Officers, Directors and Trustees

Church Law and Tax 1989-09-01 Recent Developments Officers, Directors, and Trustees Richard R. Hammar, J.D.,

Church Law and Tax 1989-09-01 Recent Developments

Officers, Directors, and Trustees

Can an officer or trustee of an unincorporated religious organization legally sell the organization’s property? No, concluded the New Hampshire Supreme Court. In 1957, the Benedictine Sisters was organized in Bedford, New Hampshire as a nonprofit corporation. In 1977, the corporation was dissolved by the secretary of state for failure to file an information return and fee. Some seven years later, in 1984, Sister Simonis (the mother superior and former president of the nonprofit corporation) entered into a contract with a local real estate broker to sell him 8 of the 40 acres owned by the Benedictine Sisters. The broker was not represented by an attorney, and made no effort to verify the authority of Sister Simonis to execute the contract on behalf of the Sisters. While the broker was seeking city approval to subdivide the 8 acres into a real estate development, Sister Simonis notified the city and real estate broker that she wished to cancel the agreement. The broker sued the Sisters for damages, and requested a court order compelling the enforcement of the agreement. Sister Simonis argued that the agreement could not be enforced because (1) the Benedictine Sisters no longer existed as a corporation, (2) whether or not the Sisters existed as a corporation, Sister Simonis had acted outside her authority in executing the sales agreement, and (3) enforcement of the agreement would cause undue hardship. The broker maintained that even if the corporation had ceased to exist, the Sisters constituted an unincorporated association and as such had legal authority to enter into a sales contract. A trial court and state appeals court ruled in favor of the Sisters, and the broker appealed the case to the state supreme court which also ruled in favor of the Sisters. The court emphasized that Sister Simonis had no actual or implied authority to sign contracts whether the Benedictine Sisters was a corporation or an unincorporated association. It added: “Trustees or similar officers of unincorporated religious organizations must have the consent of their organization in order to convey its property …. [We] see no evidence that Sister Simonis had obtained any authorization or consent for the proposed land sale from any membership group.” The court further noted that the broker made no attempt to verify the corporation’s existence or the authority of Sister Simonis to sign the contract, and observed that “when a … broker signs a purchase and sale agreement without making any attempt to verify either the existence of the corporation with which he is contracting, or the authority of the person with whom he is dealing … he fails to exercise reasonable diligence.” The court acknowledged that the broker could sue Sister Simonis individually, but added that “we doubt the technical or practical merit of such a claim in light of the fact that the defendant would be an eighty-year-old nun who had long before taken a vow of poverty.” This case is significant for three reasons. First, it illustrates the fact that in many states a nonprofit corporation may cease to exist if it fails to file periodic reports (accompanied by a fee) with the state. These requirements typically apply only to organizations that are incorporated under the state “General Nonprofit Corporation Act” (which has been adopted by most states). However, many churches incorporate under this Act, and the corporate status of many such churches has lapsed inadvertently because of failure to file periodic reports with the secretary of state’s office. Neither Sister Simonis nor the Benedictine Sisters was aware, in 1984, that the corporate status of the Sisters had terminated seven years earlier. Churches that have incorporated under the General Nonprofit Corporation Act (sometimes referred to as the Model Nonprofit Corporations Act) should contact the secretary of state’s office in their state capital to confirm that they are in fact corporations in good standing. Many will discover that they are not. Second, the case demonstrates that a single officer or trustee of an incorporated or unincorporated church cannot sign legal documents on behalf of the church without authorization. Third, the case demonstrates that an individual officer or trustee who unsuccessfully attempts to sell church property to a third party can be personally sued for damages incurred by the third party as a result of the unsuccessful sale. Shakra v. Benedictine Sisters of Bedford, 553 A.2d 1327 (N.H. 1989).

See also Personal injuries—on church property or during church activities, Clark v. Moore Memorial United Methodist Church, 538 So.2d 760 (Miss. 1989).

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