PIABA Bar Journal, Fall 2007 (Vol. 14, #3)

Does a joint power of attorney end with the death of only one of the joint grantors? The simple answer is yes. The law has been the same since George Washington was President. Auley McNaughton v. Moore, 2 N.C. 189 (N.C. Super. L&Eq. 1795). Now that the baby boomer generation is nearing retirement, the probabilities that this will become a bigger problem are significantly increased.

Brokerage firms who neglect their responsibilities when one joint grantor of a trading authorization dies are at risk. For example, elderly married joint account holders often give one of their relatives power of attorney over their investments.

The joint account holders execute a form joint power of attorney from the brokerage firm. It gives the relative discretionary authority over their Joint Account with Rights of Survivorship ("JTWROS"). A power of attorney, also known as a trading authorization, usually includes language that it shall remain in effect until the brokerage firm is notified in writing of the death or incapacity of the registered account owner.

When one of the joint principals dies, their joint power of attorney is instantaneously and absolutely revoked by operation of law. (Citations below). However, sometimes, brokerage firms, despite notice of death, do not change the JTWROS account to an individual account. Instead, brokerage firms continue to honor trade orders from the terminated power of attorney. These transactions are unauthorized.

When a spouse dies and the deceased had a joint account with the surviving spouse, industry custom, procedure and practice dictate that a brokerage firm close the joint account and open an individual account with a new account form. The death is a material change of circumstances. The brokerage firm cannot rely on the joint power of attorney to justify continued trading, because it was terminated by operation of law with the death of one of the joint account holders.

"No principle is better settled than that the powers of an agent cease on the death of his principal. If an act of agency be done subsequent to the decease of the principal, though his death be unknown to the agent, the act is void." Long v. Thayer, 150 U.S. 520, 522 (1893)

"Agency is a personal relation, necessarily ending with the death of the principal; the former principal is no longer a legal person with whom there can be legal relations. One cannot act on behalf of a non_existent person. Further, to the extent that agency is a consensual relation, it cannot exist after the death or incapacity of the principal or the agent. * * * an agreement that an agency should continue after death is a legal impossibility." Charles Webster Real Estate v. H.E. Rickard, 21 Cal. App. 3d 612, 616-617 (1971) citing the Restatement Second of Agency, section 120, ‘Death of Principal,’ comment a. (Emphasis added).

"It is well established as the general rule that the death of the principal operates as an instantaneous and absolute revocation of the agent’s authority or power unless the agency is one coupled with an interest." Charles Webster, supra. at 617 citing 3 American Jurisprudence 2d, Agency, section 51, p. 453. The reasoning "is that the power to act is dependent upon the control and direction of another, which has been withdrawn by death." Id.

Some brokerage firms call their form of power of attorney, a "trading authorization." It is a distinction without a difference. It makes no difference whether its called a Joint Power of Attorney or Joint Trading Authority, at common law, the same rule applies to terminating an agency by death. "The general rule that an agency is terminated by the death of the principal applies equally to a power of attorney or to specific authority given to an agent to execute a specific act." Charles Webster, supra. citing 3 American Jurisprudence 2d, Agency, section 51, p. 454.

The law is also well settled that a Joint Power of Attorney terminates upon the death of one of the Grantors. See, e.g., Yocum v. Webb, 1977 WL 19927 (Ohio App. 3d Dist. 1977) ("The death or loss of capacity of one of two or more joint principals terminates the authority of an agent to act on their joint account to the same extent as the loss of capacity of a single principal.")

"It is a recognized rule of agency that the death of a principal terminates the authority of the agent. It is also true that the death of one of two or more joint principals terminates the authority of an agent." Ferguson v. Piling, 1 N.W. 2d 662, 663 (Iowa 1942) citing the Restatement (Second) of Agency, 308, § 120 (1958). "The death or loss of capacity of one of two or more joint principals terminates the authority of an agent to act on their joint account." Id. citing Restatement (Second) of Agency, 315, § 123 (1958).

The Restatement (Third) of Agency, § 3.16 (2006), Agent for co-principals states that ". . . authority given by two or more principals jointly includes only authority to act for their joint account." Moreover, " . . . an occurrence that would terminate an agent’s actual authority when the agent acts for one principal is equally effective when the agent acts for more than one principal." Id.

The burden of proving the agency is on the person claiming the agency. Ferguson v. Pilling, supra. at 664. "The established rule is that a power of attorney must be strictly construed and the instrument will be held to grant only those powers which are specified." Bloom v. Weiser, 348 So. 2d 651, 653 (Fla. App. 3 Dist. 1977).

Brokerage firms have a continuing duty to supervise their customer accounts. When a joint account holder dies, the brokerage firm cannot rely on the revoked joint power of attorney. Since, right of survivorship means the funds in the joint account pass to the survivor; the joint account does not survive. Instead, the brokerage firm has a duty to open an individual account and, if necessary, secure a new Power of Attorney for that account. Failure to do so, leaves the brokerage firm liable for the unauthorized transactions.

A common defense is that the account holder ratified the transactions. If the brokerage firm maintains the joint account and continues to honor the invalid joint power of attorney, ratification is not possible, because a dead person cannot ratify. Borneman v. John Hancock Mutual Life Insurance Co., 710 So. 2d 671, 673 (Fla. App. 5^th Dist. 1998).

A joint power of attorney dies with a joint grantor’s death. Once the brokerage firm is notified of death, it can no longer rely on the terminated power of attorney to authorize trades. Any orders given by the invalid Power of Attorney, if executed, are unauthorized. A dead person cannot ratify these unauthorized trades as "dead men tell no tales." Consequently, an arbitration panel has sufficient legal authority to find a brokerage firm liable for losses from this type of unauthorized trading.

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