§ 30-2-4-5 — Check drawn by fiduciary payable to third person

If a check or other bill of exchange is drawn by
a fiduciary as such, or in the name of his principal by a fiduciary
empowered to draw such instrument in the name of his principal, the
payee is not bound to inquire whether the fiduciary is committing a
breach of his obligation as fiduciary in drawing or delivering the
instrument, and is not chargeable with notice that the fiduciary is
committing a breach of his obligation as fiduciary unless he takes the
instrument with actual knowledge of such breach or with knowledge of
such facts that his action in taking the instrument amounts to bad faith.
If, however, such instrument is payable to a personal creditor of the
fiduciary and delivered to the creditor in payment of or as security for
a personal debt of the fiduciary to the actual knowledge of the creditor,
or is drawn and delivered in any transaction known by the payee to be
for the personal benefit of the fiduciary, the creditor or other payee is
liable to the principal if the fiduciary in fact commits a breach of his
obligation as fiduciary in drawing or delivering the instrument.
Formerly: Acts 1927, c.17, s.5.