Unincorporated Non-profit Associations Statement of Principles 2007

E. Contract and Tort Liability.

Principle #18. A UNA is liable for its acts or omissions and for the acts or omissions of its managers, employees and agents acting within the scope of their office, employment and agency to the same extent as if the UNA were a nonprofit corporation.

Comments:

1. The effect of Principles 18-24 is to provide members and managers of a UNA with

the same protection against vicarious liability for the debts and obligations of the UNA and tort liability imposed on the UNA as the members and managers of a nonprofit corporation would have under the enacting jurisdiction’s laws. These principles, taken together, constitute what is known as the limited liability doctrine under which a member or manager is personally liable for his or her own tortious conduct under all circumstances and is personally liable for contract liabilities incurred on behalf of the UNA if the member or manager guarantees or otherwise assumes personal liability for the contract or fails to disclose that he or she is acting as the agent for the UNA. A member or manager is not otherwise personally liable for the tort or contract liabilities imposed against the UNA; and a creditor with a judgment against the UNA must seek

to satisfy the judgment out of the UNA’s assets but cannot levy execution against the assets of a member or manager. The one exception is the alter ego doctrine (also known as the veil piercing doctrine) set forth in Principle 24. Under this doctrine, the separate entity status of a UNA is disregarded and the assets of the UNA and its members and managers are aggregated and subject to a UNA creditor’s claims in the same manner a judgment creditor of a general partnership collects a judgment against the assets of a general partner in a partnership.

2. The drafting conventions for expressing Principles 18-24 in statutory form will vary from jurisdiction to jurisdiction. In some jurisdictions, it may, because of other statutes or well-established case law, be accomplished in a few sentences. In other enacting jurisdictions, the necessary statutory language may be longer and more complex than stated in the principles.

Principle #19. Except as otherwise provided in Principle 24, a monetary judgment against a UNA may be enforced only against the property of the UNA.

Principle #20. A member or manager of a UNA is not liable for a debt or liability of the UNA merely by reason of being a member or manager of the UNA.

Principle #21. A member or manager of a UNA is liable for a contractual obligation of the UNA if the member or manager expressly assumes personal liability for the obligations or the member or manager executes a contract on behalf of the UNA without authority to execute the contract or without disclosing that the member or manager is acting as an agent on behalf of the UNA.

Principle #22. Liability for a tortious act or omission for which a UNA is liable is not imputed to a member or manager of the UNA merely by reason of being a member or manager of the UNA.

Principle #23. Subject to laws other than the Act limiting the liability of volunteers of nonprofit organizations, a member or manager of a UNA is liable for the member’s or manager’s own tortious acts or omissions.

Comments:

Many jurisdictions in recent years have enacted statutes that exempt volunteers of nonprofit organizations from liability to third parties for their tortious conduct involving simple negligence. These statutes vary greatly. Some only cover volunteers of nonprofit corporations. Others are applicable only to volunteers acting on behalf of nonprofit organizations that are tax-exempt. These statutes, to the extent they are applicable to UNAs at the time of the Act’s effective date, will continue to apply to UNA volunteers. See Principle #9. It may also be advisable to amend the enacting jurisdiction’s volunteer liability statutes.

Principle #24. A member or manager of a UNA may be subject to liability for the debts and other obligations of the UNA under the alter ego liability doctrine that applies to members of a nonprofit corporation, taking into account differences in form between a UNA and a corporation.

Comments:

Courts have pierced the corporate veil of nonprofit corporations. See Comment, Piercing the Nonprofit Corporate Veil, 66 Marq. L. Rev. 134 (1984); Macaluso v. Jenkins, 95 Ill.App.3d 461, 420 N.E.2d 251 (1981)(President of nonprofit corporation who commingled funds of the nonprofit corporation with funds of a corporation he controlled held personally liable for unpaid debts of the nonprofit corporation under the veil piercing doctrine). The fact that members of nonprofit corporations for the most part do not have an expectation of financial gain, as compared to shareholders of a for profit corporation, should mean that there will be

fewer types of cases than those involving for profit corporations where the veil piecing doctrine will be held to be applicable to UNAs.

Principle #25. A member of a UNA may assert a claim against the UNA; and a UNA may assert a claim against a member.

Comments:

1. This is another aspect of a UNA under the Act being a separate legal entity. Under the common law aggregate theory, since a UNA was not an entity separate from its members, a member cannot assert a claim against the UNA since there is technically no UNA, only members, and the member would be both a claimant and the defendant and personally liable for any judgment obtained in the action. For the same reason, a UNA could not assert a claim against a member (e.g., for unpaid dues) because the UNA technically does not exist. Stating this principle in the Act may not be necessary in civil law jurisdictions (Mexico and Quebec) because civil law principles treat UNAs as having a separate legal existence.

2. This principle only allows a member to assert that member’s claim against the UNA. It does not authorize a member to file a derivative action. The enacting jurisdiction’s civil procedure law may, however, authorize derivative actions.

Next Annual Meeting

2017 Conference

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August 13 - 17, 2017
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