Signing Contracts

Source: Adrian J. Adams Esq. 

QUESTION: Who is supposed to sign contracts with vendors? An attorney once told me that any board member can sign a contract, so long as the board approves. Our treasurer insists the president is the only one who can sign the contract. Who is correct?

ANSWER: The attorney is correct.

One Signature. A contract signed by any officer, whether authorized or not, will be deemed valid if the vendor reasonably relied on the signature. In addition, anassociation can be bound by a single signature or no signature if the association partially performed the contract’s obligations, or accepted the benefits of the contract, or subsequently ratified the contract in its meeting minutes.
Two Signatures. How can vendors protect themselves from a rogue director signing agreements? The Corporations Code calls for two signatures from officers–one signer being the president or vice president and the other one the secretary or treasurer. (Corp. Code §7214.) In the event the corporation were to challenge the authority of the signers and attempt to void the contract, the signatures of two officers…

provides a conclusive…evidentiary presumption of authority on the part of the specified corporate officers to execute the document in question on behalf of the corporation. (Snukal v. Flightways Manufacturing, Inc. (2000) 23 Cal.4th 754, 783.)

Minutes. If officers wish to protect themselves against claims they acted without authority, they should ensure meeting minutes record the board’s approval of the contract and their authorizing of officers to sign it.

Signature Blocks. To protect officers against the perception they are personally signing a contract on their own behalf (making them personally parties to the contract), the signature block should have the name of the association as the party followed by the name and title of the officer signing on behalf of the association. For example:

The Sunrise Homeowners Association, Inc.

By: __________________________
John Doe, President

This makes it clear the HOA is a party to the contract, not the president. There should be additional language in the opening paragraph of the contract identifying the association, not the officers, as parties.

RECOMMENDATION: To avoid expensive legal problems, all contracts should be reviewed by legal counsel. To reiterate, ALL contracts should be reviewed by legal counsel.

Delinquency Reports

Source: Adrian J. Adams Esq. 

QUESTION: Where should delinquency reports and discussing delinquencies be held, in an open meeting or executive session? For privacy reasons, I think it should be in executive session.

ANSWER: Discussion of delinquencies should should be done in both open and closed sessions of the board.

Open Session. Delinquency reports should be in open sessions because members have a right to know the finances of their association. It allows them to monitor whether or not the board is taking care of business. Failure by the board to collect assessments means budget shortfalls, deferred maintenance, special assessments, and/or increased dues for the membership. If I were a member, I would want to know if my association had a $500 delinquency problem or a $50,000 problem.

Moreover, the Davis-Stirling Act requires that the decision to record a lien for delinquent assessments be made in an open meeting and recorded in the minutes of that meeting prior to recording the lien. (Civ. Code §5673.) Confidentiality is maintained by referencing units/lots by their assessor’s parcel number.

Executive Session. Delinquency reports should also be on the agenda for executive session meetings. Once an owner is delinquent by at least $1,800 or the delinquency is at least twelve months old, the board can initiate foreclosure proceedings. (Civ. Code §5720(b)(2).) The vote must be held in executive session and recorded in the minutes of the next open meeting. As with liens, boards maintain confidentiality by using the assessor’s parcel number to identify the property. (Civ. Code §5705(c).)

Sex Offender on the Board

Source: Adrian J. Adams Esq. 

QUESTION: Can a person who is a sex offender be on the board? He only got a misdemeanor but is on the registered sex offender site.

ANSWER: Neither the Davis-Stirling Act nor the Corporations Code prohibits registered sex offenders from serving on boards of directors. But, depending on the wording, associations can amend their documents to prohibit serious offenders from serving on the board.

Offender Classification. There are different levels of sex offenders. The classification depends on the crime committed, the age of the parties involved, and the person’s propensity to commit additional offenses. Following is a summary of  California’s classification system:

Tier I Sex Offenses. Public indecency, voyeurism, possession of child pornography, and sexual contact without consent.

Tier II Sex Offenses. Trafficking of minors for the purposes of sexual activity; sexual contact or acts with persons between the ages of 12-15; sexual offenses where the offender has a position of authority over the victim (parent, guardian, babysitter, teacher); and the production or distribution of pornography that includes minors.

