The indoor management rule
Can condo directors cancel a contract that was signed without board approval?
This legal column from the TC Palm describes a very important issue. What happens when a condo president exceeds his or her authority?
Question:
Our Board president signed a contract for over $100,000 that was never approved by the Board. In fact, we (the other board members) never knew the contract was being considered. We have removed the president from her office, but want to know how we can cancel the contract.
—R.T., Port St. Lucie
Answer:
There are three types of authority that must be discussed to answer this question:
1.) actual authority;
2.) implied authority; and
3.) apparent authority.
The general rule is that an officer of a condominium or homeowners association does not have actual authority to enter into agreements or bind the corporation to contracts. Actual authority for any officer, including the Presidents, comes from the Board of Directors. When a Board votes and approves a contract, the President then has actual authority to go sign the contract.
Implied authority is a grey area because it implies that an officer has necessary authority to carry out tasks and objectives inherent in the job. Here, many people agree that a President has some ‘day to day’ implied authority for various decisions, but this would not extent to a 6-figure contract.
Apparent authority focuses on the vendor. The agreement signed by the President will be valid if the contractor reasonably believed that the President had authority to sign the contract. By virtue of her title, and absent any other facts, there is no reason to believe the contractor was not reasonable. As a result, you most likely have a binding contract even though the President did not have actual or implied authority to sign the contract.
A few additional points. The above is very general, and the issues are very fact intensive, meaning your particular Bylaws may give broader authority to the President or other officers, and it is possible the Board previously adopted a resolution authorizing such a contract. However, it is very possible that the contract is binding. If so, you would then need to review the agreement to determine whether the agreement can be terminated with or without cause. Broadly, these can be complex issues and I would recommend you consult a licensed Florida attorney to determine the Board’s rights, remedies, and responsibilities.
Rogers Cable Communications Inc. v. CCC. No. 53
05-CV-030376
07 March 2005
The Honourable Mr. Justice Albert J. Roy
This is a very interesting case where Rogers tried to sue a condo corporation because it signed a contract with a single director on the condo board and it claimed that their contract was binding on the condo corporation.
The evidence before the judge indicated that the agreement between CCC No. 53 and the Plaintiff was signed by a single member of the Board of Directors thinking that this agreement was simply a continuation of an earlier agreement when in fact he was granting an agreement in perpetuity to Rogers that the condo corporation would not enter into any bulk service agreement with any cable service provider.
In this case, a single member of the Board of Directors signed the document without knowledge or the authority of the Board of Directors.
The judge found that the “indoor management rule” does not apply to condominium corporations so a single member of the Board of Directors cannot bind the condominium corporation.
In accordance with the Act, all decisions of the Board of Directors must be taken at a meeting of the Board of Directors where a quorum has been established. Further, contracts cannot be executed without authorization by resolution of the Board.
The judge stated: “I would have thought that Rogers would have made sure their contract received the approval of the Board of Directors if they wanted a binding agreement.”
Rogers lost this case.