UNIFORM UNINCORPORATED
NONPROFIT ASSOCIATION ACT (1996)
Harmonized Legal
Framework for Unincorporated Nonprofit Associations in North
America
SECTION 1. DEFINITIONS. In this [Act]:
(a) “Established
practices” means the practices used by an unincorporated nonprofit association
without material change or exception during the most recent five years of its
existence, or if it has existed for less than five years, during its entire
existence.
(b) “Governing
principles” means all the agreements, whether oral, in a record, implied from
its established practices, or in any combination thereof, that govern the
purpose or operation of an unincorporated nonprofit association and the rights
and obligations of its members and managers.
The term includes any amendments and restatements of the agreements
constituting the governing principles.
(c) “Managers”
means a person that is responsible, alone or in concert with others, for the
management functions stated in Section 20.
(1) (d) “Member” means a person who,
under the rules or practices of a nonprofit association, may participate in the
selection of persons authorized to manage the affairs of the nonprofit
association or in the development of policy of the nonprofit association.
(3) (e) “Person” means an individual,
corporation, business trust [statutory entity trust], estate, trust, partnership, limited
liability company, association,
joint venture, public corporation, government, or governmental subdivision, agency, or
instrumentality, or any other legal or commercial entity.
(4) (f) “State” means a State of the United States,
the District of Columbia,
the Commonwealth of Puerto Rico, United
States Virgin Islands, or any territory or insular
possession subject to the jurisdiction of the United States.
(2) (g) “Nonprofit “Unincorporated nonprofit association” means an unincorporated
organization, other than one created by a
trust, consisting of [two] or more
members joined by mutual consent for a common, nonprofit purpose that is not a trust [, a
cooperative, domestic partnership] or that is formed under any other statute
that governs the organization and operation of unincorporated associations. However, joint
tenancy, tenancy in common, or tenancy by the entireties does not by itself
establish a nonprofit association, even if the co-owners share use of the
property for a nonprofit purpose.
Comment
1.
With respect to relations external to a nonprofit association, whether a
person is a member of the organization determines principally a member’s
responsibility to third parties.
Internally, whether a person is a member might determine specified
rights and responsibilities, including access to facilities, voting, and
obligation to pay dues. This Act is
concerned only with determining whether a person is a member for purposes of
external relations, such as liabilities to third parties on a contract of the nonprofit
association. Therefore, “member” is
defined in terms appropriate to these purposes.
“Member” includes a person who has sufficient right to participate in
the affairs of a nonprofit association so that under common law the person
would be considered a co-principal and so liable for contract and tort
obligations of the nonprofit association.
The definition may reach somewhat
beyond decisions of some courts. Either
participation in the selection of the leadership or in the development of
policy is enough. Both are not
required. This broad definition of
member ensures that the insulation from liability is provided in all cases in
which the common law might have imposed liability on a person, simply because
the person was a member.
2.
A fund-raising device commonly used by many nonprofit organizations is
the membership drive. In most cases the
contributors are not members for purposes of this Act. They are not authorized to “participate in
the selection of persons authorized to manage the affairs of the nonprofit
association or in the development of policy.” Simply because an association
calls a person a member does not make the person a member under this Act.
Section 6 nevertheless protects “a
person considered to be a member by a nonprofit association” even though the
person is not within the definition of member in paragraph (1).
3.
The role of a member in the affairs of an association is described as “may
participate in the selection” instead of “may select or elect” the governing
board and officers and “may participate . . . in the development of policy”
instead of “may determine” policy. This
accommodates the Act to a great variation in practices and organizational
structures. For example, some nonprofit
associations permit the president or chair to name some members of the
governing board, such as by naming the chairs of principal committees who are
designated ex officio members of the governing board. Similarly, the role in determination of
policy is described in general terms. “Persons
authorized to manage the affairs of the association” is used in the definition
instead of president, executive director, officer, member of governing board,
and the like. Given the wide variety of
organizational structures of nonprofit associations to which this Act applies
and the informality of some of them the more generic term is more
appropriate.
4. “Person” instead of individual is used to
make it clear that associations covered by this Act may have individuals,
corporations, and other legal entities as members. Unincorporated nonprofit trade associations,
for example, commonly have corporations as members. Some national and regional associations of
local government officials and agencies have governmental units or agencies as
members.
5. Paragraph (2) defines “nonprofit association.”
The model American Bar Association acts
deal with both for-profit and nonprofit corporations. Unincorporated, for-profit organizations are
largely covered by the uniform partnership acts. The differences between for-profit and
nonprofit unincorporated organizations are so significant that it would be
impractical to cover both in a single act.
Therefore, this Act deals only with nonprofit organizations.
6. A charitable trust is a form of an
unincorporated nonprofit legal organization.
It is, however, not a nonprofit association within this Act. To the extent that trust law does not supply
an answer to a legal problem concerning a charitable trust, a court could look
to this Act to develop by analogy a common law answer.
7. The term “nonprofit association” is used
instead of “association” for several reasons.
The risk that this Act when placed in a state’s code would be construed
to apply to both nonprofit and for-profit associations should thus be
avoided. Acts dealing with one kind of
association when placed in a code have sometimes lost their identification and
been inadvertently applied to the other kind where the term “association” alone
was used. For example, the New York Joint-Stock
Association Act of 1894 used the term “association,” which it defined to
include only for-profit organizations. “Association”
was held in 1938 to include an unincorporated political party and the act
applied to it. Richmond County v. Democratic Organization of Richmond County, 1 NYS 2d 349 (1938). Subsequent decisions applied the act to other
unincorporated nonprofit organizations.
The use of “nonprofit association” instead of merely “association”
should also avoid the risk of this Act being improperly used to develop a
common law rule by analogy from this Act to apply in a case involving a
for-profit association. Roscoe Pound, Common Law and Legislation, 21 Harv. L.
Rev. 383 (1908); Robert F. Williams, Statutes
as Sources of Law Beyond their Terms in Common Law Cases, 50 Geo. Wash. L.
Rev. 554 (1982).
Legal issues concerning
unincorporated for-profit associations that are not partnerships and so not
controlled by a partnership act would be governed by a State’s other statutory
or common law. Resort to one of the two
partnership acts for the purposes of developing a common law rule by analogy
would be appropriate. Resort for this
purpose to this Act in the case of an unincorporated for-profit association
would not be appropriate.
8. Two or more persons is the common statutory
requirement to constitute an unincorporated nonprofit association. New
Jersey, on the other hand, requires that there be
seven or more members to be an association under its laws. This Act suggests the smaller number –
two. Consideration was given to
specifying “one” instead of “two.” For
example, the developer of a condominium may have created a condominium
association as an unincorporated nonprofit association. Before any units are sold the developer as
owner of all units has all of the memberships in the association. Should it be treated as a nonprofit
association under this Act from the beginning? It should not.
Can one person be “joined by mutual consent for a common purpose?” To ask the question would seem to be to answer
it. If the concern is to give the
developer the entity protections provided by this Act, it is very likely that
it already has some protection because it is a business corporation.
Nevertheless, the number is placed
in brackets, in part, to raise the question whether the number should be one or
two or even a larger number.
The members must be joined together
for a common purpose. Several States
provide that they be “joined together for a stated common purpose” (emphasis added). Because of the informality of many ad hoc
associations, it is prudent not to impose the requirement that the common
purpose be “stated.” Very probably, it
is the small, informal, ad hoc associations and those third parties affected by
them that most need this Act.
9. “Nonprofit” is not defined. A common definition – it is an association
whose net gains do not inure to the benefit of its members and which makes no
distribution to its members, except on dissolution – does not work for all nonprofit
associations. Consumer cooperatives, for
example, make distributions to their members; but they are not for-profit
organizations. Those consumer
cooperatives not organized under specific state or federal laws need the
benefits of this Act.
It is instructive to note that the
drafting committee for the ABA Model Nonprofit Corporation Act finally
determined that it could not develop a satisfactory definition of
nonprofit. Instead, the act contains
rules, regulations, and procedures applicable separately to each of the three
kinds of nonprofit corporation – public benefit, mutual benefit, and
religious. It does not define the three
kinds; it described what they can do and how they may function. Considering the corporation’s intended
activities and the rules, regulations, and procedures applicable to each of the
three different kinds of corporations, a choice is made. Having made a choice, the corporation is
bound by the rules, regulations, and procedures prescribed for the kind of
nonprofit corporation chosen.
10. The final sentence of paragraph (2) is
adapted from Section 201(d)(1) of Uniform Partnership Act(1994). This stresses that more than common ownership
and use is required. For example, that
three families own a lake cottage and share its use does not make the three
families a nonprofit association.
Paragraph (2) precludes arrangements that are merely common ownership
from being a nonprofit association under this Act.
