Misuse of a lasting power of attorney and a power of attorney for bank accounts
In its judgement of 2 April 2019, the Higher Regional Court of Brandenburg ruled that (Ref.: 3 U 39/18), that It is generally assumed that a contractual relationship involving a legal obligation to provide accounts exists where a family member carries out financial transactions on behalf of another family member under a power of attorney for financial matters.
This decision was based on the following facts:
The claimant is the defendant’s brother. Both are co-heirs of their aunt, the testator, who died in 2016. In 2006, she had granted each of the brothers, individually, a notarised general power of attorney and a power of attorney for healthcare matters. In 2009, the testator also granted the defendant power of attorney over all her bank accounts.
In 2014, when the deceased fell seriously ill and, following a stay in hospital, was eventually forced to move into a care home, the defendant abused his power of attorney over the account by making unauthorised withdrawals from the deceased’s account on several occasions. For this, he was convicted of fraud in eleven separate cases.
As part of his claim, the claimant requested that the defendant provide information and accounts regarding the management of his aunt’s estate. Between 2011 and 2015, the brother had made various dispositions of the deceased’s estate which, in the claimant’s view, were unauthorised. The defendant refused to comply, arguing that, in his view, the relationship had been one of goodwill and trust, that the aunt had conducted business herself, and that, moreover, she had never requested an account of the assets.
The Regional Court initially issued a default judgement in favour of the claimant against the defendant. After the defendant lodged an objection to this, the Regional Court dismissed the claim. The claimant lodged an appeal against this decision, whereupon the Higher Regional Court, to which the case was referred, set aside the first-instance judgment and ruled in favour of the claimant as requested.
In the present case, the Senate concluded that the claimant is entitled to the requested information and an account of the use of the power of attorney from his brother, in accordance with section 666 of the German Civil Code (BGB). A co-heir may only demand information and an account from another co-heir regarding the use of a power of attorney if a contractual relationship existed between the testator and the co-heir acting as the authorised representative in accordance with Section 662 of the German Civil Code (BGB). Following the death of the principal (in this case: the testator), these claims passed to the community of heirs by way of so-called universal succession in accordance with Section 1922 of the German Civil Code (BGB). It follows from Section 2039 of the German Civil Code (BGB) that the claims at issue may be asserted by any co-heir against other co-heirs.
In particular, the judges affirmed the existence of a mutual intention to be legally bound on the part of the testator and the defendant. Where substantial interests are at stake – which must always be assumed in the case of economic interests – a contractual relationship must ultimately be presumed to exist.
Contrary to the defendant’s view, there was no purely non-binding relationship of goodwill between the aunt and the defendant. Nor does the existence of a special personal relationship of trust between the two preclude the existence of a contract of mandate. This is because personal trust as such is, as a rule, a prerequisite for the conclusion of a contract of mandate.
Furthermore, the judges ruled out the existence of any special circumstances from which the defendant could have concluded that, by granting the power of attorney, his duty to provide information and render account was no longer required. It is not permissible to infer from the existence of a relationship of trust that the duty to render account is no longer required.
The fact that the aunt continued to conduct business herself for a while, despite having granted a power of attorney, does not, either, preclude the existence of a mandate. The judges emphasised: „A lasting power of attorney is usually granted well in advance in case it becomes necessary to exercise the power at some as yet unknown point in the future, because the person can no longer carry out the transactions themselves. However, the length of time for which this remains possible after the power of attorney has been granted has no bearing on the question of whether it is accompanied by an intention to be legally bound and whether, in the event that transactions are carried out under the power of attorney, an obligation to account should apply.“
The defendant’s objection that his aunt had not demanded an account from him during her lifetime was also irrelevant. An account may be demanded whenever „doubts arise retrospectively as to the reliability of the agent“. Given the defendant’s criminal conviction for fraud, such doubts were justified in this case. Accordingly, the defendant must now provide the requested information and give a full account of his actions.
This case illustrates the (negative) consequences that granting a power of attorney can entail. However, this should not deter you from granting a lasting power of attorney to someone you trust. This can make many things much easier should you become incapable of acting for yourself. You should, however, choose carefully. Furthermore, to protect yourself against any misuse, you could, for example, also appoint a supervisory representative to monitor the actions of the authorised representative.
Do you have any questions about drawing up a lasting power of attorney, or are you an attorney-in-fact and unsure about what you are allowed to do and what you are not? We’d be happy to advise you. We can also provide you with comprehensive advice on living wills.