2016 Case Notes: Banking & Finance - December 7, 2016

On August 3, 2016, the South Carolina Court of Appeals released First South Bank v. Rosenberg, Op. No. 5437 (S.C.Ct.App. filed August, 3, 2016) (Shearouse Adv.Sh. No. 31 at 75).  In First Bank, the Court of Appeals considered whether a limited power of attorney gave the attorney-in-fact the authority to bind the principal to an unlimited guaranty on a bank loan.  The bank loaned money to a non-profit company conditioned upon the unlimited guaranty of two individuals.  None of the bank representatives attended the closing for the loan, and one of the individuals was likewise absent.  The absent individual had executed a limited power of attorney in favor of the other guarantor.  The second guarantor executed the unlimited guaranty on behalf of the absent individual.  When the borrower defaulted, the lender sued the individual guarantors.

In affirming the trial court’s grant of summary judgment in favor of the bank, the Court of Appeals reviewed the purpose and meaning of a power of attorney, affording it the normal contract interpretation rules.  Id. at 82.   The Court reaffirmed that a power of attorney “is an instrument in writing by which one person, as principal, appoints another as his agent and confers upon him the authority to perform certain specified acts or kinds of acts on behalf of the principal.” Id. (quoting Watson v. Underwood, 407 S.C. 443, 454, 756 S.E.2d 155, 161 (Ct. App. 2014)).

The trial court and the Court of Appeals were asked to interpret: the limited power of attorney and the unlimited guaranty.  After reading the power of attorney, the Court of Appeals held it was unambiguous in its grant of authority for the attorney-in-fact to execute the guaranty:

“the POA's language unambiguously granted [the attorney-in-fact] the authority ‘to execute any and all documents . . . or to execute or amend any document, instrument, or thing, which may be involved in the financing of the Property.’”

Id. at 83.  The Court also rejected the guarantor’s argument that an agent cannot sign a guaranty on behalf of the principal pursuant to a power of attorney unless specifically authorized to do so in the power of attorney.  Id. at 84. 

The Court of Appeals upheld the power of attorney and the guaranty in this action.  The Court relied primarily on the broad grant of authority in the Power of Attorney itself to “execut[e] any documents related to the Property’s financing.”  Id at 83.  Therefore, if a bank cannot procure the guarantor’s personal signature on the guaranty, the second best approach is a properly executed, broad power of attorney authorizing the execution of any and all documents “as may be necessary to close the loan” with the bank.    This broad power of attorney provides the mechanism necessary for additional security for loans in a modern society.