We just awarded a new janitorial services contract and sent a termination letter to the old contractor. The old contractor produces a near 10 year old agreement/contract signed in 2009 with an automatic renewal provision signed by a previous HOA director that only had the authority to obligate the the Association for one year at a time (2009-2010). Our bylaws limit our authority to obligate these type of contracts to one year. We did not know the contract even existed. The contract value is $2,100 per month. We cover the board with professional liability insurance. Enforceable? Professional Liability Coverage Claim?
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2I'm not sure you could get a professional liability claim. You had this contractor for 10 years, somebody should have known that they didn't sign a new yearly contract with them. Somebody should have reviewed the contract in 2009. You should be doing periodic inspections of all active contracts. I would think the first thing you would check when deciding to get a new contractor is what active contract you have with the old one. The fact you continued this contract for 10 years will very much work against you.– Ron BeyerCommented Apr 27, 2019 at 15:10
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Could you reproduce the language of the "automatic renewal provision"? It is odd for a contract duration to be "near" n years instead of exactly n years (whether renewable or not).– Iñaki ViggersCommented Apr 27, 2019 at 20:41
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I'm voting to close this question as off-topic because it is about corporate governance not public law.– A. K.Commented May 1, 2019 at 12:10
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1 Answer
The contract is almost certainly enforceable
The legal doctrine is ostensible or apparent authority: if it is reasonable in the circumstances for a third party to believe that a person has the authority to act for an organisation then they do even if they don’t actually have that authority.
For example, it’s reasonable to assume that a grocery store check-out operator has the authority to sell the store’s groceries but not to sell the store.
For your situation it is perfectly reasonable for the contractor to assumes that a HOA director acts with the authority of the HOA simply because they area director. It is not necessary (or reasonable) for the contractor to know the details of the HOA by-laws.
In any event, it would seem the director acted within their authority anyway - they only bound the HOA for 1 year. The HOA could have cancelled the automatic renewal in accordance with the contract at anytime over the last decade.
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It is in fact not reasonable to assume that an HOA director operates within his authority. It is more likely than otherwise that HOA directors exceed their authority.– JoshuaCommented Sep 6, 2022 at 18:41