Thursday, October 4, 2018

Is a Power of Attorney a "Contract"?

I teach contract law and I teach elder law, and often those silos overlap.  But recently someone asked me whether a "power of attorney" was a contract.  Somehow I had not not considered this topic before.  My first reaction was "no, not usually," although certainly POAs have contract-like implications once the agent takes action using the POA as authority.  I tend to think of POAs and similar appointments of an agent as bound by rather distinct "fiduciary law" obligations, as well as the limitations of the language in the POA itself and any statutory law, rather than traditional contract law principles. But perhaps my first instinct is wrong.  One significance of categorization is when determining what statutes of limitation applies to any violation.  It turns out the issue usually arises in the context of liability for allegations of misuse of authority.       

What do you think? At least one court believes POAs are contracts, at least for purposes of applying principles of interpretation.  A Court of Appeals opinion notes, when deciding whether family-member agents had authority to "self-deal" when handling real estate transactions in the name of the principal, that "Because a power of attorney is a contract, we interpret its provision pursuant to the rules of contract interpretation. . . . "  See Noel v. Noel, 225 So. 3d 1114, 1117(Louisiana Ct. of Appeals, 2017).    

For additional perspectives see the discussion of the Alabama Supreme Court, including the dissent, in Smith v. Wachovia Bank, 33 So. 3d 1191, 1202 (Ala. 2009).

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There are many kinds of agreements, all of which might be considered “contracts” in the larger sense of that term. Was the Mayflower Compact a contract? I think so, though it may not have had the same enforceability as we expect from our latter day notions of a contract. Similarly, the Magna Carta was a contract in that larger sense.

You raise the question of whether acceptance of an appointment that carries with it fiduciary responsibilities is a contract? The offer and acceptance of the appointment is a contract if it includes the rudiments of offer, acceptance, legal capacity, legal subject matter, and mutuality of obligation. Perhaps it’s in that latter element that questions arise. Is the consideration commensurate with the obligations undertaken?

Treaties between sovereign nations have to be self-enforcing. Otherwise, the recourse is to international opinion, which is not always very satisfying. Or, in the ultimate circumstance, nations can go to war, which doesn’t test or prove the enforceability of the treaty but only which nation is able to prevail or to bring the other nation back to the bargaining table.

In the quotidian context, people who are reluctant litigants (as we might wish all people to be) depend on the good faith and fair dealing of their counterparty for the fair fulfillment of the contracts they enter into. This becomes particularly interesting in the case of lifelong continuing care contracts in which one party may lose the ability to demand contractual fulfillment and the other party, usually a corporation, may be able to take advantage of that vulnerability to its advantage.

When God entered into a Covenant with His People, was that a contract? He offered to limit his His Omnipotence in return for Obedience from His People. Still, since God is Omnipotent, there can be no other enforcer other than His restraint. We have to trust God to adhere to His Covenant. That makes him a fiduciary.

Posted by: Jack Cumming | Oct 4, 2018 7:15:37 AM

When trying to determine whether an agency agreement is a contract, I would revert to the basics: (1) offer, (2) acceptance and (3) consideration. In my experience, most powers of attorney are gratuitous. Family or close friends agree to act on behalf of a principal in broad or limited scope. It is an agreement to undertake specific duties while being held to, generally, statutory fiduciary standards embedded in either statutory or the common law of agency. However, it is a duty that may be immediately revoked by the principal and which may be declined by the attorney-in-fact which – in a strict contract setting - would make it generally illusory.

So, my response is that a bare power of attorney is an agency agreement that requires no consideration (at least in my jurisdiction) and is strictly governed by the law of agency of the jurisdiction in which granted. Conversely, a power of attorney “coupled with an interest” (in the subject/assets of the POA or for a fee) is both an agency agreement enforceable by contract.

Posted by: Tom N. | Oct 4, 2018 2:08:32 PM

I agree with Tom N to the extent that for a contract one needs offer/acceptance/consideration. A naked POA does not provide for consideration.

Posted by: Karen Miller | Oct 5, 2018 5:24:43 AM

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