Basis of Fiduciary Relationships. There is no question that fiduciary relationships require a high duty of care, mainly because of the nature of the relationship and the manner by which the agency is created: “A fiduciary relationship arises from the reposing of faith, confidence, and trust and the reliance of one on the judgment and advice of another.” Ulrich v Fed Land Bank of St Paul, 192 Mich App 194, 196 (1991). An agent then, as a fiduciary, has “a duty to act for the benefit of the other on matters within the scope of the relationship.” Teadt v Lutheran Church Missouri Synod, 237 Mich App 567, 580-581 (1999).

 

The courts typically have recognized four basic situations in which a fiduciary duty is imposed. These include an arrangement through which the principal “places trust in the faithful integrity of another, who as a result gains superiority or influence” over the principal, or, similarly, where the agent assumes control and responsibility for the principal. In re Karmey Estate, 468 Mich 68, 74, n 2 (2003).

 

A fiduciary relationship also is created when the agent is called on to act for, or give advice to, the principal, or in those relationships in which fiduciary duties are traditionally recognized, such as the attorney-client relationship. Calhoun Co v BCBSM, 297 Mich App 1, 20 (2012). While not specifically referring to the broker-client relationship as a “traditionally recognized” fiduciary relationship, the Courts generally have held that real estate brokers and salespersons are fiduciaries with respect to their clients. Stephenson v Golden, 279 Mich 710, 734-738 (1937) (identifying agency principles generally in context of broker-client relationship); see also Parker v Poll, 16 Mich App 542, 546 (1969), and Andrie v Chrystal-Anderson & Assoc Realtors, Inc, 187 Mich App 333, 334-335 (1991).

 

Nature of Duties Imposed. “A fiduciary duty is a duty to act for someone else's benefit, while subordinating one's personal interests to that of the other person.” Wallad v Access BIDCO, Inc, 236 Mich App 303, 307 (1999). This means that the fiduciary has the obligation to act in honesty and with good faith, to fully disclose material information to the principal, and to use due care in carrying out the agency. The primary duty, however, is that the fiduciary must be loyal to the principal's interests. Thomas v Satfield Co, 363 Mich 111, 118, 122-123 (1961).

 

In connection with real estate transactions, these duties are set forth by statute, such as the duty of loyalty and the obligation to use reasonable care and skill, both of which are expressly identified as minimum duties that an agent owes to a client. MCL 339.2512d(2)(a) and (c).

 

The case law in this state includes multiple examples of what a fiduciary is required to do, but each of these decisions has, as its basis, the principle that a fiduciary must act as a prudent and reasonable person when dealing with another (including, when appropriate, to use any special skills or expertise the agent might have). In re Messer Trust, 457 Mich 371, 380 (1998); for an example outside the real estate context, see generally, MCL 700.7803 and MCL 450.4404(1) (“A manager shall discharge the duties of manager in good faith, with the care an ordinarily prudent person in a like position would exercise under similar circumstances...”) This means that the agent has to act “with care, diligence, integrity, fidelity and sound business judgment.” In re Buhl Estate, 211 Mich 124, 132 (1920).

 

Elements of Breach. A violation of the duty of loyalty occurs when the fiduciary acts for its own benefit to the detriment of its principal, Menhennick Family Trust by Menhennick v Menhennick, 326 Mich App 504, 507, 512 (2018), and agent liability arises when “such position of influence has been acquired and abused, or when confidence has been reposed and betrayed.” Teadt, 237 Mich App at 580-581 (1999).

 

With respect to a breach of fiduciary duty, the cases tend to focus on situations either where one has assumed control, superiority, or influence over another and abused that authority by taking personal advantage. Vicencio v Ramirez, 211 Mich App 501, 508 (1995). The fact that a principal is inexperienced or may lack sophistication is not sufficient to impose fiduciary duties. Ulrich, 192 Mich App at 196-197.

 

But when a principal is at a disadvantage, due to some condition specific to the principal about which the agent is aware, any failing to provide complete disclosure will result in a finding of breach. Smith v Saginaw Savings & Loan Ass'n, 94 Mich App 263, 274 (1979) (principal's physical condition and lack of proximity to subject of agency placed burden on agent to provide greater details of transaction). It probably should go without saying, but an agent who misrepresents material issues, such as property values or the agent's personal involvement in a transaction or the consideration the agent is to receive from the deal, is going to be found liable for failing to meet fiduciary duties. The Courts do not like when an agent uses “secret knowledge, intents and purposes” for the agent's sole benefit (and to the detriment of the principal). Barrett v Breault, 275 Mich 482, 485 (1936); Horvath v Langel, 276 Mich 381, 384 (1936); and Mackey v Baker, 327 Mich 57, 65 (1950).

