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Where am I now? Lawlink > Law Reform Commission > Publications > Appendix B - Extract From English Law Commission's Published Working Paper No.11 on Powers of Attorney (1967)
Working Paper 10 (1973) - Powers of Attorney
Appendix B - Extract From English Law Commission's Published Working Paper No.11 on Powers of Attorney (1967)
“Irrevocable” Powers of Attorney
22. The sections of the Property Legislation previously dealt with, though they may be in need of reform, are at least readily understandable. In the remainder of this Paper, we consider a number of sections which in obscurity probably surpass any in the whole of the 1925 legislation. The first of these are ss. 126 and 127 of the Law of Property Act relating to irrevocable powers of attorney. They repeat, with minor amendments only, ss. 8 and 9 of the Conveyancing Act 1882.
23. S. 126 relates to a power of attorney “given for valuable consideration” which “is in the instrument creating the power expressed to be irrevocable”. S. 127 relates to a power “whether given for valuable consideration or not” which “is in the instrument creating the power expressed to be irrevocable for a fixed time therein specified not exceeding one year . . .”. In both cases in favour of a purchaser (i) the power cannot be revoked without the concurrence of the donee, (ii) apy act done by the donee is effective notwithstanding purported revocation or death, disability or bankruptcy of the donor, and (iii) neither the donee of the power nor the purchaser is adversely affected by notice of purported revocation or of the donor’s death, disability or bankruptcy. Where s. 126 operates this applies for all time; where s. 127 applies, only during the fixed time.
24. The first question that arises is why a distinction should be drawn between powers given for valuable consideration and other powers. At common law the distinction is between authorities “coupled with an interest” and other authorities. The former cannot effectively be revoked because in reality they are not cases of agency at all but of proprietary interests given by way of security. The so-called “agent” is not acting as a fiduciary in the interests of his principal but in his own interests: see the oft-quoted statement of Wilde C,J. in Smart v. Sandars (1848) 5 C.B. 895 at 917. In the American terminology he has a “security-interest” not an “agency-interest”: Restatement of Agency (2nd) ss. 138 and 139. Valuable consideration is certainly an essential feature of an agency coupled with an interest, but consideration alone does not suffice - the authority must be given by way of security (for example an authority in an equitable mortgage, such as a debenture trust deed, to convey the legal estate on realising the security).
25. There seem to be two possible explanations why the legislature adopted instead a distinction based solely on valuable consideration. The first is that some of the earlier cases had suggested that this alone sufficed to make the authority irrevocable and it may have been thought that the statutory provision merely codified the common law. That, however, does not seem very plausible for the contrary should have been clear long before 1882. The second is that it may have been thought that the presence or absence of valuable consideration was more easily ascertainable than the presence or absence of a security interest so that, in the interests of conveyancing, any power of attorney given for valuable consideration should be deemed irrevocable in favour of a purchaser. If, however, that had been the explanation one would have expected the section to read “if a power of attorney is expressed to be given for valuable consideration........ But it does not. All that has to appear on the face of the instrument is that the power is irrevocable. It is then irrevocable if in fact it is given for valuable consideration whether or not that appears from the instrument.
26. The second main question that arises is what exactly is achieved by these sections in providing “irrevocability” “in favour of a purchaser”. It would be tempting and logical to answer: where the power is given for valuable consideration and is expressed to be irrevocable (s. 126) or irrevocable for a fixed period (s. 127) then it is in the completest sense irrevocable, indefinitely or during the prescribed time both as regards the donee and a purchaser from him; where, however, it is not given for valuable consideration then the so-called irrevocability is merely a conveyancing device to protect a purchaser from the donee. However, the wording of the sections seems to preclude this simple answer. Both sections appear to assume that the donee of the power and the purchaser are different persons (cf. subsec. (1) (iii) “neither the donee of the power nor the purchaser”), and the wording of both is identical (except that one applies indefinitely and the other only during the fixed period) with nothing to suggest that the protection is wider, except in point of time, according to whether the power is given for valuable consideration.
27. Who then is “the purchaser” that alone both sections appear to protect? The definition of “purchaser” in s. 205 reads as follows:
(xxi) “Purchaser” means a purchaser in good faith for valuable consideration and includes a lessee, mortgagee or other person who for valuable consideration acquires an interest in property . . .; 3 and valuable consideration includes marriage but does not include a nominal consideration in money.
