Q: Does the person who signs checks but has no official staff or board position in the ministry have any responsibility if anything goes wrong financially? I am not talking about writing illegal checks, but rather, if the corporation does something wrong or is accused of financial misconduct, can someone who is simply a volunteer be held responsible?
Does the person who signs checks but has no official staff or board position in the ministry have any responsibility if anything goes wrong financially? I am not talking about writing illegal checks, but rather, if the corporation does something wrong or is accused of financial misconduct, can someone who is simply a volunteer be held responsible?
Are Check Signers Personally Liable for Bounced Checks?
In general, a person who signs a check on behalf of a church or ministry will not be held personally liable for a check that bounces, as long as they are unaware that the bank account has insufficient funds to cover the check amount.
Checks are considered “negotiable instruments” under the Uniform Commercial Code (UCC). This legal framework governs liability for people who sign checks and other negotiable instruments. Employees and volunteers who sign checks on behalf of a church are representatives of the organization and are generally protected against claims made by recipients of checks drawn on the organization’s bank account.
What Does Article 3 of the UCC Say About Check Signers?
According to Article 3 of the UCC (Revised), a representative check signer, such as a church treasurer, is not personally liable for a bounced check. However, there are exceptions:
- If the signer knowingly issues a check that will bounce, they could be held liable for fraud.
- Fraud claims require proof that the signer was aware of insufficient funds at the time the check was issued.
A landmark case, Lippman Packing Corp. v. Rose (1953), established that a representative is not liable for fraud unless they knowingly misrepresented the situation or had actual knowledge of insufficient funds. This principle, known as the “Lippman Rule,” is still referenced today.
Are There State-Specific Considerations?
While most states follow the UCC, some variations exist. For example, New York has not fully adopted Revised Article 3. In such jurisdictions, a check signer may face personal liability unless they clearly indicate their representative role by displaying the church’s name on the check and signing with a title like “as church treasurer.”
How Can Churches Reduce Liability Risks for Check Signers?
To safeguard against potential liability, consider the following practices:
- Ensure all checks prominently display the church’s name.
- Require signers to include their titles, such as “as treasurer,” when signing checks.
- Implement strong internal controls, such as requiring dual signatures for checks over a certain amount.
- Consult with a local attorney familiar with UCC and state laws to ensure compliance and reduce risks.
FAQs
- Are church volunteers at risk of personal liability when signing checks? Generally, no, unless the volunteer knowingly signs a check that will bounce or fails to follow best practices, like indicating their representative role.
- What is the “Lippman Rule”? It states that a representative signer is not liable for fraud unless they knowingly participated in misrepresentation or fraud.
- Do all states follow Revised Article 3 of the UCC? No, some states, like New York, have not adopted it fully, which may increase liability risks for check signers in those jurisdictions.
- How can churches protect check signers? Ensure proper documentation, use dual-signature requirements, and seek legal advice on state-specific UCC applications.
Conclusion
Check signers for churches, whether employees or volunteers, are generally protected from personal liability under the Uniform Commercial Code. However, implementing best practices and understanding state-specific laws can further reduce risks and ensure proper financial oversight within the church.
