Honorable Robert E. Stewart 

Deputy Commissioner 

Department of Banking 

Opinion No. M-273 

John H. Reagan State Office Building 

Austin, Texas 78711 Re: Branch Banking; 

Machines for the 

purpose of accepting and receipting 

off-premises bank 

Dear Mr. Stewart: deQO8it8. 

In connection with your request for an opinion on 

whether Texas banks may use off-premise machine8 for the 

purpose of accepting and receipting off-premise bank deposits, you etate that machine8 for accepting and receipting off-premises bank deposits are currently In use In 

Arizona and possibly elsewhere. 

Under one plan of service about which you inquire, 

a national bank In Arizona contracts with owner8 of such 

machines to place them in selected location8 in the banking area, The bank retains the owner to lease, service, 

and supply the maChlne8, and to pick up and deliver deposits from the machines to the bank. In this regard, the 

owner purports to act as an outside independent contractor 

and to "absolve the bank" from any direct connection with 

the operation, maintenance and collection from the machines. 

The deposits are accepted in the machine by it8 owner who 

purport8 to act as agent for the depositor. The machine 

owner carries knSuranCe covering the equipment and deposit8 

until their delivery to the bank. A special bank deposit 

receipt Is used which specifies that the deposit ha8 been 

received by the machine owner for deposit in the,bank. 

&posit8 

vice retained 

bank, and the 

"In the bank" 

the delivery, 

are collected daily by an armored oar aerby the machine owner for delivery to the 

deposits are not designated as being offlcirlly 

until 80 delivered to the bank. In maklng 

the machlne owner purports to act as agent 

ror the depositor and not for the bank. Time of colleotion 

Is posted at the machine. The physical locations for the 

- 1319 - 
Hondrable Robert E. Stewart, page 2 M-273 

machines In shopping center8 and elsewhere are negotiated not 

by the machine owner or operator but by the participating 

bank, 

Your Inquiry relates to whether the above described plan 

Is Qermi8Slble to state and national banks in Texae. 

A national bank has offered additional or alternatlvd 

proposal8 to see If the Department of Eanklng would challenge 

either or both. Under alternate plan (l), the bank would 

own (or lease from the distributor, In the bank's name), 

these deposit boxes. The bank's name would be prominently 

displayed on the boxes where ever they are placed, but 

there would be a form of notification at some place on the 

box that the bank Is not actually accepting any depoalt 

until the deposited Items are presented at the bank. Siml-. 

lar language and notice would be printed on the deposit 

ticket or receipt received by the depositor from the machine. 

The bank would employ personnel to service the boxes and to 

pick up and transfer to the bank any ltema therein. Also, 

the bank’s fldellty and theft insurance coverage would extend to Items placed in the box and would pay any loss SUBtalned by a deposit customer through employee defalcatlon 

or through robbery. 

Alternate plan (2) provides that 'the, ,boxe&,wouId be,.' ...".'~.' 

owned or leaeed from the distributor by a third party 

(In this specific case, the bank's stockholder company.) 

The bank would contract with thls thlrd party for the Qlacement of the machines In varloua locationa. The owner would 

be reSQOn8lble for servicing the boxes and for QlCk-Up 

and delivery of Items deposited therein to the bank. Language concerning the bank's acceptance of the deposit only 

upon receiptat It8 banking house would be located on the 

boxes and on the deposit tloket issued to the depositor, 

and It would be stated that the box owner would be acting 

In the capeclty of agent for the depositor. The Insurance 

against loss would be provided by the bank, however, aa in 

the other alternate plan. 

Your lnqulr relates also to whether such alternate 

plans (1) and (2 T are Qermleslble to state and national 

banks in Texas. 

