The three stockholders of a close corporation contracted to sell all of the corporate stock to Shulman for $5,000 down and a balance of $17,000 in two notes payable in thirty days. A resolution filed with the defendant depositary bank provided that Paul, the former president, was to act as the interim treasurer for the corporation and was to cosign, with Shulman, all checks drawn on the corporate account until the balance of the purchase price was tendered. Approximately one week after the agreement was made, the bank received an inordinate number of inquiries regarding the credit of the corporation, each inquiry being directed to the single executive officer of the bank. Within thirty days Shulman paid the two outstanding notes, and Paul informed the bank of Shulman's payment and the fact that Paul was no longer interested in the corporation. Shulman then signed a signature card as president and the only party entitled to negotiate corporate checks. In the succeeding three weeks Shulman brought to the bank certified and cashiers checks payable to the corporation and endorsed by him either for cash or for deposit into his personal account. At the end of this period creditors of the corporation filed an involuntary petition in bankruptcy, and the trustee in bankruptcy instituted an action against the bank on the creditors' behalf. The court held that because of the bank's violation of the corporate resolutions which it had on file and the breach of its duty to the corporate depositor, the trustee can recover the value of checks payable to the corporation but cashed by Shulman for his personal use.
Michigan Law Review,
Banks and Banking-Bank's Liability for Breach of Its Duty to Corporate Depositor-Maley v. East Side Bank of Chicago,
Mich. L. Rev.
Available at: https://repository.law.umich.edu/mlr/vol65/iss3/7