Honorable Robert E. Stewart          Opinion No. M-273
Deputy Commissioner
Department of Banking
John H. Reagan State Office Building
Austin, Texas 78711                  Re: Branch Banking;
                                          Machines for the
                                          purpose of accept-
                                          ing 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 de-
posits, you etate that machine8 for accepting and receipt-
ing 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 bank-
ing area, The bank retains the owner to lease, service,
and supply the maChlne8, and to pick up and deliver de-
posits 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 are collected daily by an armored oar aer-
vice retained by the machine owner for delivery to the
bank, and the deposits are not designated as being offlcirlly
"In the bank" until 80 delivered to the bank. In maklng
the delivery, 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


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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 ex-
tend to Items placed in the box and would pay any loss SUB-
talned by a deposit customer through employee defalcatlon
or through robbery.
     Alternate plan (2) provides that 'the,,boxe&,wouIdbe,.'
                                                           ...".'
                                                                '~.'
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 Qlace-
ment 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. Lan-
guage 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 (2T 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



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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 re-
ceipt 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 ln-
     aurance protection?
          "(2) Can the bank contract with a thlrd-
     party owner, but provide insurance protection?
          “(3) Can the bank contract with a thlrd-
     party owner as above, if the third party Qro-
     vldes 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 ad-
vised 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 per-
mitted to branch; and with regard to nationally cha~rtered
banks, the Federal Congress has provided that such re-
strictions 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 establleh-
     ment 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 spe-
     cifically granting such authority affirmatively
     and not merely by lmQllcatlon or recognition,
     and subject to the restr,lctlonsas 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 ex-
pressly 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 pur-
suant 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 tliebuilding



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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, paeaage-
     way or hallway providing direct aCCe8S be-
     tween 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 con-
     sidered 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,elateour 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 de-
     posit 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



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.




    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 be-
    tween 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 con-
    trivance to perform these operations will not render them
    non-banking operations which are outside the general and
    usual rules governing and restricting branch banking. “Branch-
    ing” 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 con-
    nection with the above quoted federal definition of "branch-
    ing":
              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 . Qa.     . (Original em-
         pia8Fj      '
         ThO8e plans which have been proposed which would deslg-
    nate 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 ssllghtIs a branch banking
    operation over which the parent bank will retain the maxl-
    mum possible actual control which can be exercised and re-



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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 Suffi-
cient 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 organlza-
     tlon Is adopted or a corporate entity Is
     aaserted In an endeavor to evade a statute
     or ‘to modify Its Intent, courts will dis-
     regard 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’) re-
                            U.S. 411, 1; i.edG 386, b5
Sict. 551 (1965). In the Whitney National Bank oaee, ‘Bupra,,
the Waehlngton D.C. ClroulVote,                       In part
at 323 F 2d 303:
          11
                 BJhe   corporate veil should be
     pierce; ihinever one bank or corporation
     Is doinn buelnesa through & e InstrumentaYT
                                               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 slgnlfl-
cance, nor would there be any legal Blgnlfloance to the
creation of a dual agency relationship. Such fiotional ar-
rangements will not alter the actual situation, since the



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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 ‘bedoing 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 “en-
gaging 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 en-
gaging In the banking business without a charter In vlola-
tlon 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 con-
cerned from .the time that the deposlt Is made with ‘the
“box” until the deposit reaches the confines of the partl-
clpatlng bank.
                    SUMMARY
                    -------
          (1) The use of machines to perform acts
     which would otherwise constitute branch banking
     within the prohibitions of Sta,telaw (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) The uBe of an “Independent oon-
     tractor’ arrangement with the owner or opera-
     tor of such maohlnes for the attempted pur-
     pose 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.


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



                 such extent, If any, as the third
     party(Z
        . .   TE fact a separate entity or lnde-
     penaenc contractor he would himself b,eengaging
     In unregulated banking In violation of state
     law.
                           YOJ&     very truly,


                        ‘&
                         if
                                   Od t%%f=-
                                        .
                           At     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




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