I was born in Texas 75 years ago and was a licensed salvage dealer until not too long ago. I have dealt with a lot of title problems. Up until the mid 50's Texas vehicles were titled by the engine number. That was law back then. Factory short blocks were supplied with the serial number blank so the installer could stamp the number of the replacement block. Whoever installed the engine should have ground out the number and stamped it with the original number. I would suppose that a local tax assessors office put the number changed notation on the title. The law is not flawed. Whoever went to the tax office when they installed a different engine was stupid. They should have just changed the numbers on the engine and it would not have been illegal to do so. The number you cite doesn't even match a Chev serial number. But if the number you cite is stamped on the boss by the distributor, that would be the correct number to appear on the title. If you want to open a can of worms, drive down to the Texas DMV at 1001 E. Parmer Lane in Austin. If it were my vehicle and it is a clear title, I would leave it alone. I'm not sure I see your point in what you are trying to gain by criticizing what was law almost 70 years ago. Your statement "Texas uses ONLY motor numbers on titles that predate the standard VIN system" is false. The 17 digit standard VIN started in 1982. Texas started titling vehicles by the VIN number of the vehicle in the mid '50s.
Many states titled vehicles by engine number until the mid '50s.