The Association CAM decides to sign a landscape contract on behalf of several of his portfolio Associations because he was promised bulk rates if several Associations would sign up for services together. The CAM failed to read the “fine print” so he didn’t see that the low rate would increase by $700 each month for the first 18 months of each contract he signed. He now wants to get out of the contracts because he didn’t get Board permission to sign the contracts. What happens now?

In the case of American Society of Mechanical Engineers, Inc. v. Hydrolevel Corp., the U.S. Supreme Court determined that an Association can be held liable for the actions of its officers, directors and others (including actions that bind the Association financially), even when the Association does not know about, approve of or benefit from those actions. The only requirement is that the person reasonably appear to outsiders to be acting with the Association’s approval. This is known as “apparent authority”. The Supreme Court made clear that Associations are to be held strictly liable for the activities of representatives of the Association who have even the apparent authority of the Association. Even if an Association representative does not in fact have any authority to act on behalf of the Association, the law will nevertheless hold the Association liable if third parties reasonably believe that the representative had such authority.

The law therefore requires an Association to take “reasonable steps” to ensure that the scope of its agents’ authority is clear to third parties and that agents (including officers, directors, committee members, employees, and yes, the CAM) are not able to hold themselves out to third parties as having authority beyond that which has actually been vested in them by the Association.

In Tennessee, the apparent power of an agent (such as a CAM) is to be determined by the acts of the Association and not by the acts of the CAM, Board, committee, etc. Whether or not the landscape contracts can be terminated or Association will have liability for the CAM singing landscape contracts on its behalf, will ultimately be determined not by the apparent authority the CAM may have had, but by what authority the landscape company, exercising reasonable care and prudence, was justified in believing that the Association, by its actions under the circumstances, had conferred upon the CAM to sign the contracts. The bottom line is that the CAM should never sign any contract on behalf of an Association, even if the Association Board says he may do so. Always contact the Association attorney before entering into any agreement.