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Contract Liability

An association is a group of persons acting together for the promotion of some common enterprise without a charter, but upon the methods and forms used by incorporated bodies.  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 which is entered by officers or agents on behalf of an association is not binding.  However, these officers or agents can be held personally liable and sometimes, the members can be also be held liable.

The legal status of an association will not change if a statute permits an unincorporated association to sue or be sued in its association’s name.  In other words, the statute which permits an unincorporated association to sue or be sued in its association’s name only provides a method of conducting suits, without changing the legal status of the association.[i] However, absent a statute to the contrary, 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.[ii]

If an unincorporated association is given the capacity to contract, the liability of the association depends upon whether the association has authorized the contract.  All associations must act through natural persons.  The authority of an authorized person to bind the organization or the membership must be determined by such factors that govern unincorporated associations, the constitution, and the bylaws of the association.  However, a person cannot be assigned the responsibility of making a contract unless it is shown that the person expressly or impliedly consented to making such contract.[iii]

Generally, a member of an unincorporated association does not have general authority by virtue of membership to bind the association by his/her contracts.  However, such an authority can be expressly given to a member or officer or be implied from the character of services he/she has to perform or from the office he/she holds.  Each member of an association for profit is jointly liable with other members for the contract debts incurred in the name of the association.[iv]

An unincorporated association has no existence separate and apart from its members. Therefore, an association is not liable on the contracts of its officers, agents, or individual members absent prior authorization, ratification, and knowledge of all the facts by its members.  Similarly, members of an unincorporated association will not be held liable for an officer’s guaranteeing payment on a contract without any authority.[v]

[i] Mayhew & Isbell Lumber Co. v. Valley Wells Truck Growers’ Ass’n, 216 S.W. 225 (Tex. Civ. App. 1919)

[ii] Karsten Mfg. Corp. v. United States Golf Asso., 728 F. Supp. 1429 (D. Ariz. 1990)

[iii] Cousin v. Taylor, 115 Ore. 472 (Or. 1925)

[iv] Shortlidge v. Gutoski, 125 N.H. 510 (N.H. 1984)

[v] Knopp v. Sherwood, 239 A.D. 475 (N.Y. App. Div. 1933)

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