Bates v.

Dresser
FACTS:
 Dresser 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.
 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 because
the warnings that he had should have led him to
investigate. Had he investigated, the losses may have
been eliminated because 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.

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

RULING:
 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.