It is submitted that the mere fact that a person has in good faith given valuable consideration does not make him a purchaser as so defined and therefore as the expression is used in ss. 126 and 127; semble he must also have acquired “an interest in property”. But someone who has acquired for value and in good faith any property, real or personal, from or under the donee of the power will receive the protection of the sections. The donee of the power will not be a purchaser merely because he has given consideration. However, it can be plausibly argued that if the power is coupled with an interest in the strict sense so that in addition to giving valuable consideration the donee acquires an interest in property 4 he too will obtain the protection of the sections. This certainly produces a sensible result-though equally certainly not one which is apparent on the face of the sections, which, as already pointed out, suggest by their wording that “the donee” and “the purchaser” must be different people.
28. If the above analysis is correct then the position is that neither s. 126 nor s. 127 makes the power irrevocable vis-a-vis the donee unless, in addition, the donee has a power coupled with an interest. In the latter case the donee as well as the purchaser from him are protected and the sections afford statutory support for the irrevocability at common law.
29. But there then arises a further difficulty. Subsec. (1) (iii) of both sections reads as follows:
(iii) Neither the donee of the power nor the purchaser shall at any time be prejudicially affected by notice of anything done by the donor of the power without the concurrence of the donee of the power, or of the death disability or bankruptcy of the donor of the power. s
This, standing on its own, appears to afford protection to the donee even though he is not a purchaser (i.e. one who has an authority coupled with an interest). But this is absurd. Can it be suggested that if X can persuade a gullible millionaire to sell him his “irrevocable” power of attorney for £100, X can then continue to operate as his attorney notwithstanding his attempts to revoke any authority or notwithstanding his death or insanity? If a solicitor is appointed attorney of his client under a power expressed to be irrevocable for a period of one year, can it be suggested that the solicitor is entitled to ignore the client’s revocation, death, disability or bankruptcy during that year? Such a suggestion runs contrary to professional belief and practice which assume that the so-called “irrevocability” under s. 127 is a conveyancing device to enable the attorney to operate the power during the year without having to produce evidence that the power has not been revoked. Any suizg-estion that it entitles ihe at-tomey to continue to act notwithstanding revocation by the donor is quite contrary to what most solicitors have told their clients.
30. In fact, apart from ;the obvious absurdity of any other conclusion, the wording of the sections makes it reasonably clear that “in favour of a purchaser” governs the whole of the sections notwithstanding the wording of paragraph (iii) of each. Accordingly, the words “then in favour of a purchaser ... (iii) neither the donee of the power nor the purchaser . . .” can only be made to yield sense if they are treated as reading “then in favour of a purchaser (including the donee of the power when he is a purchaser) . . . (iii) neither the donee of the power nor other purchaser.
31. A further curiosity about these sections is that they appear to envisage nothing between indefinite irrevocability and irrevocability for not more than one year. When, however, the power is coupled with an interest,there seems every reason why it should be possible to permit a power of attorney to be irrevocable for a period which may be longer than a year but not indefinite. Indeed, this is precisely what is normally wan,te d in such cases, for the interest which the power secures may well not be of indefinite duration; where, for example, it is part of a mortgage transaction the expectation is that the mortgage will in due course be redeemed and that when it is the power will be automatically revoked.
32. A final curiosity is that whereas the sections refer to purported revocation,by death they ignore the possibility of revocation by dissolution of a corporate-donor.
33. It is submitted that if these sections are to be made sensible and readily intelligible they need to be redrafted with a clear recognition that what is sought to be achieved is:
(1) That powers of attorney granted by way of security can be made irrevocable in the truest and fullest sense either indefinitely or for a period.
(2) That in other cases no question of irrevocability arises as between donor and donee but that in the interests of conveyancing if a power of attorney is expressed to last for.a fixed period not exceeding one year those having dealings with the attorney during that period should be entitled to assume that the power has not been revoked.
34. If that is accepted then, to deal with point (1), s. 126 should be redrafted so that it applies only to powers of attorney given for valuable consideration and by way of security. If such a power is expressed to be irrevocable either indefinitely or for a period then, during the period of irrevocability, it should not be revocable without the consent of the donee. The protection afforded should then apply quite generally without the present “in favour of a purchaser” which is misleading and otiose, except in one respect. That one respect is this: the donee of the power should obviously not be protected if the power has been revoked with his concurrence. On the other hand a purchaser from the donee or other person dealing in good faith with the donee should be entitled to assume that the power has not been revoked during the period of irrevocability and tobe protected in the same way as is later suggested in connection with s. 127 (see paras 37-39 [of this Appendix]).
