Bank's Liability to Corporation for Funds Loss
Answer by John Burnett, BOL Guru Guru Bio
Question: A corporation client recently found out that checks payable to the corporation had been deposited in a bank account opened in the name of the corporation, but without the corporation’s knowledge or consent. What is the liability of the bank to the corporation for the loss of the funds? Where do I find the applicable law?
Answer: The bank has a responsibility to verify the identity and authority of the individuals purporting to open a deposit account for a corporation, in addition to its responsibility to verify the existence of the corporation itself (under CIP rules).
The verification of authority is critical, and it's the reason for obtaining and verifying a certification of board vote (sometimes called a board resolution) authorizing individuals to act on the corporation's behalf.
If the bank doesn't adequately vet the identification and authority of individuals opening a corporate account, the bank risks being dragged into a lawsuit claiming conversion (stealing property for one's own use) of corporate assets -- those checks. The bank could be accused of facilitating the crime and tagged with the liability.
For more information, consult an attorney.
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