O.C.G.A. § 7-1-352 (2019)

Annotations

JUDICIAL DECISIONS Section protects bank against breaches by corporate agent. - Once account was properly set up by a corporation, former Code 1933, § 13-2042 (see now O.C.G.A. § 7-1-352) protects bank from liability if the bank was without knowledge of the breach of duty of the agent withdrawing funds. Trust Co. v. Nationwide Moving & Storage Co., 235 Ga. 229, 219 S.E.2d 162, 1975 Ga. LEXIS 839 (1975). Purpose of O.C.G.A. § 7-1-352 is to protect a bank from liability in the event that an agent or fiduciary misappropriates funds of an owner in breach of the agency or trust without the bank’s knowledge, and the statute protects a bank from liability for embezzlement by a signatory on a corporate bank account if the person setting up the account had the authority to do so and if the bank was without knowledge of the embezzlement. Atlanta Sand & Supply Co. v. Citizens Bank, 276 Ga. App. 149, 622 S.E.2d 484, 2005 Ga. App. LEXIS 1188 (2005). Former Code 1933, § 13-2042 (see now O.C.G.A. § 7-1-352) can be read to include an agent with authority or implied agency to make deposits. Trust Co. v. Nationwide Moving & Storage Co., 235 Ga. 229, 219 S.E.2d 162, 1975 Ga. LEXIS 839 (1975). Corporate officer’s authority. - Because a company’s corporate resolution authorized one of the corporation’s officers to make deposits to and withdrawals from an account maintained at a bank, and the officer, in the process of making deposits to the account, illegally took cash back from the deposits for the officer’s personal use, the bank was shielded from liability for conversion by O.C.G.A. § 7-1-352 because the corporate resolution, as well as a signature card bearing the officer’s signature, gave the officer authority to

deal with the account. Atlanta Sand & Supply Co. v. Citizens Bank, 276 Ga. App. 149, 622 S.E.2d 484, 2005 Ga. App. LEXIS 1188 (2005). Account in a fictitious name is recognized in Georgia. National Factor & Inv. Corp. v. State Bank, 224 Ga. 535, 163 S.E.2d 817, 1968 Ga. LEXIS 846 (1968). Account can be opened in any name and bank may pay checks signed in accounts when the bank has no knowledge of a fraudulent purpose for the account. National Factor & Inv. Corp. v. State Bank, 224 Ga. 535, 163 S.E.2d 817, 1968 Ga. LEXIS 846 (1968). Banks not required to scrutinize every check written by a fiduciary or agent. - Former Code 1933, § 13-2042 is designed to protect the bank from liability when the agent or fiduciary misappropriates funds of the owner in breach of agency or trust without bank’s knowledge. The bank is not required to scrutinize every check written by a fiduciary or agent to see if the check is written in compliance with the agent’s authority. Trust Co. v. Nationwide Moving & Storage Co., 235 Ga. 229, 219 S.E.2d 162, 1975 Ga. LEXIS 839 (1975). Former Code 1933, § 13-2042 was designed to protect the bank from liability when an agent or fiduciary misappropriates funds of the owner in breach of agency or trust without bank’s knowledge. The bank is not required to scrutinize every check written by a fiduciary or agent to see if the check is written in compliance with the agent’s authority. Flo-Control, Inc. v. Northeast Bank, 150 Ga. App. 880, 258 S.E.2d 695, 1979 Ga. App. LEXIS 2407 (1979); National Bank v. Weiner, 180 Ga. App. 61, 348 S.E.2d 492, 1986 Ga. App. LEXIS 2060 (1986). If agent has authority to open account and issue checks, bank is protected. - If agent was proven to have had either authority or inherent agency

power to open an account, then the bank can rely on the protection of former Code 1933 § 13-2042 if the agent also had authority to issue checks. Trust Co. v. Nationwide Moving & Storage Co., 235 Ga. 229, 219 S.E.2d 162, 1975 Ga. LEXIS 839 (1975). Bank was protected from liability for conversion of checks deposited into a corporate account since the agent who made the deposits and later withdrew the deposits had presented documents to the bank, including a certificate bearing the corporate seal and naming the agent as an officer of the corporation, which appeared to give the agent very broad authorization. Service Lines v. Trust Co. Bank, 189 Ga. App. 891, 377 S.E.2d 872, 1989 Ga. App. LEXIS 50 (1989). General manager may have authority or inherent agency to arrange for handling of corporate funds. Trust Co. v. Nationwide Moving & Storage Co., 235 Ga. 229, 219 S.E.2d 162, 1975 Ga. LEXIS 839 (1975). Trust company cannot rely solely on general manager’s position. - Trust company does not have the right to rely solely on the general manager’s position as general manager for power to set up a corporate bank account and to withdraw corporate funds without a proper corporate resolution. Trust Co. v. Nationwide Moving & Storage Co., 235 Ga. 229, 219 S.E.2d 162, 1975 Ga. LEXIS 839 (1975). Corporate resolution is not exclusive method for conferring authority. - While a bank could easily protect the bank’s interests by requiring a proper corporate resolution showing an agent’s authority to act for the corporation, that method is not the exclusive one for establishing the existence either of authority or of inherent agency power to open a bank account for the corporation. Trust Co. v. Nationwide Moving & Storage Co., 235 Ga. 229, 219 S.E.2d 162, 1975 Ga. LEXIS 839 (1975). Chief executive officer’s authority. - When evidence showed that a chief executive officer had the inherent agency power to open accounts and withdraw deposited funds, the bank was not liable for alleged conversions of funds by the

