Contract – Power of Attorney – Ineffective – Principal’s Competence – Banks & Banking – Guaranties

Suntrust Bank v. C & D Custom Homes, LLC (Lawyers Weekly No. 12-07-1075, 10 pp.) (Cheri Beasley, J.) Appealed from Wake County Superior Court (Ned W. Mangum, J.) N.C. App.

Holding: Defendant Sheila Ogle’s power of attorney only allowed her husband, defendant Carroll Ogle, to act as her attorney-in-fact if her physician declared her incompetent, and there was no showing that Mrs. Ogle was incompetent when Mr. Ogle signed guaranties as Mrs. Ogle’s purported attorney-in-fact. Mr. Ogle had no authority to sign the guaranties on Mrs. Ogle’s behalf; therefore, the guaranties are invalid as to Mrs. Ogle.

We reverse summary judgment as it applies to Mrs. Ogle and remand for entry of summary judgment in her favor.

The power of attorney (POA) clearly states, under the heading “RESTRICTIONS ON EXERCISE OF POWERS BY ATTORNEY-IN[-]FACT,” that “The rights, powers, duties and responsibilities herein conferred upon my Attorney-in-Fact shall not be exercised by my Attorney-in-Fact until a physician has certified to my Attorney-in-Fact that in his or her opinion I am no longer able (physically or mentally) to handle my personal and business affairs.”

We must strictly construe the instrument’s terms. Mrs. Ogle’s mental or physical incompetence, as certified by a physician, is a condition precedent to the operation of the POA.

There is no evidence or contention that Mrs. Ogle was certified physically or mentally incompetent to handle her own affairs by a physician. As such, no power of attorney ever vested in Mr. Ogle.

The plaintiff-bank is deemed to be on notice of any limitation or restriction contained in the POA, notwithstanding any record notice the bank had by virtue of the instrument’s registration with the Register of Deeds. As the bank argues, we have found no requirement that a third party inquire as to the effectiveness of the POA. Nevertheless, a third party who fails to inspect a POA’s terms does so at his own peril since he is deemed on notice of the limitations and restrictions contained therein.

The bank argues that it was justified in relying on Mr. Ogle’s representations based on the broad grant of authority and the provision for third-party reliance in the POA, and G.S. §§ 32A-9(c) and 32A-40(a).  We reject these contentions.

Section 32A-9(c) only protects a third party to the extent of the powers conferred on the attorney-in-fact. The POA conferred no power on Mr. Ogle to act on Mrs. Ogle’s behalf, so this statute is inapplicable.

While the bank may not have had actual knowledge that Mrs. Ogle was competent and therefore the power was invalid, the bank had constructive notice of the terms of the POA based on O’Grady v. First Union Bank, 296 N.C. 212, 250 S.E.2d 587 (1978), and record notice of the terms since the POA was filed in the public records. The record indicates the exact book and page number where the bank could have found the POA. The terms of the POA show that there was no apparent authority for Mr. Ogle to sign his wife’s name on these guaranties given the clear restriction on the vesting of his power. His actions were beyond the apparent authority of the POA, making § 32A-40(a) inapplicable as well, despite the bank’s argument that it lacked actual knowledge.

Reversed and remanded.