The Importance of Well-Drafted Internal Powers of Attorney

Posted On March 15, 2023

Many corporate entities created and currently possess their own internal standard Power of Attorney form for various administrative purposes – for example, a bank may use their own Power of Attorney form to assist a client nominate an individual as their Agent with authority to speak to the bank on behalf of the client. Although these forms can seem relatively straight-forward, they should be reviewed regularly to ensure compliance with the South Carolina Uniform Power of Attorney Act found in Article 8, Title 62 of the South Carolina Probate Code (the “Act”). Failure to conform internal Powers of Attorney to the Act may result in exposing the corporation’s own liability when something goes wrong, subjecting the company to civil lawsuits.

Applicability

The Act is “intended to be comprehensive with respect to delegation of surrogate decision-making authority over an individual’s property and property interests, whether for the purpose of incapacity planning or mere convenience.” S.C. Code Ann. §62-8-103, Reporter’s Comments. The Act has built-in safeguards to protect the Principal against misuse by the Agent, including placing default duties on the Agent, such as the duty to act in good faith. S.C. Code Ann. §62-8-114. Most relevant to this discussion, however, are the protections the Act provides for third-party individuals relying on the Power of Attorney (e.g. a bank relying on a Power of Attorney). However, there are a few, certain situations where this Act may not apply to a:

1) power to the extent it is coupled with an interest in the subject of the power, including a power given to or for the benefit of a creditor in connection with a credit transaction (e.g. powers granted to a creditor to perfect or protect title in, or to sell, pledged collateral);

2) proxy or other delegation to exercise voting rights or management rights with respect to an entity (except in situation where an Agent is granted authority that is greater than that of a mere voting proxy);

3) power created on a form prescribed by a government or governmental subdivision, agency, or instrumentality for a governmental purpose (as a power created on a governmental form emanates from other law and is generally for a limited purpose);

4) power created on a form provided by a financial institution or brokerage firm that relates to the account at the financial institution or brokerage firm and is intended for use solely by the financial institution or brokerage firm (the intent of this provision is to not interfere with the private business relationship which exists between the financial institution and the Principal). S.C. Code Ann. §62-8-103.

Regardless, banking on your Internal Power of Attorney not falling into the penumbra of the Act is a needless risk to take - very little review and revision may lead to qualifying for very large defenses provided by the Act and, at the very least, a re-drafting the Internal Power of Attorney to comply with the format demanded in the Act will result in a well-drafted legal document (with multiple witnesses and an acknowledgement), fool-proofing your Internal Power of Attorney.

Statutory Protections

The Act provides the following protections to third-parties regarding reliance on Powers of Attorney:

1) A person that in good faith accepts an acknowledged Power of Attorney without actual knowledge that the Power of Attorney is void, invalid, or terminated, that the purported Agent's authority is void, invalid, or terminated, or that the Agent is exceeding or improperly exercising the Agent's authority, may rely upon the Power of Attorney as if the Power of Attorney were genuine, valid and still in effect, the Agent's authority were genuine, valid and still in effect, and the Agent had not exceeded and had properly exercised the authority;

2) A person that is asked to accept an acknowledged power of attorney may request, and rely upon, without further investigation an:

a. Agent's certification under penalty of perjury of a factual matter concerning the Principal, Agent, or Power of Attorney; and

b. English translation of the Power of Attorney if it contains, in whole or in part, language other than English; and

c. Opinion of counsel as to a matter of law concerning the Power of Attorney if it does not appear to be effective pursuant to Section 62-8-109. Such a request must provide a reason and be in writing.

3) An English translation or an opinion of counsel requested pursuant to this section must be provided at the Principal's expense unless the request is made more than seven business days after the Power of Attorney is presented for acceptance.

4) For purposes of this section and Section 62-8-120, a person that conducts activities through employees is without actual knowledge of a fact relating to a Power of Attorney, a Principal, or an Agent if the employee conducting the transaction involving the Power of Attorney is without actual knowledge of the fact. S.C. Code Ann. §62-8-119.

Further, the Act provides that, in the case of malfeasance on behalf of the Agent, the Agent is liable to the “Principal or the Principal’s successors for an amount calculated to restore the value of the Principal’s property to what it would have been had the violation not occurred and…the reimbursement of attorney's fees and costs paid on the Agent's behalf.” S.C. Code Ann. §62-8-117. This protection removes the liability of the third-party (e.g. holder of the Principal’s assets) as to the restoration of any missing or damaged property of the Principal, and instead places the liability wholly on the Agent themselves.

