Brazosport Sav. & L. Ass'n v. American Sav. & L. Ass'n, A-7521

• Decision Date: 15 February 1961
• Docket Number: No. A-7521,A-7521
• Citation: 342 S.W.2d 747,161 Tex. 543
• Parties: BRAZOSPORT SAVINGS AND LOAN ASSOCIATION, Fort Bend Federal Savings and Loan Association and Gulf Coast Savings and Loan Association, Petitioners. v. AMERICAN SAVINGS AND LOAN ASSOCIATION, Jimmy Phillips, J. T. Suggs, et al., its Organizers and Directors, and J. M. Falkner, Banking Commissioner of Texas, Respondents.
• Court: Texas Supreme Court

Page 747

342 S.W.2d 747

161 Tex. 543

BRAZOSPORT SAVINGS AND LOAN ASSOCIATION, Fort Bend Federal Savings and Loan Association and Gulf Coast Savings and Loan Association, Petitioners. v. AMERICAN SAVINGS AND LOAN ASSOCIATION, Jimmy Phillips, J. T Suggs, et al., its Organizers and Directors, and J. M. Falkner, Banking Commissioner of Texas, Respondents.

No. A-7521.

Supreme Court of Texas.

Feb. 15, 1961.

R. W. Lindsey, Rosenberg, Peareson, Scherer & Roberts, Richmond, McKay & Avery, Austin, for petitioners.

J. P. Bryan, Lake Jackson, Looney, Clark, Mathews, Thomas & Harris, Mary Joe Carroll, Austin, for Jimmy Phillips et al.

Will Wilson, Atty. Gen., C. K. Richards, Asst. Atty. Gen., Sam Kimberlin, Jr., Austin, for J. M. Falkner, Banking Com'r.

HAMILTON, Justice.

This suit was filed by petitioners seeking injunctive and declaratory judgment relief against respondents as a result of proceedings before, and the action of, the State Banking Commissioner, in granting a charter, franchise and certificate to do business to American Savings and Loan Association. Specifically, petitioners sought to set aside the articles of incorporation, enjoin the incorporators from doing business under the charter, and in the alternative sought a declaratory judgment to the effect that the Commissioner lacked authority to issue a charter because of his noncompliance with the statutory provisions set forth in Article 881a-2, Vernon's Ann.Civ.St.

The trial court construed this suit as a collateral attack upon the validity of the charter, and at a pretrial hearing without the introduction of evidence, sustained respondents' pleas in abatement dismissing the suit as to all parties defendant for lack of jurisdiction to hear and determine the cause. On appeal the trial court's action was affirmed by the Austin Court of Civil Appeals, one of the justices dissenting, in an opinion which held that petitioners had no standing to maintain a suit for injunction or declaratory judgment. 326 S.W.2d 567.

For purposes of brevity, Brazosport Savings and Loan Association, Fort Bend Federal Savings and Loan Association and Gulf Coast Savings and Loan Association are referred to individually or collectively as petitioners. Mr. J. M. Falkner, the State Banking Commissioner, is referred to as the Commissioner. The private respondents are referred to individually or collectively as American.

Petitioners in this case are savings and loan associations operating under charters, franchises and certificates to do business issued by the State Banking Commission pursuant to Article 881a, V.A.C.S. Through their application for writ of error they have presented to this court for determination the question of whether or not such validly operating savings and loan associations have any right to judicial protection and relief from allegedly unlawful or illegal competition of an association which has been chartered, franchised and certificated in violation of statutory requirements.

The rules and regulations for building and loan associations, as set forth in Article 881-2, V.A.C.S., require that applications and articles be accompanied by certain data, properly verified and sufficiently detailed and comprehensive, to enable the Commissioner to pass upon a proposed charter. By the same article the Commissioner is charged with the duty of determining the character and fitness of the incorporators, and ascertaining 'whether the public convenience and advantage will be promoted by allowing such proposed building and loan association to be incorporated and engaged in business, and whether the population in the neighborhood of such place and in the surrounding country affords a reasonable promise of adequate support for the proposed building and loan association.'

