Court Refused to Order a Church to Honor the Real Estate Contract

Church treasurer was without legal authority to sign a real estate sales contract for the sale of church property.

A Massachusetts appeals court ruled that a church treasurer was without legal authority to sign a real estate sales contract for the sale of church property.

The treasurer (who also was a member of the church board) was the only person to sign the contract on behalf of the church. She signed her name without any reference to her official or representative capacity. The church constitution specified that sales of church property had to be authorized by the church board. However, the board never authorized the sale in question. The church refused to honor the contract, and the buyer filed a lawsuit seeking a court order compelling the church to comply.

A trial court ruled in favor of the church, and the buyer appealed. The appeals court affirmed the trial court's decision on the basis of two considerations. First, the buyer had been negligent in not making a sufficient inquiry into the authority of the treasurer to unilaterally sign contracts. The court observed: "[T]he purchaser made inquiry only of the [real estate] broker and accepted his assurance of authority. Customary evidence of authority to act on behalf of a corporation, such as a clerk's certificate of vote, was never sought, and had the [purchaser] done so, he would have found, as the [trial] judge found, that no other officer or director of the corporation was ever aware of the transaction. The [trial] judge was correct in concluding that [the treasurer] had not been granted authority to sign the agreement."

Second, the court concluded that a treasurer has no legal authority to sign contracts unilaterally on behalf of a church corporation. The court noted that the treasurer "was not authorized to sign the agreement by virtue of her office as treasurer. The power of an officer of a charitable corporation to bind the corporation is narrowly construed in Massachusetts, and it most certainly does not extend to agreements to dispose of real estate owned by the corporation …." The court also rejected the buyer's argument that the treasurer had "apparent authority" to sign the contract on behalf of the church.

Apparent authority exists whenever a corporation leads others to believe that a particular individual is authorized to execute contracts on behalf of the corporation when in fact no such authority exists. The court, in rejecting the application of the apparent authority doctrine in this case, noted that "where the sale of corporate real estate is outside the scope of the corporation's usual activity, the doctrine of apparent authority does not apply.

The constitution of this corporation recites the 'nature and end of the congregation' to be 'the perfection of the love of God and man,' and that the congregation is to minister 'to the needs of contemporary society in domestic and foreign missions through Christian education, health care services, spiritual and corporal works of mercy.' These purposes and activities are obviously unrelated to the sale of real estate."

As a result, the court refused to order the church to honor the real estate contract. Of course, a church treasurer who signs a legal document without authorization may be personally liable for the debt or obligation if the church does not agree to honor the transaction.

What this means for churches

Church officers and directors should never sign contracts or other legal documents on behalf of a church unless (1) they clearly are authorized to do so by the church charter, bylaws, or a resolution of the church board or membership, and (2) they sign in a "representative" capacity (i.e., indicating that they are signing on behalf of the church). Biscegelia v. Bernadine Sisters, 560 N.E.2d 567 (Mass. App. 1990). [PCL8G3]

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