Often the question arises concerning what authority
a president of an association has to bind the
association to a contract. The nature of the
contract signed by the association president has a
significant impact on whether he has the necessary
authority.
A problem arose at the Poinciana Gardens Association
when its president signed a contract to sell a
parcel of land consisting of substantially all of
the association’s assets to a real estate developer.
A subsequent board of directors objected to the
proposed sale claiming that the price was too low
and that the previous board’s president lacked the
legal authority to enter into such a contract.
The case was tried before a jury and, even though
the jury found that the former president lacked what
the law considers “actual authority”, the jury found
that the contract was binding upon the association
because the former president had what the law
considers “apparent authority” to sign the
agreement. Despite the jury’s findings, the trial
court judge disagreed and held that the contract was
invalid. On appeal, the court agreed with the trial
court judge and held that the former president did
not have apparent authority since the buyers did not
reasonably rely on his authority.
What does all that legal mumbo jumbo mean in real life?
Florida law imposes specific requirements upon a
corporation when a sale, lease, or exchange of all
or substantially all of the assets of the
corporation are to be made. If the governing
documents of the association entitle members to vote
on the proposed transaction, the law requires that
the board of directors adopt a resolution approving
the sale and directing that the proposed sale be
submitted to a vote of the owners at a meeting. If
the governing documents of the association do not
have a requirement for member approval, the proposed
transaction must still be approved by a resolution
of a majority of the board of directors.
In the Poinciana Gardens case it was determined that
the board of directors never properly met to vote on
approving the proposed transaction before its
president signed the contract. Since the buyer did
not request a copy of the required resolution or
make his contract subject to receiving such a
resolution, the court held that a transaction such
as this which is outside of the association’s
ordinary business could not be presumed to be within
the president’s authority.
While the appellate court opinion in this case did
not provide enormous detail, if one reads between
the lines, it appears that a subsequent board of
directors disagreed with a decision made by a prior
board. While there is reference to a meeting of the
prior board, it was ultimately concluded that the
meeting lacked a quorum. It appears that, after a
subsequent election of directors, the new board was
able to undo the actions of the prior board. While
the Association was ultimately successful in
avoiding its obligations under the contract, one can
assume that the individual directors spent
significant amounts of time and association
resources in defending the law suit by the
prospective buyer.
A lesson for directors to take from this case is to
ensure that significant contracts such as the sale
of assets of the associaiton be done properly with
noticed meetings, detailed minutes and a written
resolution by the board. Had the board on which the
former president in the Poinciana Gardens case held
a meeting with a quorum of the directors and had a
written resolution approving the sale signed, it is
likely that the subsequent board would have been
unable to undo their decision.
