R. A. BENSON, Savings and Loan Commissioner of Texas, et al., Petitioners, v. SAN ANTONIO SAVINGS ASSOCIATION, Respondent, 374 S.W.2d 423

CULVER, Justice. The San Antonio Savings Association applied to the Savings and Loan Commissioner of Texas for permission to open and operate a branch office in the City of San Antonio in addition to its ten existing branches already in operation. Three other savings and loan associations with home offices in the City intervened and offered evidence in opposition. Upon the conclusion of the hearing the Commissioner refused the application for the following stated reasons: 1.

The public convenience and advantage will not be promoted by allowing such proposed additional office to engage in business taking into consideration that the proposed location of said additional office is only 2.1 miles from applicant’s Service Center #7, (branch office) 2716 Fredericksburg Road; 2. The proposed operation will unduly injure the Alamo Savings and Loan Association presently 3 miles distant and only 1.7 miles from their future location (land purchased for erection of) office building at the corner of Fredericksburg Road and Vance Jackson Road; 3. The proposed area is being adequately served.

The district court held that the order of the Commissioner denying the application was not reasonably supported by substantial evidence, but to the contrary was unreasonable, arbitrary and capricious and decreed that the Association be granted permission to maintain and operate the branch office as applied for. The Court of Civil Appeals affirmed the judgment of the trial court in so far as it set aside the Commissioner’s order. Tex.Civ.App., 365 S.W.2d 388.

The Court of Civil Appeals begins its discussion of the merits of the case by saying that the propriety of the Commissioner’s action is to be gauged solely by the reasons assigned by him in denying the application. In other words the Court is saying that the evidence need be reviewed only to determine whether the grounds given by the Commissioner are reasonably supported by substantial evidence. We have just held to the contrary in Gibraltar Savings and Loan Ass’n v. J. M. Falkner, Banking Commissioner et al., Tex., 371 S.W.2d 548. In Southwestern Savings and Loan Ass’n v.

Falkner, 160 Tex. 417, 331 S.W.2d 917, we held that approval of the Commission for the establishment and operation of branch offices by building and loan associations is impliedly required by the provisions of Arts. 881a-2 and 881a-7, otherwise the purpose of the two statutes would be largely nullified.

We further decided in that case that the same basic standards which govern-the approval or disapproval of the application for an original charter shall apply to-applications for the opening of branch offices, since excessively zealous competition may be waged quite as effectively by setting up branch offices as by the granting of charters in the first instance.

Article 881a-2 provides that before a charter will issue to a building and loan association the Banking Commissioner must be satisfied as to the responsibility and general fitness of the parties and that the business will be honestly and efficiently conducted in accordance with the intent and purpose of the act; whether the public convenience and advantage will be promoted thereby; and whether the population in the neighborhood of such place and in the surrounding country affords a reasonable promise of adequate support.

The rules and regulations adopted by the Commissioner relating to his consideration of an application for the establishment of a branch or additional office with which we are here concerned are as follows: “3.3. No application to establish and maintain an additional office shall be approved unless the Commissioner shall affirmatively find from the evidence before him that: “(

b) The applying association has operated its principal office for at least three (3) years prior to such application successfully, profitably, properly and in accordance with law, and the proposed operation will not impair the applying association’s ability to carry on its overall operation; “(

c) The public convenience and advantage in the neighborhood proposed to be served and in the surrounding country will be promoted by allowing the proposed additional office to be established and engage in business at the proposed location, and the volume of business there is such as to indicate that a profitable operation is probable within a reasonable period of time; “(

d) The proposed operation will not unduly injure any other association operating in the neighborhood of the proposed location or in the surrounding country; “(

f) The proposed location of the additional office is within the same county as the home office of the applying association except in cases where it appears that the proposed additional office is in a neighboring or adjacent county to that in which the home office of the applying association is located and that there is no other association, either State or Federal, adequately serving the neighborhood and surrounding country in which such additional office is to be located.” The proposed location of the branch office applied for is in what is called “Wonderland Shopping City” situated near the edge of the northwest portion of the City on the Fredericksburg Road, U.

S. Highway No. 87, one of the principal traffic arteries leading to and from the business district. With a radius of varying from two to three miles, San Antonio Association has roughly semi-circled Wonderland City, enclosing what is described as the trade area of the proposed branch office. The population in that area is said to be some 36,000 people. The area, both as to population and commercial development has enjoyed a rapid growth during the past ten years and in the area so designated there does not exist a savings and loan home office nor a branch.

San Antonio Association urges that such a new and expanding area with 9S00 new homes constructed and occupied since 1945, needs and.deserves this facility and that the establishment of this branch office would promote the public convenience and advantage. Wonderland City is said to be one of the largest and most important suburban shopping centers in the State. There were about 40 business establishments in operation at the time of the hearing before the Commissioner.