Format in Compliance with Act

To ensure your corporation’s internal Power of Attorney complies with the Act and receives all protections stemming therefrom, we suggest you review for the following statutory requirements:

1) In writing;

2) A signature line for the Principal (to be signed by the Principal or the in the Principal’s presence by another individual directed by the Principal to sign their name on the Power of Attorney);

3) Two signatures lines for disinterested witnesses (to be signed by at least two individuals each of whom witnessed the Principal sign or witnessed the Principal acknowledge their signature on the document);

4) An attestation clause (to be acknowledged by the Principal and an affidavit of at least one disinterested witness, each made before a notary as evidenced by the notary’s seal on the document);

a. E.g.: I, ____________ , the Principal, sign my name to this instrument this ____ day of ________, 20__, and being first duly sworn, do hereby declare to the undersigned authority that I sign and execute this instrument as my Power of Attorney and that I sign it willingly (or willingly direct another to sign for me), that I execute it as my free and voluntary act for the purposes therein expressed, and that I am eighteen years of age or older (or if under the age of eighteen, am married or emancipated as decreed by a family court), of sound mind, and under no constraint or undue influence.

b. E.g. We, _____________ and _____________, the witnesses, sign our names to this instrument, and at least one of us, being first duly sworn, does hereby declare, generally and to the undersigned authority, that the Principal signs and executes this instrument as their Power of Attorney and that they sign it willingly (or willingly directs another to sign for them), and that each of us, in the presence and hearing of the Principal, hereby signs this Power of Attorney as witness to the Principal’s signing, and that to the best of our knowledge the Principal is eighteen years of age or older (or if under the age of eighteen, was married or emancipated as decreed by a family court), of sound mind, and under no constraint or undue influence. S.C. Code Ann. §62-8-105, § 62-2-503, and § 30-5-30.

Risk and Liability

Imagine for a moment this scenario: your Internal Power of Attorney is in writing, is signed by the Principal and the Agent, but is not witnessed or notarized, and there is no indemnification clause. This document may or may not fall into exception four of S.C. Code Ann. §62-8-103. While Agent authorization under the Internal Power of Attorney ends at the death of the Principal, unbeknown to your corporation, this Principal has died and the Agent, post-death, has withdrawn the balance of the Principal’s bank account. Now, naturally, the heirs of the Principal are upset with your corporation for allowing this to happen. Should your corporation have known the Principal died? Whose duty was it to determine the Principal passed? Were there any protections drafted into the document indemnifying your corporation from this scenario? Is your corporation jointly liable, along with the Agent? Potentially, without the protections under the Act nor any indemnification clause, the heirs may have a successful claim for the corporation’s liability stemming from a poorly-drafted Internal Power of Attorney. Drafting your Internal Power of Attorney to comply with the Act may decrease the risk of your company finding itself sued – or at least will provide a solidified defense to any initiated litigation.

Recommendations for Review

Best practice is for in-house corporate counsel to review their Internal Powers of Attorney regularly, but at least after any statutory amendment of the Act. Although some internal Powers of Attorney may arguably fall outside the purview of the Act, a simple review and revision to comply with the Act may ensure your company captures the protections offered by the Act, while also building a preemptive foundation for defense against any civil claim regarding the Internal Power of Attorney. In addition to formatting an Internal Power of Attorney to comply with the formatting requirements of the Act, you should also include a general indemnification and/or “hold harmless” clause, reiterating and echoing the Act’s protections for third-parties regarding reliance on Powers of Attorney.

Conclusion

Although your corporation’s Internal Power of Attorney may arguably fall into one of the four limited categories of Powers of Attorney that the Act does not apply to, a quick review and revision of the document will, at minimum, strengthen and fortify the Internal Power of Attorney, and, at maximum, may allow the document to capture the protections offered by the Act; very little reviewing may lead to very large defenses.

Jessica N. S. Ferguson, Esq. is an associate attorney at Turner Padget Graham and Laney P.A., and works primarily in probate matters. With a strong understanding of what it takes to do business in the Southeast, along with a comprehensive familiarity of the court systems and laws, Turner Padget exceeds expectations and works tirelessly to get each situation right for our clients. Please direct questions and comments to jferguson@turnerpadget.com.