Tuesday, May 25, 2010

Let your vendors know who can bind the association.

Often associations run into problems when certain board members or directors incur expenses on behalf of the association without the support and approval of the entire board. This can also apply to managers and other agents who step outside the boundaries of their actual authority when entering contracts or requesting services of vendors.
Apparent authority is a legal term used to describe a situation where a third party is led to believe that a person has certain authority to bind the principal entity.
In my law firm, we set up an “Authorized Contact” system whereby the board passes a resolution determining who can contact us to request our services, give direction on cases and communicate on their files. Most boards choose one or two directors and their manager; rarely will the entire board be chosen as the association’s authorized contacts with the Firm. We implemented this system to (a) prevent duplicate requests by various people (b) cut down on unnecessary legal expenses and (c) ensure clear direction is given.
Of course the Authorized Contacts change with time at the Board’s direction. It is a good idea for new boards to discuss at their very first organizational meeting what role each member will play and who should be communicating with association vendors. Existing boards should also have ongoing discussions in this regard. If there is any concern that a director or officer might be overstepping these boundaries, it would be wise to alert all association vendors who can speak for and bind the association and who cannot. Any vendors who continue to rely upon the word and direction of individuals not so listed would then do so at their own risk.

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