Checks Drawn on the Principal's Own Account
Not every fiduciary account is titled in the fiduciary's name. Sometimes the account remains in the principal's name, and the fiduciary is simply authorized to write checks on it. This is common with powers of attorney, where an agent manages finances for someone who is incapacitated or unavailable.
This statute protects the bank in those situations. As long as the fiduciary is empowered to draw checks on the principal's account, the bank can process those checks without investigating 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
Just like with fiduciary-titled accounts, the bank loses its protection if it accepts a check from the principal's account that pays a personal debt of the fiduciary to that bank. If the bank knows the fiduciary is using the principal's money for their own obligations, and the fiduciary is in fact breaching their duty, the bank can be held liable.
This statute is particularly relevant for families using a financial power of attorney. The agent handling a loved one's finances can write checks and manage accounts, and the bank will process those transactions normally. But the statute also creates accountability: if a bank knowingly participates in an agent's misuse of funds, it shares the liability.
