What Are the Remedies for Breach of Fiduciary Duty by an Executor?
Full Question:
Answer:
The answer will depend in part on the wording in the will, such as whether the parents were named as executors, were instructed to set up a trust fund, and how much discretion the parents had to invest the money on the child's behalf. Generally, an executor has a fiduciary duty to carry out the expressed wishes of the testor.
Executors are "fiduciaries," which means that the executor must act with the highest degree of good faith in behalf of the estate. The executor must keep his money separate from the estate's; keep detailed records concerning all transactions he engages in on the estate's behalf; not stand to profit by any transaction where the executor represents the estate's interests; and not make a gift or otherwise transfer any of the estate's money, personal property, or real estate to himself unless the will or court order explicitly states he can do so.
Various remedies may be available if a fiduciary duty was breached. Common actions for an abuse of a fiduciary duty, among others, include a petition for an accounting, claim of breach of fiduciary duty, theft, conversion, or a fraud charge.
Fiduciaries owe two main duties to their clients: a duty of loyalty and a duty of care. The duty of loyalty requires that fiduciaries act solely in the interest of their clients, rather than in their own interest. Thus fiduciaries must not derive any direct or indirect profit from their position, and must avoid potential conflicts of interest. The duty of care requires that fiduciaries perform their functions with a high level of competence and thoroughness, in accordance with industry standards.
The elements of a cause of action for breach of fiduciary duty are:
(1) Plaintiff and Defendant share a relationship whereby:
(a) Plaintiff reposes trust and confidence in Defendant, and
(b) Defendant undertakes such trust and assumes a duty to advise, counsel and/or
protect Plaintiff;
(2) Defendant breaches its duties to Plaintiff; and
(3) Plaintiff suffers damages.
The elements of a claim for breach of fiduciary duty are not fixed as the claim may arise from virtually any case where one party accepts the trust and assumes the duty to protect a weaker party.
Affirmative defenses to a claim for breach of fiduciary duty can include, but are not limited to:
(1) The passing of the statute of limitations for filing the claim.
(2) Lack of fiduciary relationship (for example, when the parties did not enter a fiduciary relationship, but rather conducted business in an arm’s length transaction there is no duty to protect the other party or disclose facts which the other party could have discovered by its own diligence.)
(3)Lack of standing
(4) Approval (for example, if the alleged actions followed full disclosure to and the consent of the Plaintiff)
(5) Business judgment rule (ex. that the corporate fiduciary's actions were motivated by a bona fide interest in the well being of the corporation where shareholders are the ones owed the fiduciary duty)
(6) Due diligence was exercised
Conversion is when someone wrongfully uses property of another for their own purposes or alters or destroys it. In an action for conversion, the taking of the property may be lawful, but the retaining of the property is unlawful. To succeed in the action, the plaintiff must prove that he or she demanded the property returned and the defendant refused to do so.
The answer will depend in part on the agreement made between the daughter and parents to hold the money on her behalf while the divorce was pending. Contracts are agreements that are legally enforceable. A contract is an agreement between two parties that creates an obligation to do or refrain from doing a particular thing. The purpose of a contract is to establish the terms of the agreement by which the parties have fixed their rights and duties. An oral contract is an agreement made with spoken words and either no writing or only partially written. An oral contract may generally be enforced the same as a written agreement. However, it is much more difficult with an oral contract to prove its existence or the terms. Oral contracts also usually have a shorter time period within which a person seeking to enforce their contract right must sue. A written contract generally provides a longer time to sue than for breach of an oral contract. Contracts are mainly governed by state statutory and common (judge-made) law and private law. Private law generally refers to the terms of the agreement between the parties, as parties have freedom to override many state law requirements regarding formalities of contracts. Each state has developed its own common law of contracts, which consists of a body of jurisprudence developed over time by trial and appellate courts on a case-by-case basis.
An unjustifiable failure to perform all or some part of a contractual duty is a breach of contract. A legal action for breach of contract arises when at least one party's performance does not live up to the terms of the contract and causes the other party to suffer economic damage or other types of measurable injury. A lawsuit for breach of contract is a civil action and the remedies awarded are designed to place the injured party in the position they would be in if not for the breach. Remedies for contractual breaches are not designed to punish the breaching party. The five basic remedies for breach of contract include the following: money damages, restitution, rescission, reformation, and specific performance. A money damage award includes a sum of money that is given as compensation for financial losses caused by a breach of contract. Parties injured by a breach are entitled to the benefit of the bargain they entered, or the net gain that would have accrued but for the breach. The type of breach governs the extent of damages that may be recovered.
Restitution is a remedy designed to restore the injured party to the position occupied prior to the formation of the contract. Parties seeking restitution may not request to be compensated for lost profits or other earnings caused by a breach. Instead, restitution aims at returning to the plaintiff any money or property given to the defendant under the contract. Plaintiffs typically seek restitution when contracts they have entered are voided by courts due to a defendant's incompetence or incapacity.
