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.
Key point 6-08. State and federal laws provide limited immunity to uncompensated officers and directors of churches and other charities. This means that they cannot be personally liable for their ordinary negligence. However, such laws contain some exceptions. For example, officers and directors may be personally liable for their gross negligence or their willful or wanton misconduct.
A federal district court in Pennsylvania dismissed a lawsuit by a pastor against individual members of a board of deacons claiming that his termination constituted a breach of contract.
A church hired a pastor (the "plaintiff") in 2012. The church and plaintiff executed a contract specifying a 20-year term of employment expiring in 2032. The contract stated various terms and conditions governing termination of the pastor's employment, including that either party could terminate the agreement with or without cause but with certain contractual consequences. The contract further provides that "the rights of termination set forth in this contract are in addition to any other rights of termination allowed to either party by law." The plaintiff claimed that termination of his employment as pastor was without cause as defined in the contract, and on this basis sued the church and each member of the board of deacons (the "defendants") for breach of the employment contract in a federal district court. He sought $2.6 million in damages.
The defendants asked the court for a "judgment on the pleadings," meaning that the law was so overwhelmingly in their favor that the court should rule based solely on the pleadings. The court addressed each of the plaintiff's claims in evaluating the defendants' motion.
Deacons' personal liability
The board of deacons were named individually and personally as defendants in the plaintiff's lawsuit. The deacons asked the court to dismiss them from the case on the following grounds: (1) They could not be sued for breach of a contract to which they were not parties; (2) they did not have authority as deacons of the church to hire or fire church employees, and therefore, they could not be held liable for actions for which they had no authority; and (3) as volunteers in a nonprofit organization they were "immune" from liability under state nonprofit corporation law as uncompensated charitable volunteers.
(1) The deacons were not parties to the contract
The court agreed that the existence of a contract between the pastor and the individual deacons was required under Pennsylvania law for the pastor to pursue his breach-of-contract claim against them: It is axiomatic that only a party to a contract can be sued for its breach … . Moreover, as a general matter, when a corporation enters into a contract, the corporation alone is liable … . Whenever a corporation makes a contract, it is the contract of the legal entity—of the artificial being created by the charter—and not the contract of the individual members. Liability of the corporate officer for breach of contract only extends where, as opposed to here, the officer makes the promise in his individual capacity … . Notably, only one of the [deacons] was a signatory to the contract, having signed as stated thereon as Chairman of the Deacon Board. Regardless, the contract itself attached … clearly indicates that it is an agreement between the pastor and church as the contracting parties … . Nowhere in the document does the language reasonably suggest that [individual deacons were] assuming personal liability for the contract.
(2) Board of deacons' lack of authority to hire and fire employees
The individual deacons argued that they did not have authority as deacons to hire or fire church employees, and therefore cannot be held liable for actions for which they had no authority. They also claimed that under the church bylaws, the church, by a two-thirds vote of the congregation, could remove a pastor from his tenure.
The plaintiff insisted that the bylaws make the board of deacons responsible for providing input regarding church administrative matters.
The court concluded that both parties argue these matters for naught. These arguments do not have any relevance to the individual defendants' liability for breach of contract. That the contract, charter and bylaws spell out the structure of the church and certain procedures to be followed regarding termination of the pastor does not establish any liability of the individual defendants for breach of the contract between the pastor and the church.
(3) Charitable immunity for nonprofit volunteers
The individual deacons argued that even if they could be sued for the pastor's termination, they are immune from liability under the state nonprofit corporation statute, which provides:
(a) General rule. Except as provided otherwise in this section, no person who serves without compensation, other than reimbursement for actual expenses, as an officer, director or trustee of any nonprofit organization under section 501(c)(3) of the Internal Revenue Code … shall be liable for any civil damages as a result of any acts or omissions relating solely to the performance of his duties as an officer, director or trustee, unless the conduct of the person falls substantially below the standards generally practiced and accepted in like circumstances by similar persons performing the same or similar duties, and unless it is shown that the person did an act or omitted doing of an act which the person was under a recognized duty to another to do, knowing or having reason to know that the act or omission created a substantial risk of actual harm to the person or property of another. It shall be insufficient to impose liability to establish only that the conduct of the person fell below ordinary standards of care.
The court noted that this provision only applies to liability for "torts" (i.e., personal injuries) and not to breach-of-contract claims like the one presented in this case.
The court's conclusion
The court agreed with the position of the deacons, and dismissed the plaintiff's claims against them.
What this means for churches
This case is relevant to church leaders for these reasons:
- Liability for breach of contract. The court concluded that church board members are not personally liable for breach of contract, since "whenever a corporation makes a contract, it is the contract of the legal entity … and not the contract of the individual members. Liability of the corporate officer for breach of contract only extends where, as opposed to here, the officer makes the promise in his individual capacity." Even the fact that the chairman of the deacon board signed the contract did not make him personally liable if the contract "clearly indicates that it is an agreement between the pastor and church as the contracting parties." The court stressed that "nowhere in the document does the language reasonably suggest that [individual deacons were] assuming personal liability for the contract."
Church board members may be personally liable on contracts that they sign in two ways. First, they may be liable on a contract they sign without authority to do so. Second, board members may be personally liable on contracts they are authorized to sign but which they sign in their own name without any reference to the church or to their representational capacity. To prevent this inadvertent assumption of liability, board members who are authorized to sign contracts (as well as any other legal document) should be careful to indicate the church's name on the document and clearly indicate that they are signing in a representative capacity (i.e., agent, director, trustee, or officer).
To summarize, clergy and church board members should refrain from signing contracts unless they are certain that (1) the contract has been properly authorized; (2) they are authorized to sign on behalf of the church; (3) the church is clearly identified in the contract as the party to the agreement; and (4) the minister signs in a "representative capacity" (for example, as "authorized agent" or "president").
- Charitable immunity. Most states have enacted laws limiting the liability of officers and directors of nonprofit corporations. In many states, these "immunity" laws protect church volunteers. Most of these laws only immunize uncompensated directors and officers (or volunteers) from legal liability for their ordinary negligence committed within the scope of their duties. These statutes generally provide no protection for "willful and wanton" conduct or "gross negligence."
Many courts have agreed with this court, and have limited state charitable immunity laws to personal injuries, and not breach-of-contract claims. Lee v. Sixth Mount Zion Church, 2016 WL 2344529 (W.D. Pa. 2016).