35. It may be objected to this proposal that it would narrow the present ambit of s. 126 by removing from it powers of attorney given for valuable consideration but not by way of security. To this there are three answers:
(1) If the analysis of the section in paras 26-30 is correct it will not in fact narrow it at all. All it will do is to state clearly what is already the probable effect of the section, an effect which is at present obfuscated by the wording.
(2) We know of no case in which anyone has given valuable consideration for a power of attorney where the power was not by way of security.
(3) It is wholly wrong that a power of attorney should be irrevocable unless it is given by way of security. If the present wording of s. 126 encourages the Mr X’s of this world (see para. 29 [of this Appendix]) to suppose that they can bu irrevocable powers of attorney it is high time that the wording was altered.
36. Turning to point (2) made in para. 33 [of this Appendix], s. 127 needs to be redrafted to make it clear that it applies to powers not granted by way of security and that its object is limited to simplifying conveyancing by protecting purchasers claiming from or under the attorney, and other persons having dealings with the attorney, but that it affords no protection to the donee of the power after it has in fact been revoked. To achieve this, it is suggested that it would be better if the section was stated to apply to powers “expressed to operate for a fixed period not exceeding one year” rather than, as at present, to powers “expressed to be irrevocable for a fixed period not exceeding one year”. At present’solicitors have’the embarrassing task of explaining to their clients that though the powers of attorney that they have drafted are expressed to be irrevocable this does not mean that in fact they are irrevocable, that actually they can be revoked at any time, and that the so-called irrevocability is merely a convenient device.
Convenient it may be but it is not very creditable to the law that convenience can be achieved only by a misleading device. The task of explaining it away is particularly embarrassing when the solicitor is himself the donee of the power. It is submitted that it would be much more intelligible to the client if all that had to be explained was that though the power was expressed to be for a fixed time this, of course, did not mean that it could not be revoked at any time. 6
37. The second question that arises on a redrafted s 127 is whether, as at present, it should operate only “in favour of a purchaser”. As already stated it should certainly not operate in favour of the donee, and subsec. (1) (iii) should be amended to make this clear, but it is doubtful whether it should be limited to “purchaser” as defined in the Act. It often seems to be assumed that anyone making a payment in good faith to the attorney during the fixed period expressed in a power granted under s. 127 is protected by the section. This seems highly doubtful. If the payer is buying something from the attorney he clearly is protected for then he is a “purchaser”. But if he is merely discharging a debt due to the donor of the power it is difficult to see that he will necessarily be a “purchaser” within the meaning of the statutory definition. If he is to be protected it would seem that any protection he has at present is under s. 124 which, as pointed out later, is itself shrouded in mystery. If s. 124 protects him it is arguable that it does so only where he obtains a statutory declaration of non-revocation. This should be unnecessary in cases to which s. 127 applies. It is therefore suggested that s. 127 should be expressed to operate in favour of a bona fide purchaser or any person dealing with the donee of the power in good f aith and in reliance on the power of attorney. It is necessary to retain express reference to a purchaser since the protection should extend to a bona fide purchaser from a person who has dealt with the attorney whether or not that person was protected because he too acted in good faith.
38. A further anomaly that arises under the present s. 127 is that its wording appears to protect a purchaser even though he has actual knowledge at the time of purchase that the power had been revoked. It is difficult to see how such a purchaser could be deemed to have acted in good f aith which, as we have seen, is an essential element in the definition of “purchaser” (see para. 27 [of this Appendix]), but s. 127 appears to assume that he can. To resolve this apparent conflict it is suggested that it should be made clear that a purchaser or other person having dealings with the attorney is not protected if he had actual knowledge at the time that the power had been revoked: cf. the Trustee Act, s. 25 (8). It should, however, be clearly stated that a purchaser, with knowledge, from a purchaser, without knowledge, is in the same protected position as his vendor.
39. One further point arises, and this equally affects s. 126. On the present wording it seems that neither section protects a third party if the power has been revoked with the concurrence of the donee. In so far as s. 126 protects the donee this is clearly right. But in so far as it and s. 127 protect a purchaser from, or person having dealings with, the donee there appears to be a lacuna which is only filled, if at all, by the obscure s. 124. It is suggested that both sections should protect a third party unless he had actual knowledge that the power had been revoked. In the case of powers given by way of security (i.e. those covered by s. 126) the third party should, it is thoughc, be protected unless he had notice that the power had been revoked whether or not the stated period of irrevocability has ended. However, in the case of powers under s. 127 the third party should be protected only in respect of transactions during the prescribed period. As regards transactions thereafter his protection should depend on a revised s. 124.
