Whether you could face liability for allowing your customer to deposit a check made payable to the trucking company into his sole proprietorship account if he had no authority to do so would depend on additional facts.

Generally, under the Illinois Fiduciary Obligations Act (FOA), a bank will not incur liability when a customer it knows to be a fiduciary of a business deposits a check made payable to the business into the fiduciary’s personal account, unless the bank exercised bad faith or had actual knowledge of the fiduciary’s wrongdoing. While perhaps counterintuitive, the point of this rule is to relieve the depository bank of the duty of ensuring that the corporation’s funds are being properly applied by the fiduciary; instead, it “becomes the principal’s burden to employ honest fiduciaries.”

While this rule in the FOA applies to “personal accounts,” we believe it also applies to sole proprietorship accounts, because a sole proprietorship has no legal existence apart from its individual owner.

However, in order to be protected by this rule, generally the depository bank must know that: (1) the person is a fiduciary of the business, and (2) the person is authorized to endorse checks on behalf of the business. Here, although you say the customer “owns the trucking company,” this company does not have an account with your bank, and you likely have no documentation confirming that: (1) he is a fiduciary of the company (although if he is an officer of the company, which may or may not be the case, he would be its fiduciary), and (2) that he is authorized to endorse checks on behalf of the company. The FOA would not protect your bank from liability if it turned out that your customer either was not a fiduciary of the company or was a fiduciary but did not have the authority to endorse the company’s checks.

Even though the trucking company has no account at your bank, you can secure the protections of the FOA for your bank by obtaining documentation from your customer establishing that he is a fiduciary of the trucking company (such as by being an officer) and that he has the authority to endorse the company’s checks (which typically is established by a corporate resolution).

We should note that the Uniform Commercial Code imposes a more stringent liability standard for banks regarding the acceptance of deposits made by a person who has no authority to endorse the deposited checks, but a number of Illinois courts have held that the less stringent “actual knowledge” rule in the FOA governs these situations.

For resources related to our guidance, please see:

• Fiduciary Obligations Act, 760 ILCS 65/9 (“Notwithstanding any other law, if a fiduciary makes a deposit in a bank to his personal credit  . . . of checks payable to his principal and indorsed by him, if he is empowered to indorse such checks . . . the bank receiving such deposit is not bound to inquire whether the fiduciary is committing thereby a breach of his obligation as fiduciary; and the bank is authorized to pay the amount of the deposit . . . without being liable to the principal, unless the bank receives the deposit or pays the check with actual knowledge that the fiduciary is committing a breach of his obligation . . . or with knowledge of such facts that its action in receiving the deposit or paying the check amounts to bad faith.”)

• Fiduciary Obligations Act, 760 ILCS 65/1 (“‘Fiduciary’ includes a . . . partner, agent, officer of a corporation, public or private . . . or any other person acting in a fiduciary capacity for any person, trust or estate.”)

• Beedie v. Associated Bank Ill., N.A., 2011 WL 2460959, at 3 (C.D. Ill. 2011) (Section 9 of the Fiduciary Obligations Act “has been interpreted to have a preclusive effect thereby preempting other state law and establishing a total defense to banks for all claims arising from a bank’s honest interactions with fiduciaries.”)

• Mikrut v. First Bank of Oak Park, 359 Ill.App.3d 37, 49 (1st Dist. 2005) (“The [Fiduciary Obligations Act] relieves the depository bank of the duty of seeing that funds are properly applied. It becomes the principal’s burden to employ honest fiduciaries.”)