A New York court ruled that a church was legally obligated to pay a contractor for a project he completed at the church at the pastor’s request.

Church Law and Tax2000-05-01


Contract Liability, Church Officers, Directors, and Trustees

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 6-07.02. 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.

A New York court ruled that a church was legally obligated to pay a contractor for a project he completed at the church at the pastor’s request, even though the pastor had no authority to hire the contractor and the church board never approved the project. A contractor sued a church for the cost of labor and services he rendered at the request of the pastor. The church asked the court to dismiss the lawsuit on the ground that its board of trustees neither authorized the work, nor empowered the pastor to authorize the work. As a result, even if an “oral contract” existed between the pastor and contractor, the church was not bound by such a contract and was not liable for a breach. The contractor conceded that the board of trustees never actually authorized the work that he performed. Instead, he claimed that the work was “constructively authorized” by the prior practice and course of conduct of the church. Specifically, the contractor argued that it was the practice of the church to delegate to the pastor the power to authorize minor construction projects, and that he had been paid by the church for work previously performed by him at the request of the pastor. In short, the church’s authorization of the work was demonstrated by its “receipt, without protest, of the substantial benefits of the contractor’s observable work and services upon [its] premises.”

The court noted that it was being asked to decide “the circumstances under which a religious corporation may be bound by the contractual acts of an individual trustee or pastor, and more particularly whether express or written authorization of the board of trustees is required to bind a religious corporation.” The court quoted the following provision from the New York Religious Corporation Law, which sets forth the duties and powers of the trustees of a religious corporation:

The trustees of every religious corporation shall have the custody and control of all the temporalities and property, real and personal, belonging to the corporation and of the revenues therefrom, and shall administer the same in accordance with the discipline, rules and usages of the corporation … for the support and maintenance of the corporation, …. [T]hey may also, in their discretion, delegate and grant to the trustee or custodian designated by them all or any portion of the powers, responsibilities and discretionary authority possessed by them with respect to the retention … of such property or any part thereof.

The court noted that this language generally prohibits individual trustees or officers of a religious corporation from binding the corporation to a contract. Instead, “collective action by the board of trustees as a board is ordinarily necessary to authorize the making of a binding contract or to empower a particular individual to bind a religious corporation.” However, the court noted that “authorization to bind a religious corporation may be implied from the nature of the office of the person who purports to enter into an agreement on behalf of a religious corporation, or from previous similar dealings recognized by the corporation.” Further, since “the facts which may establish the element of authority usually are peculiarly within the knowledge of the religious corporation, only slight evidence of authority need be presented by the plaintiff to shift the burden of proof to the religious corporation to establish the absence of authority to make the contract in question.”

The court concluded:

Here, there is no evidence that the board of trustees of the [church] expressly authorized the alleged contract for plaintiff’s work. Contrary to [the church’s] contention, however, the absence of proof of express authorization is not fatal to plaintiff’s breach of contract claim. A religious corporation also may be liable on a contract between its officers/agents and third parties when it can be shown that the corporation constructively authorized the contract …. In response to [the church’s] motion for summary judgment, plaintiff alleged that he “thought” [the pastor] had the authority to authorize the work which he performed because plaintiff was previously paid by [the church] for work previously performed by him at the sole request of the pastor. Given that course of conduct, plaintiff believed that his current work, likewise performed at the express request of the pastor, was similarly authorized, especially since [the pastor] was also a trustee of the board of trustees of the church. Plaintiff further alleged that [the church] knowingly received, without protest, the substantial benefits of his observable work and services upon [its] premises …. Notwithstanding [the church’s] contention to the contrary, the contractor was not required to demonstrate that the church’s board of trustees adopted a specific resolution authorizing the contract in order to expose it to liability.

Significantly, requiring the contractor to prove express authorization by the board of trustees would work a substantial injustice in this case. It would be a complete travesty of justice to hold, as the church implicitly urges, that a religious corporation could receive and enjoy, by its pastor’s/agent’s procurement, the substantial benefits of a completed contract and then turn around and disclaim any liability or responsibility therefor on the remarkable ground that the board of trustees actually never explicitly authorized the work. This court cannot countenance such a result.

Application. This case illustrates a very important point: A church may be legally obligated by contracts entered into without authorization by its pastor or a church officer if there is a history of the pastor or officer entering into unauthorized contracts that the church honored. If the dollar amount of a contract is small, there may be little concern. But this establishes a pattern that may be carried over to a higher cost transaction that the church may have no choice but to accept. In some cases, if there is not a pattern of accepting unauthorized contracts, the church may be able to repudiate the contract, but this has the potentially undesirable effect of transferring liability to the pastor or officer. Obviously, this is no way to enter into contracts. 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 for the purchase of low cost items on behalf of the church. When church leaders routinely accept such contracts, the church is in effect investing the pastor or officer with “apparent authority” to enter into unauthorized contracts. This may not be a concern for small cost items, but it may be a problem for larger cost items. As a result, a church should consider two options. First, amend the organizational documents to give the pastor or some other designated officer limited authority to unilaterally execute contracts on behalf of the church. For example, some church bylaws authorize the pastor to purchase items up to $500 or some other amount without prior approval by the congregation or board. Such a provision can reduce the risk of establishing a pattern of church acceptance of unauthorized contracts. Second, if the church elects not to amend its organizational documents, then it needs to 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. Butler v. Sacred Heart of Jesus English Rite Catholic Church, 680 N.Y.S.2d 909 (Civ. Ct. 1998).

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