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.