Church Bound to Financial Secretary’s Misrepresentation

Church argued it had no knowledge of secretary’s acts.

Christian Methodist Episcopal Church v. S & S Construction Company, Inc., 615 So.2d 568 (Miss. 1993)

Key point: A church can be legally bound by the misrepresentations of one of its officers so long as the officer was acting within the scope of his or her authority, even if the church had no knowledge of the misrepresentation and did not benefit from it.

The Mississippi Supreme Court ruled that a church was legally bound by the misrepresentation of its financial secretary.

The church signed a contract with a local contractor for the construction of a building at a cost of $1.2 million. From the start, payments under the contract were late. The contractor eventually informed the church that construction would be stopped until payments were brought up to date and the church placed in escrow sufficient monies to pay the balance of the contract. The church brought payments up to date, and then the church's financial secretary provided the contractor with a letter stating that the church had placed monies in escrow sufficient to pay the balance of the contract.

On the basis of this representation, the contractor resumed construction and continued to work until it was informed that no further funds were available. The contractor sued the church for the balance due on the contract (nearly $500,000), claiming that the financial secretary's letter was false and fraudulent, that the financial secretary was an agent of the church, and that the church was responsible for its agent's acts.

The trial court agreed with the contractor and the case was appealed. The state supreme court affirmed the trial court's decision in favor of the contractor. The church insisted that it had not been aware of its financial secretary's letter, that it did not condone fraud, and that it was an "innocent party." While it acknowledged that the financial secretary was an agent of the church, it claimed that the church could not be responsible for an act of its agent that was unauthorized and contrary to the church's teachings against fraud.

The court did not agree. It noted that a church can be responsible for the unauthorized acts of an agent under the theory of "apparent agency" if the following three conditions are satisfied: (1) actions by the church indicating that the agent has authority, (2) reasonable reliance on those actions, and (3) a detrimental change in position as a result of that reliance.

The court concluded that all three of these conditions were satisfied in this case, and accordingly that the church was liable for the misrepresentations of its financial secretary. As to the first condition (actions by the church indicating that the agent has authority) the court observed: "The conduct of [the church] indicating [the financial secretary's] authority was: naming him secretary of the department of finance, charging him with the duty to write checks for the church, and providing him with church department of finance letterhead. In other words … [the church] clothed him with the indicia of being a person who knows and may make statements on such matters." The second and third conditions clearly was met, since the contractor relied to its detriment on the financial secretary's letter by resuming construction. The court concluded:

[A] principal is liable for the misrepresentations or frauds of his agent so long as the agent was acting within the scope of his authority, even if the principal had no knowledge thereof and did not benefit therefrom ….

Although the financial secretary's assurance that the church had on hand the monies necessary for completion of the construction project was false, the church is bound by his assurance as it was within the s cope of his apparent authority …. The church's argument that it cannot be liable for the assurance made by its financial secretary as it was [beyond his legal authority] is without merit."

This is an important decision that is of direct relevance to every church and denominational agency. It demonstrates that churches can be legally responsible for the acts and representations of their agents so long as they are acting within the scope of their authority. Significantly, that authority may be either actual or apparent. Apparent authority means that the church has held the individual out as the church's agent.

As the court noted, in this case those acts included "naming him secretary of the department of finance, charging him with the duty to write checks for the church, and providing him with church department of finance letterhead." So long as a third party relies on the agent's actual or apparent authority to its detriment, the church can be legally responsible for its agents' acts. This is so even if those acts were not actually authorized.

See also "Personal injuries—on church property or during church activities," Whetstone v. Dixon, 616 So.2d 764 (La. App. 1 Cir. 1993).

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