Brazosport Savings & Loan Ass'n v. Phillips

ARCHER, Chief Justice. This suit was filed seeking injunctive and declaratory judgment relief by appellants against appellees on account of the proceedings before and action of the State Banking Commissioner in granting a charter, franchise and certificate of authority to do business to American Savings and Loan Association, pursuant to application of appellees, the organizers and directors thereof, and sought to set aside the articles of incorporation and to enjoin the incor-porators from doing business under the charter and alternatively sought a declaratory judgment to the effect that the Commissioner lacked authority to issue the charter. Appellants contend that the gist of the complaint is that the Commissioner (in an adversary proceeding) wrongfully granted the charter to American contrary to the Commissioner’s own rules, the law and the evidence which will permit American to unlawfully and illegally engage in a savings and loan business with resulting injury and damage to appellants. The Banking Commissioner and the individual defendants severally filed pleas to the jurisdiction of the court which were sustained and the court dismissed the case and it is from this action that the appeal is taken. The appeal is based on eight points which are to the effect that the trial court erred in sustaining the pleas in abatement to the jurisdiction of the court filed by the Commissioner and by Phillips et al; in dismissing appellants’ suit on grounds of lack of jurisdiction; in depriving appellants of their rights to a declaratory judgment; in holding that appellants’ suit was a collateral attack, over which the court had no jurisdiction; in failing to assume jurisdiction because appellants as the holders of lawful franchises to engage in savings and loan businesses, are real and substantial parties at interest and entitled to the protection from illegal competition; in failing to assume jurisdiction to enforce the constitutional rights of appellants; and finally in construing Art. 881 a-1 et seq. and related provisions so as to deny to appellants any right of judicial review of the action of the Commissioner in granting a charter to do business to appellees and depriving appellants of their constitutional rights under the Due Process Clauses of the Constitutions of the United States and of Texas. U.S.Const. Amend. 14; Vernon’s Ann.St.Const. art. 1, § 19. Appellees Phillips et al. have counterpoints to the effect that appellants had no standing to contest the validity of the Articles of Incorporation of American Savings and Loan Association and no right to review, or maintain a suit to enjoin the actions of the Banking Commissioner in the exercise of discretionary functions and that the Declaratory Judgment Act, Vernon’s Ann.Civ.St. art. 2524-1 et seq., is procedural in nature and does not afford a substantive right of action, and not available to appellants and that the action of the trial court in sustaining the pleas in abatement did not violate any property right of the appellants. Appellee, Banking Commissioner, in a counterpoint says that the trial court did — 569 — not err in sustaining his plea in abatement because as a matter of law the allegations in appellants’ petition constitute an attempt by third parties to collaterally attack the validity of the charter theretofore granted to American Savings and Loan Association under the provisions of Article 881a-2, Vernon’s Ann.Civ.St., and the trial court was without jurisdiction to determine the cause of action alleged by appellants. On January 23, 1959, the Banking Commissioner granted to American Savings and Loan Association the charter herein questioned, and on February 9, 1959, Brazo-sport Savings and Loan Association, Fort Bend Savings and Loan Association, and Gulf Coast Savings and Loan Association filed this suit against Jimmy Phillips and eleven others, naming them, composing the officers and directors of American Savings and Loan Association, American Savings and Loan Association of Lake Jackson, Texas and J. M. Falkner, Banking Commissioner of Texas, alleging that plaintiffs were building and loan associations within the area to be served by appellee American Savings and Loan Association and were entitled to conduct their businesses free of unlawful competition which would result if American were permitted to engage in the savings and loan business under the authority granted by the Commissioner, and that the actions of the Commissioner in issuing the charter under the provisions of Articles 881a-2 and 881a-4 were wholly illegal and void, both under the law and the Rules and Regulations promulgated by the Finance Commission of Texas and the Banking Commission pursuant to the authority granted in Article 342-114, V.A.C.S., because the Commissioner had failed to follow the procedures required by Article S81a-2. The Rules and Regulations for Building and Loan Associations 1 require application and articles to be accompanied by certain data, properly verified, “sufficiently detailed and comprehensive to enable the Commissioner to pass upon the proposed charter” as to (1) character and fitness, etc.; (2) promotion of public convenience and advantage, (including probability of insurance of accounts, maintenance of independent ground floor quarters, full time qualified management, and adequacy of initial capital and surplus); (3) reasonable promise of adequate support for the association by the population of the neighborhood and surrounding country. Appellants pled that appellees Phillips et al. failed to file supporting data with the application but subsequently amended this application, and that the notary who acted was one of the proposed stockholders and that such instruments were illegal but that the Commissioner acted thereon; that in acting on the application the Commissioner did not afford appellants an opportunity to offer evidence, and that the Commissioner acted in an arbitrary, capricious, unreasonable and unlawful manner and in violation of appellants’ rights to Due Process. Appellants take the position that nothing in Art. 881a-3, which provides only for a review by mandamus in the case of a rejected application, and that nothing in the statute