A Power of Attorney Creates a Fiduciary Duty

Robert Ray

A Power of Attorney Creates Fiduciary Duty

Texas courts recognize that a person with a power of attorney owes the principal (the person who gave the power of attorney) a fiduciary duty. The holder of the power of attorney owes her principal a high duty of good faith, fair dealing, honest performance, and strict accountability. When the fiduciary receives an alleged gift from the principal, the fiduciary has an extremely high burden to show that the gift was in the best interest of the principal. The courts have observed that the fiduciary relationship cast upon the profiting fiduciary the burden of showing the fairness of the transactions. By accepting both the role of fiduciary and gifts from the principal, the agent consents to have her conduct measured by a higher standard of loyalty.In one case, the fiduciary never acted under her power of attorney. Therefore, she claimed, she did not have to meet the high burden of a fiduciary to prove that the gifts she received from the principal were in the best interest of the principal. The court rejected these arguments. The court found that the holder of the power of attorney owed the principal a fiduciary duty based solely on the power of attorney whether or not it was ever exercised. This finding placed the burden on the holder to prove the transfer of the principal’s property to her was fair and in the best interest of the principal.

 

The violation of the duty that a holder of a power of attorney owes to the principal can result in a felony conviction. In one case, the facts were as follows: “Grace added Tyler as a signatory on her bank accounts, and executed a durable power of attorney naming Tyler as her “agent (attorney-in-fact).” The power of attorney gave Tyler power over all of Grace’s assets.” Tyler later misapplied the funds under her control by using some for her personal debts.

The criminal law in question, §32.45 of the Texas Penal Code says: “A person commits an offense if he intentionally, knowingly, or recklessly misapplies property he holds as a fiduciary or property of a financial institution in a manner that involves substantial risk of loss to the owner of the property or to a person for whose benefit the property is held.” Tyler claimed that she had no formal trustee relationship with Grace, and therefore a fiduciary relationship “may not have” existed. In ruling that the existence of the power of attorney alone created the fiduciary relationship, the court upheld her conviction.

Update: In a 2018 case, an appeals court upheld a decision that the person with a power of attorney breached his fiduciary duty when he withdrew funds from a bank account and put the funds in his own account. The court ruled that he converted the funds and had to return them. Conversion is the wrongful exercise of dominion and control over another’s property in denial of or inconsistent with one’s rights. “From the evidence, the trial court could have reasonably concluded that when (POA) withdrew the money from the joint account, (POA) was not acting in (principal’s) interests but was using the power of attorney to wrongfully exercise dominion and control over the money to the exclusion of, or inconsistent with, (the owner’s) rights.” No. 02-17-00138-CV. In 2019, the courts held that a person with a power of attorney who had the bank issue him a certified check that he put in his own account, breached his fiduciary duty. This was true even though the person from whom he had the power of attorney signed the check. 02-17-00138-CV.

 
 

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Robert Ray

Robert Ray handles inheritance disputes of all kinds. He takes cases throughout Texas.
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