Error to Court of Civil Appeals of Eighth Supreme Judicial District.

Sequestration proceedings by the Consolidated Garage Company against F. H. Nichols, in which Ray Chambers filed a claimant’s oath and bond. Judgment for plaintiff was reversed on claimant’s appeal (210 S. W. 565), and plaintiff brings error. Affirmed.

 [*1072] [*294]  Louis Oneal, of San Jose, Cal., and Beall, Kemp & Nagle and H. Potash, all of El Paso, for plaintiff in error.

Hudspeth & Harper, of El Paso, and Judkins & Perkings, for defendant in error.

PIERSON, J.

For the material facts of the case we quote the following statement from the opinion of the Court of Civil Appeals:

‘The Consolidated Garage Company is incorporated under the laws of California with its principal place of business in San Jose,  [*295]  Santa Clara county, Cal. Appellant, Chambers, is a resident of El Paso county, Tex. On July 6, 1917, appellee owned and was in possession of a certain automobile of the value of $1,700. On the date mentioned appellee and F. H. Nichols at San Jose, Cal., entered into a written contract by the terms whereof Nichols agreed to purchase the car from the company for the sum of $1,670.00, $600 being paid in cash, and the balance to be paid in monthly installments of $90 each; the deferred payments to bear interest from date. Nichols agreed not to sell or dispose of the automobile, nor take the same out of the state of California, nor permit the same to be removed from his possession, attached, levied upon, nor create any liens against same. Nichols was to pay all taxes against the property. The contract provided that title should remain in the company until all payments were made and all of the conditions contained inthe contract fully complied with, and that in the contract fully complied with, and that and terms by Nichols the company would execute to him a bill of sale to the property. The contract was to be performed wholly within the state of California. The automobile was removed from Santa Clara county, Cal., by Nichols without the knowledge or consent of the company and without any negligence on the latter’s part. The company used due diligence to collect the amount due upon the contract and exercised due diligence in trying to locate the car after it had been taken from San Jose and the state of California. The car was finally located in El Paso, Tex., where it had been brought by Nichols, and immediately upon ascertaining its location the company brought suit in the district court of El Paso county against Nichols and sequestered the car. The contract was not filed for record in California, nor in any county in Texas. The car was purchased in El Paso county by Chambers from Nichols for a valuable consideration and without notice of any defect in Nichols’ title.

‘When the car was sequestered in the suit against Nichols, Chambers filed a claimant’s oath and bond and possession was surrendered to him. Under the laws of California the contract between the company and Nichols was a conditional sale, and title to the automobile did not pass from the company to Nichols, and under the laws of California it was not necessary to file or register the contract, and under the laws of that state any subsequent purchaser from Nichols paying a valuable consideration without notice would not get any better title than Nichols had. The contract under the laws of that state being not a mortgage, but a conditional sale, the title remained in the company. The amount due by Nichols under the contract is $1,060, with interest.

‘The trial court’s conclusion of law was that Chambers in his purchase of the automobile from Nichols acquired no greater title  [*296]  than Nichols had; that the contract between the company and Nichols was a conditional sale, and, Nichols having defaulted, the company became entitled to the possession of the automobile. Judgment was rendered against Chambers and the sureties upon his bond for the value of the automobile, with interest.’

The Court of Civil Appeals reversed and rendered the case in favor of Ray Chambers, defendant in error.

Article 5654, Vernon’s Sayles’ Texas Civil Statutes 1914, provides:

‘All reservation of the title to or property in chattels, as security for the purchase money thereof, shall be held to be chattel mortgages,  [**1073]  and shall, when possession is delivered to the vendee, be void as to creditors and bona fide purchasers, unless such reservations be in writing and registered as required of chattel mortgages. ’

Article 5655 provides:

‘Every chattel mortgage * * * which shall not be accompanied by an immediate delivery and be followed by an actual and continued change of possession of the property mortgaged * * * shall be absolutely void as against the creditors of the mortgagor or person making same, and as against subsequent purchasers * * * in good faith, unless such instrument, or a true copy thereof, shall be forthwith deposited with and filed in the office of the county clerk of the county where the property shall then be situated, or if the mortgagor or person making the same be a resident of this state, then, of the county of which he shall at the time be a resident.’

It is clear that under our statutes the contract of sale as set out above, if between parties residents of this state, and concerning property within this state, would be a mortgage and subject to our registration laws. It is equally clear that under the same state of facts an innocent purchaser for value would take good title.

Defendant in error insists, inasmuch as the contract of sale set herein, under the laws of California, is a conditional sale and the title remained in plaintiff in error, that Nichols acquired no title under the contract, and therefore conveyed none to defendant in error, and that therefore this state under the rule of comity between states should give full force and effect to the reservation of title in plaintiff in error and award him a recovery under same according to the laws of California.

