Guide to Understanding
The Power of Attorney
A power of attorney (POA) or letter of attorney in common law systems or mandate in civil law systems is an authorization to act on someone else's behalf in a legal or business matter. The person authorizing the other to act is the principal or granter (of the power), and the one authorized to act is the agent or attorney-in-fact.
As an agent, an attorney-in-fact is a fiduciary for the principal, so the law requires an attorney-in-fact to be completely honest with and loyal to the principal in their dealings with each other. If the attorney-in-fact is being paid to act for the principal, the contract is usually separate from the power of attorney itself, so if that contract is in writing, it is a separate document, kept private between them, whereas the power of attorney is intended to be shown to various other people.
In the context of the unincorporated reciprocal inter-insurance exchange URIE the attorney-in-fact is a stakeholder/trustee who takes custody of the subscriber funds placed on deposit with him, and then uses those funds to pay insurance claims. When all the claims are paid, the attorney-in-fact then returns the leftover funds to the subscribers.
The term attorney-in-fact should not be confused with the term attorney at law. An attorney-at-law in the United States is a lawyer—someone licensed to practice law in a particular jurisdiction. In most other common-law jurisdictions lawyers are not called attorneys, and in those jurisdictions the term "attorney" generally refers to either attorneys-in-fact or lawyers from the United States.
Oral and Written Powers of Attorney
A power of attorney may be verbal and whether witnessed or not will hold up in court same as if in writing; example: If the owner of a property wants to sell property on their own, but do not feel comfortable enough to "talk" with a potential person of interest, they can ask or appoint a person of their choosing to handle the negotiations for them as long as they seek an Attorney to handle the actual contract. However, such as asking someone else to sign your name on a check because your arm is broken—or may be in writing. For some purposes, the law requires a power of attorney to be in writing. Many institutions, such as hospitals, banks and, in the United States, the Internal Revenue Service, require a power of attorney to be in writing before they will honor it, and they usually want to keep an original for their records.
Equal Dignity Rule
The equal dignity rule is a principle of law that requires an authorization for someone performing certain acts for another person to have been appointed with the same formality as required for the act the representative is going to perform. This means, for example, that if a principal authorizes someone to sell the principal's house or other real property, and the law requires a contract for the sale of real property to be in writing (which is required under the "Statute of Frauds" in most U.S. jurisdictions), then the authorization for the other person to sign the sales contract and deed must be in writing too.
Kinds of Power of Attorneys
A power of attorney may be special or limited to one specified act or type of act, or it may be general, and whatever it defines as its scope is what a court will enforce as being its scope. (It may also be limited as to time.) Under the common law, a power of attorney becomes ineffective if its granter dies or becomes "incapacitated," meaning unable to grant such a power, because of physical injury or mental illness, for example, unless the granter (or principal) specifies that the power of attorney will continue to be effective even if the granter becomes incapacitated (but any such power ends when the granter dies). This type of power of attorney is called a durable power of attorney. In some jurisdictions, a durable power of attorney can also be a "Health Care Power of Attorney" or living will, empowering the attorney-in-fact to make health-care decisions for the granter, up to and including terminating care and "pulling the plug" on machines keeping a critically and terminally ill patient alive. New York State has enacted a Health Care Proxy law that requires a separate document be prepared appointing one as your health care agent.
People with mental illness may prepare Psychiatric Advance Directives (PADs in some U.S. states) or Ulysses contracts as they are called in Canada. Ulysses contracts are powers of attorney that enable a patient to dictate preferences for care before becoming incapacitated by recurring mental illness. Although they are not used very often, there is speculation in some of the academic literature as to whether or not these advance directives are empowering for people with mental illness (Journal of Ethics in Mental Health 2006-1).
In some U.S. states and other jurisdictions it is possible to grant a springing power of attorney;i.e., a power that only takes effect after the incapacity of the granter or some other definite future act or circumstance. After such incapacitation the power is identical to a durable power, but cannot be invoked before the incapacity. This may be used to allow a spouse or family member to manage the grantor's affairs in case illness or injury makes the granter unable to act, while retaining the power for without an attorney-in-fact before the incapacity occurs. If a springing power is used, care should be given to specifying exactly how and when the power springs into effect. As the result of privacy legislation in the U.S., medical doctors will often not reveal information relating to capacity of the principal unless the power of attorney specifically authorizes them to do so.
Unless the power of attorney has been made irrevocable (by its own terms or by some legal principle), the granter may revoke the power of attorney by telling the attorney-in-fact it is revoked; however, if the principal does not inform third parties and it is reasonable for the third parties to rely upon the power of attorney being in force, the principal may still be bound by the acts of the agent, though the agent may also be liable for such unauthorized acts.
Many standardized forms are available for various kinds of powers of attorney, and many organizations provide them for their clients, customers, patients, employees, or members. In some states statutory power of attorney forms are available. Some individuals have used powers of attorney to unscrupulously waste or steal the assets of vulnerable individuals such as the elderly (see elder abuse).
Power of Attorney in Finance
In financial situations wherein a principal requests a securities broker to perform extensive investment functions on the principal's behalf, independent of the principal's advice, power of attorney must be formally granted to the broker to trade in the principal's account. This rule also applies to principals who instruct their brokers to perform certain specific trades and principals who trust their brokers to perform certain trades in the principal's best interest.