11. The definition of “person” in paragraph (3)
is a standard NCCUSL definition.
12. The definition of “State” in paragraph (4) is
a standard NCCUSL definition.
Derivation: “established practices” – Principle #2; “governing
principles” – Principle #2; “member” – Principle #3; “manager” – Principle #4; “unincorporated
nonprofit association” – Principle #1.
(a) Principles of law and equity supplement this [Act] unless
displaced by a particular provision of it.
(b) A
provision in a statute in this State governing a particular type of
unincorporated nonprofit association prevails over an inconsistent general
provision in this [Act], to the extent of the inconsistency.
(c) This
[Act] supplements the enacting jurisdiction’s regulatory laws and rules that
are applicable to nonprofit organizations operating in this [State]. In the event of a conflict, these other laws
and rules prevail.
Comment
1. This section is adapted from
Uniform Commercial Code Section 1-103.
The reference in Section 1-103 to “the law merchant” and its examples of
supplementary rules, such as those of principal and agent and estoppel, were
deleted as irrelevant or incomplete and unnecessary. This change in language does not manifest any
change in substance.
2. This Act contains no rules
concerning governance. However, recourse
to rules of governance must be had to apply some of the Act’s rules. For example, whether a nonprofit association
is liable under a contract made for it by an individual depends on whether the
individual had the necessary authority to act as agent. Was the individual given the authority by
someone empowered by the nonprofit association to give the authority? To decide a case like this a court must resort
to the rules of the nonprofit association or, if there are none applicable or
none at all, to the common law or other statutory law of the jurisdiction.
3.
Efforts were made to develop default internal rules of governance – applicable
if an association had none or none that were applicable. This effort demonstrated the complexity and
difficulty of fashioning rules that would reasonably fit a wide variety of
nonprofit associations – large and small, public benefit, mutual benefit, and
religious, and of short and indefinite duration. It was thought best to leave this question to
other law of the jurisdiction.
Derivation:
Subsection (a) Principle #9; Subsection (b) – Principle #10; Subsection
(c) – Principle #11.
Section 3. TERRITORIAL APPLICATION. GOVERNING LAW;
TERRITORIAL APPLICATION.
Real and personal property in this State may be acquired, held,
encumbered, and transferred by a nonprofit association, whether or not the
nonprofit association or a member has any other relationship to this State.
(a) Except
as otherwise provided in Subsection (b), the law of this State governs all
unincorporated nonprofit associations formed or operating in this State.
(b) The
law of the jurisdiction in which an unincorporated nonprofit association has its
main place of activities governs relations among the members and managers and
between the members and managers and the unincorporated nonprofit association.
Comment
This section
is consistent with Restatement (Second) of Conflict of Laws Section 223 (1971). Section 3 makes a conveyance or devise of
land located in a State that has adopted this Act effective even though it
would not be effective under the law of the State in which the nonprofit
association has its principal office or other significant relationship. No relationship of the nonprofit association
other than that the property is situated in the State is required.
Derivation:
Principle #6.
(a) A An unincorporated nonprofit association is a
legal entity separate from its members for the purposes of acquiring, holding, encumbering,
and transferring real and personal property and managers.
(b) A An
unincorporated
nonprofit association in its name may acquire, hold, encumber, or transfer an
estate or interest in real or personal property.
(c) A An
unincorporated
nonprofit association may be a beneficiary of a trust or contract, a legatee,
or a devisee.
(d) An unincorporated nonprofit association has perpetual
existence.
Comment
1. Subsection
(a) makes a nonprofit association a legal entity separate from its members for
purposes of its dealing with real and personal property. This reverses the common law view that a
non-profit association was not a legal entity.
2. Subsection (b) is based on
Section 3-102(8), Uniform Common Interest Act.
It reverses the common law rule.
Inasmuch as an unincorporated nonprofit association was not a legal entity
at common law, it could not acquire, hold, or convey real or personal
property. Harold J. Ford, Unincorporated Non-Profit Associations,
1-45 (Oxford Univ. Press (1959); 15 A.L.R. 2d 1451
(1951); Warburton, The Holding of
Property by Unincorporated Associations, Conveyancer 318 (September-October
1985).
3. This strict common law rule has
been modified in various ways in most jurisdictions by courts and
statutes. For example, courts have held
that a gift by will or inter vivos transfer of real property to a nonprofit association
is not effective to vest title in the nonprofit association but is effective to
vest title in the officers of the association to hold as trustees for the
members of the association. Matter of Anderson’s Estate, 571 P. 2d
880 (Okla.
App. 1977).
A New York statute specifies that a grant by
will of real or personal property to an unincorporated association is effective
if within three years after probate of the will the association
incorporates. McKinney’s N.Y. Estates, Powers, & Trust
Law, Section 3-1.3 (1981).
California gives any “unincorporated society
or association and every lodge or branch of any such association, and any labor
organization” full right to acquire, hold, or transfer any “real estate and
other property as may be necessary for the business purposes and objects of the
society,” and acquire and hold any property not so necessary for 10 years. California
Corporations Code, Title 3, Unincorporated Associations, Section 20001 (West
1991).
As is the case with many of the
problems created by the view that an unincorporated association is not an
entity the statutory solutions are often partial – limited to special
circumstances and associations.
Subsection (b) solves this problem for all nonprofit associations, for
all kinds of transactions, and for both real and personal property.
4.
Even if a nonprofit association’s governing documents provide that it “may not
acquire real property,” subsection (b) makes effective a transfer of Blackacre
to the association. A different result
would obviously disrupt real estate titles.
The remedy for this violation of internal rules lies not in preventing
title from passing but, as with other organizations, in an action by members
against their association and its appropriate officers to undo the transaction.
5.
Subsection (c) is a necessary corollary of subsection (b) and, thus, it may be
unnecessary. However, several States
expressly provide that an unincorporated, nonprofit association may be a
legatee, devisee, or beneficiary. See,
for example, Md. Estates & Trusts Code Ann. Section 4-301 (1991). Therefore, it is desirable to continue this
as an express rule. Subsection (c)
applies to both trusts and contracts.
Not all state statutes apply expressly to both.
Derivation: Subsection (a) – Principle #7; Subsections
(b) and (c) – Principle #12; and Subsection (d) – Principle #8.
(a) A
nonprofit association may execute and [file] [record] a statement of authority
to transfer an estate or interest in real property in the name of the nonprofit
association.
(b) An
estate or interest in real property in the name of a nonprofit association may
be transferred by a person so authorized in a statement of authority [filed]
[recorded] in the office in the [county] in which a transfer of the property
would be [filed] [recorded].
(c) A
statement of authority must set forth:
(1)
the name of the nonprofit association;
(2)
the federal tax identification number, if any, of the nonprofit association;
(3)
the address in this State, including the street address, if any, of the
nonprofit association, or, if the nonprofit association does not have an
address in this State, its address out of State;
(4)
that it is an unincorporated nonprofit association; and
the name or title of a person authorized to transfer
an estate or interest in real property held in the name of the nonprofit
association.
(d) A
statement of authority must be executed in the same manner as [a deed] [an
affidavit] by a person who is not the person authorized to transfer the estate
or interest.
(e) A
filing officer may collect a fee for [filing] [recording] a statement of
authority in the amount authorized for [filing] [recording] a transfer of real
property.
(f) An
amendment, including a cancellation, of a statement of authority must meet the
requirements for execution and [filing] [recording] of an original
statement. Unless canceled earlier, a
[filed] [recorded] statement of authority or its most recent amendment is
canceled by operation of law five years after the date of the most recent
[filing] [recording].
(g) If
the record title to real property is in the name of a nonprofit association and
the statement of authority is [filed] [recorded] in the office of the [county]
in which a transfer of real property would be [filed] [recorded], the authority
of the person named in a statement of authority to transfer is conclusive in
favor of a person who gives value without notice that the person lacks
authority.
Comment
1. This section is based on Uniform
Partnership Act (1994) Section 303.
California Corporations Code, Title 3, Unincorporated Associations,
Section 20002 (West 1991), is similar.
2. A statement of authority need not
be filed to conclude an acquisition of or to hold real property. It is concerned only with the sale, lease,
encumbrance, and other transfer of an estate or interest in real property. For this, it should, but need not, be
filed. The filing provides important
documentation.
3. Inasmuch as the statement relates
to the authority of a person to act for the association in transferring real
property, subsection (b) requires that the statement be filed or recorded in
the officer where a transfer of the real property would be filed or recorded. This is usually the county in which the real
estate is situated. This is where a
title search concerning the real estate would be conducted. Uniform Partnership Act (1994) Section 303
provides for central filing, such as with the Secretary of State, but its
statement of partnership authority concerns authority of partners generally,
not just with respect to real estate.