 

Limits on Scope of Duties. The duties of a fiduciary are not without limit, however. For instance, the trust and confidence a principal claims to have placed in an agent must be reasonable. Beaty v Hertzberg & Golden, PC, 456 Mich 247, 260-261 (1997). A principal cannot claim to have reasonably relied on an agent when the principal had information which contradicted the agent's expressed knowledge. Webb v First of Michigan Corp, 195 Mich App 470, 474 (1992). In addition, reliance cannot be reasonable when it contradicts a written contract. UAW-GM Human Resource Center v KSL Recreation Corp, 228 Mich App 486, 504 (1998).

 

In addition, a principal's reliance would be unreasonable for matters that are outside the scope of the agency relationship. Teadt, 237 Mich App 567, 580-581 (1999); Sherman v Korff, 353 Mich 387, 397 (1958).

 

Identifying the Limits of Duty. Establishing the scope of the agency relationship, therefore, is key to protecting against unexpected liability. While an agency relationship can arise by implication, see Breighner v Mich High Sch Athletic Ass'n, 255 Mich App 567, 582-583 (2003), the preferred manner for identifying the terms – and limits – of the agency, of course, is to set those terms by written contract. Birou v Thompson-Brown Co, 67 Mich App 502, 507 (1976). Because of the strong presumptions in favor of written agreements, that such agreements are deemed to set forth the exact intention of the parties, Klapp v United Ins Group Agency, Inc, 468 Mich 459, 468 (2003), and that no subsequent statement contrary to those terms is to be considered, UAW-GM Human Resource Center, 228 Mich App at 492, a principal cannot claim, after-the-fact, that an agent had duties not expressed in the contract. Stoll Group LLC v Cottrill, unpublished per curiam op of the Ct of App, issued May 19, 2015 (No 320763), p 1. This is mainly because contract duties are determined by an objective standard (e.g., the written word) rather than some subjective state of mind. Stanton v Dachille, 186 Mich App 247, 264 (1990). The contract then protects against a misunderstanding as to what the agent was supposed to have done for the principal, because the contract will be the only basis on which to determine the parameters of the agency relationship. See Huntington Nat'l Bank v Daniel J Aronoff Living Trust, 305 Mich App 496, 508 (2014) (“courts cannot make a contract for the parties when none exists.”)

 

Claims related to a real estate agent's duty typically arise in the context of adverse property conditions, and the principal (now a plaintiff) alleges that the agent should have done something different to discover a defect, even if the agent lacks the knowledge or expertise to identify property conditions. Most agency contracts do include a notice, either that the agent does not have experience with property conditions or that the plaintiff is not relying on the agent for such knowledge, and that the plaintiff understood the need for an independent investigation of the property. The more explicit such terms are, the more knowledgeable a client is with respect to what the agent can be expected to do (and what the agent is not doing) for the client. As such, when the terms of the contract are not ambiguous, and clearly state that the agent is not assuming responsibility for property conditions, the plaintiff is not in a position to assert an obligation to which nobody agreed, or to impose terms different than those included in the contract. Zahn v Kroger Co of Mich, 483 Mich 34, 41 (2009).

 

Conclusion. Even with the heightened duties a fiduciary has, conduct required to constitute a breach of duty requires “a more culpable state of mind than the negligence required for malpractice.” Prentis Family Foundation v Barbara Ann Karmanos Cancer Inst, 266 Mich App 39, 47 (2005). The circumstances in which a breach is recognized usually relate to conduct in which an agent has taken advantage of his or her position, or has acted in a manner detrimental to the principal, but primarily for the agent's own benefit. Horvath, 276 Mich at 384. Fiduciary duties are not without limit, however, and cannot be imposed unreasonably or contrary to contract terms. Birou, 67 Mich App at 507. The agency contract, then, is a significant key to ensuring that the agent is not called on to reply to some alleged failure to meet fiduciary duties outside the scope of what the agent understands his or her role to be, and that the client is well-informed at the outset of the agency relationship.