• Key point. A civil court can award a default judgment in favor of a plaintiff in a lawsuit brought against a church if the church fails to respond to the lawsuit.
* A Louisiana court refused to overturn a default judgment issued against a church that failed to answer a lawsuit, and rejected the church’s defense that it failed to answer the lawsuit because it had been served on its “registered agent” who failed to notify the church. A church entered into a lease agreement with a company to lease musical equipment. The agreement provided for monthly lease payments over a 5-year term, and contained an “acceleration clause” that made the principal and interest immediately payable in the event of a default. The church missed some payments under the lease agreement, and the leasing company filed a lawsuit seeking the entire unpaid balance. When the church failed to respond to the lawsuit, a trial court granted a default judgment in the amount of $15,000 to the leasing company, plus interest and attorney fees. The church did not appeal this judgment.
Several months later, the church asked the court to set aside the default judgment. It claimed that the judgment was “null and void” because the church’s directors had not received notice of the lawsuit, and because its directors had not authorized their pastor to enter into the lease agreement. The trial court rejected the church’s requests, and affirmed the default judgment. The church appealed.
An appeals court noted that a default judgment can be set aside if a defendant “failed to receive notice of the suit, where there is a failure to serve the defendant with a certified copy of the petition.” However, the court concluded that “the record in this case shows that the church was served … through personal service” on the person who had been designated by the church (in its articles of incorporation) as its registered agent for service of process in the state. The church’s registered agent was a former pastor who had long since left the church to pursue other employment. The church argued that its registered agent had failed to notify it of the pending lawsuit. It further argued that it was the responsibility of the pastor to change the designated agent, and that he failed to do so. The court was not convinced. It concluded that the church had ample time to change its registered agent, and failed to do so; and, that the leasing company “followed the proper procedural guidelines in serving [the church’s registered agent] with the petition. Accordingly, there are no grounds to declare the judgment a nullity.”
The court also rejected the church’s argument that its former pastor did not have the authority to enter into the lease on the church’s behalf, and therefore the default judgment was wrongfully granted. The court observed that the limited circumstances justifying the overturning of a default judgment were not intended as a “substitute for an appeal or as a second chance to prove a claim which was previously denied for failure of proof …. The proper procedure to remedy a failure of proof is through a motion for a new trial or an appeal. The trial court correctly found that the authority of the pastor was a question of fact to be presented by a defense on the merits of the case.”
Application. This case illustrates a very important principle. Churches can lose a lawsuit through a default judgment, even if church leaders were not aware of the case, if the plaintiff served the lawsuit on the “registered agent” identified by the church in its articles of incorporation. Most incorporated churches must identify a “registered agent” in the articles of incorporation that they submit to the office of secretary of state at the time of incorporation. In most states, this document must identify a registered agent who is authorized by the church to receive “service of process” (lawsuits) on its behalf. The problem is that few church leaders ever think about changing the name of the church’s registered agent when the agent dies, moves to another community, or for any other reason ceases to be associated with the church. As this case illustrates, this can expose the church to completely unexpected liability if a lawsuit is served on the current registered agent who for whatever reason fails to notify the church.
How can such a predicament be avoided? Church leaders should check their corporation papers to see who is identified as the registered agent for service of process. Often, this will be the senior pastor of the church at the time of incorporation, which in most cases will be many years ago. The identity of the registered agent should be updated periodically to be sure it is current. This can be done on the annual corporate report that is required of nonprofit corporations in many states. If your church is not incorporated, you may still have identified a registered agent for service of process. Check with the office of secretary of state to find out if your church has appointed a registered agent. If the person is no longer associated with the church, then ask how you can name another person. Advanta Bank Corporation v. First Mount Zion Baptist Church, 865 So.2d 165 (La. App. 2003).
© Copyright 2004 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: m86 m34 c0504
