• 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.”
The court concluded that the assistant pastor had apparent authority to bind the church to a contract modification. It observed,
While the senior pastor testified that the assistant pastor did not have the authority to make any commitment that would bind the church, i.e., that the assistant pastor did not have any actual authority to sign a contract modification, the testimony of the senior pastor, the assistant pastor, and [the architect] supported the trial court’s conclusion of law that the assistant pastor had apparent authority. The senior pastor testified that he was often away from the church because of several other commitments he had, such as holding three day conferences. He said he leaned heavily on the assistant pastor to keep the building project underway. He acknowledged that the assistant pastor and [architect] had several meetings when he was not present to discuss the changes to be made in the building.
The assistant pastor and [the architect] testified that in addition to in-person meetings, they conferred over the phone frequently about changes to make in the architectural plans for the building. The senior pastor acknowledged that he never told the architect that the assistant pastor was not authorized to act as an agent of the church for contract purposes. His testimony also showed that the church continued to make payments to the architect for invoices she sent after the assistant pastor signed the letter. In fact, he testified that the church had actually paid more than the original contract amount of $29,900 before he finally asked his secretary to check their records of the amounts already paid to the architect when the assistant pastor came to him with another invoice, which the church ultimately refused to pay, and which led to this case being filed.
This testimony, taken as a whole, shows that the architect could reasonably believe, based upon the actions of the church and its authorized agent, the senior pastor, that the assistant pastor had authority to sign the modification to the original contract.
Application. This case illustrates a very important point: A church may be legally obligated by contracts entered into without authorization by its pastor if there is a history of the pastor entering into unauthorized contracts that the church honored. Here are some suggestions that will reduce the risk of such problems:
1. Review the church’s organizational documents to determine the authority of the pastor or other officers to unilaterally enter into contracts on behalf of the church. Church leaders should have a clear understanding of such authority.
2. Often, a church’s organizational documents do not give the pastor or any other officer unilateral authority to enter into contracts. This can cause problems in the future, since pastors and officers sometimes assume they are authorized to execute contracts on behalf of the church. When church leaders routinely honor such contracts, the church is in effect investing the pastor with “apparent authority” to enter into unauthorized contracts. Church leaders should periodically caution the pastor and other officers that they have no authority to unilaterally enter into contracts on behalf of the church, and instruct them to seek appropriate approval before entering into any contract.
3. If a pastor or other officer makes an unauthorized purchase of a product or service of substantial cost, church leaders should recognize that the church has no legal obligation to accept the contract if it has not invested the pastor or officer with “apparent authority” by its practice of routinely accepting unauthorized contracts. The church may either repudiate the contract, or ratify it. Repudiation means that the church refuses to accept the purchased product or service. In such a case, the pastor or officer will be personally liable for paying the purchase price. Ratification is an acceptance of the contract by accepting the purchased product or service without objection. If the church accepts the product or service that was acquired by the pastor or officer in an unauthorized transaction, then the church will be legally obligated to honor the contract. Carter v. United Pentecostal Church, 2000 WL 1752760 (Ohio App. 2000).
© Copyright 2001 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: m28 m35 c0601