officer on the basis that the bank did not require a corporate resolution or certificate of authority to open the accounts. Family Partners Worldwide, Inc. v. Suntrust Bank, 242 Ga. App. 618, 530 S.E.2d 742, 2000 Ga. App. LEXIS 289 (2000). This section does not violate U.S. Const., amend. 14, Sec. 1, or Ga. Const. 1983, Art. I, Sec. I, Para. II. - Former Code 1933, § 13-2042 (see now O.C.G.A. § 7-1-352(a)) was not unconstitutional under U.S. Const., Art. XIV, Sec. I, and Ga. Const. 1976, Art. I, Sec. II, Para. III (see now Ga. Const. 1983, Art. I, Sec. I, Para. II) as violating equal protection and impartial protection of property, nor did the statute violate Ga. Const. 1976, Art. I, Sec. I, Para. VII (see now Ga. Const. 1983, Art. I, Sec. I, Para. X) prohibitions against grants of special privileges or immunities. National Factor & Inv. Corp. v. State Bank, 224 Ga. 535, 163 S.E.2d 817, 1968 Ga. LEXIS 846 (1968). Former Code 1933, § 13-2042 was not unconstitutional as a special law enacted in derogation of a general law. National Factor & Inv. Corp. v. State Bank, 224 Ga. 535, 163 S.E.2d 817, 1968 Ga. LEXIS 846 (1968). Circumstances required to charge bank with notice of misappropriation. - See National Factor & Inv. Corp. v. State Bank, 224 Ga. 535, 163 S.E.2d 817, 1968 Ga. LEXIS 846 (1968). Mere fact that a fiduciary deposits in bank to the fiduciary’s individual account a check drawn by the fiduciary in a fiduciary capacity, or transfers funds by check from an account in the bank in the fiduciary’s own name as a fiduciary to a personal account in the bank, will not of itself charge the bank with knowledge or notice that the fiduciary is misappropriating or will misappropriate such funds. Citizens Bank v. Middlebrooks, 209 Ga. 330, 72 S.E.2d 298, 1952 Ga. LEXIS 480 (1952). Trust funds. - Under O.C.G.A. § 7-1-352, a bank incurs no liability for the uses to which trust funds are applied after the funds are withdrawn. On the other hand, the statute contains no

language protecting the bank against liability for honoring forged or otherwise improper checks or endorsements. Trust Co. Bank v. Henderson, 258 Ga. 703, 373 S.E.2d 738, 1988 Ga. LEXIS 493 (1988). O.C.G.A. § 7-1-352 did not apply when the claim against the bank was based on the bank’s acceptance for deposit into an employee’s personal checking account of checks made payable to the employer, and the employee knowingly signed and presented the checks so as to give the appearance of authority from the employer. Trust Co. Bank v. Henderson, 185 Ga. App. 367, 364 S.E.2d 289, 1987

Ga. App. LEXIS 2508 (1987), aff’d, 258 Ga. 703, 373 S.E.2d 738, 1988 Ga. LEXIS 493 (1988). While O.C.G.A. § 7-1-352 protects banks from liability when allowing withdrawals and paying accounts ordered to be paid by the persons who have previously deposited such money, it is not applicable when the amount ordered to be transferred was not initially deposited by a temporary administratrix but instead was deposited by the deceased. Kelly v. Citizens & S. Nat’l Bank, 160 Ga. App. 405, 287 S.E.2d 343, 1981 Ga. App. LEXIS 3131 (1981).

RESEARCH REFERENCES Am. Jur. 2d. 10 Am Jur. 2d, Banks, § 504. ALR. Deposit to individual account of checks or notes drawn or endorsed by agent or fiduciary, as charging bank with notice of misappropriation, 64 A.L.R. 1404; 106 A.L.R. 836; 115 A.L.R. 648. Trust or preference in assets of insolvent bank in respect of money deposited or left on deposit pursuant to agreement of

bank to purchase bonds or make other investments for depositor, 82 A.L.R. 1292; 105 A.L.R. 516. Liability of guardian for loss of funds deposited in bank in form which discloses trust or fiduciary character, 90 A.L.R. 641. Payee’s and drawer’s right of recovery, in conversion under pre-1990 UCC § 3-419, or post-1990 UCC § 3-420, for money paid on unauthorized endorsement, 91 A.L.R.5th 89.