A state bank ha8 asked your office whether such machine8 

would be legal for use if the boxes are owned or leased 

- 1320 - 
Honorable Robert E. Stewart, page 3 M-273 

from the distributor by a third party (probably the bank's 

stockholder company), serviced by that third Qarty, and 

insured agalnet loss by the third party. The bank would 

contract with the owner for placement of the machines, and 

the bank's name would be prominently displayed on the face' 

of the machine. There would be notification to depositors, 

however, on the face of the machine and on the degoslt receipt Issued to the depositor that the owner la acting as 

agent for the depositor and that the bank will not give 

credit for deposits made In the machines until the Items 

are received at the banking house. The machine owner would 

accept full responsibility for items depoelted therein 

and would provide fidelity and robbery Insurance from the 

time Items are placed in the mechlne until delivery Is made 

to the banking house. 

You have Inquired also a8 to whether the Immediately 

preceding proposal by the state bank la Qermlsslble to 

state and national banks In Textis. 

Your preclae questions have been stated aa follows: 

"(1) Can the bank own or lease In Its own 

name these machines, and provide fidelity lnaurance protection? 

"(2) Can the bank contract with a thlrdparty owner, but provide insurance protection? 

“(3) Can the bank contract with a thlrdparty owner as above, if the third party Qrovldes the Insurance protection? 

"(4) Can bank personnel be Used In the 

servicing, or pick-up and delivery of Items 

depoalted? 

“(5) Can bank personnel be employed at 

the site of the machines to aeelst depositors 

In their u8e of the mBChlneB?" 

Pursuant to the dlSCuS8lon set out below, your questions 

1 through 5 are an8Wered In the negative, and you are advised that not any of the various proposals summarized above 

are compatible with state law. 

-1321- 
Honorable Robert E. Stewart, page 4 M-273 

The extent, If any, to which branch banking will be 

pcrmltted within the varloua state8 Is a matter which IS 

prlnclpelly within the control of the Individual states. 

Each state 18, of course, permitted to decide for itself 

whether banks operating under state Charter8 will be permitted to branch; and with regard to nationally cha~rtered 

banks, the Federal Congress has provided that such restrictions a8 pertain to branching by banks chartered by 

the states aleo apply to nations1 bank8 operating within 

such states. Section 36(c) of the National Bank Act (12 

U.S.C. 8 s(c)) provides, In part: 

"A national banking aseoclatlon may, with 

the approval of the Comptroller of the Currency, 

establish and operate new branches: (1) Within 

the limits of the city, town or village in which 

said aseoclatlon 18 situated, if such establlehment and operation are at the time expreealy 

authorized to State bank8 by the law of the State 

In question; and (2) at any point within the 

State In which said association Is situated, If 

such eatabllshment and operation are at the 

time authorized to State banks by the statute 

law of the State In queatlon by language specifically granting such authority affirmatively 

and not merely by lmQllcatlon or recognition, 

and subject to the restr,lctlons as to loCatiOn 

Imposed by the law of the State on State banka.” 

The Texas Constitution, Article XVI, Section 16, provides 

for the supervision, regulation and control of corporate bodlee 

with banking and discounting privileges. It has bten expressly stated therein that such corporate bodies . . . shall 

not b$ authorized to engage In business In more than one place 

. . . 

Article 3, Chapter IX of the Texas Banking Code (Article 

342-903, Vernon’s Civil Statutes), which was enacted pursuant to the quoted constitutional prohibition, provides: 

“No state, national or private bank 

shall engage In buaineas In more than one 

place, maintain any branch office, or cash 

check8 or receive deposit8 except in it8 

own banking house. For purpose of this 

Article ‘banking house’ means tlie building 

- 1322 - 
Honorable Robert E. Stewart, page 5 M-273 

In whose office8 the bU8ineSS of the bank 

18 conducted and which Is functionally one 

place of business, including office facllltle8 

whose nearest wall Is located within five 

hundred (500) feet of the nearest wall of the 

central building and 18 physically connected 

to the central building by tunnel, paeaageway or hallway providing direct aCCe8S between the central building and the connected 

office facility or by pneumatic tube or other 

almllar carrier. The entire banking house 

shall for all purposes under the law be considered one Integral banking house." 

