wit: “The validity and effect of a mortgage of a chattel are determined by the law of the state where the chattel is at the time when the mortgage is executed.” See also “Chattel Mortgages”, 12 T.J.2d 7, § 2; 15 Am.J.2d 21, § 17, and 14 C.J.S. Chattel Mortgages § 14, p. 606. In this instance the State of Georgia has not had actual jurisdictional contact with the property or the contract or the parties to this litigation; the absence of such contacts strengthens the reason for concluding that the law of the situs governs. It follows that Georgia law does not govern the transaction, and such law can have no bearing on Alexander’s standing as an innocent purchaser for value. Further consideration of the question of innocent purchaser and the complications incident to the trailer being in the State of Louisiana when it was sold to Alexander will next be noticed.

The trial court was not requested to take judicial notice of the law of Louisiana, and such law was not pled nor proved, so it must be presumed that Louisiana law is identical with Texas law having application to the case. Milner v. Schaefer (Tex.Civ.App.1948), 211 S.W.2d 600, wr. ref.; Kansas City Title Ins. Co. v. Butler (Tex.Civ.App.1954), 265 S.W.2d 154, wr. ref., n. r. e.; Sanders v. Treend (Tex.Civ.App.1954), 266 S.W.2d 235, wr. ref., n. r. e.; Ogletree v. Crates (Tex.Sup.Ct.1963), 363 S.W.2d 431. Since disposition of the appeal does not require it, for brevity’s sake, the sale of the trailer by Stevens Trailer Sales, Inc., to Smith at Leesville, Louisiana, will be disregarded in the further consideration of the innocent purchaser question. The facts that have been recited show that the sale of the trailer by Smith to Alexander did not, and could not, comply with the requirements of the Texas Certificate of Title Act, §§ 8, 27, 33, 51 and 52.² This evidence shows Alexander bought the trailer in a sale rendered void by § 53 of the Act. He is not an innocent purchaser under applicable Texas law. Guinn v. Loky (1952), 151 Tex. 260, 249 S.W.2d 185; “Automobiles”, 7 T.J.2d 393, §70.

Associated with the innocent purchaser phase of the case is Alexander’s claim that the lien of the Conditional Sales Contract was waived. The agreement provided that the trailer would be located at Stevens Trailer Sales, Inc.’s address in Atlanta, Georgia, and not removed therefrom without the written consent of M. System, Inc. It also authorized Stevens Trailer Sales, Inc., to display the house trailer at its place of business, “ * * * for resale for cash only, provided that when a sale is made all of the proceeds of said sale, whether in cash or in kind, which shall not be less than the deferred balance above indicated, shall be received by the buyer in trust for the seller or assigns and shall be immediately transferred by the buyer to the seller, or assigns.” Alexander construes the quoted language as permission for Stevens Trailer Sales, Inc., to transfer the trailer to a buyer, in this instance to Kenneth E. Smith, free and clear of the lien and to substitute the proceeds of that transaction for the vehicle. Whether or not this provision should be given Alexander’s construction need not be decided because there was not a substantial compliance with the condition set up. The trailer was sold partly for cash, partly trade, and partly for deferred payments not in Atlanta, Georgia, but in Leesville, Louisiana. The sale by Stevens Trailer Sales, Inc., to Smith violated the condition prerequisite to permission. The circumstances do not show a waiver of the lien. Highland Park State Bank v. Continental Nat. Bank of Fort Worth (Tex.Civ.App.1957), 300 S.W.2d 304, wr. ref., n. r. e.

Alexander also asserts title by operation of the two year statute of limitations, Art. 5526. Ling-Temco-Vought, Inc., sued to establish its title or an enforceable lien securing a debt, both evidenced by instruments in writing. The suit was instituted less than four years after the maturity date of the indebtedness. The four year statute of limitation, Art. 5527, applies to the action. The suit to establish a lien is not barred. Graham v. Leto (Tex.Civ.App.1937), 103 S.W.2d 1031, wr. dism.; Liquid Carbonic Co. of Texas v. Logan (Tex.Civ.App.1935), 79 S.W.2d 632, no writ; Jolly v. Fidelity Union Trust Co. (Tex.Com.App.1928), 118 Tex. 58, 10 S.W.2d 539. A mortgagee may follow and subject mortgaged property, in the hands of one who has converted it, to the purposes of the mortgage at any time before the secured indebtedness is barred by limitation. “Chattel Mortgages”, 15 Am.Jur.2d 328, § 159.

Appellant counters the appellee’s rights under the mortgage with the argument that he is in “the position of a converter, albeit one whose good faith is not challenged;” and insists that he may be sued, if at all, for conversion, a tort barred by the two year statute of limitation. He relies on Art. 5526, the two year statute of limitation as a bar to any action against him, and cites Port Arthur Rice Milling Company v. Beaumont Rice Mills (1912), 105 Tex. 514, 143 S.W. 926, in support of his argument. He cites no authority that limits the appellee’s redress to a suit for conversion. The mortgage instrument, the Conditional Sales Contract, placed possession in the mortgagor, and gave mortgagee no present right of possession, such right maturing, if at all, upon default in payment. The mortgagor can not be held to know property is being claimed and possessed in hostility to the lien unless the possessor acts to bring his adverse claim and possession to the attention of the lien holder. The evidence does not show a use or claim of ownership by Alexander two years or more before suit that was inconsistent with appellee’s lien or that was timely brought to appellee’s notice. The general rule is stated in 2 C.J.S. Adverse Possession § 241, p. 886, where it is said:

“Possession of a chattel, with the consent or permission of the owner, however long-continued, will not give title by adverse possession; and where the possession is permissive in its inception, its character will be changed to adverse, so as to permit the running of the statutory period only when the possessor evinces a claim of ownership by some tangible act in hostility to the rights of the real owner.”

No case similar to this under review has been found, but the general rule has had application by Texas courts in other situations. See Federal Electric Co. v. Johnson (Tex.Civ.App.1945), 187 S.W.2d 410, wr. dism.; Moerbe v. Beckmann (Tex.Civ.App.1939), 132 S.W.2d 616, wr. dism., judg. cor. There is no evidence of any action on Alexander’s part that visited notice on appellee that appellant was denying appellee’s lien or claiming title to the trailer house adversely to appellee’s lien. The appellant’s contentions are overruled.

Pursuant to the conclusions reached above the judgment of the trial court as it applies between the appellant and appellee will be modified to the end that the appellee is adjudged to be the owner and holder of a valid first lien upon the trailer securing payment of a matured and unpaid promissory note in the principal amount of $4,131.00, with no bar to its foreclosure or to the exercise of all rights conferred upon it by the Conditional Sales Contract or inherent therein, and for all costs, etc.; as modified the judgment is affirmed.

The opinion filed herein on March 29, 1966, is withdrawn and the foregoing is filed in lieu of it in passing upon appellant’s first motion for rehearing. Such motion is denied.

FANNING, J., concurs.

1 . The article also provides generally that when possession of a chattel is delivered to the vendee the mortgage lien created by reservation of the title shall be void as to creditors and bona fide purchasers, unless such reservation be in writing and registered as required of chattel mortgages, and then provides that the article shall not be construed to contravene the landlord and tenant law; however the applications of these provisions to house trailers has been superseded by the Certificate of Title Act as shown hereafter.

2 . To avoid lengthening this opinion reference is made to Art. 1436-1, Vernon’s Penal Code for the text of these and other sections of the Act which may be mentioned in this opinion.