indicates an affirmative legislative intent to deprive any person of a right to judicial relief from illegal or arbitrary action and that courts affirm such right to judicial relief when the statutes are silent. The prayer for relief in appellants petition reads: “Premises Considered, plaintiffs pray that defendants be cited to appear and answer herein; that upon final hearing herein, the Court enter its judgment finding and declaring the action of the Banking Commissioner of Texas in approving the articles of association and in granting a charter to and issuing a certificate of authority to do business — 570 — to American Savings and Loan Association to be illegal and void, ab initio; that the Court declare such charter and certificate to do business to be unlawful and void, and that the Court permanently enjoin defendants, Jimmy Phillips, et al., their agents, successors and assigns, and the said defendant association, from doing business or attempting to do business by authority of such charter, or by such approval by the Commissioner, or by authority of such certificate of authority to do business, and likewise permanently enjoin the defendant Commissioner from permitting defendant applicant and the individual defendants to do business by virtue of such certificate and direct him to cancel the same upon his records, and permanently enjoin him from granting any additional certificate to do business to said parties by virtue of such application under the same conditions; and plaintiffs pray for their costs, and such other and further relief to which they may be entitled. “In The Alternative, plaintiffs ask that the Court grant and enter its Declaratory Judgment as hereinabove requested, together with such other relief by declaratory judgment or -otherwise, to which plaintiffs may be entitled.” At a pretrial hearing, and without the introduction of any evidence, either oral or written, the trial court sustained the pleas in abatement upon the ground that the allegations and prayer contained in the first amended original petition constituted an attempt by third parties to collaterally attack the validity of the charter granted to American Savings and Loan Association on January 23, 1959, by J. M. Falkner, Banking Commissioner of Texas, under the provisions of Article 881a-2, V.A.C.S., and therefore the trial court was without jurisdiction to hear and determine the cause of action alleged in appellants’ first amended original petition, and ordered the suit dismissed as to all parties defendant, to which action the appellants excepted and gave notice of appeal. The appellee, Commissioner, contends-that suit, under the cause of action and prayer, constitutes a collateral attack by third parties upon the validity of the charter and that under the law the trial court was without jurisdiction to determine the merits of the case, while appellants contend that their suit was filed as an appeal from the action of the Commissioner in granting the charter and that they did not have an adequate remedy at law and sought equitable injunctive relief, and in the alternative that a proceeding under the Declaratory Judgment Act is authorized as a direct attack upon the validity of the charter. Article 881a-2, V.A.C.S., is 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 sup — 571 — port 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 for the period for which they were organized, and shall exercise such powers as are herein granted, and such other powers as are necessary to enable such association to carry out the purpose of its ■organization, not inconsistent with the provisions of this Act, but before such ■association shall proceed to do business it shall adopt and have approved by the Banking Commissioner of Texas bylaws for the regulation and management of its business, not inconsistent with the provisions herein provided.” Article 881a-3, V.A.C.S., reads as follows : “If the Banking Commissioner of Texas shall not be satisfied by such ■examination that it is expedient and desirable to permit such proposed building and loan association to engage in business, it shall endorse upon each copy of the articles of incorporation the word ‘refused’, with the date of ■such endorsement, together with the reason for such refusal, and shall forthwith return one copy of such articles of incorporation to the proposed incorporators from whom the same was received, and such refusal shall be conclusive unless the incorporators within thirty days of the issuance of such notice of refusal shall apply to the District Court of Travis County, Texas (which court shall have jurisdiction of such case) for a writ of mandamus to compel the filing of such charter and granting of a permit to do business. Appeals shall lie from the decree of the District Court in the same manner as appeals in other mandamus cases are allowable and taken in this State.” It is to be observed that the only statutory provision for an appeal from an order of the Commissioner in granting or refusing a charter is in Article 881a-3, providing when an application for approval of an application is refused, that the incorporators have, within thirty days of such refusal, to apply to the District Court for a writ of mandamus to compel the granting of such charter. This provision for review is not applicable in this case because the charter was granted. We do not believe that the suit is in the nature of a statutory appeal from the action of the Commissioner in approving the charter, but does constitute a collateral attack upon the validity of the charter, and as such is not within the general rule governing the procedure to declare charters to be void. In State v. Dyer, 145 Tex. 586, 200 S.W. 2d 813, 815, our Supreme Court held: “We refer briefly to some of the general rules as to dissolution of corporations. Since a corporation is a creature of the state by which it is chartered, the right to dissolve the corporation without its consent belongs exclusively to the state. (Citing authorities.) Whether the franchise of a corporation is to be forfeited depends upon the will of the body that created it. The forfeiture or the dissolution of the corporation cannot be claimed in a collateral proceeding merely because a ground of