PRESIDENTIAL PRECEDENT
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 association 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.
