A special power of attorney is a legal document outlining the scope of authority given to an agent, known as “an attorney in fact,” by the principal. Under the special power of attorney, an agent is given the powers to act on behalf of the principal to make specific legal or financial decisions. It is also referred to as Limited Powers of Attorney (LPA) and is used as evidence of the principal’s authority to the third person with whom the principal may be dealing with.
A special power of attorney is a legal binding agreement between the principal and an agent, manifesting the former’s roles and responsibilities.
Under the special power of attorney, the principal selects an agent based on capabilities, skill, and reputation.
The principal must be clear on the special power of attorney contract because an agent is limited to act within the agreement’s provision.
How a Special Power of Attorney Works
A power of attorney is a collection of powers enumerated in one instrument that permits a principal to act through a third party, under contractual capacity, in executing legal or financial decisions. It is a form of an agreement that not only evidences an agent’s appointment but also sets out the nature and extent of an agent’s authority.
For example, an agent may be appointed to execute a contract for the sale of a property as well as perform the act conveying its title to the third party. A special power of attorney is often carried out if the principal, for various reasons, is unable to execute the decisions independently. The principal can opt to create more than one special power attorney, delegating duties to different agents in each instrument.
An agent’s roles and responsibilities are limited to specific circumstances. It is the implied and expressed provisions of the contract between the two parties that determine the duties of the agent. The agent is subject to various responsibilities other than the contractual duties, depending on the extent of the agreement.
An Agent’s Duties to the Principal
The contractual duties of an agent to the principal are determined by the express and implied provisions of any agreement between the two. Since an agent may also be liable for additional duties, the principal selects an agent based on skills, ability, and integrity.
In addition, other than being authorized and empowered to enter into binding contracts with other third parties on the principal’s behalf, the agent is also placed in possession of money and other properties. To this end, the agent may injure the principal, either through dishonesty or negligence.
Accordingly, as a fiduciary duty, an agent owes the principal the duties of diligence, duty to inform, good conduct, duties of obedience, good conduct, and loyalty. Breaching these duties or exceeding the provided authority means that an agent is eventually liable for any losses caused to the principal.
On the other hand, an agent acting within the authority given to him by the principal is not liable for the harm caused by the third party. In relation to this, the principal may also permit the agent to appoint a sub-agent substitute to give a hand in the duties bound by the contract.
Types of Special Powers of Attorney
Various types of powers of attorney exist, allowing principals to appoint agents to assume control of their affairs in the event of commitments or other extenuating circumstances. Each type of power of attorney depends on the current situation of a principal.
1. Limited Power of Attorney
The limited power of attorney is a formal manifestation from the principal to an agent that is used for a particular transaction and for a set period of time. The limited power ceases once the transaction is over or the principal is incapacitated.
2. General Power of Attorney
The general power of attorney allows an agent to execute all the principal’s affairs. Since it does not come with a limited time span, the contract becomes effective immediately upon the principal’s incapacitation and remains active until his death.
3. Springing Power of Attorney
The springing power of attorney instrument becomes effective at a future date under a specific event that renders the principal unable to act.
4. Medical Power of Attorney
In the above contract, an agent is given the discretion to make critical medical decisions on behalf of the principal. The contract is effective immediately following the presiding physician’s consent.
Requirements When Drafting a Special Power of Attorney
When drafting a special power of attorney, both the principal and the agent must have their credentials filled. The preparers of the document must specifically outline the authorized acts of transactions and the specified timelines.
In case the special power of attorney is signed in a foreign country, it must be notarized by appearing before the notary public to ascertain that the document was signed under no due influence or coercion.
The principal is also required to present a competent proof of identification that bears his/her signature and photograph. Copies of the document are all signed, with witnesses also appending their signatures.
The agent’s incapacity to bind himself by contract does not disqualify him from making a binding contract because the agent is considered to act on behalf of the principal. For this reason, any individual or entity able to act, including corporations, partnerships, or associations, can be an agent.