STATE OF SOUTH DAKOTA
OFFICE OF
THE ATTORNEY GENERAL
October 9, 1968
Leo P. Flynn
State's Attorney, Grant County
Milbank, South Dakota 57252
OFFICIAL OPINION NO. 68-34
Voluntary, non-incorporated associations' liability of members for unpaid debts of association
Dear Mr. Flynn:
You have requested my opinion in regard to the following factual situation:
"The Milbank Fire Department is a non-incorporated voluntary association, which in the name of such association hold title to a building and necessary fire trucks and equipment to furnish fire protection for Milbank and surrounding communities. The association has sold its own building and has purchased a new lot and intend to construct a new fire hall. As such association does not have sufficient funds on hand it will be necessary for it to borrow money for such construction. A local bank has agreed to loan the necessary funds for such construction, repayment to be made over a twenty year period. The bank is asking the Fire Chief and the Secretary to sign the loan agreement on behalf of the Milbank Fire Department. While at this time the necessary moneys to repay such loans seems assured, in the future such may not be the case."
Under these facts you have presented this question:
"In the event of default in the Milbank Fire Department in repaying such loan, would the Chief and Secretary have personal liability on the note and loan papers so executed by them for such voluntary association?"
In view of the decision of our court in Schallenkamp v. Stevens, 81 SD 573, 138 NW 2d 657 I have concluded that the Milbank Fire Department, an unincorporated, voluntary association, has authority to purchase and hold real property and enter into an agreement to borrow money in its own name. (Under the old common law rules there would be some question as to this right.)
In Lynn v. Commercial Club of Witten, 31 SD 401, 141 NW 471 our court said:
"It is a general proposition that each member of an unincorporated or voluntary association is liable for the debts thereof incurred during his period of membership, and which had been necessarily contracted for the purpose of carrying out the objects for which the association was formed. But if the debt is contracted entirely beyond the scope of the association, only those members who assent, participate or ratify are liable."
In Robbins Company v. Cook et al, 42 SD 136, 173 NW 445, 7 ALR 218, our court in further amplifying the liability of the members of voluntary, unincorporated corporations stated:
". . . We concede there are two classes of voluntary associations- one where the associations are organized for profit, and the other where the associations are organized without any hope or expectation of profit. But the only difference as regards liability of the members, is that, in associations of the first class, the members are, in legal effect, partners and individually liable for debts contracted in the name of the associations by other members while, in associations of the second class, the liability of the individual members is controlled by the law of agency, and to hold a member liable it must be shown that he actually or constructively assented to or ratified the contract upon which liability is predicated. (Authorities cited.) The authorities are unanimous in holding that, under facts such as this case presents, the defendants would be liable."
It is my opinion that the Milbank Fire Department would qualify as a voluntary association not for profit, and is classified under the second classification of such associations as stated in the Robbins case. In concurrence with the general law, the liability of all members, assenting to or ratifying such contract is joint and several.
Therefore, it is my opinion that there would be liability upon the part of the Chief and the Secretary of such association who signed such agreement. In this connection your attention is called to Medlin v. Ebenezer Methodist Church, 132 SC 498, 129 SE 830 wherein the court held that while a suit upon a note signed on behalf of the Ebenezer Methodist Church by L. C. Chavis, Treasurer, upon nonpayment could be brought against the voluntary, unincorporated association because the liability of the members of such church was joint and several, such action could be maintained against one or more of such church members as individuals. The court pointing out that while as between members of the unincorporated association, each is bound to pay only his numerical proportion of the indebtedness of the association, as against creditors each member is individually liable for the whole debt, provided such is a debt binding upon the association as a whole. The court also pointed out a most interesting facet of the law, and that is that when a member of such voluntary association executed such note on behalf of the association, whether he was authorized to act or not, he was still personally liable (along with the rest of the members, if such was binding upon the entire association) for in the event such was an authorized act, his liability is based upon agency, while in the event such was done without authority, then his liability arises in an action for deceit, together with damages therefor, or the breach of the implied warranty that he had authority to act. In either case the liability is the same, the only difference being in the form of the action.
Your attention is also called to SDC 47.0106 which adopts the theory of contribution in cases of joint and several liability, in our statutory law. The general rule in these cases seemingly being that when one of the members of the unincorporated association is compelled to pay the debt upon which he and other members, together with the association is bound to pay and as the liability for payment of such common obligation on the part of an individual member is to pay his aliquot or proportionate share of such total debt, he has a right to contribution from other members up to their aliquot or proportionate share of such debt. Likewise, it is settled that when a person is entitled to contribution from others, he may enforce his claim for contribution by proceeding against anyone or more of the persons liable to him for their proportionate share, without proceeding against all persons so liable. See Azzolina v. Order of Sons of Italy, 119 Conn. 681, 179 A 201 citing many cases on this proposition.
Your attention is also called to SDC 33.0408 which provides that when two or more persons associated in business transact such business in a common name, such association may be sued in its common name, and the judgment in the action is binding upon the joint property of the associates and the individual property of the party or parties served with process.
To summarize the law as it applies to the factual situation presented, it is my opinion that the following is true:
1. All members of the Milbank Fire Department, a voluntary, unincorporated association, at the time of the execution of the loan agreement, who either assent to or agree with such agreement, are individually, jointly and severally liable for such debt of the voluntary associaton.
2. As between the members of such association, each member is liable only for his aliquot or proportionate share of such debt.
3. If the loan is not repaid, the creditor has the right to sue only the voluntary association-in which case any judgment recovered is collectible only from the property held in the name of such association, and from the individual property of any or all of the members of such association served with process.
4. In case of such judgment, and such is actually collected from one or more of such members of the voluntary association, there is a right of contribution of their aliquot or proportionate share of such association debt from the remaining members who have not contributed towards payment of such obligation of such association.
I trust this will give you and the local fire department guidance in the law applicable to voluntary associations.
Respectfully submitted,
Frank L. Farrar
Attorney General
