QUESTION: I have a board that is refusing to pay vendors, including the management company. Is there a Civil Code stating they have an obligation to pay vendors?
ANSWER: There is nothing in the Davis-Stirling Act stating “Boards must pay their vendors.” However, there are plenty of other statutes and legal principals to address nonpayment. The primary one is contract law.
Contract Law. A contract is “an agreement to do or not to do a certain thing.” (Civ. Code §1549.) Assuming contracts (either direct or implied) exist between the association and unpaid vendors, Civil Code sections 1549-1701 apply. If a board refuses to pay vendors, they are in breach of contract.
To win in court, unpaid vendors must prove (i) they entered into a contract with the association, (ii) they performed their duties under the contract, (iii) the association breached the contract, and (iv) the vendor suffered damage. (Richman v. Hartley (2014) 224 Cal.App.4th 1182, 1186.)
Case Law. In a 2005 case, the association was required to levy a special assessment to satisfy a judgment in favor of a vendor after the board refused to pay for work he did for the association. (O’Toole v. Kingsbury Court.)
RECOMMENDATION: If your board does not have any money, they had better plan on a special assessment, reducing expenses, and raising dues.
If it’s not a matter of money but, rather, a dysfunctional board, your vendors should send a letter reminding directors of their contractual obligations and making it clear the matter will be put before a judge if they don’t pay their bills.
Boards don’t like to be sued, especially when know they will lose. Also, insurance carriers will not defend a breach of contract action. That means the board will be defending a losing case out of pocket.
Thank you to attorney Jennie Park for preparing a response to this question.
SECRETARY OF STATE ONLINE
California’s Secretary of State has been expanding available records on its website. You can now view Statements of Information, CID Statements, Articles of Incorporation (described as Registration), and Amendments to Articles online.
If you do a “business search” of your association’s name, you will get results that shows the agent of process for your HOA and a link embedded in your association’s name.
If you click on your association’s name, it will take you to another screen with various documents in a pdf format.
Sometimes it says “Image unavailable. Please request paper copy,” but that may be temporary as they populate the site with documents. If California stays on track, you can view more of your records and print them as needed.