State Banking Board v. Airline National Bank

• Decision Date: 26 January 1966
• Docket Number: No. 11365,11365
• Citation: 398 S.W.2d 805
• Parties: STATE BANKING BOARD and Northline State Bank, Appellants, v. AIRLINE NATIONAL BANK, Appellee.
• Court: Texas Court of Appeals

Page 805

398 S.W.2d 805

STATE BANKING BOARD and Northline State Bank, Appellants, v. AIRLINE NATIONAL BANK, Appellee.

No. 11365.

Court of Civil Appeals of Texas, Austin.

Jan. 26, 1966.

Rehearing Denied Feb. 16, 1966.

Waggoner Carr, Atty. Gen., Hawthorne Phillips, First Asst. Atty. Gen., T. B. Wright, Executive Asst. Atty. Gen., Paul W. Phy, John W. Fainter, Jr., Asst. Attys. Gen., Austin, Vinson, Elkins, Weems & Searls, Ben H. Rice, III, Ewing Werlein, Jr., Houston, Health & Davis, Dudley D. McCalla, Austin, for appellants.

Joe R. Long, Brown, Sparks & Erwin, Frank C. Erwin, Jr., Austin, for appellee.

HUGHES, Justice.

The State Banking Board whose members are J. M. Falkner, Jesse James and Robert S. Strauss on November 25, 1964, granted a bank charter to the Northline State Bank of Houston, Texas, hereinafter called Northline. On December 3, 1964, the Airline National Bank of Houston, Texas, hereinafter called Airline, filed suit in the court below as an appeal from the order granting the bank charter to Northline. Only the State Banking Board and its members were made parties, however Northline intervened.

After a non-jury trial, the court made findings of fact and conclusions of law upon which judgment was rendered ¹ declaring null and void the charter issued by the Board to Northline.

The authority of the Board to issue charters for State banks is found in Art. 342-305, Vernon's Ann.Tex.Civ.St., which provides in part:

'In considering any such application, the State Banking Board shall, after hearing, determine whether or not:

1. A public necessity exists for the proposed bank.

2. The proposed capital structure is adequate.

3. The volume of business in the community where such proposed bank is to be established is such as to indicate profitable operation of the proposed bank.

4. The proposed officers and directors have sufficient banking experience, ability and standing to render success of the proposed bank probable.

5. The applicants are acting in good faith.

Should the State Banking Board determine any of the above issues adversely to the applicants, it shall reject the application. Otherwise such Board shall approve the application and the Commissioner shall, when the capital has been paid in cash, deliver to the incorporators a certified copy of the articles of association, and the bank shall come into corporate existence. Provided, however, that the State Banking Board may make its approval of any application conditional, and in such event shall set out such condition in the resolution granting the charter, and the Commissioner shall not deliver the certified copy of the articles of association until such condition has been met, after which the Commissioner shall in writing inform the State Banking Board as to compliance with such condition and delivery of the articles of association.'

The Board made affirmative findings on each of these statutory requirements but it conditioned its approval of the application of Northline on an increase of $100,000.00 in the capital and surplus of the proposed bank.

Airline in its petition filed below alleged that each of the affirmative findings made by the Board was not reasonably supported by substantial evidence. Airline, however, has abandoned its attack on three of these findings and, in this Court, disputes only the finding that a public necessity exists for the proposed bank and the finding that the proposed officers and directors have sufficient banking experience, ability and standing to render success of the proposed bank probable.

We will first discuss and determine the question presented regarding the proposed officers of Northline. ² The facts bearing on this question are these.

In the application for a charter for Northline it was stated:

'The proposed officers selected are: Executive officers to be named prior to opening, subject to approval of Banking Board. * * * President W. S. Elkins * * * Mr. W. S. Elkins, a life long resident of Houston and Senior Partner in the law firm of Vinson, Elkins, Weems and Searls, will serve as President, inactive, of the proposed bank. Mr. Elkins has been most active in business and civic affairs in Houston and is a member of the board of directors of five banks in the Houston area as listed below under the section dealing with directors.