From the above quoted prohibitions, It 1s clear that 

Texas law doe8 not favor the U8e of multiple banking 

facilities by a single banking lnetltutlon. Accordingly, 

It Is the opinion of this office that Texas law would not 

permit the Implementation of any of the various proposals 

hereinabove set forth, 

You have requested that we i,elate our discUS8lon to the 

following ruling Issued In 1965 by the Comptroller of the 

Currency, to-wit: 

"7491. Deposit Machines 

"A national bank may utilize at any location 

a machine which receives checka, currency, or 

coin for deposit. The machine shall provide 

documentary evidence of the transaction which 

state8 that the transaction will become a deposit upon verification and crediting at the 

main office or a branch office of the bank. 

Utilization of 8UCh machine8 at locationa other 

than the main office or a branch office of the 

bank does not constitute branch banking. A 

bank may provide Insurance protection under Its 

bonding program for transactions Involving euch 

machines." 

The above quoted ruling ha8 not yet been passed upon by 

the courts, and the Comptroller of the Currency has cited no 

legal authority In support thereof, The Administrator's recent 

rulings with regard to branch banking facilities have been 

said to be largely without supporting statutory authority 

- 1323- 
. 

Honorable Robert E. Stewart, page 6 M-273 

and open to serious question. See 32 University of Chicago 

Law Review 148; 31 Law and Contemporary Problems 749, 765, 

and cases cited. 

In our opinion, no substantial difference exists between that plan approved by the above quoted ruling and any 

other plan which may be designed for the acceptance of bank 

deposits In branch locations. The use of a mechanical contrivance to perform these operations will not render them 

non-banking operations which are outside the general and 

usual rules governing and restricting branch banking. “Branching” Is defined by both state and federal law In terms of end 

results and not In terms of any Instrumentality or agency 

by which such results are accomplished. Section 36(f) of 

the National Bank Act (12 U.S.C. 8 36(f)) provides, In part: 

"The term branch as used In this section 

shall be held to Include any branch bank, branch 

office, branch agency, additional office, or any 

branch place of business located In any state . . , 

at which deposits are received, or checks paid, 

or money lent." 

In a recent federal declslon, It was observed In connection with the above quoted federal definition of "branching": 

"' 9, 

. . '/A 7n additional office' or 'branch 

place if bueTnrsss will be considered a 'branch' 

for the purposes of B 36 If any one of the three 

specified condltlons 18 met, I.e., If deposits 

are received or checks are peld or money Is lent." 

Jackson v. FIi%t National Bank orValdosta, 246 

F s 134 138 (M D Q pia8Fj ' 

. . a. . (Original emThO8e plans which have been proposed which would deslgnate third parties to be the operator(s) of the machines 

are likewise subject to attack on several fronts. 

Initially, we observe with respect to these so-called 

"Independent contractor arrangements' that from the manner 

In which these plans have been formulated and proposed, It 

Is clear that the’ end result ssllght Is a branch banking 

operation over which the parent bank will retain the maxlmum possible actual control which can be exercised and re- 

- 1324 - 
Honorable Robert E. Stewart, page 7 M-273 

talned consistent with the theory or pretense that legal 

control Is elsewhere. Legal control Is sought to be 

vested In a separate corporation solely for the purpose of 

circumventing the restrictions on branch banking operations 

as they may apply to restrict the parent bank. Such an 

arrangement may be held to be, In and of Itself, a Sufficient basis for attacking the agreement between the bank and 

“the third party Independent contractor .‘I See 1 Fletcher, 

Corporations (1963 revised ed.) 240, 241, wherein it Is 

concluded that, 

“Where the corporate form of organlzatlon Is adopted or a corporate entity Is 

aaserted In an endeavor to evade a statute 

or ‘to modify Its Intent, courts will disregard the corporation or ita entity and look 

at the substance and reality of the matter.” 

