Bates v. Dresser

FACTS:  Dresser (Defendant) was the president of a small bank in Cambridge.  The bank had only a few employees, and defendant supervised all the work that was done.  One of the employees, Coleman, was promoted from messenger to bookkeeper in 1904.  From 1904 until 1907, there were several small shortages in the bank and indications that an employee was stealing.  There was no indication, however, that Coleman was dishonest.  In 1907, Coleman began using his access to the books to cover up the thefts he was making.  He did this by altering the records in such a way that the only way he could be caught was to examine the deposit record of all the deposits.  During this time, defendant had several indications that someone at the bank was a thief.  He never attempted to ascertain who the thief was or to examine the books, even though he had the opportunity to do so.

ISSUE:  Did the failure to take affirmative action to discover the thief amount to a breach of duty to the corporation?

HOLDING:  Yes, as far as the president is concerned, but not regarding the directors.  The directors acted reasonably by relying on the information given to them.  They had no reason to believe that there were any irregularities in the bank records.  Dresser’s position was different.  He was in the bank daily.  He had access to the books at all times.  He knew of shortages and apparent unexplained declines in deposits, yet he failed to make any attempt to discover the reasons behind these peculiar events.  The continued losses were his fault b/c the warnings that he had should have led him to investigate.  Had he investigated, the losses may have been eliminated b/c he may have discovered the reason behind them.  Dresser, as president, was much closer to the operation of the bank than the directors.  He was there every day, and he supervised the actual operation of the bank.  This the directors didn’t do; therefore, Dresser’s position exposed him to the warning signs, while the directors were not exposed and, therefore, he was personally liable while the directors were not.

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