Checks Drawn on the Principal's Own Account
Not every fiduciary account is titled in the fiduciary's name. Sometimes the account stays in the principal's name. The fiduciary is simply allowed to draw checks on it.
This is common with powers of attorney. An agent may manage finances for someone who cannot do so themselves. The bank can process those checks without looking into each one.
If a check is drawn upon the account of his principal in a bank by a fiduciary who is empowered to draw checks upon his principal's account, the bank is authorized to pay such check without being liable to the principal, unless the bank pays the check with actual knowledge that the fiduciary is committing a breach of his obligation as fiduciary in drawing such check, or with knowledge of such facts that its action in paying the check amounts to bad faith.
A.R.S. § 14-7507The Same Personal Debt Exception Applies
The bank loses its protection in one key case. Say the fiduciary uses the principal's account to pay a personal debt owed to that bank. If the bank knows this, it shares the liability.
This statute matters for families using a financial power of attorney. The agent can write checks and manage accounts. The bank will process those transactions normally. However, a bank that knowingly helps an agent misuse funds faces the same liability.