Analyzing Authority Under a Power of Attorney

Financial institutions are routinely presented with powers of attorney and asked to transact business with the agent presenting the document. Counsel for financial institutions are frequently asked whether the agent under the power of attorney has the authority to undertake the specific transaction requested. This article is intended to be an overview of how to analyze the authority granted to an agent under a power of attorney in Virginia.

The Uniform Power of Attorney Act

Prior to the adoption of the Uniform Power of Attorney Act (the "POA Act") by the General Assembly in 2010, Virginia law governing the authority of an agent was largely governed by case law. This meant that counsel would have to pour through published cases in which the courts interpreted similar language in other powers of attorney to ascertain how to construe the language in front of them. Although interpretation of a power of attorney document remains dependent on the intent of the principal as determined from the specific language used by the drafter of the power of attorney, the passage of the POA Act brought certain default rules and more uniform interpretation of power of attorney documents.

Ascertaining the Authority of the Agent: General Powers

An agent under a power of attorney has only the authority granted by the principal in the power of attorney document. The POA Act lists fourteen statutory subjects of general authority ranging from real estate to litigation, taxes to retirement accounts, and insurance to government benefits. If the power of attorney document refers to general authority with respect to the descriptive term for any of the fourteen statutory subjects, then the agent will have all of the statutory authority with respect to that subject as if it were listed out in the document. For example, with respect to the subject of banks and financial institutions, language in a power of attorney granting general authority with respect to banks and other financial institutions (e.g. "I grant my agent general authority with respect to banks and financial institutions") authorizes the agent to:

1. Continue, modify, and terminate an account or other banking arrangement made by or on behalf of the principal;
2. Establish, modify, and terminate an account or other banking arrangement with a bank, trust company, savings and loan association, credit union, thrift company, brokerage firm, or other financial institution selected by the agent;
3. Contract for services available from a financial institution, including renting a safe deposit box or space in a vault;
4. Withdraw, by check, order, electronic funds transfer, or otherwise, money or property of the principal deposited with or left in the custody of a financial institution;
5. Receive statements of account, vouchers, notices, and similar documents from a financial institution and act with respect to them;
6. Enter a safe deposit box or vault and withdraw or add to the contents;
7. Borrow money and pledge as security personal property of the principal necessary to borrow money or pay, renew, or extend the time of payment of a debt of the principal or a debt guaranteed by the principal;
8. Make, assign, draw, endorse, discount, guarantee, and negotiate promissory notes, checks, drafts, and other negotiable or nonnegotiable paper of the principal or payable to the principal or the principal's order, transfer money, receive the cash or other proceeds of those transactions, and accept a draft drawn by a person upon the principal and pay it when due;
9. Receive for the principal and act upon a sight draft, warehouse receipt, or other document of title whether tangible or electronic, or other negotiable or nonnegotiable instrument;
10. Apply for, receive, and use letters of credit, credit and debit cards, electronic transaction authorizations, and traveler's checks from a financial institution and give an indemnity or other agreement in connection with letters of credit; and
11. Consent to an extension of the time of payment with respect to commercial paper or a financial transaction with a financial institution.

A similar list of enumerated powers exists for each of the other thirteen statutory categories of general authority. By use of language authorizing the agent to "do all acts that the principal could do himself" or similar language, the power of attorney incorporates all of the fourteen categories of general statutory authority, with certain limitations.

Caution: Powers Requiring Specific Grants of Authority

Financial institutions must be aware that under the POA Act, certain authority now requires a specific, express grant in a power of attorney document, notwithstanding a general grant of authority. Examples of authority that require specific, express language in the power of attorney document include making a gift, changing a beneficiary designation on an account, and changing rights of survivorship. Without a specific, express grant of power, such as "I hereby grant my agent the authority to change beneficiary designations...," financial institutions should not permit an agent to take these actions enumerated in the POA Act. Financial institutions should also be aware that any authority (specific or general) can be further limited by the principal in the language of the power of attorney. For example, the principal could limit the agent's ability to change beneficiary designations such that the agent cannot name himself as a beneficiary.

Authority of the Agent during Incapacity of the Principal

Banks will frequently encounter the scenario where an agent seeks to act under power of attorney for an incapacitated account holder. Whether the agent's authority continues during the incapacity of the principal is again determined first by the language of the power of attorney itself. A principal may choose to have the agent's authority terminate on the principal's incapacity, or may choose to have the agent's authority continue during the principal's incapacity. If the agent's authority continues into the principal's incapacity, the power of attorney is considered "durable." In the absence of any language specifying whether the power of attorney is durable, the POA Act sets the default rule that the authority is in fact durable. Finally, the authority of an agent under a power of attorney terminates at the death of the principal. A financial institution must therefore require a different proof of fiduciary authority (other than a power of attorney) with respect to the account of a deceased customer.

Financial institutions should carefully scrutinize power of attorney documents to ascertain the powers granted to the agent. If an agent is permitted to act outside of the authority granted by the principal, financial institutions may be subject to liability, including having transactions set aside by the courts.