In the 1892 case of Kohn v. McNulta, the United States Supreme Court dealt with a dispute over a business transaction involving bonds. The plaintiff, Kohn, had purchased bonds from an insolvent company that was controlled by McNulta who served as both president and trustee. After discovering the insolvency of the company post-purchase, Kohn sued to recover his investment arguing that he was deceived into buying worthless securities due to fraudulent misrepresentation on part of McNulta about the financial health of his company. The Supreme Court ruled in favor of McNulta stating that while it is true that directors or trustees are liable for false representations made knowingly or ignorantly which result in damage to others; however, there must be proof beyond reasonable doubt showing such deceitful conduct occurred. In this particular case though unfortunate for Mr.Kohn's loss,the court found no evidence proving fraudulence by Mr.McNulty hence dismissed Kohn’s claim.

In the dissenting opinion for Kohn v. McNulta, it was argued that the court majority had erred in its interpretation of Illinois law regarding corporate liability. The dissent held that under Illinois law, a corporation could not be held liable for fraudulent acts committed by its officers if those acts were outside the scope of their authority and without the knowledge or consent of shareholders. It was further contended that even if such liability did exist, it should only extend to direct victims of fraud and not third parties who suffered indirect harm as a result. In this case, since there was no evidence showing any shareholder involvement in or awareness about the fraudulent activities carried out by some company officials, holding all shareholders collectively responsible would be unjustified according to this view.