Rescission is the name for the remedy that terminates the contractual duties of both parties, while reformation is the name for the remedy that allows courts to change the substance of a contract to correct inequities that were suffered. In order to have a rescission, both parties to the contract must be placed in the position they occupied before the contract was made. Courts have held that a party may rescind a contract for fraud, incapacity, duress, undue influence, material breach in performance of a promise, or mistake, among other grounds.
Specific performance is an equitable remedy that compels one party to perform, as nearly as practicable, his or her duties specified by the contract. Specific performance is available only when money damages are inadequate to compensate the plaintiff for the breach.
Promissory estoppel is a term used in contract law that applies where, although there may not otherwise be an enforceable contract, because one party has relied on the promise of the other, it would be unfair not to enforce the agreement. Promissory estoppel arises from a promise which the promisor should reasonably expect to induce action or forebearance of a definite and substantial character on the part of the promisee and which does induce such action or forebearance in binding if injustice can be avoided only by enforcement of the promise. Detrimental reliance is a term commonly used to force another to perform their obligations under a contract, using the theory of promissory estoppel. Promissory estoppel may apply when a promise was made; reliance on the promise was reasonable or foreseeable; there was actual and reasonable reliance on the promise; the reliance was detrimental; and injustice can only be prevented by enforcing the promise. Detrimental reliance must be shown to involve reliance that is reasonable, which is a determination made on an individual case-by-case basis, taking all factors into consideration. Detrimental means that some type of harm is suffered.
Reasonable reliance is usually referred to as a theory of recovery in contract law. It was what a prudent person might believe and act upon based on something told by another. Sometimes a person acts in reliance on the promise of a profit or other benefit, only to learn that the statements or promises were either incorrect or were exaggerated. The one who acted to their detriment in reasonable reliance may recover damages for the costs of his/her actions or demand performance. Reasonable reliance connotes the use of the standard of an ordinary and average person.
The court may also declare that a constructive trust exists, which is essentially a legal fiction designed to avoid injustice and prevent giving an unfair advantage to one of the parties. This may be based on the contributions made by one partner to the property of the other. The court typically requires a finding of unjust enrichment before it wil impose a constructive trust. Each case is decided on its own facts, taking all circumstances into consideration.
The doctrine of unjust enrichment is based upon the principle that one should not be permitted unjustly to enrich himself at the expense of another but should be required to make restitution of or for property received, retained or appropriated. The general rule is that a payment of money under a mistake of fact may be recovered provided that such payment will not prejudice the payee. It is considered unjust enrichment to permit a recipient to retain money paid because of a mistake, unless the circumstances are such that it would be inequitable to require its return. This applies even if the mistake is one on one side (unilateral) and a consequence of the payors negligence, or that the payee acted in good faith. "A person who has conferred a benefit on another by mistake is not precluded from maintaining an action for restitution by the fact that the mistake was due to his lack of care." (Restatement of Restitution § 59.) Equity, which is based on notions of fairness, often allows a person who pays money to another under the mistaken belief a valid contract exists to recover that money when the contract is subsequently canceled for fraud or mistake and the rights of innocent parties have not intervened. (Restatement of Restitution §§ 17, 28.)
A constructive trust is one that arises by operation of law against one who, by fraud, wrongdoing, or any other unconscionable conduct, either has obtained or holds legal right to property which he ought not to, in good conscience, keep and enjoy. A constructive trust is an appropriate remedy against unjust enrichment. Unjust enrichment is present in nearly every case where a constructive trust is imposed. However, the court's creation of a constructive trust is not necessarily dependent on a finding that the person whose property is subjected to it has acted wrongly, but may rest as well upon a finding of unjust enrichment arising from other circumstances that "render it inequitable for the party holding the title to retain it." (Starleper v. Hamilton 106 Md.App. 632, 666 A.2d 867 (1995).)
The basis for creating a constructive trust is to prevent unjust enrichment. (Restatement of Restitution § 160, comment c.) "Where a person wrongfully disposes of property of another knowing that the disposition is wrongful and acquires in exchange other property, the other is entitled to enforce a constructive trust of the property so acquired." If the property so acquired is or becomes more valuable than the property used in acquiring it, the profit thus made by the wrongdoer cannot be retained by him; the person whose property was used in making the profit is entitled to it." (Restatement Restitution § 202.) When property is given or devised to a defendant in breach of a donor's or testator's contract with a plaintiff, equity will impose a constructive trust upon that property being held by another even though (1) the transfer is not the result of breach of a fiduciary duty or an actual or constructive fraud practiced upon the plaintiff, and (2) the donee or devisee had no knowledge of the wrongdoing or breach of contract. (Jones v. Harrison , 250 Va. 64, 458 S.E.2d 766 (1995 ).)
A person who has been unjustly enriched at the expense of another may be required to make restitution to the other. Despite not having a contractual agreement, a trial court may require an individual to make restitution for unjust enrichment if he has received a benefit which would be unconscionable to retain. A person may be deemed to be unjustly enriched if he (or she) has received a benefit, and keeping it would create injustice.
