Meaning
Legal relationships that grant an agent a security or proprietary stake in the subject matter of the authorization prevent the principal from unilaterally terminating the authority. An agency coupled with interest arises when the representative holds a pre-existing or concurrent financial interest in the asset being managed. This arrangement ensures that the powers granted to the agent are not subject to the whim of the creator.
Legal Irrevocability
Under standard agency law, a principal can revoke authority at any time, but this power is lost when the agent’s interest attaches directly to the property. The agent holds an independent right that must be satisfied.
Secured Interest
When a borrower pledges shares to a lender and appoints that lender as attorney-in-fact to sell the shares upon default, the mechanism prevents the borrower from revoking the power to sell. The interest is not merely a right to be paid from the proceeds of the sale but a direct claim on the asset itself. This structure protects the creditor’s recovery route from interference during insolvency proceedings or structural changes.
It provides a non-revocable mechanism that secures the investment against later changes of mind.
Practical Enforcement
Courts consistently enforce these powers of attorney when they are drafted within security agreements. The authority persists even after the death or incapacity of the principal, remaining fully active until the underlying debt is paid in full. This permanence makes the clause a fundamental component of structured finance transactions.
