Phillips v. Brazosport Savings & Loan Association

• Decision Date: 20 March 1963
• Docket Number: No. A-8874,A-8874
• Citation: 366 S.W.2d 929
• Parties: Jimmy PHILLIPS, American Savings & Loan Association, J. M. Falkner, Banking Commissioner of Texas, et al., Petitioners, v. BRAZOSPORT SAVINGS & LOAN ASSOCIATION, Fort Bend Federal Savings & Loan Association, and Gulf Savings & Loan Association, Respondents.
• Court: Texas Supreme Court

Page 929

366 S.W.2d 929

Jimmy PHILLIPS, American Savings & Loan Association, J. M Falkner, Banking Commissioner of Texas, et al., Petitioners, v. BRAZOSPORT SAVINGS & LOAN ASSOCIATION, Fort Bend Federal Savings & Loan Association, and Gulf Savings &amp Loan Association, Respondents.

No. A-8874.

Supreme Court of Texas.

March 20, 1963.

Rehearing Denied May 8, 1963.

Will Wilson, Atty. Gen., Bob Shannon, Asst. Atty. Gen., Clark, Thomas, Harris, Denius & Winters, Austin, for petitioners.

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

HAMILTON, Justice.

This case involves the validity of an order of the Banking Commissioner granting a charter and certificate of authority to American Savings & Loan Association. Respondents-Brazosport Savings & Loan Association, Fort Bend Federal Savings & Loan Association and Gulf Savings & Loan Association-attacked the order in the district court; that court rendered judgment upholding the order of the Commissioner. The Court of Civil Appeals reversed and rendered judgment canceling the charter and certificate of authority of the American Savings & Loan Association. 353 S.W.2d 78. The officers and directors of American Savings & Loan Association and the Banking Commissioner, J. M. Falkner, are petitioners here.

Respondents contended in the Court of Civil Appeals that the order was invalid on two main grounds: (I) Certain procedural defects rendered the order illegal and (II) the order was not supported by substantial evidence. The Court of Civil Appeals sustained respondents' first contention and held the order illegal, but did not pass on the contention that the order was not supported by substantial evidence. Respondents make both contentions in this court.

I. Procedural Matters

Respondents urge three procedural matters which they say deprive the Commissioner of authority to grant the chartger: (A) one of the associates' taking the acknowledgment of the other associates' signatures on the articles of association, (B) failure of Commissioner to require petitioners to file supporting data with the articles of association as provided by Rule 2.1 of the Rules and Regulations for Building and Loan Association of the Finance Commission of Texas, and (C) the Commissioner's considering an investigator's report which was not introduced at the administrative hearing.

(A) Acknowledgment

Respondents contend that the Commissioner was without jurisdiction to grant the charter because the application and articles of association were not properly acknowledged as required by Vernon's Ann.Civ.St. Article 881a-29 ¹ in that one of the members of the Association took the acknowledgment of the 51 other members who signed the articles. The articles of association filed with the Banking Commissioner by the petitioners were signed by 52 persons. One of those signing the articles, Elizabeth B. Bice, a notary public, took the acknowledgments of the 51 others signing the articles. Her own acknowledgment was taken by another notary not a member.

While this court has not passed on the question, it appears from other jurisdictions that when the statute requires that articles of incorporation be acknowledged, then a valid acknowledgment is a prerequisite to a statutory right to the granting of the charter. People v. Montecito Water Co., 97 Cal. 276, 32 P. 236, (California S.Ct.); People ex rel. Erie R. Co. v. Board of Railroad Commissioners et al., 105 App.Div. 273, 93 N.Y.S. 584.

The general rule in this state and other jurisdictions is that one who is financially and beneficially interested in a transaction is disqualified to take an acknowledgment concerning the transaction. Brown v. Moore, 38 Tex. 646; Rothschild v. Dougher, 85 Tex. 332, 20 S.W. 142, 16 L.R.A. 719; Creosoted Wood Block Paving Company v. McKay, Tex.Civ.App., 211 S.W. 822; Gulf Production Company v. Continental Oil Company, 139 Tex. 183, 132 S.W.2d 553, 164 S.W.2d 488; 1 Tex.Jur.2d, pp. 389-390, § 38; see Comment, 14 B.L.Rev. 299 (1962).

