When I redraft a contract, part of the task involves coming up with language that is equivalent to, but clearer and more efficient than, what’s already there—I rationalize verb use and defined terms, eliminate redundant synonyms, and so on. These kinds of changes are straightforward enough—it’s the structural changes that require more thought.
But sometimes I’ll come across a phrase that leaves me stumped—I have no idea what the drafter had in mind and whether the phase in question is capable of accomplishing it. This happened to me a couple of days ago, and the phase in question was coupled with an interest.
This phrase is a fixture of powers of attorney. In the past month, 326 agreements filed as “material contracts” on the SEC’s EDGAR system contained the phrase power of attorney. Of those, 133 referred to the power of attorney as being coupled with an interest.
More often than not, coupled with an interest is joined at the hip with irrevocable, as in This power of attorney is coupled with an interest and will be irrevocable for the term of this agreement and thereafter as long as any of the Obligations are outstanding.
I may be exposing myself to the world as a dullard, but I had no idea what coupled with an interest means. I’d certainly seen it often enough in my years of practice, but I cheerfully glossed over it, with the expediency that is the stock-in-trade of the corporate lawyer.
I’ve now looked into the implications of this phrase under U.S. law, and here’s what I found—“If the authority or power of an agent is coupled with an interest, it is not revocable by the act, condition, or death of the principal before the expiration of the interest, unless there is some agreement to the contrary between the parties.” 3 Am. Jur. 2d Agency § 60.
That might seem the beginning and the end of the inquiry, but it’s not that simple.
“In order for a power to be irrevocable because coupled with an interest, the interest must be in the subject matter of the power and not in the proceeds which will arise from the exercise of the power.” 3 Am. Jur. 2d Agency § 60. For example, in one case the court held that death of the principal terminated the authority of a real-estate agent to sell on commission, on the grounds that the authority wasn’t a power coupled with an interest in the property on which the power was to operate. See Crowe v. Trickey, 204 U.S. 228, 240 (1907). (For further such cases, see M.T. Brunner, Annotation, What Constitutes Power Coupled with Interest Within Rule as to Termination of Agency, 28 A.L.R.2d 1243 § 2 (1953 & 2003 Supp.))
It’s a safe bet that in many powers of attorney the drafter gave no thought as to whether the agent had an interest in the subject matter and instead trotted out coupled with an interest because they weren’t about to monkey with hallowed precedent or because the phrase had an enticing voodoo quality to it.
Furthermore, to determine whether in a given case an interest exists that makes the power irrevocable, courts look at the entire agreement of the parties and the circumstances of their relationship. The terminology used by the parties isn’t controlling—just saying that a power is coupled with an interest doesn’t make it so. 3 Am. Jur. 2d Agency § 62; 28 A.L.R.2d 1243 § 2[c].
You might ask, as I did, why drafters don’t simply say instead that the power will survive the death of the principal. The answer is that unless a power is coupled with an interest, it will as a matter of law cease at the principal’s death, even if the power contains a specific provision to the contrary. 3 Am. Jur. 2d Agency § 52.
So here’s what I recommend: If you’re drafting a power of attorney and are itching to say that it’s coupled with an interest, first ask yourself whether the power needs to last beyond the death or incompetence of the principal. If it doesn’t, then forget about coupled with an interest—simply saying that the power is irrevocable will serve your purpose.
If the power does need to survive beyond the death or incompetence of the principal, your next inquiry should be whether the agent has an interest in the subject matter of the power. (That might require some cogitation on your part.) If the answer is that the agent does not, coupled with an interest likely won’t do you any good, although I leave you to explore the intricacies of agency law.
If the agent does have an interest in the subject matter of the power, then you might want to bring joy to your readers by adding, instead of one of the standard formulas, something along the lines of the following: [The principal] acknowledges that this power of attorney is coupled with an interest, in that the agent has an interest in [refer to whatever is the subject of the power], and that as a result, in addition to any other consequences under law, this power is irrevocable and will survive [the principal’s] death or incompetence.
The recommended language would make it clear that the question of whether the power is coupled with an interest is a matter of law rather than something that can be agreed to by the parties. It would also ensure that the parties understand the implications of the power’s being coupled with an interest. And it would presumably make it less likely that the parties dispute the issue down the road.
By the way, if you’ve been troubled by a similarly occult contract phrase, let me know—I might want to look into it.
13 thoughts on ““Coupled with an Interest””
In the business context of SEC filings, it might make sense to make powers of attorney irrevocable, but it is an extremely dangerous idea for individuals. Estimates are that billions of dollars are stolen every year, especially from older persons or persons with disabilities using powers of attorney. I cannot imagine why an individual asking someone to help manage her finances would want to make it difficult to revoke the power if there are signs of abuse or negligence.
Professor Deborah DeMott of Duke University School of Law is the reporter for the Restatement (Third) of Agency. She was kind enough to provide the following comments on my post. They relate to nuances of agency law rather than the contract language that I propose. Ken
“1. You’re correct that stating that a power is “coupled with an interest” is ineffectual if the power holder lacks a legally sufficient interest. Restatement (Third) covers these doctrines in secs. 3.12 and 3.13. These are available in their final form on Westlaw in the REST-AGEN database; Restatement Third will be published in final book form next week.
“2. Stating that a power that’s not coupled with an interest is irrevocable wouldn’t prevent the grantor’s revocation of the holder’s authority to act as an agent. A basic point in common-law agency is the principal’s power to revoke the agent’s authority, even when the revocation constitutes a breach of contract. See Restatement Third sec. 3.10(1).
“3. The principal’s death also terminates an agent’s actual authority (ie there are no “super-durable” powers of attorney) although, like statutes in many states, Restatement Third sec. 3.07 attempts to protect agents and third parties who do not have notice of the principal’s death. Creating a durable power – agency authority that is triggered by or survives the principal’s loss of capacity – requires careful consideration of applicable state statutes, which are geared to protect vulnerable principals. See Restatement Third sec. 3.08.
“4. The death of a grantor of a power coupled with an interest may terminate the power if it terminates the interest secured or supported by the power. See Restatement Third sec. 3.13 (2)(c).”
If it doesn’t, then forget about coupled with an interest—simply saying that the power is irrevocable will serve your purpose.
It would also ensure that the parties understand the implications of the power’s being coupled with an interest.
I’m forever grateful for Ken Adams’s comments in clarifying the meaning of “coupled with an interest”.
He put in words what I vaguely suspected in thoughts with this term. I am also relieved “I’m not the only one” wrestling with its meaning.
I wanted to use this to protect a co-signer, pending payoff of the note and release of security instrument, by authorizing co-signer to take actions in the event of default by the principal.
How does this concept of "coupled with an interest" apply to an actor and his/her agreement with a talent manager?
very helpful – tell me if using “[The principal] acknowledges that this power of attorney is coupled
with an interest, in that the agent has an interest in [refer to
whatever is the subject of the power], and that as a result, in addition
to any other consequences under law, this power is irrevocable and will
survive [the principal’s] death or incompetence.”
then a person cannot go to lawyer and just get it revoked right?
I recently ran into this phrase and was curious enough about it to google it before hitting the books. Your proposed alternative drafting is preferable, and I think it is well done. Thank you for posting this.
Thank you for the explanation. I though the phrase was a typo in the contract. You taught me something new today.
I’m glad you found this oldie but goodie useful!
Nice. I read several descriptions before this one and was no wiser.
Similarly, for an Irrevocable Proxy Agreement under Delaware law:
“A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the corporation generally.” 8 Del. C. § 212(e)