forfeiture may exist, and ordinarily the forfeiture or dissolution must be declared in a judicial proceeding instituted for that purpose. (Citing authorities.) Such suit, in the absence of an express statute to the contrary, can be instituted only by the State.” The case of City of Amarillo v. Hancock, 150 Tex. 231, 239 S.W.2d 788, 790, — 572 — the Supreme Court discusses the right of appeal from administrative actions and stated the general rule to be: “When the legislature creates an administrative agency, the legislature may prescribe rules and regulations governing the administrative body and the method by which the rights determined by such body shall be enforced. Judicial review of administrative action may be specifically provided, * * or specifically denied by the legislature, but even where judicial review is specifically provided it will be denied if the legislature requires the court to substitute itself for the administrative body and perform purely administrative acts. * * * But all other decisions of such an administrative body which do not affect vested property rights or otherwise violate some constitutional provision are valid, and the mere fact that the legislature has denied judicial review does not invalidate them. * * *” The appellants do not have a vested property right in the charter and certificate granted by the Commissioner to American, such property right belongs exclusively to American’s stockholders and can be divested only for violation of the laws of Texas in an action brought through the Attorney General at the request of the Banking Commissioner. Article 342-115 (Texas Banking Act of 1943) provides in part that the “findings and determination [of the State Banking Board] shall be subject to review and may be set aside by a court of competent jurisdiction,” and that the orders of such board may be appealed to a court of competent jurisdiction. It is therefore to be noted that Article 88la-2, in providing for a limited appeal, is unlike Article 342-113, in providing for an appeal. With reference to the relief sought by the Declaratory Judgment Act, invoked by appellants directly attacking the validity of the act of the Commissioner in granting the charter, it is again to be observed that the relief sought is identical as sought under the original cause of action and although .relief sought under the Declaratory Judgment Act is cumulative of other remedies, there must be a justiciable controversy which can be finally adjudicated by the court entering such a judgment. Cobb v. Harrington, 144 Tex. 360, 190 S.W.2d 709, 172 A.L.R. 837; City of Gladewater v. Pelphrey, Tex.Civ.App., 309 S.W.2d 472, er. ref., N.R.E. A suit for a declaratory judgment cannot be maintained as a direct appeal from the action of the Commissioner in granting the charter in this instance. Alamo Express, Inc. v. Union City Transfer Co., Tex., 309 S.W.2d 815. Appellants cite Jud v. City of San Antonio, 143 Tex. 303, 184 S.W.2d 821, 823, as supporting their position in invoking the Declaratory Judgment Act. In the Jud case the court stated that the defendants had proceeded on the theory that they could establish want of jurisdiction in the court by showing upon a hearing on the plea that certain fact allegations were untrue and stated: “They did not stand upon the proposition in the trial court that, as a matter of law on the face of the pleadings, the Court had no potential jurisdiction to hear the case. Their plea contemplated a hearing on the facts, and upon being granted that hearing they placed upon the witness stand one of the members of the Pension Board who testified, under the questioning of their attorney, to the facts in connection with the hearing on-plaintiff’s application for a pension. In substance and effect his testimony was that the Board did not act arbitrarily or maliciously, but that it accorded the plaintiff a fair hearing and based its order — 573 — denying the application upon its conclusion that, under the facts plaintiff should not be granted a pension. They argue here that ‘in view of the allegations of the petition, and the evidence introduced on the hearing on the plea to the jursdiction’ the Court had no jurisdiction to hear the case.” In the instant case without the introduction of any evidence either oral or written the trial court sustained the pleas in abatement, on the proposition that as a matter of law on the face of the pleadings, the court had no potential jurisdiction to hear the case upon its merits, and followed the rule of law that in such cases the allegations contained in the petition are to be considered as true. The merits of this case are not before this Court in this appeal. We believe that since Article 881a-3 provides that right of review is available to those whose charter applications have been refused, and since it specifies the conditions and procedure for the review it excludes all other classes of persons and all other forms of review and remedies. State v. Mauritz-Wells Co., 141 Tex. 634, 175 S. W.2d 238. We believe that only the State can question the authority of a corporation to act, and the Constitution confers express power upon the Attorney General to take such action in the courts as may be proper to prevent any private corporation from exercising any power, not authorized by law. Art. IV, sec. 22, Vernon’s Ann.St. Southwestern Gas & Electric Co. v. City of Gilmer, D.C., 123 F.Sup. 11, affirmed 5 Cir., 224 F.2d 794; State v. Dyer, supra. There is no question but that a building and loan association is a private corporation. Frank Co. v. Latham, 145 Tex. 30, 193 S.W.2d 671. Appellee American Savings and Loan Association has become a corporate body and authorized to do business in Texas, and the purpose of appellants’ suit is to set aside that right and authority, and such can only be done through a suit brought by the Attorney General. No useful purpose could be had by unduly extending this opinion by a further discussion of the numerous cases and authorities cited by both appellants and appellees in excellent briefs. The judgment of the Trial Court is affirmed. Affirmed. Footnotes [1] Subject of the controversy in Falkner v. Southwestern Savings & Loan Ass’n of Houston, Tex.Civ.App., 320 S.W.2d 164.