Selection of an Executive Vice President, who will be the chief executive officer, and a Cashier have not been completed at this time. Assurance is given, however, that a fully competent management staff acceptable to the Banking Board and subject to its approval, will be named prior to opening for business. * * *

Mr. Elkins is a Senior Partner in Vinson, Elkins, Weems and Searls, one of Houston's oldest and largest law firms. He is an advisory director of the First City National Bank of Houston, and director of The Harrisburg Bank and Gulfgate State Bank of Houston, the LaPorte State Bank, and First State Bank of Clear Lake City.'

The following testimony was given by Mr. John G. Heard, an attorney and director of Northline:

'Q. (By Mr. Rice) Was there any statement made by a representative of the Airline Bank at the hearing with respect to the question of the management of the proposed Northline Bank?

A Yes, sir, there was such a statement.

Q. Can you state for us, in substance or in exact words, if you can, what the statement was?

A There was such a statement, Mr. Rice, and as a matter of fact, the opponents to our charter admitted, through Mr. Jacobsen, that there was no question but what this group represented by the directors were responsible banking people and could provide necessary management, and I think almost his precise words were that there was no question but what this group could provide adequate banking management.'

It is undisputed that the names of all the proposed officers of Northline were not submitted to the Board or any of its members prior to the hearing on the application for Northline or prior to entry of the order granting its application.

It is also undisputed that the order or resolution granting the application of Northline was not, in so many words, conditioned on the Board's approval of the proposed officers of the bank.

Since granting the application of Northline an organizational meeting was held by its stockholders and in addition to Mr. Elkins being named President, Mr. W. J. Keitt was named Vice President and Mr. Bernard S. Beaman, Jr., was named Cashier. These are the only officers a bank is required to have. Art. 342-409, V.A.T.S.

We do not understand Airline to question the qualifications of either Mr. Keitt or Mr. Beaman, Jr., but it does question the qualification of Mr. Elkins.

Mr. Elkins is an attorney, a member of a large Houston law firm. For twenty-five years he has devoted most of his time to banking matters for this firm. While he has never been an officer of a bank he has been a director and advisor of the First City National Bank of Houston since 1956, and has been a director of numerous other banks. Mr. Elkins did not intend to do the day to day work of the bank but he did intend to do all that was required of him by law as President of Northline.

We hold, with the trial court, that the qualifications of Mr. Elkins as an officer of Northline are established not only by substantial evidence, but by undisputed evidence.

The fact that the other two officers were not named until after approval of the application for a charter is said to be fatal to the validity of the charter.

While neither Airline nor the Board could waive the statutory requirements regarding the selection and Board approval of officers of a bank, the Board, as well as Northline, by the statement attributed to Mr. Jacobsen, were justified in believing that the immediate appointment and Board approval of qualified officers was not a matter of present importance and was not a point of Airline's opposition to the issuance of a charter to Northline. Under these circumstances, we believe that the Board was not mandatorily required to approve the selection and qualifications of officers of the bank before approval of the charter ³ but that it could rely upon its authority in this respect given to it by Art. 342-307, V.A.C.S. This Article, a part of the banking code and to be construed with all of its provisions, including Art. 342-305, supra, provides, in part:

'No state bank may do business until it receives a certificate of authority from the Commissioner, which shall not be delivered until it has elected the officers and directors named in the application for charter or other officers and directors approved by the Commissioner; shall have adopted bylaws approved by the Commissioner; and shall have complied with all the other requirements of this Code relative to the incorporation of state banks.'

This Article clearly contemplates a situation comparable to the one before us. If officers named in an application are not elected or if elected cannot or will not serve or if, as here, all the officers are not named in an application, then the statute provides an alternative. Willing officers and directors may be elected and when approved by the Commissioner, and not before, a certificate of authority to do business may be issued by the Commissioner to the new bank.

This construction of these statutes comports with ordinary corporate procedures and with the State Banking Code. Stockholders elect the directors who in turn elect officers. Arts. 342-404 through 342-409. There are no stockholders, directors or officers of a corporation until after the corporation is brought into being.

We are further of the opinion that the application of Northline expressed the condition that competent management would be named prior to the opening of the Bank for business and that the approval of this application by the Board had the legal effect of writing this condition into the charter as authorized by Art. 342-305, supra.

We turn now to the question of...