§ 35-2-105 — 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 the principal by a fiduciary empowered to draw such instrument in the name of the principal, the payee is not bound to inquire whether the fiduciary is committing a breach of the fiduciary's obligation as fiduciary in drawing or delivering the instrument, and is not chargeable with notice that the fiduciary is committing a breach of the obligation as fiduciary unless the payee takes the instrument with actual knowledge of such breach or with knowledge of such facts that the 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 the obligation as fiduciary in drawing or delivering the instrument.

Legislative History

Acts 1953, ch. 82, § 5 (Williams, § 9596.22); T.C.A. (orig. ed.), § 35-206.