• Key point.Contract Liability Clergy who sign legal documents in their own name with no indication that they are signing in a representative capacity on behalf of their church may be personally liable on the document.
• Key point.Church Officers, Directors, and Trustees Church board members may be personally liable for contracts they sign if they do so without authorization, or if they fail to indicate that they are signing as a representative of the church.
An Ohio court ruled that a church was bound by a contract modification signed by an associate pastor because he had "apparent authority" to sign the modification. An architect entered into a contract with a church that called for an architect's fee of $30,000 in connection with a construction project. The architect later sent a letter to the church's associate pastor, in which she stated that her fee had increased by $25,000. The associate pastor circled the $25,000 addition, signed the letter, and sent it back to the architect. As a result, the architect claimed that the church owed her $55,000. The church insisted, however, that the associate pastor did not have the authority to sign a contract modification, and therefore it only owed the architect the original fee of $30,000. The architect sued the church for the full amount. The question before the court was whether the associate pastor had the legal authority to bind the church. The trial court ruled in favor of the architect, and the church appealed.
The appeals court acknowledged that the associate pastor did not have "actual" authority to sign a contract modification on behalf of the church. However, it concluded that the associate pastor had "apparent" authority to do so. It explained apparent authority as follows, "[I]n order for a principal to be bound by the acts of his agent under the theory of apparent agency, evidence must affirmatively show: (1) that the principal held the agent out to the public as possessing sufficient authority to embrace the particular act in question, or knowingly permitted him to act as having such authority, and (2) that the person dealing with the agent knew of the facts and acting in good faith had reason to believe and did believe that the agent possessed the necessary authority. The apparent power of an agent is to be determined by the act of the principal and not by the acts of the agent; a principal is responsible for the acts of an agent within his apparent authority only where the principal himself by his acts or conduct has clothed the agent with the appearance of the authority and not where the agent's own conduct has created the apparent authority."