• Key point 4-06. 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 10-14. Churches may be liable on the basis of “ratification” for the unauthorized act of a minister or other church worker if it is aware of the act and voluntarily affirms it.
Contract Liability
* A Michigan court ruled that a city failed to acquire title to church property through a contract of sale and deed authorized by the church board and signed by the pastor because the transaction had not been approved by a parent denomination as required by the church’s bylaws. A city sought to purchase real estate for a redevelopment project from a church that was affiliated with a denomination (the “regional church”). The board of trustees of the local church passed a corporate resolution authorizing their pastor to act on behalf of the corporation in matters concerning the acquisition of the church property by the city. The pastor completed the sale, and signed a warranty deed to the city in his capacity as pastor and chairman of the church. The pastor thereupon absconded with the proceeds of the sale, and the regional church then asked a court to determine the status of the church property. The regional church pointed out that the bylaws of the local church specified that property was held in trust for the regional church, and property could not be sold without the authorization of the regional church’s bishop. Since the bishop had not authorized the sale of the church property to the city, the transaction entered into by the pastor and city was a nullity and the city was not the owner of the property despite the sales contract and its payment of the sales proceeds. The city insisted that it owned the property because of the warranty deed signed by the church’s pastor and the resolution of the church board of directors authorizing him to act on behalf of the corporation in any and all matters concerning the acquisition of church property by the city.
A state appeals court agreed with the regional church’s position, and ruled that the city failed to obtain any legal interest in the church property because the contract of sale and warranty deed were not approved by the regional church’s bishop. It observed,
[State nonprofit corporation law] authorizes ecclesiastical corporations to adopt bylaws determining the degree to which the corporation shall be subject to the control of a higher church body, and the manner and condition under which real and personal property may be acquired, held, and disposed. The local church adopted a bylaw providing that church property may only be disposed of upon approval of the membership, board of trustees, and the jurisdictional bishop. The bylaw also provided that church property is subject to the parent body. The constitution of the parent body provided that property of the local church was held in trust for all members of the church …. The ecclesiastical corporation was allowed by statute to establish bylaws to determine the manner and condition under which it would dispose of property. The city failed to ascertain if the agent it dealt with had the necessary authority to convey the property. The authority of an agent to contract for another must be determined from acts of the principal and cannot be proved by statements of the alleged agent. Where the bylaw required approval of the membership of the church and the jurisdictional bishop, neither the pastor nor the board of trustees had the authority to sell the property.
Application. This case demonstrates the importance of church leaders being familiar with the requirements of their own bylaws with regard to legal transactions, including the sale or purchase of property. Unfamiliarity with these rules can lead to significant complications. Note that the city is free to pursue the pastor both criminally and civilly, and also may be able to recover the purchase price directly from the church itself under the principle of ratification (that is, the church “ratified” the pastor’s unauthorized act by approving it). Church of God in Christ v. City of Lansing, 2002 WL 31955256 (Mich. App. 2002).
© Copyright 2003 by Church Law & Tax Report. All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m21 m34 c0603
