Page 8 - John Hundley 2016

The court’s policy reasons for its holding are sound. Parties need to know with certainty who has
authority to act on the principal’s behalf at any given time. If the determination of a principal’s
incompetence is permitted to apply retroactively, then successor agents could never be certain when
their obligations to the principal are triggered. As the court put it, “[t]his would create a regime of
instability and uncertainty which could upset the settled expectations” of all parties involved, including
third parties who transact business with the attorney-in-fact.

Moral Dilemma: Although the court’s decision makes legal sense, the
approach does raise some concerns. The purpose of a power of attorney is simple:
to allow a trusted agent to make business or healthcare decisions on behalf of the
principal when the principal is not able to manage his or her own affairs. But what
happens when the primary agent is unable to make business decisions herself?
Shelton tells us that successor agents do not owe a fiduciary duty in these
circumstances until the primary agent has been certified as incompetent. This
bright-line rule does help courts avoid complicated and unproductive litigation rife
with conflicting testimony over whether an attorney-in-fact was incompetent. But is
this the best solution?

Justice Schmidt may have the better idea in his dissenting opinion. As he
points out, the majority in Shelton arguably permits successor agents to take
advantage of situations when they “know[] full well that the designated attorney-
in-fact is incompetent.” In these situations, both the principal and the attorney-
in-fact are in a vulnerable condition, ripe for exploitation from a party standing in
a privileged position, such as a successor agent. Although the successor agent
may not owe a fiduciary duty as a matter of law, the agent likely sits in a
position of trust and confidence by the very nature of his or her role.

Thus, equity would seem to demand that successor agents not be permitted to engage in self-
dealing in circumstances where the attorney-in-fact, who is supposed to be looking after the
principal’s best interests, is de facto incompetent. As Justice Schmidt suggested, retroactive
declaration of incompetency could be limited to transactions that personally benefit the successor
agent. This solution would alleviate the majority’s aforementioned slippery-slope concerns.

Although it is true that powers of attorney should be strictly construed,
courts should be wary of permitting the rights of parties to be sacrificed to the
mere letter. This concern is especially paramount when doing so may
perpetuate a potential fraud, like in Shelton. Consequently, Justice Schmidt’s
alternative may be the more equitable approach. On the other hand, perhaps
the circumstances in Shelton are too unique to warrant carving out such a
limited exception. As the majority warns, the allowance of one exception could
invite future litigation and uncertainty.
Brenda\\SharpThinking\#137.pdf
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