The above stated principle hae been recognized and 

applied In numerous fact sltuatlonB and haa been held to 

extend to the use of separate corporations created for the 

sole or main purpose of circumventing prohibitions agalnet 

branch banking, tlonal Bank of Jefferson Parish 

F 26 2m C Cl lgbj’) reU.S. 411, 1; i.edG 386, b5 

Sict. 551 (1965). In the Whitney National Bank oaee, ‘Bupra,, 

the Waehlngton D.C. Clroul Vote, In part 

at 323 F 2d 303: 

11 BJhe corporate veil should be 

pierce; ihinever one bank 

& 

or corporation 

Is doinn buelnesa through e Instrumenta YT lty 

of the other or in the same way as If the 

InstitutlonB were one. The unitary type of 

operation said . . . to be charaoterlstlo of 

branch banking Is present here. In such 

circumstances the relationship of parent 

and branch exlsta, even though the banks are 

separate corporate organlzatlons.” 

The application of legal terminology or language which 

woul .d In form designate the owner or operator of the machines 

the agent of the depoeltor of the bank Se of no legal slgnlflcance, nor would there be any legal Blgnlfloance to the 

creation of a dual agency relationship. Such fiotional arrangements will not alter the actual situation, since the 

- 1325 - 
Honorable Robert E. Stewart, page 8 M-273 

courts look to substance rather than mere form. 

In our opinion the facllltles described In your letter 

are clearly banking facllltles. It Is equally clear that 

under each proposed asrangement which you have described 

for operating these facllltles, the party operating the 

same would ‘be doing so largely for the benefit of the bank 

and as agent of the bank, regardless of protestations to 

the contrary. It Is our opinion that under each proposed 

arrangement the participating bank would In effect be “engaging In business at more than one place” In violation of 

the applicable provisions of State and Federal Law. 

Secondly, even If It could be concluded that the third 

party who operates the machines Is not the agent of the 

participating bank, such third party would himself be engaging In the banking business without a charter In vlolatlon of Section 902 of the Banking Code (Article 342-902, 

V.C.S.). The provisions of the TeXBB Constitution and 

statutes contemplate the regulation of the, banking business 

from the very Instant that public money Is deposited. The 

device here propoaed, If held not to be subjeot’to these 

provisions, would leave the public completely unprotected, 

Insofar as “Bupervlslon, regulation and control” are concerned from .the time that the deposlt Is made with ‘the 

“box” until the deposit reaches the confines of the partlclpatlng bank. 

SUMMARY ------- 

(1) The use of machines to perform acts 

which would otherwise constitute branch banking 

within the prohibitions of Sta,te law (as made 

applicable to national banks by Congress) 

has no legal effect Insofar as the nature 

of such acte are oonoerned, -- Bald acts 

continue to oonetltute branch banking. 

(2) Th e uBe of an “Independent oontractor’ arrangement with the owner or operator of such maohlnes for the attempted purpose of circumventing prohlbltlons against 

branch banking should be disregarded and the 

substance of the arrangement (the participating 

Interest of the bank) should be looked to to 

determine whether the bank Is In fact engaging 

In branch banking. 

- 1326 - 
Honorable Robert 6. Stewart,, page 9 M-273 

party(Z TE 

such extent, If any, as the third 

fact a separate entity or lnde- . . 

penaenc contractor he would himself b,e engaging 

In unregulated banking In violation of state 

law. 

YOJ& very truly, 

‘& Od t%%f=- 

At if . 

rney General of Texas 

Prepared by Larry J. Craddock 

Assistant Attorney Qeneral 

APPROVED: 

OPINION COMMITTEE 

Hawthorne Phillips, Chairman 

Kerns Taylor, Co-Chairman 

Fielding Early 

Jim Swearlngen 

Fisher Tyler 

Malcolm Quick 

A. J. Carubbl, Jr, 

Executive Assistant Attorney General 

- 1327 -