§ 205. Return of Corporate Funds.

At the conclusion of the treasurer's tenure of office, it is his duty to return the corporate funds to his successor or to such other party as may be designated by the board of directors. If he does not do this voluntarily, their return may be enforced by legal action. If any deficiencies are discovered in the funds, the treasurer or his bondsmen must make thein good, and if such deficiencies occurred through the treasurer's wrong doings, he is liable to a criminal action."

Hunter v. Robbins, 117 Fed. Rep. 920 (1902); Consolidated, etc. Works v. Brew., 112 Wis. 610 (1902).

See § 12, 19.

CHAPTER XXI.

BANK DEPOSITS.

206. Selection of Depositary.

The designation of the corporate depositary may be made by the charter, the by-laws or the directors, or it may be left to the treasurer of the corporation. It is manifest, however, that the selection should ordinarily be entrusted to the directors. The matter is too important to be left to the treasurer's unrestrained discretion. The charter and by-laws are too difficult of change to render them a suitable medium. The directors, on the other hand, combine a discretion and responsibility with a reasonable promptness of action, that clearly fit them for this duty.

§ 207. Directors' Powers as to Depositary.

(a) When Designated by Higher Authorities. If the particular bank in which the corporate deposits are to be made is designated in the by-laws, the directors have ordinarily no power to change this designation. Emergencies might, however, arise which would modify this general rule.

Thus, should some unforeseen crisis endanger the solvency of the designated bank and it be impossible to secure another by-law designation with promptness, the directors would then not only be justified in transferring the corporate funds to some more secure depositary, but must do so in the

proper discharge of their duties. They are directly responsible for the safety of the corporate property and must take all reasonable measures to conserve this. Also they are entitled to exercise their discretion as to what is reasonable and necessary, and, provided only that the emergency was real and their discretion honestly exercised, the directors could not be held liable for the results of their action, nor could the treasurer be held to account for obeying their instructions, even though they were in temporary disregard of the higher corporate authorities.1

(b) Designation by Directors. The selection of the corporate depositary may be left to the directors, either by express charter or by-law provisions, or by the absence of any charter or by-law provisions which would prevent their exercise of the power. In either case they have authority to act and have wide discretion. They must exercise reasonable care —such care as a prudent business man would employ in selecting a depositary for his own funds-but beyond this they may designate any such bank, national, state or private, or such trust company as may seem to them most suitable or most advantageous for the corporation.

208. Treasurer's Powers as to Depositary.

(a) When Designated by Higher Authority. When the by-laws or directors' resolutions designate the corporate depositary, the treasurer must govern himself accordingly. Should he, in disregard or defiance of the designation of the higher authority, deposit the corporate funds elsewhere, he would be liable to the corporation for any resulting loss and would also be subject to removal from office for disobedience of the corporate authorities.2

The treasurer might, however, under some circumstances have discretionary power. Although the powers of agents

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1 Greenleaf v. Moody, 13 Allen (Mass.) 363 (1866); Story on Agency, § 141.

2 See § 49.

are, ordinarily, limited to particular acts, yet extraordinary emergencies may arise in which a person who is an agent, may, from the very necessities of the case, be justified in assuming extraordinary powers; and his acts when fairly done under such circumstances will be binding on his principal."3

For instance, if information convinces the treasurer that the designated bank is unsafe, and the emergency is too pressing to await board action, he might withhold any corporate funds on hand, and, if the conditions permit, withdraw the funds already deposited. Also he might deposit the funds so withheld or withdrawn, in some other bank until their more permanent disposition could be determined by the directors.

The treasurer's discretion in such matters is, however, entirely temporary, not to be called into play at all if action by the board can be safely awaited, and in any case lasting only until the board can convene and take such action as the emergency demands. To avoid risk to himself, he would also usually act only after conference with and the approval of any individual directors or other officers of the company who might be accessible.

(b) Designation by Treasurer. If the higher corporate authorities neglect to designate a depositary for the corporate funds, the treasurer may then himself select a suitable depositary as an incident of the proper discharge of his duties.

Should the treasurer fail to do so and loss ensue, he must either show that it was impossible or inexpedient that the funds should be deposited in the usual manner, or otherwise be held liable for lack of due care and diligence in the performance of his duties.

§ 209. Status of the Corporate Depositary.

When the corporate account is opened, the bank may by special arrangement be made either an agent or a trustee for the corporation in its care of the corporate funds. If, however,

3 Story on Agency, § 141.

this is not done, the corporate funds are received by the bank on "general deposit" and the bank is then neither agent nor trustee, but merely a debtor of the corporation for the amount deposited. It holds the corporate funds exactly as it would borrowed money, and its duties, powers and liabilities are in effect the same. Practically the deposit is an unsecured demand loan, drawing no interest, unless otherwise agreed. As a debtor of the corporation the bank may charge or offset any amounts due from the corporation to it against the corporate deposit.

The funds deposited by the corporation must be returned to it when demanded and as demanded, but this is the extent of the corporation's control of its deposited funds. The bank, on the other hand, must be prepared to meet all demands for payment of deposited funds, but beyond this may use them as freely as it would its own. If the bank wishes to invest the corporate funds on deposit, it may do so and if profits result, these profits belong to the bank. Conversely, if losses are incurred, these also belong to the bank. If, however, the losses of the bank should be so great as to render it insolvent, the corporation takes its place with the other creditors and must realize what it can from the liquidation of the bank assets.

§ 210. Opening the Account.

When, as is usual, the selection of the corporate depositary is left to the board of directors, the designating resolution will vary in its details according to the conditions.

For the smaller corporations such a resolution should empower the treasurer to open the account with the designated institution, deposit the corporate funds therein and withdraw them on checks with specified signature. It might also properly state his authority to endorse checks, drafts and notes for deposit or collection, as the case may be. This leaves any special transactions with the bank, such as a loan or discount, to be provided for by special action of the directors.