Request By:
Ms. Joyce Morse, President
Commonwealth Credit Union
325 St. Clair Mall
P.O. Box 854
Frankfort, Kentucky 40602
Opinion
Opinion By: Steven L. Beshear, Attorney General; John H. Gray, Assistant Attorney General
Thank you for your letter in which you ask several questions regarding the power of attorney clause found within the Commonwealth Credit Union's note and disclosure form CCU-45 (7-80).
The power of attorney clause that you ask about reads as follows:
POWER OF ATTORNEY: Know All Men By These Presents: That we the undersigned principal and co-makers of the within note, do hereby make, constitute and appoint the Treasurer of the Commonwealth Credit Union of Frankfort, Kentucky, our true and lawful attorney in fact for us and in our name, place and stead, and give to our said attorney full power and authority to endorse either or each of our names upon checks drawn to the order of either or each of us by the Commonwealth of Kentucky for the purpose of cashing said checks and using the proceeds therefrom for the purpose of liquidating any outstanding balance due and payable on the loan evidenced by the within note. Power of attorney to be exercised only against persons who are leaving the employment of the Commonwealth of Kentucky or when the note has become delinquent. Should the honoring of this power of attorney by any department result in claims or litigation against said department the Credit Union accepts all responsibility and holds said department harmless from any liability or damages resulting therefrom.
The above power of attorney clause, therefore, gives the credit union's treasurer the power to endorse and cash state checks made out to either the principal or the co-maker and to use the proceeds of the check(s) to liquidate any outstanding balance due on the loan in question, if the note is delinquent or if the principal is leaving state employment.
Your letter asks if the power of attorney is legal.
It is an elementary law of agency that powers of appointment are legal. Mullins v Commonwealth, 200 S.W.9 (1918). As stated in Mullins, "a power of attorney is nothing more than an instrument of writing appointing an attorney in fact for an avowed purpose, and setting forth his powers."
This office is of the opinion, therefore, that the power of attorney that you ask about is legal.
Your letter next asks if third parties are obligated to honor a power of attorney.
Third parties are only obligated to honor a power of attorney to the extent that they would be obligated to honor the original signature of the principal or co-maker. For example if the treasurer of the credit union uses the power of attorney conferred upon him by form CCU-45 (7-80), and endorses a state check made out to the principal, a third party would be obligated to honor the treasurer's endorsement to the same extent that they would be obligated to honor an endorsement made by the principal himself. The power of attorney clause, however, does not, for the reasons set out in OAG 81-404 (a copy of which is attached), obligate a state agency to turn an employees's check over to the credit union's treasurer.
Your letter also asks what the purpose of a power of attorney is.
The purpose of a power of attorney is to allow the holder of the power to sign in the place of the giver of the power, and to have the holder's signature accepted as if it were the signature of the giver. A power of attorney is not designed or intended to bind third parties to do any more than treat the signature of the holder as if it were the signature of the giver.
Your letter finally asks what recourse the parties to a power of attorney have if a third party refuses to honor the power. In the credit union's situation, where the treasurer is endorsing the principal's check and applying the proceeds to an outstanding account, the only third parties that might not honor the power of attorney are the maker of the check or the bank in which the check might be cashed or deposited. If the power of attorney is not honored by such bank or by the maker, a parties' recourse would be a legal action pursuant to KRS 355 Article 4.
It is hoped that I have adequately answered your question.