However, we think that it was the purpose and intent of the Legislature in requiring that '(s)uch articles of association shall be signed by the persons associating and acknowledged before some person authorized by the laws of this state to take acknowledgments to deeds * * *' to assure the Commissioner that the signatures of the incorporators were genuine and to prevent fraud or undue influence. Respondents do not so much as suggest that the signatures were not genuine, or that there was bad faith, or fraud, or undue influence. We hold that the fact that one of the associates happened to be the notary who took the acknowledgments of the other 51 associates does not render invalid the charter granted pursuant thereto.

(B) Failure to File Supporting Data

Rule 2.1 provides as follows:

'When articles of incorporation of a new association are presented to the Banking Commissioner for his approval, such articles shall be accompanied by the proposed By-Laws of the association and statements, exhibits, maps and other data properly verified, which shall be sufficiently detailed and comprehensive to enable the Commissioner to pass upon the proposed charter as to (1) the character, responsibility and general fitness of the persons named in the articles; (2) whether the public convenience and advantage will be promoted by allowing such proposed association to be incorporated and engage in business, taking into consideration (a) that insurance of the accounts of the proposed association has been applied for and that such insurance will probably not be refused by the Federal Savings and Loan Insurance Corporation, (b) that such proposed association will have and maintain independent quarters with a ground-floor location or its equivalent, (c) that such proposed association will have qualified, full-time managements, and (d) the adequacy of the initial capital and surplus of the proposed association; and (3) whether the population of the neighborhood of such place and in the surrounding country affords a reasonable promise of adequate support for the proposed association.'

The Commissioner testified at the trial that it has been his custom not to require the filing of this data if there was to be a hearing. Whether there was to be a hearing depended upon whether or not there were protestants who wished to challenge the granting of the charter. (Rule 2.3 of the Rules and Regulations) Since there was to be a hearing petitioners did not file accompanying data.

Respondents contend that Rule 2.1 requiring the filing of this data is mandatory and jurisdictional and that an order granting a charter when no data has been filed is void.

We overrule this contention. The requirements of this rule are not jurisdictional.

Article 881a-2, from which the Commissioner gets his authority to grant charters, provides as follows:

'When any persons shall file a proposed charter or articles of agreement as is elsewhere herein provided, if it appears to the satisfaction of the Banking Commissioner of Texas that the minimum capital required has been paid in cash into the treasury of the association upon subscriptions for shares, the Banking Commissioner of Texas shall ascertain from the best sources at his command, and by such investigation as he may deem necessary, the expense of such investigation to be paid by the incorporators, whether the character, responsibility and general fitness of the persons named in the articles of incorporation are such as to command confidence and warrant belief that the business of the proposed building and loan association will be honestly and efficiently conducted in accordance with the intent and purpose of this Act, and 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. If it shall be satisfied concerning the several matters specified, the Banking Commissioner of Texas shall issue under his official seal a certificate reciting in substance the filing in its office of the articles of incorporation; that such articles conform to all requirements of the law, and that they have been approved, whereupon the persons named in the articles of association, their associates and successors, shall become a corporate body * * *.'

The statutory mandate is that the Commissioner must find (1) that the character of the incorporators is satisfactory, (2) that the public convenience and advantage will be served by the granting of the charter and (3) that the population will support a building and loan association. The statute gives the Commissioner the power to 'ascertain (these facts) from the best sources at his command, and by such investigation as he may deem necessary.' The statute nowhere requires that the Commissioner require the filing of this supporting data at the time of filing the articles of association. This rule is one which the Finance Commission has enacted for the convenience of the Banking Commissioner. The filing of this data merely provides the Banking Commissioner with another source of information. Nothing in the rule imports that its purpose is to acquaint a protestant with the evidence which an applicant is relying on. The Commissioner testified at the trial that his practice has been not to require the filing of the data when there is to be a hearing. He relies on the hearing and other sources of data necessary to a determination as to population, character, and public convenience and advantage. This interpretation of the rule is in harmony with the statute, since the statute gives him discretion to gather data from the best sources at his command.

Respondents contend that they have been deprived of their constitutional rights...