Liability of Unincorporated Churches

Members may be liable for church’s costs.

Church Law and Tax 1993-05-01 Recent Developments

Unincorporated Churches

Key point: Members of an unincorporated church may be liable for contracts incurred by the church if they either authorize or ratify the contracts.

An Indiana appeals court concluded that the individual members of an unincorporated nonprofit association were personally responsible for a contract entered into by the association. The association rented a convention facility for a fund-raising banquet. The bill for the event came to $16,000, but the association paid only $2,000. The convention center sued two of the association’s members personally for the balance. The members claimed that they could not be liable for the association’s debts, but a trial court disagreed and summarily ruled in favor of the convention center without a trial. The case was appealed, and a state appeals court agreed with the trial court’s decision. The court observed: “[T]he common law is well settled that a member of an association which does not conduct business for profit becomes liable for obligations incurred on behalf of the association within the scope of the authority of the agent attempting to create the liability.” The court quoted with approval from a leading treatise on contract law: “Insofar as the obligation was created in a manner authorized by [the association’s] articles of agreement or bylaws, the individual members are liable, presumably jointly.” Williston on Contracts § 308. The court also quoted with approval from a legal encyclopedia: “[Members of unincorporated nonprofit associations] are jointly and severally liable as principals on contracts made by, form or in the name of, the association for the purpose of promoting its objects, to which they have given either assent or subsequent ratification.” 6 American Jurisprudence 2nd, Associations and Clubs, § 46. The court noted that “other states have uniformly applied the common law” rule, as does Indiana. Accordingly, “members of a not-for-profit unincorporated association are liable for the obligations incurred by the association under a contract if the members authorize the contract or subsequently ratify its terms.” This ruling illustrates yet another legal disadvantage to the unincorporated form of organization. Victory Committee v. Genesis Convention Center, 697 N.E.2d 361 (Ind. App. 3 Dist. 1992).

See Also: Unincorporated Associations

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