4. “Filed” and “recorded” are
bracketed to direct an enacting State to choose. In most jurisdictions “recorded” will be the
appropriate choice.
5. Subsection (c)(2) deals with the
problem caused by the similarity of names of small local nonprofit
associations. There is no duplication of
federal tax identification numbers.
Therefore, any confusion of identity is avoided by this
requirement.
Subsection (c)(3) may present a
problem for small, ad-hoc nonprofit associations. They may have no fixed office address. They may meet in the homes of their leaders. However, if they distribute literature or
file petitions they are likely to have a mailing address.
Subsection (c)(4) informs those
relying on the statement of the precise character of the organization. Knowing that the organization is an
unincorporated nonprofit association may cause the person dealing with the
organization to act differently.
6. Subsection (c)(5) permits the
statement to identify as the person who can act for the association one who
holds a particular office, such as president.
This designation relieves the association from the need to make
additional filings on each change of officers.
Under local title standards and practices the transferee and filing or
recording office are likely to require a certificate of incumbency if the
statement designates the holder of an office.
7. Subsection (d) is designed to
reduce the risk of fraud and to reflect law and practice applicable to other
organizations. It requires someone other
than the person authorized to deal with the real property to execute the
statement of authority on behalf of the nonprofit association. Whether the formalities of execution must
conform to those of a deed or an affidavit is left for each State to
determine.
8. Subsection (f) makes a statement
inoperative five years after its most recent recording or filing. This prevents a statement whose recording or
filing is unknown by the association’s current leadership from being
effective. Reliance on a filing or
recording this old is, in effect, not in good faith.
9. Subsection (g) is based on
Uniform Partnership Act (1994) Section 303(h).
Its obvious purpose is to protect good faith purchasers for value
without notice who rely on the statement, including those who acquire a
security interest in the real property.
If the required signatures on the statement, deed, or both are
forgeries, the effect of them is not governed by Section 5(g). Instead, Section 2 applies and would invoke
the other law of the State. In many
States the deed would be a nullity. See
Boyer, Hovenkamp, and Kurtz, THE LAW OF
PROPERTY, An Introductory Survey (West Pub. Co.
4th ed. 1991).
(a) The
debts, obligations, or other liabilities of an unincorporated nonprofit
association, whether arising in contract, tort, or otherwise:
(1) are
solely the debts, obligations, or other liabilities of the association; and
(2) do
not become the debts, obligations, or other liabilities of a member or manager
solely by reason of the member acting as a member or manager acting as a
manager.
(b) A
member of an unincorporated nonprofit association may be subject to liability
for a debt, obligation or liability of the association under common law
principles governing alter ego liability of shareholders of a corporation,
taking into account differences in form between an unincorporated nonprofit
association and a corporation.
(c) The
failure of an unincorporated nonprofit association to observe particular
formalities relating to the exercise of its powers or management of its
activities is not a ground for imposing liability on the members for the debts,
obligations, or other liabilities of the unincorporated nonprofit association.
Comment
Derivation: Subsection (a) – Principles #s 18 and 19;
Subsection (b) and (c) – Principle #24.
(a) A An unincorporated nonprofit association is a
legal entity separate from its members for the purposes of determining and
enforcing rights, duties, and liabilities in contract and tort.
(b) A person is not liable for a breach of a an unincorporated nonprofit association’s contract merely because the person
is a member, is authorized to
participate in the management of the affairs of the nonprofit association, or a manager, or is a person considered to be a member by the nonprofit association.
(c) A person is not liable for a tortious act or omission
for which a an unincorporated nonprofit association is liable merely because the person
is a member, is authorized to
participate in the management of the affairs of the nonprofit association, or a manager, or is a person considered as a member by the nonprofit
association.
(d) A tortious act or omission of a member or other person
for which a an unincorporated nonprofit association is liable is not imputed to a person
merely because the person is a member of the nonprofit association, is authorized to participate in
the management of the affairs of the nonprofit association, or a manager, or is a person considered as a member by the nonprofit
association.
(e) A member of, or a person considered to be a member by, a an unincorporated nonprofit association may assert a claim against the nonprofit association. A An unincorporated nonprofit association may assert a claim against a member
or a person considered to be a member by the nonprofit association.
Comment
1. At common law a nonprofit association was not
a legal entity separate from its members.
Borrowing from the law of partnership, the common law viewed a nonprofit
association as an aggregate of its members.
The members are co-principals.
Subsection (a) changes that. It
makes a nonprofit association a legal entity separate from its members for
purposes of contract and tort.
2. This Act does not deal with liability of
members or other persons acting for a nonprofit association for their own
conduct. With respect to contract and
tort Section 6 leaves that to the other law of the jurisdiction enacting this
Act.
3. Subsections (b) through (e) are applications
to common cases of the basic principle in subsection (a). Because a nonprofit association is made a
separate legal entity, its members are not co-principals. Consequently they are not liable on contracts
or for torts for which the association is liable. Subsection (b) specifies that result with
respect to contracts.
4. Subsection (b) applies the principle in
subsection (a) to relieve members and others from vicarious liability for the
contracts of a nonprofit association.
5. Subsections (a) and (b) eliminate a risk that
existed under common law. An agent makes
an implied warranty of authority to the other contracting party. If the purported principal does not exist,
the agent obviously breaches the warranty.
Because an unincorporated nonprofit association was not a legal entity;
one purporting to act for it breached this implied warranty. Smith
& Edwards v. Golden Spike Little League, 577 P. 2d 132, 134 (Utah 1978). Subsection (b) treats a nonprofit association
as a legal entity; therefore, an agent who acts for it within her authority
does not breach the warranty.
6. “Merely” because a person is a member
does not make the person liable on an association’s contract. This formulation means that there are special
circumstances that may result in liability.
For example, a member may expressly become a party to a contract with
the nonprofit association. Subsection
(b) relieves members only of their vicarious liability. Liability for one’s own conduct is left to
the other law of the jurisdiction.
An agent with authority from a
nonprofit association who negotiates a contract without disclosing the agent’s
representative status is liable on the contract. Under agency law an agent acting within the
agent’s scope of authority for an undisclosed or partially disclosed principal
is personally liable on the contract along with the principal, unless the other
contracting party agrees not to hold the agent liable. Restatement
(Second) Of Agency 320-322; Reuschlein and Gregory, Agency & Partnership 161-163 (West 2d ed. 1990).
Courts have pierced the corporate
veil of nonprofit corporations. Comment,
Piercing the Nonprofit Corporation Veil,
66 Marq. L. Rev. 134 (1984). Section 6
makes a nonprofit association a legal entity for these purposes. Therefore, as a matter of its other law a
jurisdiction enacting this Act may appropriately apply this doctrine to a
nonprofit association. In Macaluso v. Jenkins, 95 Ill. App. 3d
461, 420 N.E.2d 251 (1981), the president of a nonprofit corporation was found
to have so commingled its funds and assets with his own and those of a business
corporation he controlled and have treated them as his own for his benefit that
the corporate veil must be pierced to promote justice. He was found liable for a debt contracted in
the name of the nonprofit corporation.
See also Harry G. Henn & John R. Alexander, Law of Corporations, pp 344-352 (West 3d ed. 1983); Alfred F.
Conard, Corporations in Perspective,
pp 424-433 (Foundation Press, 1976).
7. An example of a partial statutory solution of
members’ liability for contracts of a nonprofit association is California
Corporations Code, Title 3, Nonprofit Associations, Section 21100 (West
1991). It relieves members from
liability for “debts or liabilities contracted or incurred by the association
in the acquisition of lands or leases or the purchase, leasing, designing,
planning, architectural supervision, erection, contraction, repair, or
furnishing of buildings or other structures, to be used for purposes of the
association.” As noted earlier, partial and uncoordinated statutory solutions
of common law problems are typical.
8. Subsection (c) applies the principle in
subsection (a) to relieve members and others from liability for torts for which
the nonprofit association is liable.
Inasmuch as Section 6 provides that a member is not a co-principal, the
member cannot be considered to be an employer of the employee who committed the
tort. Again, only relief from vicarious
liability is provided.
Liability of a member or other
person who acts for the nonprofit association is governed by other law of the
jurisdiction. That an employer is liable
for a tort committed by its employee does not excuse the employee.
9. The immunity from vicarious liability provided
by subsections (b) and (c) does not depend on the remedy sought. Whether it is for damages for breach of
contract or tort, unjust enrichment, or the like the immunity is provided.
10. Since the mid 1980’s all States have enacted
laws providing officers, board members, and other volunteers some protection
from liability for their own negligence.
The statutes vary greatly as to who is covered, for what conduct
protection is given, and the conditions imposed for the freedom from
liability. Some apply only to nonprofit
corporations. State Liability Laws for Charitable Organizations and Volunteers
(Nonprofit Risk Management & Insurance Institute, 1990); Developments, Nonprofit Corporations,
105 Harv. L. Rev. 1578, 1685-1696 (1992).
This means that members and volunteers involved with unincorporated
nonprofit associations do not obtain protection under those state statutes.”
The 1987 Texas act, for example,
relieves directors, officers, and other volunteers from liability for simple
negligence that causes death, damage, or injury if the volunteer acted in the
scope of her duties for a charitable organization exempt under Internal Revenue
Code Section 501(c)(3) or (4). The act
also limits the amounts that may be recovered from an employee or the
organization if the organization carries requisite liability insurance. The constitutionality of the provision
relieving volunteers from liability has been questioned under Article I,
Section 13 of the Texas Constitution – the Open Courts provision. Note, The
Constitutionality of the Charitable Immunity and Liability Act 1987, 40 Baylor
L. Rev. 657 (1988). Some statutes
premise all relief upon the organization having specified liability
insurance.
Section 6 does not affect these
statutes. As noted earlier Section 6
deals only with vicarious liability.
These statutes concern liability for one’s own conduct.
11. Although not a concern of Section 6, perhaps
it should be noted that nonprofit organizations have been held liable for
tortious acts and omissions not only of employees but also of members. In Guyton
v. Howard, 525 So. 2d 918 (Fl. App. 1988) a nonprofit organization was held
liable for the negligence of members who acted for the organization in
conducting an initiation that resulted in injury.
12. Subsection (d) applies the principle in
subsection (a) to reverse the common law rule that the negligence of an
employee of an association is imputed to its members. A member as co-principal was vicariously
responsible for an employee’s conduct within the scope of the employee’s
duties. Section 6, however, makes the
nonprofit association a legal entity.
Thus, a member is not a co-principal and the employee’s negligence is
not imputed to a member.
Because the employee’s negligence is
not imputed, the member’s suit against the nonprofit association for negligence
by the employee is not subject to the defense of contributory negligence.
Some courts treated large nonprofit
associations as entities for some purposes and so did not impute the negligence
of an employee to a member. Therefore, a
member could recover from the association.
Marshall v. International
Longshoreman’s and Warehouseman’s Union, 57 Cal. 2d 781, 371 p. 2d 987 (1962); Judson A.
Crane, Liability of an Unincorporated
Association for Tortious Injury to a Member, 16 Vand L Rev 319, 323 (1963).
13. Subsection (e) applies the principle in
subsection (a) to reverse the common law rule that a member may not sue the
member’s unincorporated nonprofit association.
A member as co-principal is logically a defendant as well as a plaintiff
in such an action. The logic is that one
may not sue oneself.
Subsection (a) makes an
unincorporated nonprofit a legal entity.
Therefore, a member is separate from the nonprofit association. There is thus no logical obstacle to either
suing the other. A nonprofit association
may, for example, sue a member for delinquent dues. See, for example, Section 6.13 ABA Nonprofit
Corporation Act (1987).
14. The Texas
Supreme Court recently overruled the common law rule and held that a member may
sue the unincorporated nonprofit association of which the person is a
member. Cox v. Thee Evergreen
Church, 836 S.W.2d
167 (Tex. 1992).
The court also overturned the Texas
common law rule that the negligence of an employee is imputed to a member. The court referred to a statute authorizing a
nonprofit association to sue and be sued and other Texas statutes giving entity status for
limited purposes to unincorporated nonprofit associations. It did not, however, rely on them in
overturning the historic common law rule. It simply found the old rule not suitable for
present times. The court also followed
recent developments in other courts.
15.
Section 6 relieves from vicarious
liability not only members but also certain others. Persons who are “authorized to participate in
the management of the affairs of the nonprofit association” are protected. Persons within this group – largely directors
and officers, however denominated – are likely also to be members as defined in
Section 1(1), and protected as such. If
they are not members (i.e. not co-principals) they should not be found liable
at common law. Section 6 extends
protection to this group out of abundant caution. It is possible that a court might misapply
the common law rationale for liability to hold a non-member manager vicariously
liable. Section 6 prevents that somewhat
remote possibility.
Section 6 also extends protection to
a person who is not within the definition of “member” in Section 1(1) but is “considered
to be a member by the nonprofit association.” A person within this clause is
one who does not have the relationship to the nonprofit association that would
permit a finding under the common law that the person is a co-principal. Also the person is not a director, officer,
or manager within the preceding phrase.
That a person not within the two preceding phrases but within the third
phrase might be found vicariously liable seems quite remote. Nevertheless, Section 6 accords this person
protection.
As noted earlier, Section 6 concerns
vicarious liability only. Liability for
one’s own conduct is covered by other law of the enacting jurisdiction.
Derivation: Subsections (a)-(d) – Principles #s 20-23;
Subsection (e) – Principle #25.
Note: Principle #23 covered in Comment.
SECTION 7 8. CAPACITY
TO ASSERT AND DEFEND; STANDING.
(a) A An unincorporated nonprofit association, in
its name, may institute, defend, intervene, or participate in a judicial,
administrative, or other governmental proceeding or in an arbitration,
mediation, or any other form of alternative dispute resolution.
(b) A An
unincorporated
nonprofit association may assert a claim in its name on behalf of its members
if one or more members of the nonprofit association have standing to assert a
claim in their own right, the interests the nonprofit association seeks to
protect are germane to its purposes, and neither the claim asserted nor the
relief requested requires the participation of a member.
Comment
1. Subsection (a) broadly recognizes the right of
a nonprofit association to participate as an entity in judicial,
administrative, and governmental proceedings, and in arbitration and mediation
on behalf of it and its members. It may
sue and be sued. Many States have
enacted statutes granting unincorporated associations these rights. Many have rejected the argument that these
acts made an unincorporated nonprofit association a separate legal entity for
other purposes.
2. Ohio Rev. Code Ann. Section 1745.01 (Baldwin
1991) provides that an unincorporated association may “sue or be sued as an
entity under the name by which it is commonly known and called.” This formulation has an element that
subsection (a) does not have – a description of the association name to be
used. Maryland requires that the unincorporated
association have a “group name.” Md.
Estates & Trust Code Ann. Section 6-406(a) – (1991). As some of the informal nonprofit
associations may not have fixed on a name but need the benefit of the rule,
subsection (a) does not require that it have a name.
3. Subsection (b) describes an association’s
standing to represent the interests of its members in the proceeding. It is the federal standing rule. Hunt v.
Washington
Apple Advertising Commn, 432 U.S. 333, 343, 97 S.
Ct. 2434, 53, L. Ed. 2d 383 (1977). A nonprofit association must meet the three
requirements only if it seeks to represent the interest of its members. If the suit concerns only the nonprofit
association’s interests, subsection (b) does not apply.
4. If participation of individual members is
required, the nonprofit association does not have standing. If the injury for which a claim is made or
the remedy sought is different for different members, their participation
through testimony and presenting other evidence is required. The typical case in which a nonprofit
association has standing is where it seeks only a declaration, injunction, or
some form of prospective relief for injury to its members. Warth v.
Seldin, 422 U.S.
490, 515, 95 S. Ct. 2197, 45 L. Ed. 2d 343
(1975).
5. Subsection (b) does not require the nonprofit
association to show that it suffered harm or has some interest to protect to
have standing to represent the interests of its members. Warth v.
Seldin, 422 U.S.
490, 511 95 S. Ct. 2197, 45 L. Ed. 2d 343
(1975). Some States require an
association to have an interest to protect which is separate from that of its
members. One court found that the
probable loss of members if it did not take action on their behalf was a
sufficient interest to protect to give it standing to represent its
members. This approach certainly
diminishes greatly the burden of satisfying the requirement. States have further modified the old standing
rule. Recently many States have adopted
the three-pronged federal rule, which is the rule in subsection (b).
This
section does not re-state rules of joinder because they will be governed by the
jurisdiction’s other law.
Derivation: Subsection (a) – Principle #13.
SECTION
8 9. EFFECT OF JUDGMENT OR ORDER. A judgment or order against
a nonprofit association is not by itself a judgment or order against a member
or a person authorized to
participate in the management of the affairs of the nonprofit association manager.
Comment
1. This section is consistent with Restatement (Second)
of Judgments, Section 61(2), which provides: “If under applicable law an
unincorporated association is treated as a jural entity distinct from its
members, a judgment for or against the association has the same effects with
respect to the association and its members as a judgment for or against a corporation
. . . .”
2. Section 8 applies not only to judgment but
also to orders, such as an award rendered in arbitration or an injunction.
3. Section 8 reverses the common law rule. Under the common law’s aggregate view of an
unincorporated association, members, as co-principals, were individually liable
for obligations of the association.
4. Some States changed the common law rule by
statute. Ohio, for example, provides that the
property of an unincorporated association is subject to judgment, execution,
and other process and that a money judgment against the association may be “enforced
only against the association as an entity” and not “against a member.” Ohio Rev. Code Ann., Section 1745.02 (Baldwin 1991).
5. That a judgment against a nonprofit
association is also not a judgment against one authorized to manage the affairs
of the association recognizes fully the entity status of a nonprofit
association.
6. An obvious corollary of this section is that a
judgment against a nonprofit association may not be satisfied against a member
unless there is also a judgment against the member.
Derivation: Principles #s 16 and
19.
SECTION 9. DISPOSITION OF PERSONAL PROPERTY OF INACTIVE
NONPROFIT ASSOCIATION. If a nonprofit association has
been inactive for [three] years, or for a longer or shorter period specified in
a document of the association, a person in possession or control of personal
property of the association may transfer custody of the property:
(1) if a document of a nonprofit association
specifies a person to whom transfer is to be made under these circumstances, to
that person; or
(2) if no person is so specified, to a nonprofit
association or nonprofit corporation pursuing broadly similar purposes, or to a
government or governmental subdivision, agency, or instrumentality.
Comment
1. Section 9 is
not a dissolution rule. An inactive
nonprofit association may not be one that has dissolved. It may have just stopped functioning and have
taken no formal steps to dissolve. It
might possibly be revived.
Section 9 gives a person
in possession or control of personal property of a nonprofit association an
opportunity to be relieved of responsibility for it. Compliance with the section provides a safe
harbor.
2. “Inactive” is
not defined. A nonprofit association
that has accomplished its purpose, such as seeking approval in a school bond
election, is very likely inactive. A
nonprofit association that has stopped pursuing its purposes, collecting dues,
holding elections of officers and board members, and conducting meetings, and
has no employees would seem to be inactive.
“Inactive” does not describe a nonprofit association
whose sole purpose is to act should a specific problem arise. That there has been no activity because the
problem has not arisen does not make the standby organization “inactive.”
A three year period of inactivity is suggested. It is unlikely that a nonprofit association
that has been inactive for that period will begin functioning again. Thus, it is prudent to transfer custody of
its assets to someone likely to make appropriate use of them. While it is unlikely that a nonprofit
association would deal with this issue, if its document does provide a shorter
or longer period, that period governs.
3.
Section 9 applies only to personal property – tangible and
intangible. Unclaimed property acts also
apply to both kinds of personal property.
All States have some form of unclaimed property act. Therefore, the relationship of these acts to
this Act must be examined.
The Uniform Unclaimed Property Act (1995) applies to
certain intangible and tangible personal property. If the property has been unclaimed by the
owner for five or more years it is presumed abandoned. Intangible property, such as checking and
savings accounts and uncollected dividends, is the main concern of these
Acts. The obligor, such as a bank or
other financial institution and corporation, is directed to report and turn
over the property to the state administrator.
The only tangible personal property to which the Uniform
Unclaimed Property Act (1995) applies, according to Section 3, is that in “a
safe deposit box or any other safekeeping repository.” Many States have additional statutes that
apply to property abandoned in airport, bus, and railroad lockers and the
like. Tangible personal property of an
inactive nonprofit association in the control or possession of a member or
other person is not likely to be in these places. Therefore, overlap of this Act with the other
state acts with respect to tangible personal property is likely to be very
limited.
Property of an inactive nonprofit association is likely
to be in the possession or control of a former member, board member, officer,
or employee. Especially with respect to
intangible property, their relation to the property is unlike that of those
regulated by the unclaimed property acts.
They are custodians or fiduciaries and not obligors. Those upon whom duties are imposed by the
unclaimed property acts are obligors on such intangible property as bank
accounts, money orders, life insurance policies, and utility deposits. The person acting under Section 9 is very
unlikely to be in the position of an obligor on such intangible property. In summary, there appears to be limited
overlap.
Other special statutes may apply, such as laws governing
unexpended campaign funds. Texas, for example,
permits a person to retain political contributions for six years after the
person is no longer an office-holder or candidate. It gives the person six choices of
transferees, including a “recognized tax exempt charitable organization formed
for educational, religious or scientific purposes.” Tex. Code Ann. Elections Section 251.012(d)
and (e) (Vernon’s
1986). Minnesota provides that if an unincorporated
religious society “ceases to exist or to maintain its organization” title to
its real and personal property vests in the “next higher governing or
supervisory” body of the same denomination.
Minn.
Stat. Ann. Section 315.37 (West 1992).
4.
It is the custody of and not the title to the property that is
transferred. To whatever purpose the
property was dedicated while in the hands of the transferor, it remains so
dedicated in the hands of the transferee.
Identification of the persons to whom the property may be transferred
and cy pres principles recognize that the purpose to which the transferee may
put the property need not be precisely that to which it was initially
dedicated. For example, the initial
purpose may no longer be viable.
5.
Section 9 does not address what should be done with real property of an
inactive nonprofit association. This
seems justified. A nonprofit association
owning real property of significant value is unlikely to become inactive. In the rare case that it does, the assistance
of a court may be obtained in making appropriate disposition of the real
property, primarily to ensure good title.
6.
To obtain a Section 501(c)(3) tax classification as a nonprofit
association an association must specify a distribution of assets on dissolution
that satisfies the Internal Revenue Code.
To avoid the interpretation that Section 9 might be construed to
override an approved distribution provision in an association’s governing
document the primacy of that distribution provision is expressly recognized in
paragraph (1).
7.
If there is no bylaw or other controlling document the person may
transfer the custody of the personal property to another nonprofit organization
or a government or governmental entity.
The nonprofit organization need not have the same nonprofit purpose as
the inactive one. It is enough that the
transferee’s purpose is “broadly similar.” This requirement should not be construed
narrowly. Otherwise, the risk of
potential litigation over the transferor’s choice will frustrate the section’s
purpose to provide a safe harbor.
There is no limitation with respect to the choice of a
government or governmental entity.
8.
Inasmuch as the transfer is made without consideration and the
association almost certainly rendered insolvent, creditors of a nonprofit
association would be protected by the Uniform Fraudulent Transfer Act Sections
4(a) and 5 and similar statutes. Whether
they would also be protected if the transfer is made to the administrator of an
unclaimed property statute depends on the terms of a jurisdiction’s act. Uniform Unclaimed Property Act (1981)
Sections 20 and 24 contemplate that a creditor may proceed against property in
the hands of the administrator if the creditor claims an interest in the
property, such as a security interest or judgment lien. It is less clear that Section 15 of the 1995
Act recognizes this action. However, a
general creditor without some claim against the property would not be
protected. It is unlikely that an
inactive nonprofit association would have both unpaid creditors and a
significant amount of property.
Therefore, the two issues discussed above are unlikely to arise.
9.
The person in possession or control is not required to give notice of
the proposed transfer to anyone. An
examination of to whom notice might reasonably be given reveals the difficulty
with such a requirement. Almost by
definition an inactive nonprofit association has no current members.
(a) A
nonprofit association may file in the office of the [Secretary of State] a
statement appointing an agent authorized to receive service of process.
(b) A
statement appointing an agent must set forth:
(1)
the name of the nonprofit association;
(2)
the federal tax identification number, if any, of the nonprofit association;
(3)
the address in this State, including the street address, if any, of the
nonprofit association, or, if the nonprofit association does not have an
address in this State, its address out of State; and
(4)
the name of the person in this State authorized to receive service of process
and the person’s address, including the street address, in this State.
(c) A
statement appointing an agent must be signed and [acknowledged] [sworn to] by a
person authorized to manage the affairs of the nonprofit association. The statement must also be signed and
acknowledged by the person appointed agent, who thereby accepts the
appointment. The appointed agent may
resign by filing a resignation in the office of the [Secretary of State] and
giving notice to the nonprofit association.
(d) A
filing officer may collect a fee for filing a statement appointing an agent to
receive service of process, an amendment, a cancellation, or a resignation in
the amount charged for filing similar documents.
(e) An
amendment to or cancellation of a statement appointing an agent to receive service
of process must meet the requirements for execution of an original
statement.
Comment
1. This section authorizes but does not require a
nonprofit association to file a statement authorizing an agent to receive
service of process. It is, of course,
not the equivalent of filing articles of incorporation. However, some nonprofit associations may find
it prudent to file. Filing may assure
that the nonprofit association’s leadership gets prompt notice of any lawsuit
filed against it. Also, depending upon
the jurisdiction’s other laws, filing gives some public notice of the nonprofit
association’s existence and address.
2. Central filing with a state official is
provided. This is where parties will
seek information of this kind and where this is commonly publicly filed.
3. The format of this section is very much like
Section 5, which concerns a statement of authority with respect to
property. Because one requires local and
other central filing they are not combined.
section 11. CLAIM NOT ABATED BY
CHANGE. A [claim for relief] against a an incorporated nonprofit association does not abate merely because of a
change in its members or persons
authorized to manage the affairs of the nonprofit association managers.
Comment
This provision reverses the common
law rule of partnerships, which courts often extended to unincorporated
nonprofit associations. Uniform
Partnership Act (1994) Sections 29 and 31(4).
This Act’s entity approach requires this change of the old common law
rule. Similar provisions are found in
many state statutes. See, for example,
Ohio Rev. Code Ann., Corporations, Section 1745.04 (Baldwin 1991); Md. Ann.
Code art. 6-406(a)(2); and 12 Vt.
Stat. Ann. Section 815 (Equity Pub. 1973).
Uniform Partnership Act (1994) adopts an entity approach and so changes
the old rule. See Sections 603(a) 701,
and 801 of 1994 Act.
Derivation: Principle #14.
[section 12. VENUE. For purposes of
venue, a nonprofit association is a resident of the [city or] county in which
it has an office.]
Comment
1. Venue, unlike service of process, is treated
by statute. See for example Mont. Code
Ann. Section 25-2-118(1) (1991); 28 USCA 1391.
A criterion used by all States for fixing venue is the county of
residence of the defendant. Most States
specify as many as eight additional grounds for venue, including the county in
which the real estate that is the subject of the suit is situated and the
county in which the act causing, in whole or in part, the personal injury or
other tort occurred. None of these
additional criteria present a special problem with respect to an unincorporated
nonprofit association.
2. If an aggregate view of a nonprofit
association were taken, the association is resident in any county in which a
member resides. See Wright, Miller,
& Cooper, 15 Federal Procedure &
Practice 3812 (1986). Conforming to
the entity view of an association, Section 12 rejects the common law view.
This section is bracketed because
some States have already satisfactorily solved this problem.
States have by statute modified the
common law rule. Illinois, for example, provides that “a
voluntary unincorporated association sued in its own name is a resident of any
county in which it has an office or if on due inquiry no office can be found,
in which any officer resides.” Ill.
Code Civ. Prac. Section 2-102(c).
3. Section 12 makes a nonprofit association a
resident of any county (or city) in which it has an office. If it has an office in five counties, for
example, it may be sued in any of the five counties.
4. “City,” in brackets, is for use by those
States, such as Virginia,
in which there is territory that is not in a county but in a city only.
Derivation: Principle #17.
section 13. SUMMONS AND
COMPLAINT; SERVICE ON WHOM. In an action or proceeding against a
nonprofit association a summons and complaint must be served on an agent
authorized by appointment to receive service of process, an officer, managing
or general agent, or a person authorized to participate in the management of
its affairs. If none of them can be
served, service may be made on a member.]
Comment
1. In most States the law with respect to service
of process is in court rules. Where that
is the case, this section, if adopted, should be placed in these rules.
2. Some States have expressly addressed service
of process on a nonprofit association.
Those States may wish to continue their rules and so should not adopt
this section. For this reason this
section is bracketed.
Section 13
adapts Rule 4 of the Federal Rules of Civil Procedure to this setting. However, it leaves to other applicable law
details concerning service, such as who may make service and the kind of the
mailing. It specifies only to or on whom
the service of process must be addressed.
By rule or
statute all jurisdictions have extensive law on service of process. The real question for nonprofit associations
is which set of these rules should apply.
This Act treats a nonprofit unincorporated association as a legal entity. Thus, the rules applicable to another legal
entity, the corporation, seem most appropriate.
Derivation: Principle #17.
(a) A
member of an unincorporated nonprofit association is not an agent of the
association solely by reason of being a member.
(b) A
person’s status as a member of an unincorporated nonprofit association does not
prevent or restrict law other than this [Act] from imposing liability on the
association because of the person’s conduct.
Comment
Derivation: Principle #27 and
ULLCA (2006) Section 301.
(a) Except
as otherwise provided in its governing principles the members of an
unincorporated nonprofit association shall have the right to:
(1) admit,
suspend, dismiss or expel members;
(2) select
and dismiss managers;
(3) adopt
and amend governing principles;
(4) sell,
lease, exchange, or otherwise dispose of all, or substantially all of the
unincorporated nonprofit association’s property, outside the ordinary course of
its activities;
(5) approve
a merger or conversion under [Article ___];
(6) undertake
any other act outside the ordinary course of its unincorporated nonprofit
association’s activities;
(7) determine
the policy and purposes of the association; and
(8) any
other act or right requiring action by members in the unincorporated nonprofit
association’s governing principles.
(b) All
matters to that are reserved for the member’s decision under Subsection (a)
shall be decided by a majority vote of the members, unless the unincorporated
nonprofit association’s governing principles otherwise provide.
Comment
Derivation: Principle #26.
(a) A
person becomes a member of an unincorporated nonprofit association and can be
suspended, dismissed or expelled in accordance with the unincorporated
nonprofit association’s governing principles.
In the absence of applicable governing principles, a person can become a
member or be suspended, dismissed or expelled from an unincorporated nonprofit
association by a majority vote of its members.
A person may not be admitted as a member without the person’s
consent.
(b) The
suspension, dismissed or expulsion of a member does not relieve the member from
any unpaid capital contributions, dues, assessments, fees or any other
obligation incurred or commitment made by the member prior to the suspension,
dismissal or expulsion.
Comment
Derivation: Principle #35.
(a) A
member may resign from membership in an unincorporated nonprofit association in
accordance with the unincorporated nonprofit association’s governing
principles. In the absence of applicable
governing principles, a member may resign at any time.
(b) The
resignation of a member does not relieve the member from any unpaid capital
contributions, dues, assessments, fees or any other obligation incurred or
commitment made by the member prior to resignation.
Comment
Derivation: Principle #36.
section
18. TRANSFER OF MEMBERSHIP INTEREST
PROHIBITED. Except as otherwise
provided in the unincorporated nonprofit association’s governing principles, a
member may not transfer the member’s membership interest or any right thereunder
to another person.
Comment
Derivation: Principle #37.
(a) The
members of an unincorporated nonprofit association select the association’s
managers in accordance with Section [16]. If no managers have been selected, all the
members shall be deemed to be the managers.
(b) Except
as otherwise provided in this [act] or an unincorporated nonprofit association’s
governing principles,
(1) each
manager has equal rights in the management and conduct of the association’s
activities;
(2) all
matters relating to the association’s activities shall be decided by its
managers; and
(3) a
difference arising among managers shall be decided by a majority of the
managers.
Comment
Derivation: Principles #s 28 and
29.
(a) A
manager of an unincorporated nonprofit association shall perform the management
responsibilities of the association in good faith, in a manner the manager
believes to be in the best interests of the association, and with such care,
including reasonable inquiry, as an ordinarily prudent person would reasonably
exercise in a like position and under similar circumstances. In discharging these duties, a manager may
rely in good faith upon opinions, reports, statements, or other information
provided by another person that the manager reasonably believes is a competent
and reliable source for the information.
(b) A
manager who makes a business judgment in good faith satisfies the duties
specified in Subsection (a) if the manager:
(1) is
not interested, directly or indirectly, in the subject of the business judgment
and is otherwise able to exercise independent judgment;
(2) is
informed with respect to the subject of the business judgment to the extent the
manger reasonably believes to be appropriate under the circumstances; and
(3) reasonably
believes that the business judgment is in the best interests of the
unincorporated nonprofit association in light of its stated purposes.
Comment
Note: This section as presently worded does not
cover limitations on liability, e.g.,
elimination of monetary damages or reduction of the duties of loyalty and due
care that seem to be contemplated by Principle #33.
Derivation: Principles #s 31 and
33.
section
21. NOTICE AND QUORUM REQUIREMENTS. Notice and quorum requirements for meetings or members and managers are
determined by the unincorporated nonprofit association’s governing principles.
Comment
Derivation: Principle #30.
(a) On
reasonable notice, a member or manager of an unincorporated nonprofit
association may inspect and copy during regular business hours, at a reasonable
location specified by the association, any record maintained by the company
regarding the association’s activities, financial condition, and other
circumstances, to the extent the information is material to the member’s or
manager’s rights and duties under the association’s governing principles of
this [Act].
(b) An
unincorporated nonprofit association shall furnish each member or manager:
(1) Without
demand, any information concerning the association’s activities, financial
condition, and other circumstances which the association knows and is material
to the proper exercise of the member’s or manager’s rights and duties under the
association’s governing principles; and
(2) On
demand, any other information concerning the association’s activities,
financial condition, any other circumstances which are material to the proper
exercise of the member’s or manager’s right and duties under the association’s
governing principles, except to the extent the demand or information demanded
is unreasonable or otherwise improper under the circumstances.
(c) An
unincorporated nonprofit association may impose reasonable restrictions on
access to and use of information to be furnished under this section, including
designating the information confidential and imposing nondisclosure and
safeguarding obligations on the recipient.
Comment
Derivation: Principle #32 and
ULLCA (2006) Section 410.
(a) Except
as otherwise provided in Subsection (b), an unincorporated nonprofit
association shall not pay dividends or distribute any part of its income or
profits to its members or managers.
(b) An
unincorporated nonprofit association may:
(i) pay
reasonable compensation or reimburse reasonable expenses to its members or
managers for services rendered;
(ii) confer
benefits upon or make contributions to its members or managers in conformity
with its nonprofit purposes;
(iii) repurchase
its memberships and repay any capital contributions made by its members to the
extent authorized by its governing principles; and
(iv) make
distributions of property to members upon winding up and termination as
permitted by Section [25].
Comment
Derivation: Principle #5 and
Sections 6.40 and 6.41 of the Proposed Model Nonprofit Corporation Act-Third
Edition (February 2006 Exposure Draft).
(a) An
unincorporated nonprofit association shall reimburse a member or manager for
any payment made and indemnify a member or manager for any debt, obligation, or
other liability incurred in the course of the member or manager’s activities on
behalf of the association. To be
entitled to indemnification, a manager must have complied with the duties
stated in Section [20].
(b) If a
person is made or threatened to be made a party in a proceeding based on
malfeasance or misfeasance in conducting the affairs of an unincorporated
nonprofit association, that person is entitled, upon written request to the
association, to payment of or reimbursement by the association, of reasonable
expenses, including attorneys fees and disbursements, incurred by that person
in advance of the final disposition of the proceeding. To be entitled to these payments or advances,
the person making the request must make a written affirmation that the person
has a good faith belief that the criteria for indemnification in Subsection (a)
have been satisfied and that the person will repay the amounts paid or
reimbursed if it is determined that the criteria for reimbursement have not
been satisfied.
Comment
Derivation: Principle #34.
(a) An
unincorporated nonprofit association may be dissolved by any of the following
methods:
(1) If
the governing principles of the association provide a method for dissolution,
by that method.
(2) If
the governing principles of the association do not provide a method for
dissolution, by the affirmative vote of a majority of the members.
(3) If
the unincorporated nonprofit association’s operations have been discontinued
for at least three years by the managers or, if the unincorporated nonprofit
association has no incumbent managers, by its last preceding incumbent
managers.
(4) If
the unincorporated nonprofit association’s operations have been discontinued,
by court order.
Comment
The vote required
for dissolution would be a majority vote of the members, unless the governing
principles require a higher vote. See Principle #26. Subsections (c) and (d) are only applicable
if the unincorporated nonprofit association is inactive.
Derivation: Principle #38,
Calif. Corp. Code § 18410.
(a) Winding
up and termination of an unincorporated nonprofit association must proceed as
follows:
(1) All
known debts and liabilities must be paid or adequately provided for;
(2) Any
assets subject to a condition requiring return to the person designated by the
donor must be transferred to that person;
(3) Any
assets subject to a trust (e.g.,
endowment or restricted gifts) must be distributed in accordance with the trust
agreement; and
(4) Any
remaining assets must be distributed as follows:
(i) As
required by other law that requires assets of a nontaxable unincorporated
nonprofit association to be distributed to another nontaxable unincorporated
nonprofit association with similar purposes;
(ii) In
accordance with the unincorporated nonprofit association’s governing
principles; and in the absence of applicable governing principles, to the
current members of the association per capita or as the current members direct;
or
(iii) If
neither (i) nor (ii) apply, the net assets will escheat to the enacting
jurisdiction by the means generally provided for escheat of property in the
enacting jurisdiction’s law.
Comment
Derivation: Principle #39.
Section
27. MERGERS AND CONVERSIONS. Use ULLCA (2006) Sections 1001-1009 as pattern, with
following modifications (a) majority vs. unanimous vote for approval by an
unincorporated nonprofit association and (b) no filing with Secretary of State is
required if all the merging entities are unincorporated nonprofit
associations.
Comment
Derivation: Principle #40.
section 14 28. UNIFORMITY OF
APPLICATION AND CONSTRUCTION. This [Act] shall be applied and construed to
effectuate its general purpose to make uniform the law with respect to the
subject of this [Act] among States enacting it.
section
15 29. SHORT TITLE. This [Act] may be
cited as the Uniform Unincorporated Nonprofit Association Act (1996).
section
16 30. SEVERABILITY CLAUSE. If any provision of
this [Act] or its application to any person or circumstance is held invalid,
the invalidity does not affect any other provisions or applications of this
[Act] which can be given effect without the invalid provision or application, and
to this end the provisions of this [Act] are severable.
section
17 31. EFFECTIVE DATE. This [Act] takes effect ......................._________________.
Comment
This Act provides an unincorporated,
nonprofit association and its members with a legal structure that conforms to
the expectations of many of them.
Therefore, the need by the nonprofit
association for additional time to revise procedures and forms to conform to a
significant change in the law is not necessary.
However, this Act materially affects third parties, particularly
creditors of nonprofit associations.
Anecdotal evidence suggests that many creditors place little reliance on
their rights against members in extending credit. If they have any reservations about the
creditworthiness of a nonprofit association they obtain guarantees from
creditworthy members or insist on cash.
To the extent that this is true, no change in credit policies is needed
and so no extra planning time is needed.
Unless a jurisdiction’s usual effective
date rule provides little time for affected parties to learn of a new law, it
is unnecessary to extend this Act’s effective date.
section
18 32. REPEALS. The following acts and
parts of acts are repealed:
_________________________
_________________________
The
following acts and parts of acts are not repealed:
_________________________
_________________________
This
[Act] replaces existing law with respect to matters covered by this [Act] but
does not affect other law respecting nonprofit associations.
Comment
This Act is not a comprehensive
revision of the law of unincorporated nonprofit associations. It is, however, designed to apply to all
unincorporated nonprofit associations to the extent of its coverage.
Many States have a patchwork of law
relating to these associations. Some
laws apply to a specific kind of association, such as a denominational church
or medical society. See, for example,
California Corporations Code, Title 3, Unincorporated Associations, Section
21200 (West 1991) (County and Regional Medical Societies); Minn. Stat. Ann.
Section 315.01 et seq. (West 1992) (religion societies). Other law deals with a very specific
subjects, such as legal protection of an association’s insignia. Some go beyond a subject’s treatment in this
Act, such as the recently enacted charitable immunity and liability acts that
relieve individuals acting for an association from liability for simple
negligence.
In preparing a bill for the
enactment of this Act careful attention should be given to determining the
appropriate relationship of this Act to existing statutes. It may be wise to repeal expressly certain
laws and to specify that certain others are not repealed. While it is unusual to include a provision
that certain statutes are not repealed, doing so in this situation will relieve
courts of difficult questions of repeal by implication.
section
33. SAVINGS CLAUSE. This
[Act] does not affect an action or proceeding commenced or right accrued before
this [Act] takes effect.
Comment
1. Section 20 is adapted from Uniform Partnership Act (1994) Section
1006(c). It continues the prior law
after the effective date of this Act with respect to a (i) “right accrued” and
(ii) pending “action or proceeding.” But
for this section the new law of this Act would displace the old in some
circumstances. The power of a new act to
displace the old statute with respect to conduct occurring before the new act’s
enactment is substantial. Millard H.
Ruud, The Savings Clause – Some Problems
in Construction and Drafting, 33 Tex.
L. Rev. 285, 286-293 (1955). A court
generally applies the law that exists at the time it acts.
2. Almost all States have
general savings statutes, usually as a part of their statutory construction
acts. These are often very broad. See, for example, Model Statutory
Construction Act, Section 53. As this
Act is remedial, the more limited savings provisions in Section 20 are more appropriate
than the broad savings provisions of the usual general savings clause. Section 20 and not a jurisdiction’s general
savings clause applies to the Act.
3. “Right Accrued.” It is not always clear whether an alleged
right has “accrued.” Some courts have
interpreted the phrase to mean that a “matured cause of action or legal
authority to demand redress” exists. Estates of Hoover v. Iowa Dept. of Social Services, 299 Iowa 702, 251 N.W. 2d 529 (1977). In Nielsen
v. State of Wisconsin, 258 Wis. 1110, 141 N.W. 2d 194 (1966), a landowner
brought suit after the repeal of an act granting a landowner the right to
recover from the State for damages to her land caused by the State’s failure to
install necessary culverts and the like to prevent flooding. Before the act’s repeal the landowner’s land
had been damaged by flooding caused by the State’s failures. The court held that the statutory saving of “rights
of action accrued” saved her cause of action.
In both of these cases, conduct that gave rise to a cause of action had
occurred before the act was repealed. It
is said that it is not enough that there is an inchoate right.
Apparently, there
is no “accrued right” under a contract, for example, until there is a
breach.
4. “Action or Proceeding”
Pending. The principal question is what
is an “action or proceeding” for this purpose.
“Action” refers to a judicial proceeding. “Proceeding” alone, especially when used with
“action,” is broader and so includes administrative and other governmental
proceedings. It has been given the
broader meaning. For example, in State ex rel. Carmean v. Board of Education
of Hardin County, 170 Ohio 2d 415, 165 N.E. 2d 918 (1960) a petition to
transfer certain land from one school district to another filed before a change
in the law was a “pending proceeding” to be decided under the old law. Similarly, a request for permission to
petition for an election to consolidate school districts was held to be a “proceeding
commenced” so that the substance and procedure of the old law, which was
materially different from the new, was preserved. Grant
v. Norris, 249 Iowa
236, 85 N.W. 2d 261 (1957).
5. Uniform Partnership Act
(1994) provides that the Act does not “impair obligations of contract existing.” This is not carried forward. This phrase is intended to save only
obligations protected by the contracts clauses of state and federal
constitutions. However, as it might be
construed more broadly and the constitution would protect without the phrase,
the phrase is not present in Section 20.
Derivation:
Principle #15.
section 19 34. [TRANSITION
CONCERNING REAL AND PERSONAL PROPERTY.
Alternative 1
If, before
the effective date of this [Act], an estate or interest in real or personal
property was by terms of the transfer purportedly transferred to a nonprofit
association but under the law the estate or interest did not vest in the
nonprofit association, on the effective date of this [Act] the estate or
interest vests in the nonprofit association, unless the parties have treated
the transfer as ineffective.
Alternative 2
If, before
the effective date of this [Act], an estate or interest in real or personal
property was by terms of the transfer purportedly transferred to a nonprofit
association but under the law the estate or interest was vested in a fiduciary,
such as officers of the nonprofit association, to hold the estate or interest
for members of the nonprofit association, on or after the effective date of
this [Act] the fiduciary may transfer the estate or interest to the nonprofit
association in its name, or the nonprofit association may, by appropriate
proceedings, require that the estate or interest be transferred to it in its
name.]
End of Alternatives
Comment
1. Two versions of Section 19 are offered. The initial common law rule was that a
purported transfer of property to an unincorporated nonprofit association
totally failed as the association was not a legal entity. If a State has that rule, it should adopt the
first alternative. If, on the other
hand, its rule is that title does not pass to the association in its name but
passes instead to a fiduciary, such as its officers, to hold the property for
the benefit of the members, a State should adopt the second alternative.
If a State has by statute made
transfers effective to some classes of nonprofit associations but not all, it
should adopt the appropriate alternative to those not covered. If a State has made all transfers to all
unincorporated nonprofit associations effective, it does not need Section 19.
2.
Section 19 brings to fruition the
parties’ expectations that previous law frustrated. Inasmuch as the common law did not consider
an unincorporated nonprofit association to be a legal entity, it could not
acquire property. A gift of real or
personal property thus failed. Reference
to the transfer as “purportedly” made identifies the document of transfer as
one not effective under the law. The
first alternative gives effect to the gift.
However, if parties were informed about the common law they may have
treated the gift as ineffective. In that
case, the final clause of Alternative 1 provides that the gift does not become
effective when this Act takes effect.
The unless clause would apply, for example, if the residual
beneficiaries of the donor’s will, knowing that the devise of Blackacre to the
nonprofit association was ineffective under the law, continued to use Blackacre
as their summer home with the approval and acquiescence of members and
representatives of the nonprofit association.
3. Section 19 is not a retroactive rule. It applies to the facts existing when this
Act takes effect. At that time
Alternative 1 applies to a purported transfer of property that under the law of
the jurisdiction that could not be given effect at the time it was made. The first alternative belatedly makes it
effective – effective when this Act takes effect and not when made. The practical result of this difference is
that when the purported transfer is effective, the transfer is subject to
interests in the property that came into being in the interim. The nonprofit association’s interest is
subject, for example, to a tax or judgment lien that became effective in the
interim. An intervening transfer by the
initial transferor may simply be evidence that the “parties had treated the
transfer as ineffective.” If so,
Alternative 1 by its terms does not vest ownership in the nonprofit
association.
4. Some courts gave effect to gift of property to
an unincorporated nonprofit association by determining that the gift lodged
title in someone, often officers of the association, to hold the property in
trust for the benefit of the association’s members. The second alternative addresses this
situation. When the Act takes effect it
authorizes the fiduciary to transfer the property to the association. If the fiduciary is unwilling or reluctant,
the association may require the fiduciary to transfer the property to the
association. In either case, the
association will get a deed transferring the property to it which, in the case
of real property, the association may record.
5.
Jurisdictions that have a statute like New York’s concerning
grants of property by will have a problem that needs special attention. The New
York statute provides that a grant by will of real or
personal property to an unincorporated association is effective only if the
association incorporates within three years after probate of the will. McKinney’s
N.Y. Estates, Powers & Trust Law Section 3-1.3 (1991). The grants by will that need attention are
those that have not become effective by incorporation of the association and
have not become ineffective by the running of the three year period. These grants seem entitled to the benefits of
Section 19. If so, some modification of
Section 19 may be required.
SECTION
20. SAVINGS CLAUSE. This [Act] does not affect an action or
proceeding commenced or right accrued before this [Act] takes effect.
Comment
1. Section 20 is
adapted from Uniform Partnership Act (1994) Section 1006(c). It continues the prior law after the
effective date of this Act with respect to a (i) “right accrued” and (ii)
pending “action or proceeding.” But for
this section the new law of this Act would displace the old in some
circumstances. The power of a new act to
displace the old statute with respect to conduct occurring before the new act’s
enactment is substantial. Millard H.
Ruud, The Savings Clause – Some Problems
in Construction and Drafting, 33 Tex. L. Rev. 285, 286-293 (1955). A court generally applies the law that exists
at the time it acts.
2. Almost all
States have general savings statutes, usually as a part of their statutory
construction acts. These are often very
broad. See, for example, Model Statutory
Construction Act, Section 53. As this
Act is remedial, the more limited savings provisions in Section 20 are more
appropriate than the broad savings provisions of the usual general savings
clause. Section 20 and not a
jurisdiction’s general savings clause applies to the Act.
3. “Right Accrued.” It is not always clear whether an alleged
right has “accrued.” Some courts have
interpreted the phrase to mean that a “matured cause of action or legal
authority to demand redress” exists. Estates of Hoover v. Iowa Dept. of Social
Services, 299 Iowa 702, 251 N.W. 2d 529 (1977). In Nielsen
v. State of Wisconsin, 258 Wis. 1110, 141 N.W. 2d 194 (1966), a landowner
brought suit after the repeal of an act granting a landowner the right to
recover from the State for damages to her land caused by the State’s failure to
install necessary culverts and the like to prevent flooding. Before the act’s repeal the landowner’s land
had been damaged by flooding caused by the State’s failures. The court held that the statutory saving of “rights
of action accrued” saved her cause of action.
In both of these cases, conduct that gave rise to a cause of action had
occurred before the act was repealed. It
is said that it is not enough that there is an inchoate right.
Apparently, there is no “accrued
right” under a contract, for example, until there is a breach.
4. “Action or Proceeding” Pending. The principal question is what is an “action
or proceeding” for this purpose. “Action”
refers to a judicial proceeding. “Proceeding”
alone, especially when used with “action,” is broader and so includes
administrative and other governmental proceedings. It has been given the broader meaning. For example, in State ex rel. Carmean v. Board of Education of Hardin County, 170
Ohio 2d 415, 165 N.E. 2d 918 (1960) a petition to transfer certain land from
one school district to another filed before a change in the law was a “pending
proceeding” to be decided under the old law.
Similarly, a request for permission to petition for an election to
consolidate school districts was held to be a “proceeding commenced” so that
the substance and procedure of the old law, which was materially different from
the new, was preserved. Grant v. Norris, 249 Iowa 236, 85 N.W. 2d 261 (1957).
5. Uniform
Partnership Act (1994) provides that the Act does not “impair obligations of
contract existing.” This is not carried
forward. This phrase is intended to save
only obligations protected by the contracts clauses of state and federal
constitutions. However, as it might be
construed more broadly and the constitution would protect without the phrase,
the phrase is not present in Section 20.
