When signing a contract, most people assume that all you need are the basics: offer and acceptance, valid consideration, legal capacity of the contracting parties, and a meeting of the minds.
To a large extent, this is true, even for a significant document as a Power of Attorney (POA). As between the parties – the principal and the agent, the contract is valid. But that doesn’t mean that third parties, or parties not involved in the contract, can rely on it.
The one “formality” that transforms a POA from a valid contract between the contracting parties, to a legal instrument that third parties can rely on, is a valid acknowledgment by a notary.
Without a notary’s certificate of acknowledgment, third parties to the contract such as banks and other financial institutions, are well within their rights to disregard or reject an unnotarized POA.
So to the question of whether or not a POA needs to be notarized, the answer is, strictly speaking, no, it is not necessary to make a valid contract. But if you want a functional POA that will serve the purpose for which it was executed, which is to give your agent authority when transacting with third parties on your behalf, a POA is useless unless it is notarized.
Verification at the Point of Execution
The reason for the necessity of an acknowledgment by a notary is because notarization verifies to third parties several important things:
- That the person or persons who signed the document appeared personally before the notary;
- That the notary verified the identity of the person or persons using satisfactory evidence; and
- That said person or persons signed the documents voluntarily and in their presence
The nuances of proof and acknowledgment of legal instruments are set out in California Civil Code § 1185.
All of these confirm to third parties – or parties who have nothing to do with the POA but who are now being asked to believe the contents and rely upon them – that the POA was indeed signed and executed voluntarily by the principal and the agent, and that it was not marred by coercion, fraud, or any other signs of bad faith.
When POAs are presented, for instance to third parties such as banks or other financial institutions, by the agent, the principal is usually not present to verify the authority given in the POA. These third parties need a way to verify the authenticity and validity of the POA instrument before they can act on it.
The notary public’s certificate of acknowledgment is the standard mechanism for establishing the identity of the parties and authenticating the due execution of the POA document.
Without it, the third person is left to rely on an unverified signature from a person claiming authority over someone else’s property. This is a risk most persons, and most corporate entities, will not accept.
Liability Protection for Banks and Financial Institutions
When you look at it from the perspective of a large institution such as a bank, likely with hundreds or thousands of customers, when they are presented with POAs, they would need to make an informed decision on whether to rely on the POA and, depending on the instructions, allow access to the principal’s account.
These businesses don’t have the time or resources to examine each and every POA presented to them – which would likely be a good number of times. Sometimes a POA is presented because the account holder is outside of the country or state where the bank is located and they need someone to handle transactions for them. Sometimes the POA was created for the benefit of a person who is physically incapable of going to the bank. It would be highly inefficient for the bank to contact each of the principals individually and demand that they come to the bank personally to handle the transaction themselves, or to vouch for the POA agent.
A properly executed and notarized POA is precisely intended to address this situation. It is legally possible for banks to rely on a notarized POA and assume that all the necessary verification has been performed as required by the notary.
The notary also functions as a shield against liability for the bank.
If, for some reason, the POA was not valid – perhaps it was forged or it was not voluntarily executed. If property is transferred to another person on the basis of that POA, the bank has a reliable defense in its good faith reliance on the notarized document.
Conversely, if the POA was not notarized and they transferred property to another person on the basis of that POA, the bank may be held liable for the account holder’s loss.
Either way, the primary function of the notary’s certificate of acknowledgment is to serve as prima facie proof that the notarized document was verified by a disinterested public official.
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If you are the principal or the agent of a POA, it is good practice to review the terms of the authority granted and ensure its validity by proper notarization. Reach out to us today and we can help you to review, assess, and audit the sufficiency and suitability of your estate planning documentation.