An association is a formal organization of people who have joined for a common purpose. An association has no power to enter or ratify a contract in the absence of a statute that provides an unincorporated association with the power to contract or the power to sue and be sued. Therefore, a contract that is entered by officers or agents on behalf of an association is not binding. There are certain liabilities for the association and its members. Liability can mainly be civil, criminal, personal and tortious in nature.
The members of an unincorporated association can face civil liability individually. However, an individual cannot be made liable for the debts of the association only because he/she is a member of the association.[i] Moreover, principles of the law of agency are applied on a case by case basis to decide whether the individual is liable.[ii]
If an unincorporated association possesses the capacity to contract, then the liability of an association depends upon whether the association has authorized the contract. If there is no statutory authority, an unincorporated association cannot sue or be sued in the organization’s own name because such an association has no legal entity distinct from that of its members.[iii]
However, if a person has not given his/her express or implied consent to make a contract, then he/she cannot be assigned the responsibility of making a contract.[iv] An association is not liable on the contracts of its officers, agents, or individual members in the absence of prior authorization or ratification.
A member of a voluntary association can be held personally responsible for a contract entered by a nonprofit association only if the member was viewed as though he/she were a principal and the association was his/her agent and that member authorized or ratified the contract in question.[v] If a business entity is a corporation, the shareholders are generally not personally held liable for the contractual obligations of the corporation.[vi]
If an organization is considered a legal or corporate entity, it can be held criminally liable. The conviction of an association as an entity cannot be used to punish the individual members. The conviction of an entity can result only in a fine levied on the assets of the association. In other words, the conviction of a partnership cannot be used to punish the individual partners who may be free of personal guilt.[vii]
[i] Karl Rove & Co. v. Thornburgh, 39 F.3d 1273 (5th Cir. Tex. 1994)
[iii] Karsten Mfg. Corp. v. United States Golf Asso., 728 F. Supp. 1429 (D. Ariz. 1990)
[iv] Cousin v. Taylor, 115 Ore. 472 (Or. 1925)
[v] Karl Rove & Co. v. Thornburgh, 39 F.3d 1273 (5th Cir. Tex. 1994)
[vi] Benjamin Plumbing, Inc. v. Barnes, 162 Wis. 2d 837 (Wis. 1991)
[vii] Western Laundry & Linen Rental Co. v. United States, 424 F.2d 441 (9th Cir. Nev. 1970)