Many irregularities regarding the proceedings conducted by the Commissioner and the subsequent granting of authority to American to do business were alleged by petitioners. These allegations may be summarized as follows (see Court of Civil Appeals opinion and dissent, 326 S.W.2d 567, at page 573, for verbatim statement of pleadings).

Petitioners allege that they are lawfully engaged in the savings and loan business in the territory concerned, are ready, willing and able to serve all public needs, convenience and advantage, their businesses being affected by public use and interest, conducted for public welfare and benefit, and that their franchises constitute valuable property rights worth many thousands of dollars. Further, that respondents American made application to serve the same area, in competition with petitioners, and filed their application contrary to the form and provisions set forth in departmental rule 2.1 and improperly acknowledged in violation of the requirements of Article 881a-29, V.A.C.S.; that a public hearing was called at which American defaulted, failing to furnish the verified data required by rule 2.1, failed to submit substantial evidence from which the Commissioner could make the determination required by said rule and Article 881a-2, V.A.C.S., and failed to meet and satisfy the proof required by law as to the several elements governing grant of a charter, franchise and certificate to do business; that the Commissioner nevertheless approved American's application, contrary to law and his rules and contrary also to the credible evidence, which is that the public convenience and advantage will not be promoted by the grant to American-in fact, that during the past twelve months the Commissioner has issued franchises to three new associations for Brazoria County, being wholly unjustified action, never elsewhere practiced, and the grant to American was made at a time when neither he nor anyone else could make a fair appraisal of public interests or evaluation of public convenience and advantage as regards American.

Further, that although the rules and regulations require the Commissioner to consider probability of insurance of accounts, independent quarters with ground floor location, full time, qualified management and adequate capital and support by the population, no evidence was presented on these matters sufficient to justify the Commissioner's action in making the grant and issuing the certificate to do business. Petitioners pleaded that the population does not and cannot afford a reasonable promise of adequate support, and that in no other comparable area is the population already served by so many associations, mortgage and fiscal concerns; that the credible evidence is the existing associations fully serve the area, need the business, and the grant to American will not only harm them, but will injure the public; that the Commissioner's action was taken without regard to public welfare, and was without support in substantial evidence; that he acted arbitrarily and capriciously, and in violation of law.

While the merits of this case are not before the court, the facts set forth in the allegations above must be taken as true in disposing of the cause. We need only concern ourselves here with the right of petitioners, if such right exists, to challenge the Commissioner's actions.

The objects and business of savings and loan associations are matters of public utility. Although they are privately owned, they operate in the field of public interest like banks, insurance companies, and railroads, and are properly to be considered as quasi-public institutions. State ex rel. Wagner v. Farm Home Savings & Loan Association, 338 Mo. 313, 90 S.W.2d 93; Klein v. Jefferson County Bldg. & Loan Ass'n, 239 Ala. 460, 195 So. 593; 35 Words and Phrases, pocket part; Prudential Building & Loan Ass'n v. Shaw, Tex.Com App., 119 Tex. 228, 26 S.W.2d 168, 171. They are financial institutions of major importance to the credit system of the state, and in recognition of their public character such institutions are exempted from the corporate franchise tax in Texas. Acts 1959, 56th Leg., 3d C.S., Ch. 1, Art. 12.03, V.A.T.S. Tax-Gen. art. 12.03.

Respondents contend that savings and loan associations are mere private corporations and that this action constitutes an attempt to restrict or restrain lawful competition. If respondent's contentions were correct, the rule that ordinary private businesses are not properly entitled to receive protection against competition might be applicable here. 43 Amer.Jur., p. 585. Such is not the case, however, for savings and loan associations are quasi-public in nature, and we do not view petitioners' claim as a right to operate free of competition, but rather as a right to operate free of unlawful competition, created in violation of law.

Savings and loan...