What is a Power of Attorney?
A power of attorney (POA) is a legal document whereby a person, the principal, grants legal authority to another person, the agent, to make decisions and take actions on his or her behalf.
Who can grant a Power of Attorney?
Persons who can appreciate the nature and consequences of entering into legally binding agreements can grant a power of attorney. This excludes children and mentally impaired persons, who lack the requisite contractual capacity to grant a POA. The POA is not a contract between the principal and the agent, but an authority granted by the principal to allow the agent to enter into contracts with third parties on the principal’s behalf, thereby creating a binding contract between the principal and the third party. The agent is normally not a party to the contract entered into.
In South African law the POA becomes invalid when the principal loses his or her mental capacity to perform legal actions. A validly granted POA becomes invalid when the principal becomes mentally impaired and the agent cannot legally continue to act on behalf of the principal.
The latter scenario most frequently arises when an elderly person who has granted, legal authority to an agent by means of a POA, becomes mentally disabled. The agent, often a close relative, cannot legally continue to act on behalf of the principal. Continuing to act under these circumstances is unlawful and is also fraudulent if the agent is aware that the POA is no longer valid. In these circumstances other options should be considered to manage the principal’s affairs, such as the appointment of a curator or administrator for the mentally impaired person.
Who is liable?
When the principal authorises the agent to perform legal actions on his or her behalf, the principal legally accepts towards third parties (like banks and similar institutions) to be bound by the acts of the agent. Agents who act on the authority of a POA do not incur personal liability, because the agent acts on behalf of the principal. However, if the agent goes beyond the scope of the POA, for instance, by entering into a non-authorised contract, and misrepresents the scope of his or her authority to the third party, the agent may incur personal liability towards the third party.
How is a Power of Attorney granted?
The POA must be in writing and signed by the principal. Both persons must have contractual capacity. The POA must clearly describe and identify the principal, the agent, and the extent of the powers granted to the agent.
It is advisable to consult a professional to ensure compliance with specific legal requirements for certain types of POA, for example in the case of contracts involving property or international transactions.
Types of Power of Attorney
There are broadly two kinds of POA’s: general and special. The general POA allows the agent to perform a wide variety of legal acts and financial activities on behalf of the principal. The special POA limits the agent’s power to specific activities, such as entering into a specific contract or registering a mortgage.
Termination of the Power of Attorney
A POA terminates on death, mental incapacity and insolvency of the principal. In the case of a special POA, the POA lapses once the authorised legal action has been completed.
The POA conveniently enables the principal to manage his or her legal affairs by appointing an agent to perform specific legal actions. For example, if frailty prevents an elderly person with full mental capacity to manage his or her affairs, the POA is a useful and practical solution.
It is advisable to consult a legal professional when considering to grant a POA, to ensure that the POA is fit-for-purpose and valid for the transaction(s) envisaged.