Is your President Doing Too Much?

June 2, 2016

Being President of a community can be an arduous task, and we commend you if you've stepped up to this position! It's one that comes with a lot of responsibility, because whether it's accurate or not, your neighbors and vendors will think you speak and act on behalf of the rest of the Board. That appearance of authority can get your community in trouble though if you act without consent of the rest of your fellow directors.

After being elected, the Board of Directors will appoint or elect  who amongst them will be an officer: President, Vice President, Treasurer, or Secretary. For many communities, these titles are symbolic, as the officers themselves generally rely on their licensed community association management professionals to guide them. However, some officers take a more active approach.

Many people look to the President of a company as its leader, its voice, or its ultimate decision-maker, but that isn’t necessarily the case. For community associations, the President doesn’t necessarily have more power than the Secretary or even a director-at-large who isn’t serving as an officer. The President’s vote isn’t worth more than that of any other director. But not everyone knows that. So what happens if your President acts purportedly on behalf of your community, but without the knowledge of the rest of the Board? Can their acts bind or obligate your community? Could they sell all of the community’s assets without anyone else knowing? As ridiculous as that sounds, there’s a President that tried doing just that!

In Lensa Corp. v. Poinciana Gardens Ass’n, Inc., 765 So.2d 296 (Fla. 4th DCA 2008), Poinciana Gardens’ President, Dr. Goodman signed a contract for the sale of all of Poinciana Gardens’ assets and land to a third party. When another director discovered that this contract had been signed, Poinciana Gardens informed the purchaser that they would not consummate the transaction because Dr. Goodman did not have the authority to sign the contract and that the price was too low. The purchaser sued for breach of contract, and ultimately lost after appeal.

Authority to act on behalf of a corporation can be either actual or apparent. It’s clear that the President didn’t have the actual authority to sign the contract, because no board vote was taken. However, the question is whether he had apparent authority. That means the question is whether the third party reasonably believed that the President did have the authority to sign. Moreover, courts have held that as to acts done in the ordinary course of business, there is a “presumption of authority” in case of acts done by a president.

The Fourth District held that (1) this was not done in the ordinary course of business for a community association (a sale of substantially all assets), and (2) the signature of the president (and board minutes as well) were not sufficient to create apparent authority. Fla. Stat. § 617.1202 requires that for a non-profit corporation, the board of directors must authorize the sale. Because the board did not make any representations or hold a vote, there was no apparent authority. Great news for this community!

"[W]e believe that your President has the apparent authority to sign contracts. In other words, a third party vendor would be acting reasonable in relying on the signature of the President to indicate that he has a contract with the association."

But, don’t take this case to mean that if the President signs a contract with no other input from the Board, then your community won’t be obligated! In fact, other than acts that are regulated by statute (like selling substantially all of the assets of the community), the exact opposite ruling is likely if the contract. This court ruled this way specifically because selling all of the assets was not in the ordinary course of business. But what about other acts done during the ordinary course of business? What if your President (or even Vice President) signs a contract with a landscaper without Board vote? Based on this court’s rationale, we believe that your President has the apparent authority to sign contracts. In other words, a third party vendor would be acting reasonable in relying on the signature of the President to indicate that he has a contract with the association.

Being an officer of the association carries a lot of weight, even more than just being a director. Officers have an air of authority, meaning people believe that they are speaking or acting with the authority of or on behalf of the association. If you’re on your Board, and especially if you’re an officer, make sure you stay involved and know what your fellow officers are doing.

linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram