Due to a conflict between Illinois laws on this subject, we cannot determine whether you would incur any liability in allowing the individual to deposit checks for one business into another business’s account. Even if the individual is an authorized signer for the “Next Door Storage” business and he properly endorses the checks, there is still a risk that the bank would be held liable if the individual is engaging in fraud or some other breach of his duty to the business (and its creditors and other possible owners).

If an individual has the authority to sign on behalf of a company, he is considered that company’s “fiduciary” for purposes of payment law. There are two, conflicting Illinois laws that govern whether a bank would be liable for a fiduciary’s fraud or other breach of his or her duty:

• Under the Uniform Commercial Code (UCC) rule, whenever a fiduciary deposits a check made to the fiduciary’s business entity into an account that is not the business entity’s account (and is not an account of the fiduciary in his or her fiduciary capacity), the bank is on notice that the fiduciary is breaching his or her duty to the business. 810 ILCS 5/3-307(b)(2)(iii). Under this rule, the bank may be liable for the fiduciary’s bad acts merely because the bank knows the fiduciary is not depositing the business’s checks into that business’s account.

• On the other hand, the Illinois Fiduciary Obligations Act states that a bank will not be liable for a fiduciary’s breach of duty in depositing an endorsed check, unless the bank took the check with “actual knowledge of such breach or with knowledge of such facts that his action in taking the instrument amounts to bad faith.” 760 ILCS 65/4. Under this rule, the bank would not be liable for the fiduciary’s bad acts unless it actually knew the fiduciary was breaching his or her duty or taking the instrument in bad faith.

We are aware of two cases holding that the less-stringent rule from the Fiduciary Obligations Act would govern, rather than the strict UCC rule. Crawford Supply Grp., Inc. v. Bank of America, N.A., 2010 WL 320299 at *9, n. 5 (N.D. Ill. Jan. 21, 2010); Beedie v. Associated Bank Ill., N.A., 2011 WL 2460959 at *2 (C.D. Ill. June 21, 2011). However, Illinois courts would not necessarily follow these decisions (as they are trial-level federal court decisions) and could decide that the UCC rule applies instead. Therefore, you will have to make a business decision between taking the risk of depositing the checks, versus possibly losing a customer.