In Garrett v. First State Bank Central Texas, John established an account with a bank and later added Garrett, who was assisting John with paying bills.  No. 10-14-00344-CV, 2016 Tex. App. LEXIS 4765 (Tex. App.—Waco May 5, 2016, no pet. history). John and Garrett went into the bank to sign the account documents, and Garrett testified that they wanted to create a joint account with rights of survivorship. But when they left the bank, the account documents did not establish a rights of survivorship account. The bank realized that the account would not accomplish John’s stated purpose, so it later altered the card by using white-out to delete the X on the Single Party Account Without Right of Survivorship blank, and she then placed an X on the Multiple-Party Account With Right of Survivorship blank.

After John’s death, his estate and Garrett both claimed a right to the funds in the account. The bank filed an interpleader action, the estate and Garrett both raised claims to the funds, and Garrett claimed that the bank breached fiduciary duties. The trial court entered summary judgment for the estate, holding that the account was not with rights of survivorship. Garrett’s claim against the bank then went to a jury, and the jury found that the bank did not owe a fiduciary duty to Garrett. Garrett appealed and argued that an instruction in the jury charge was incorrect and should result in a new trial. The instruction stated: “A person is justified in placing confidence in the belief that another party will act in his or her best interest only where she 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.” Id.  Garrett objected to the emphasized part of the instruction and argued that it was an incorrect statement of the law.

The court of appeals affirmed the jury’s finding, holding that the instruction was a correct statement of the law.  The court held that an “informal relationship may give rise to a fiduciary duty where one person trusts in and relies on another, whether the relation is a moral, social, domestic, or purely a personal one. But not every relationship involving a high degree of trust and confidence rises to the stature of a fiduciary relationship.” Id. The court also held that “while a fiduciary or confidential relationship may arise from the circumstances of a particular case, to impose such a relationship in a business transaction, the relationship must exist prior to, and apart from, the agreement made the basis of the suit.” Id. The court held that the existence of an informal fiduciary relationship depends on the circumstances of each case, but those circumstances must include a relationship that existed before and apart from the agreement made the basis of the suit, and there must be “a long association in a business relationship, as well as personal friendship.” Id.

Interesting Note: There has been some interesting case law over the past ten years regarding claims against banks for failing to property set up a survivorship account.  In A.G. Edwards & Sons Inc. v. Maria Alicia Beyer, the Texas Supreme Court held that a customer can potentially raise a claim against a financial institution for failing to create a JTROS account.  235 S.W.3d 704 (Tex. 2007). The plaintiff was a daughter of a man who attempted to transfer the funds in a previous account into a new JTROS account with A.G. Edwards (“Bank”). Id. The Bank lost the documentation and before new documents could be signed, the father fell into a coma and later died. The daughter sued the Bank for conversion, negligence, fraud, breach of contract, and breach of fiduciary duty. The jury found for the daughter and awarded her damages and attorney’s fees, and the Bank appealed. The Texas Supreme Court held: “[The Bank’s] failure to take sufficient steps to create the JTWROS account necessary to establish [the daughter’s] right of survivorship is a breach of a separate duty owed to [the daughter].” Id. The Court did not specify what “duty” it was referring to, but allowed extrinsic evidence of the bank’s failure to create the account.  The Court found that the evidence was sufficient to establish that the Bank had promised to create a JTROS account but failed to do so.

There have been several courts of appeals who have applied the A.G. Edwards opinion.  In Clark v. Wells Fargo Bank, N.A., the court of appeals held that a bank did not tortiously interfere with inheritance rights or act with negligence with respect to CDs.  No. 01-08-00887–CV, 2010 Tex. App. LEXIS 4376 (Tex. App.—Houston [1st District] June 10, 2010, no pet.).  The bank informed an owner of CDs that the CDs were not fully covered by FDIC insurance, and she then purchased six new fully insured CDs that were set up in her name only and did not have any right of survivorship language on the account agreements as the previous ones had on them. The plaintiffs, individuals previously listed on the old CDs, filed claims for tortious interference with inheritance rights and negligence against the defendant bank. The trial court granted the defendant bank a summary judgment. The court acknowledged that a claimant can have a tortious interference with an inheritance claim:  “[o]ne who by fraud, duress or other tortious means intentionally prevents another from receiving from a third person an inheritance or gift that he would otherwise have received is subject to liability to the other for loss of the inheritance or gift.”  Id. at *14. The court held that in order to have this cause of action the claimant must present some evidence that he or she would in fact inherit or receive the property at issue but for the interference. The court held that the plaintiffs did not provide any evidence that they actually had an interest in the new CDs such that they could sustain a cause of action for tortious interference. The court also held that the claimants provided no evidence that Wells Fargo acted with intentional tortious conduct. The court therefore sustained the summary judgment on the tortious interference with inheritance claim.  Regarding the plaintiffs’ negligence claim, the court held that the plaintiffs did not establish that the bank owed them a duty. The court distinguished A.G. Edwards by noting that the father and daughter both sought to open a joint account and both signed the account agreement with right of survivorship.

In Koonce v. First Victoria Nat’l Bank, the court of appeals reversed a summary judgment in part and found that there was a fact issue as to whether a bank breached a contractual duty to set up a POD account. No. 13-10-00282-CV, 2011 Tex. App. LEXIS 7198 (Tex. App.—Corpus Christi, August 31, 2011, no pet.). Robert Koonce opened a certificate of deposit account at the bank, and approximately two years later instructed the bank to change the CD to a POD account and to designate his son as the beneficiary. Two years later, Robert died, and after litigation, the court held that the funds belonged to Robert’s estate. The son then sued the bank, alleging that the bank breached its contract with Robert and with the son as third party beneficiary by failing to change the CD to a POD account.  He also alleged that the bank was negligent and violated the DTPA. The trial court granted the bank’s motion for summary judgment on all of the son’s claims. Regarding the breach of contract claim, the court concluded that the bank failed to negate the breach element as a matter of law and that a fact issue existed on this element. The court affirmed the summary judgment on the negligence claim because “If the defendant’s conduct . . . would give rise to liability only because it breaches a party’s agreement, the plaintiff’s claim ordinarily sounds only in contract.”  Id.  More specifically, “In the absence of a duty to act apart from the promise made,” mere nonfeasance under a contract creates liability only for breach of contract.  Id.

The A.G. Edwards opinion is a dangerous precedent for financial institutions. Although the Texas Supreme Court did not clarify what “duty” the bank breached, a fair reading of A.G. Edwards would only support a potential breach of contract claim by a customer.  The courts of appeals applying A.G. Edwards would agree with that conclusion. The end result of A.G. Edwards is that customers will now raise their claims arising out of alleged survivorship accounts against banks instead of other family members and will couch those claims in terms of the banks breaching agreements to create survivorship accounts. However, because the language in A.G. Edwards is somewhat ambiguous, plaintiffs may attempt to open the door to other tort-based claims, such as negligence and breach of fiduciary duty. If that were allowed, it would be an expansion of existing law. Banks doing business in Texas should make every effort to properly handle survivorship account documents. Further, banks should revisit their account agreements so that defensive contractual and tort-based clauses may be implemented, such as no-prior representations clauses, arbitration clauses, damage waivers, etc.