40. S. 128 of the Law of Property Act is complementary to s. 126. It enables a power of attorney to be given for valuable consideration to a “purchaser” 7 of property “and to the persons deriving title under him”. Thereby, in the words of the learned editors of Wolstenholme and Cherry’s Conveyancing Statutes 8 “it completes the scheme under which an irrevocable power for value may be treated as equivalent to property”. This statement is not strictly accurate, perhaps, because s. 128 applies whether or not the power is expressed to be irrevocable: that, no doubt, is why it appears as a separate section and not as part of s. 126. It is questionable whether that is necessary because in practice the power obviously will or should be expressed to be irrevocable. In any event if s. 126 is amended as suggested above, the wording of s. 128 should be amended to conform: i.e. it should commence “A power of attorney given for valuable consideration by way of security . . .”
41. The only serious question that arises on s. 128 concerns subs. (3) which provides:
(3) This section does not authorise the,persons deriving title under the donee of the power to execute on behalf of the registered proprietor, an instrument relating to registered land to which effect is to be given on the register, unless the power is protected by a caution or other entry on the register.
The comment in Wolstenholme and Cherry’s Conveyancing Statutes 9 is that “if a registered proprietor . . . gives a power to the attorney to deal with the registered interest in the name of the registered proprietor for the time being, the power must either be protected by a caution or its existence shown on the register”. This is certainly what one would have expected the subsection to provide, but in fact it does not. Entry on the register under s. 128 is needed only if the instrument relating to the registered land is to be executed by “the persons deriving title under the donee of the power”. If an entry on the register is required in order to protect those dealing with the registered proprietor it is not obvious why it should make any difference whether the power is to be exercised by the original donee or by his successors in title. However, we find somewhat mysterious the whole question of the relationship between this subsection and the provision in s. 125 (1) requiring filing of the power at the Land Registry. If filing, without any entry on the register, suffices when a power to deal with registered land is given to A, it is not apparent to us why it does not suffice if the power is given instead to “A and those deriving title under him”. As we see it, what is really needed is an entry on the register whenever a purchaser from the registered proprietor might be adversely affected by the power of attorney given by the registered proprietor. With the normal power of attorney a purchaser will not be adversely affected since the grant of the power does not affect the registered proprietor’s own powers in relation to the property. Where, however, the proprietor has given an irrevocable power by way of security he will normally not be entitled to dispose of the property without the concurrence of the donee of the power. Hence the power should then be entered on the register. In practice, the power will normally be included in a charge which itself will be entered in some way on the register and this apparently is sufficient compliance with s. 128 (3) even though there is no express reference to the power: see Re White Rose Cottage [1964] Ch. 483, [1965] Ch. 940, C.A. where this was assumed without argument.
FOOTNOTES
3. Certain words, irrelevant in the present context, have been omitted.
4. This includes “any thing in action” (s. 205 (1) (xx)) and would th -erefore appear to cover the case where the power is given to secure the performance of a contractual obligation (for example, an underwriting agreement).
5. S. 127 (1) (iii) contains additional words making it clear that this applies to notice either during or after the fixed time in respect of anything happening during the fixed time.
6. The client, no doubt, ought also to be warned of the risks he runs if the donee should be dishonest, for notwithstanding revocation the donee will be able effectively to dispose of the donor’s property during the fixed period.
7. For definition, see para. 27 [of this Appendix]. S. 128 of the Law of Property Act 1925 (U.K.) is as follows:
(1) A power of attorney given for valuable consideration may be given, and shall be deemed to have been always capable of being given, to a purchaser of property or any interest therein, and to the persons deriving title under him thereto, and those persons shall be the duly constituted attorneys for all the purposes of the power, but without prejudice to any right to appoint substitutes by the power.
(2) This section applies to powers of attorney created by instruments executed after the thirty-first day of December, eighteen hundred and eighty-two.
(3) This section does not authorise the persons deriving title under the donee of the power to execute, on behalf of the registered proprietor, an instrument relating to registered land to which effect is to be given on the register, unless the power is protected by a caution or other entry on the register.
8. 12th Ed. Vol. 1 at p. 448.
9. Ibid.
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