Huddy on Automobiles (5th Ed.) s 885, says:

‘In some states conditional contracts of sale are no sustained as against third persons innocently purchasing the property from the vendee. The validity of sale to a third person is generally determined by the law of the place of the sale; and hence, where such sale is in a state which refuses to recognize the validity of conditional sales, the title of the third person will be good, though the  [*297]  original conditional contract was made in a state where it was valid.’

It seems to be the general rule that a chattel mortgage duly executed and recorded according to the laws of the state where same is executed and the property is located will be held valid and effective as against purchasers in good faith in another state to which the property is removed by the mortgagor, unless that state has enacted some statute to the contrary or unless the transaction contravenes the settled law or policy of the forum. Corpus Juris, vol. 11, p. 424.

Chief Justice Marshall, in Harrison v. Sterry, 5 Cranch, 289, 3 L. Ed. 104, distinguishes between the validity of a contract creating a line and the priority of the lien over the rights of the third person as follows:

‘The law of the place where a contract is made is, generally speaking, the law of the contract; i. e., it is the law by which the contract is expounded. But the right of priority forms no part of the contract. * * * It is extrinsic, and is rather a personal privilege dependent on the law of the place where the property lies, and where the court sits which is to decide the cause.’

The Supreme Court of Tennessee, in the case of Snyder v. Yates, 112 Tenn. 309, 79 S. W. 796, 64 L. R. A. 353, 105 Am. St. Rep. 941, said:

‘When parties to a foreign contract are impleaded in the courts of this state, this court will expound and enforce the contract according to the laws of the country where it was made, if such laws are properly pleaded and proven; but it will not, in a question of priority, set aside its own statutes and rules to the prejudice of its own citizens.’

We think it is well settled that a contract is to be interpreted according to the lex loci contractus, but that the status of the personal property is to be governed by the lex loci rei.

This court in the case of Crosby v. Huston, 1 Tex. 203, in an opinion by Chief Justice Hemphill, in which the question here was an issue, used the following language:

‘The rule that the nature, validity, or invalidity, the obligation, and interpretation of this deed of trust should properly be determined by the laws of Mississippi, is not to be extended to the defeat of our own laws, or any rights growing out of them after the property was found within their jurisdiction.’

It further said:

‘But, whatever may have been the effect of registration in Mississippi, it cannot be extended beyond the territorial limits of the state. The operation of such a municipal regulation is local, and cannot affect property in a foreign jurisdiction.’

The rule announced in Crosby v. Huston by Chief Justice Hemphill is in accord with our statutes on this subject as announced  [*298]  above, which declare the policy of this state to be to protect the innocent purchaser for value without notice against the undisclosed or secret reservations of title, whether the same was contracted within this state or without. This is the correct and just rule.  [**1074]  Under the common law the mortgagee took and retained possession of the chattel until the mortgagor should pay the debt for which it was given and thereby repossess himself of it. There could be no injury to an innocent purchaser for value, because the party claiming reservation of title or lien upon the property had possession of it. For commercial convenience the rule was extended under our system of registration, and a purchaser of chattels was chargeable with notice of the reservation of title or lien upon the property if same was registered in accordance with the provisions of the law of the forum. In the absence of such registration and in the absence of notice or knowledge of the prior claim, the innocent purchaser was protected.

By the statutory law of this state a reservation of the title in chattels commonly known as a conditional sale is expressly declared to be a mortgage and subject to all the requirements of law relating to mortgages. Also the policy of this state is expressed by our statutes (articles 5654 and 5655, Vernon’s Sayles’ Texas Civil Statutes) that a mortgage of chattels, including conditional sales, is void as against third persons innocently purchasing the property for value, unless it is duly registered as provided therein.

Plaintiff in error insists that it is a hard rule to deprive him of his reservation of title or lien upon the property without any negligence on his part. Also it is a hard rule to deprive an innocent purchaser for value of the property when he has been at no fault. The difference between them is this: While it works a hardship upon the mortgagee, yet he trusts the property to the possession of the mortgagor, and thereby puts it within the power of the mortgagor to dispose of the property to one who has no notice of his claim. The mortgagee takes the risk incident to such possession, and, while he has done no wrong and may not be negligent in regard to trying to protect his rights in the property, yet he makes it possible for a third person to be defrauded if it should be held that the rights of the third person are subject to his prior claim, of which said purchaser has no knowledge or notice.

An innocent purchaser for value has no means of protection whatever against a private or secret unregistered reservation of title in chattels, whether made in this state or our of it.

We think these principles are fundamentally correct and conduce to less injustice than the contrary doctrine, and are clearly in consonance with our statutes and the settled policy of our state.

The judgment of the Court of Civil Appeals is affirmed.