Fiduciary Duties are Not Created in Most Contracts

Fiduciary Duties in Texas Contracts

Many people rely upon the services of professionals to carry out work or perform a task for them that they may not have the know-how or resources to do themselves. You may believe that, in general, this creates a relationship between you and your professional service provider that requires them to keep your best interests in mind and put your needs first. However, this kind of relationship, called a “fiduciary relationship,” is rarely created in most business transactions. As a recent case in a Texas Court of Appeals has confirmed, you cannot usually expect that those providing services for you will act in your best interests, and you should be aware of this reality when you sign up for any professional services.

When a “Fiduciary Relationship” is Formed

Fiduciary relationships can be either formal or informal. Formal relationships typically are created when parties enter certain kinds of arrangements with each other where one party promises that they will act for the benefit of the other party. For example, attorney-client relationships are fiduciary relationships, as well as broker-client, trustee-beneficiary, and partners in a business partnership.

It is also possible to enter an informal fiduciary relationship. These are also known as “confidential relationships,” and are created "where one person trusts in and relies upon another, whether the relation is a moral, social, domestic or merely personal one." Fitz-Gerald v. Hull, 150 Tex. 39, 237 S.W.2d 256, 261 (1951). That trust and reliance is only justified when one party is “accustomed to being guided by the judgment or advice of  the  other party,  and  there  exists  a  long  association  in  a  business  relationship  as  well  as personal friendship.” Lindley v.  McKnight, 349 S.W.3d 113, 125 (Tex.  App.––Fort Worth 2011, no pet.). The trust and reliance cannot be created subjectively – you cannot turn a standard business relationship into a fiduciary relationship just because you feel a sense of trust in the other party. Schlumberger Tech. Corp. v. Swanson, 959 S.W.2d 171, 177 (Tex.1997). All this is to say that a fiduciary relationship must have been created before and apart from an otherwise standard agreement.

Does my Contractor have Fiduciary Duties Towards Me?

In a recent case, a Texas Court of Appeals clarified the general rule about fiduciary duties that may be owed by a professional – in this case, a licensed engineering firm. The firm was sued by a landowner when work done by the firm on a neighboring property allegedly caused damage to the landowner’s land. Hussion St. Bldgs., LLC v. TRW Eng’rs, Inc., No. 14-20-00641-CV, 2022 Tex. App. LEXIS 2193 (Tex. App.—Houston [14th Dist.] April 5, 2022, no pet. history). The landowner, despite not himself being a client of the engineering firm, argued that certain provisions of the Texas Administrative Code created a fiduciary duty with respect to the firm's work. Rule §137.63 of the Texas Administrative Code lays out a number of requirements for engineers as they work in Texas, including several references to “honest and ethical” behavior, acting as a “faithful agent,” and working in a “careful and diligent manner.”

Even with these provisions, the Court pointed out that “courts have declined to hold that engineers owe fiduciary duties even to their own clients,” and further noted that the landowner “does not claim to have had a relationship of trust and confidence with [the firm] that existed independently from, and prior to, [the firm’s] work on the Project.” As a result, the court dismissed the claim that the engineering firm had any fiduciary duties towards the landowner.

This may have been surprising to the landowner, who probably expected that an engineer’s legal duty to perform work to certain standards as laid out in the Administrative Code would allow a party who was damaged by that work to sue over a breach of those duties. Nevertheless, the Court found that he was unable to prove that he had the kind of special relationship with the engineer that would allow him to say that the firm had fiduciary duties towards him.

This should serve as a warning to Texas residents that your rights under an agreement with a contractor may not be what you expect. It is important to work with a qualified attorney when forming relationships with a service provider to make sure you understand your rights and what you can expect under the agreement.

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