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CAN ONE RENEGADE BOARD MEMBER BIND THE ENTIRE
BOARD?
By
Eric Glazer, Esq.
Published June 23, 2014
Many
of you have seen outgoing board members sign long term contracts
with a vendor just before getting off the Board.
Often times, these contracts were executed by a single
board member without any vote of the board whatsoever.
The question is……is the contract still an obligation
of the association even though it was signed and approved by
only a single member of the board.
Can the association now get out of this contract without
penalty? The answer
is MAYBE.
Under
Florida
law, if an officer of a corporation has the
apparent authority to enter into a contract or an agreement,
such contract may be binding on the corporation even though the
contract was not made by authority of any resolution of
the board of directors.
So
what is apparent authority?
Basically, it’s a good faith belief by the other party
that the person signing the contract on behalf of the
corporation had the authority to do so, and as a result, the
other party reasonably relied upon that signature and changed
their position.
For example, in the arbitration case of Miami Beach
Club Motel Condominium Association, Inc. v. Escar Case No.
93-0162, a unit owner made request
to the Secretary of the association for permission to install an
air conditioning unit after she “notified all Board
members.” The
secretary never received the vote of the other board members but
gave permission to install the air conditioner anyway.
Of course, a majority of the board then wanted the air
conditioner unit removed. The
arbitrator held that:
In order to determine whether the approval form signed by the Secretary
could be imputed to the Board, it must be determined whether, as
to the Respondents, the Secretary had the apparent
authority
to sign the approval form. In other words, was it reasonable for
the Respondents to believe that the Secretary had obtained the
approval of the board prior to her signing the approval form and
was it reasonable for them to have relied on it. The letter,
which was sent to the Board of Directors, notified the Board
that the Respondents wished to install an air conditioner and
directed the Secretary to either grant or deny approval after
notifying all board members. The language of the letter
indicates that the Respondents were aware that the Secretary,
acting alone, could not grant permission for the air
conditioner, but that the decision would have to be made by a
majority of the board of directors. Respondent Domingo Escar was
a member of the board at the time. However, he testified that he
did not attend the board meeting at which the issue of the air
conditioner would have been brought up. Therefore, when he
received the approval form, he assumed that the Secretary had
obtained the approval of the Board prior to signing the approval
form. Respondents'
reliance on the Secretary's apparent
authority
was reasonable in light of the Association's method of approving
alterations at the time. For instance, Mr.
San Jose
testified that he had changed the number of windows in his unit
from three to two and had moved the air conditioner from below
the windows to higher up and next to the windows. That
alteration was accomplished around the same time as the time
that Mr. Escar installed his air conditioner. Mr. San Jose
further testified that he did not obtain prior approval from the
Board because at the time, the unit owners believed that if they
were making a “small” alteration, they did not have to
obtain approval or they would ask a board member whether it
would be acceptable. Therefore, even if Respondents were aware
that no board meeting was held in order to discuss the approval
of the air conditioner, it was still reasonable for them to rely
on the representation of the Secretary that the air conditioner
had been approved because of the Board's method of approval of
alterations.
However, in Lensa Corp. v.
Poinciana Gardens Association, Inc., 765 So.2d 296 (4th
DCA, 2000) the court held that a President of the association
did not have the apparent authority to execute a contract that
would have sold association land to a developer.
The court specifically said:
Three
elements are needed to establish an apparent agency: (1) a
representation by the purported principal; (2) reliance on that
representation by a third party; and (3) a change in position by
the third party in reliance upon such representation.
The reliance of a third party on the apparent authority
of a principal's agent must be reasonable and rest in the
actions of or appearances created by the principal, and “not
by agents who often ingeniously create an appearance of
authority by their own acts.”. As to acts in the ordinary
course of business, courts have consistently recognized that a
presumption of authority exists in the case of acts made or done
by presidents.
This
sale was not made in the course of the corporation's ordinary
business and there is no basis for concluding that the sale of
all or substantially all of Association's assets could be
presumed to be within the President's authority. For an agent to
act with apparent authority requires, as previously noted, that
the principal create the appearance of the agent's apparent
authority. Here, reliance on the signature of the president and
on the minutes were insufficient to create apparent authority.
The statute mandates that only the board has the power to
authorize a sale. Here, the board did not make any
representations or take any actions signifying either its
consent or the president's authority to act.
Perhaps
a sophisticated developer is also held to a higher standard than
a typical unit owner. In
any event, if you want to avoid litigating disputes like
these……no contract should ever be signed without a vote of a
majority of a quorum of the Board.
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About
HOA & Condo Blog
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Eric Glazer graduated from the University of
Miami School of Law in 1992 after receiving a B.A. from
NYU. He is currently entering his 20th year as a
Florida
lawyer practicing |
community association law and is the owner of
Glazer and Associates, P.A. an eight attorney law firm in
Orlando
and Hollywood. For the past two years Eric has been the host of Condo Craze and
HOAs, a weekly one hour radio show on 850 WFTL. See: www.condocrazeandhoas.com.
He is the first attorney in the State of Florida
that designed a course that certifies condominium residents as
eligible to serve on a condominium Board of Directors and has
now certified more than 7,500 Floridians. He is certified as a
Circuit Court Mediator by The Florida Supreme Court and has
mediated dozens of disputes between associations and unit
owners. Finally, he recently argued the Cohn v. Grand
Condominium case before The Florida Supreme Court, which is
perhaps the single most important association law case decided
by the court in a decade.
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