News & Updates
Navigating Powers of Attorney in Commercial Agreements
April 08, 2024
Commercial agreements frequently incorporate clauses related to Powers of Attorney (POAs) that may not be intended to be a continuing POA under the Substitute Decisions Act, leading to confusion for certain lawyers in commercial contexts. Transactional lawyers should understand the nuances of POAs and their significance in commercial contexts, and have the knowledge for ensuring their proper execution.
Firstly, what is a Power of Attorney?
A Power of Attorney (POA) is a legal instrument that grants another person, the attorney, the authority to make decisions on behalf of the grantor. This delegation of decision-making power is prevalent in various legal scenarios.
Commercial Context of POAs
Corporate and commercial lawyers encounter POAs in diverse situations, such as franchise agreements, voting proxies, lender documents, and purchase agreements. These legal instruments play a vital role in facilitating decision-making processes and ensuring smooth transactions.
Common Types of POAs in Corporate/Commercial Settings
General POA: Revocable by nature, a general POA ceases upon the grantor's death or incapacity, with no formal execution requirements. However, most agreements contemplate that the power granted would survive such a scenario.
POA Coupled with an Interest: Originating from common law, this type of POA is irrevocable and survives the grantor's death or incapacity. The Court has held there exists such a POA that may be exempted from the general limitations of and distinguished from the continuing POA under the Substitute Decisions Act and a general POA.
Significance of "Coupled with an Interest"
Understanding the concept of "coupled with an interest" is paramount. "Coupled with an interest" signifies that the attorney or recipient has a legal interest or benefit in the subject matter. Common examples include: the lenders' interest in the property during default; a franchisor securing their interest in franchises, and shareholders having an interest in voting obligations.
Key Takeaways
Incorrect drafting combined with improper execution can inadvertently transform an intended irrevocable POA into a continuing POA that lacks proper execution and is revocable, defeating the purpose of the POA in a commercial instrument.
When drafting a POA in the commercial context, it should be clearly stated in the instrument granting the POA that the POA is: irrevocable; coupled interest with an interest (preferably naming the interest secured); not subject to the Substitute Decisions Act; and that the attorney owes no fiduciary duty to the grantor of the POA.
The importance of understanding and properly executing POAs in a corporate and commercial context is a crucial function of any transactional lawyer.
Tags: Power of Attorney