Tier III Sex Offenses. Sex acts where force was used; sex acts where the victim is rendered unconscious or impaired through the use of drugs or alcohol; and sexual acts where the victim is under the age of 12.

Discrimination. California prohibits discrimination against registered sex offenders when it comes to health insurance, insurance, loans, credit, employment, education, and housing. (Penal Code §290.46(2).) Since the statute does not include “serving on a board,” associations can amend their bylaws to prohibit sex offenders from serving on the board.

Reasonableness. However, a blanket prohibition might be deemed unreasonable if challenged. Should Tier I misdemeanor offenders be restricted? In California, the maximum punishment for a misdemeanor is a $1,000 fine and up to six months in jail. Examples of misdemeanor violations are petty theft, driving on a suspended license, vandalism, drunk driving, and indecent exposure.

The reasonableness of a restriction is determined by whether it is rationally related to the protection, preservation or proper operation of an association. (Laguna Royale v. Darger.) Would a court agree that barring someone with a misdemeanor from serving on the board is rationally related to the protection, preservation or proper operation of an association? That’s anybody’s guess.

RECOMMENDATION: Many associations use a generic prohibition against felons serving on the board. This prohibition is enforceable since it is already provided for in Corporations Code §7221 and would prevent Tier II and III sex offenders from serving on the board. If a Tier I misdemeanor offender wanted to run for the board and homeowners objected, they could campaign against him/her. If your board needs assistance with this issue, contact me.

Thank you to attorney Wayne Louvier for researching this issue. Wayne is a senior attorney who works out of our Orange County office.

The Hindenburg & Assembly Bill 1720

Source: Adrian J. Adams Esq. 

The Hindenburg was an airship built in 1936 by the Zeppelin Company. Somebody at the company thought it was a good idea to fill it with highly explosive hydrogen and put 97 people in a cabin strapped to its underside.

In the predictable disaster that followed, 36 people died.

Don Wagner. Orange County Assemblyman Donald Wagner introduced something similar for associations. His Assembly Bill 1720 would allow owners to send their attorneys to board meetings. Like hydrogen-filled airships, nothing good will come from it.

Adversarial. In my experience, no one spends money on a lawyer to tell a board how much they appreciate their hard work. It is always adversarial. If the bill passes, an owner’s attorney can attend meetings and, during open forum, question directors, lecture them, bully them, and threaten them. Or, no less intimidating, the attorney could sit quietly the entire meeting and take notes on everything said–for use in a future (or current) lawsuit.

Ethics Issue. Particularly troubling, the bill destroys the safeguards established by Rule 2-100 of the Rules of Professional Conduct which prohibits an attorney from communicating with a party represented by another attorney without the consent of that lawyer. The State Bar created this consumer protection to help level the playing field and Mr. Wagner wants to strip it away.
Ambushed. Wagner’s bill also states, “Where possible, the member shall give the board at least 48 hours advance written notice that his or her attorney will attend the board meeting.” Note that the sentence starts with “Where possible.” If an owner wants to blindside a board, I suspect he/she will not find it possible to give advance notice. That means boards will get ambushed.

Legal Fees. The obvious outcome of this bill will be impaired meetings since boards and homeowners alike will be reluctant to discuss matters in front of an adversarial lawyer for fear of being sued. To counter the threat, boards will want the association’s attorney to attend meetings whenever they think other lawyers might attend. That means higher dues for everyone.

No Volunteers. It is already difficult to get members to volunteer for the board. Homeowners have busy lives working, raising families, and paying bills. Serving on a board is stressful enough because it takes away what little time they may have. Assembly Bill 1720 makes it worse by creating unnecessary fear of litigation. Who would serve under those conditions?

Hindenburg. Like Zepplin engineers, Assemblyman Wagner is injecting an unstable element into association meetings. Impaired operations and higher costs are sure to follow. This is entirely unnecessary. If an owner’s lawyer wants to present a grievance, he/she can pick up the phone and call me. It’s less expensive and gets better results. They don’t need to sit in a board meeting and glare at the board, or worse–threaten directors.

RECOMMENDATION: Please write Assemblyman Wagner and respectfully ask him to withdraw his bill. Amending the bill is not productive; it would be like rearranging deck chairs on the Titanic–another bad idea. The bill should be withdrawn. You can call, fax or write Mr. Wagner at: