2023 Colorado Revised Statutes › Title 7 - CORPORATIONS AND ASSOCIATIONS (§§ 7-1-101 — 7-137-301) › CORPORATIONS (§§ 7-1-101 — 7-52-106) › NONPROFIT CORPORATIONS (§§ 7-20-101 — 7-30-119) › Article 30 - UNIFORM UNINCORPORATED NONPROFIT ASSOCIATION ACT (§§ 7-30-101 — 7-30-119) › Section 7-30-106 - Liability in contract and tort

(1)
A 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.
(2)
A person is not liable for a breach of a nonprofit association's contract 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 is a person considered to be a member by the nonprofit association.
(3)
A person is not liable for a tortious act or omission for which a nonprofit association is liable 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 is a person considered to be a member by the nonprofit association.
(4)
A tortious act or omission of a member or other person for which a 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 is a person considered to be a member by the nonprofit association.
(5)
A member of, or a person considered to be a member by, a nonprofit association may assert a claim against the nonprofit association. A nonprofit association may assert a claim against a member or a person considered to be a member by the nonprofit association.
L. 94: Entire article added, p. 1273, § 1, effective May 22.
OFFICIAL 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) (numbered as subsection (1) in C.R.S.) 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 a member or other person acting for a nonprofit association for their own conduct. With respect to contract and tort Section 6 (numbered as section 7-30-106 in C.R.S.) leaves that to the other law of the jurisdiction enacting this Act.
3. Subsections (b) through (e) (numbered as subsections (2) through (5) in C.R.S.) are applications to common cases of the basic principle in subsection (a) (numbered as subsection (1) in C.R.S.). 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) (numbered as subsection (2) in C.R.S.) specifies that result with respect to contracts.
4. Subsection (b) (numbered as subsection (2) in C.R.S.) applies the principle in subsection (a) (numbered as subsection (1) in C.R.S.) to relieve members and others from vicarious liability for the contracts of a nonprofit association.
5. Subsections (a) and (b) (numbered as subsections (1) and (2) in C.R.S.) 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) (numbered as subsection (2) in C.R.S.) 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) (numbered as subsection (2) in C.R.S.) 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 Corporate Veil
, 66 Marq. L. Rev. 134 (1984). Section 6 (numbered as section 7-30-106 in C.R.S.) 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) (numbered as subsection (3) in C.R.S.) applies the principle in subsection (a) (numbered as subsection (1) in C.R.S.) to relieve members and others from liability for torts for which the nonprofit association is liable. Inasmuch as Section 6 (numbered as section 7-30-106 in C.R.S.) 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) (numbered as subsections (2) and (3) in C.R.S.) 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).
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 (numbered as section 7-30-106 in C.R.S.) 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 (numbered as section 7-30-106 in C.R.S.), 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 948 (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) (numbered as subsection (4) in C.R.S.) applies the principle in subsection (a) (numbered as subsection (1) in C.R.S.) 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 (numbered as section 7-30-106 in C.R.S.), 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) (numbered as subsection (5) in C.R.S.) applies the principle in subsection (a) (numbered as subsection (1) in C.R.S.) 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) (numbered as subsection (1) in C.R.S.) makes an unincorporated nonprofit association 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 (numbered as section 7-30-106 in C.R.S.) 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) (numbered as section
7-30-101(1)
in C.R.S.), 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 (numbered as section 7-30-106 in C.R.S.) 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 (numbered as section 7-30-106 in C.R.S.) prevents that somewhat remote possibility.
Section 6 (numbered as section 7-30-106 in C.R.S.) also extends protection to a person who is not within the definition of "member" in Section 1(1) (numbered as section
7-30-101(1)
in C.R.S.) 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 (numbered as section 7-30-106 in C.R.S.) accords this person protection.
As noted earlier, Section 6 (numbered as section 7-30-106 in C.R.S.) concerns vicarious liability only. Liability for one's own conduct is covered by other law of the enacting jurisdiction.