If this were an isolated area, no doubt public convenience and advantage would be promoted by the establishment of a branch office, but that is not the whole story. The boundary line of this area so drawn on the map does not follow any trade barriers, either natural or artificial, but crosses lots, blocks, streets, railroad tracks and other terrain features indiscriminately. If the line were protracted as it begins and ends with a radius of three miles from the shopping center, it would include two existing branch offices of San Antonio Association as well as the home office of Alamo.

Portions of the area are considerably nearer, and more accessible to two of the Association’s existing branches than to the proposed location. One of these two branch offices is located on the Fredericksburg Road approximately two miles from the shopping center, the other on the Bandera Road, State Highway 16, which runs in the southwesterly portion of the area. The Alamo Savings Association now has its home office on the Fredericksburg Road 2.8 miles from the proposed branch office of the San Antonio Association.

Its new home office will be located further to the northwest on the Fredericksburg Road only 1.7 miles from the center. Additionally, San Antonio Association has a branch office at the intersection of San Pedro and Hildebrand on U. S. Highway 281 3.6 miles distant from the shopping center. Thus, San Antonio Association has offices located on all three of the main traffic arteries leading through the northwest quadrant of the City. In fact it has now a total of ten branch offices surrounding the business district in every direction and covering most of the principal traffic arteries in and out of the City.

There are presently in San Antonio seven associations which, including branches, total 18 savings and loan offices within the City where customers may deposit their funds. All of San Antonio Association’s branches are located in the stores of a large grocery chain and it will follow that plan with the branch it now proposes to install. A sampling of the grocery customers taken at the Association’s Freder-icksburg Road branch on a Saturday afternoon revealed that 73% had savings accounts and 31% had accounts with San Antonio Association.

All of the savings and loan institutions in the City are active in the area surrounding Wonderland City. Alamo has 650 customers in the area; Travis has 150 mortgage loans and four to six hundred depositors; First Federal has 1200 loans and some eight hundred depositors. The extent of the business done in that

section at the other three savings institutions is not shown. Officers of all three of these named concerns testified that in their opinion the area is adequately served. It would be convenient to customers and probably produce more business if branch offices were established in every corner grocery and drug store in the City, but obviously that practice would not be economical nor would it promote public advantage. On the contrary it would serve to create “excessively zealous” competition to the detriment of the public and to the savings and loan industry at large.

It must be admitted on the other hand, that the establishment of some branch offices will be in the public interest. So the matter of drawing the line of demarcation, while nebulous, must lie, to a great extent, in the discretion of the Commissioner. The Association also objects to the finding of the Commissioner that the area is adequately served and contends that this finding is immaterial. It maintains that the matter of adequate service is related solely to paragraph (

f) of the Commissioner’s Rule 3.3 which is to be raised only where the proposed location is not within the same county as the home office of the applying association, and, secondly, that the question as to whether the area is adequately served is not a determining factor. Regardless of the merit of these objections we believe that phase is one to be considered in deciding whether public convenience and advantage will be promoted by the establishment of an additional branch office and, though not in itself decisive, would have some bearing on that issue.

Ordinarily we would say that public convenience and advantage would not be promoted by the addition of another branch office if the area was already being adequately served, since that would tend to render the service more than adequate. The Commissioner’s Rule 3.3' quoted above expressly provides that an application to establish a branch office shall not be granted unless, from the evidence, the Commissioner makes four affirmative findings.

It follows that the Commissioner’s order denying the application must be upheld unless we can say from the evidence that his refusal to make any one of the required findings was arbitrary or capricious. That problem is to be tested by the substantial evidence rule. As that rule operates in the fact situation before us, the refusal of the Commissioner to make a particular affirmative finding cannot be arbitrary or capricious unless the evidence adduced on the trial supporting the required affirmative finding is so conclusive that a negative finding would not be reasonably supported by substantial evidence.

Since we are of the opinion that the evidence is not so conclusive, we hold that the Commissioner’s finding that public convenience and advantage will not be promoted by allowing the proposed additional office is reasonably supported by substantial evidence. It will therefore be unnecessary to discuss and pass upon the propriety of the other findings.

The San Antonio Association maintains that even if the trial court erred in setting aside the Commissioner’s order, nevertheless the cause must be remanded for a new trial for the reason that the Commissioner and the trial court denied the Association access to an investigative report made to the Commissioner at his direction in connection with this application in that it deprived the Association of due process of law in violation of the Constitutions of the United States and the State of Texas.

At the hearing before the Commissioner the Association did not request that it he allowed to examine this report, but on the trial before the court it was stipulated that the contents of the report or parts thereof were considered by the Commissioner in passing upon respondent’s application. It was further stipulated that such reports, by reason of the provisions of the statutes, were held to he secret and confidential and not to be revealed to the applying Association and that had request been made for the contents of the report the request would have been refused.

On the trial the Association’s motion that the report be produced for examination was overruled by the court in reliance on Falkner v. Gibraltar Savings Ass’n, Tex.Civ.App., 348 S.W.2d 467, n. r. e., and Gibraltar v. Savings Ass’n., Tex.Civ.App., 348 S.W.2d 472, n. r. e. Both of these cases held that the investigation reports are confidential and not for public inspection and the Commissioner could not be compelled to divulge the same. This ruling was based upon the construction of Art. 881a-2 of the Civil Statutes, and Art. 1136a-9 of the Penal Code.

Article 881a-2, Vernon’s Ann.Civ.Stat., requires that the Commissioner shall ascertain the necessary information from the best sources at his command and by such investigation as he may deem necessary.

The pertinent provisions of Art. 1136a-9, Penal Code, are as follows: “The Banking Commissioner and any examiner, inspector, deputy, assistant or clerk, appointed or acting under the provisions of this Act, failing to keep secret any facts or information regarding an association obtained in the course of an examination or by reason of his official position, except when the public duty of such officer required him to report upon or take official action regarding the affairs of the association so examined, * * * shall be removed from his position or office and shall be fined * * *, Reports of examinations made to the Banking Commissioner of Texas shall be regarded as confidential and not for the public record or inspection, except that for good reason same may be made public by the Commissioner, but copies thereof may, upon request of the Association, be furnished to the Federal Home Loan Bank Board and/or to the Federal Home Loan Bank for the purpose of meeting the requirements of the Federal Home Loan Bank Act. * * * ” This

article of the Penal Code is a

section of a bill enacted by the 42nd Legislature defining and regulating building and loan associations and permitting investment in Federal Loan Agencies. Its manifest purpose is to shield the Association against public disclosure of its private affairs which must open its books and records to the Commissioner or his examiners for the purpose of seeing to it that its affairs are conducted in accordance with law and in the best interest of the investing public.

The statute expressly provides that for good reason the information may be made public by the Commissioner and that copies upon request of the Association may he furnished to certain organizations. Certainly the statute does not deny disclosure to the Association itself. We therefore believe and so hold that the statute does not preclude, in the situation before us, the Commissioner from revealing the contents of the investigative report to the Association on demand by it. Further, the statute likewise does not preclude the Association from making public the report if it desires to do so.

It follows therefore that there is no statutory restraint which prevents the trial court from directing the production of the report upon the application of the affected association. All of this, however, does not require a reversal and remand of this case. The investigative report, even if admissible in evidence in the trial court by reason of Art. 3731a, § 1, Vernon’s Ann.Civ.Stat., is necessarily hearsay and whether favorable or unfavorable to San Antonio Association, could not serve to show that the Commissioner’s rejection of the application was not supported by substantial evidence.

From the record we must assume that it was at most merely cumulative of the evidence that was introduced. It is inconceivable that anything in the report reflected upon the integrity of the Association or its officials. It is unquestioned that the Association has operated for more than three years successfully, profitably, properly and in accordance with law. Incidentally, the Attorney General has pointed out some dealings of the Association with the stores in which it operates its branch offices but that custom has long been known to the Commissioner.

He has made no complaint on this practice either before or at this hearing. We deem the matter of no materiality. It should be presumed that the Commissioner initiated the investigation to inquire into the matters that according to his rules must be shown affirmatively before the application could be granted. Therefore this case relates only as to whether public convenience and advantage would be promoted; whether a profitable operation would be conducted within a reasonable period of time, and whether undue injury would result to other neighboring associations.

In our opinion the failure of the trial court to compel the production of this report did not violate constitutional procedural due process. The question for decision in this case is: was the Savings and Loan Commissioner’s refusal of respondent’s application reasonably supported by substantial evidence? The burden rests on the Association to show that there is no substantial evidence which would reasonably support a negative finding by the Commissioner. In our opinion on the trial in the district court the report made by the Commissioner’s investigator would have no bearing upon this issue.

The Association, for the proposition that it has been denied due process, cites the cases of Railroad Commission of Tex. v. Alamo Express, 158 Tex. 68, 308 S.W.2d 843 (1958), and Ohio Bell Telephone Co. v. Public Utilities Commission, 301 U.S. 292, 57 S.Ct. 724, 81 L.Ed. 1093. In Alamo Express we held that the orders of the Railroad Commission not based on any evidence are arbitrary, invalid and void and in plain violation of the mandatory duty imposed by the statute.

In the case here there is no contention that the Commissioner failed to follow any mandatory procedure established either by the statute or by the rules. In Ohio Bell Telephone the Commission, in fixing intrastate rates, had taken into consideration certain information which the Telephone Company did not have the opportunity to examine or rebut and which was not spread on the record.

It was pointed out that the Ohio statute did not provide for a review of the Commissioner’s order by a separate or independent suit and that a different question would be presented if such a suit could be maintained with an intermediate suspension of the administrative ruling. While our appeal is not strictly a de novo proceeding, nevertheless the ordinary rules of evidence are followed.

For the foregoing reasons the order of the Commissioner in denying the application of San Antonio Association to open and operate an additional branch office in San Antonio is upheld and the judgments of the trial court and Court of Civil Appeals are reversed and judgment rendered that respondent take nothing. SMITH, NORVELL, GREENHILL and STEAKLEY, JJ., dissenting.