Batten v. Jonesboro United Methodist Church, 2003 WL 21384519 (N.C. App. 2003)
As a church leader, you should understand that documents you sign on behalf of your church may have legal significance, even if they are sent by fax. What’s more, your church may not be able to avoid the legal consequences of an improvident agreement that you sign without full knowledge of the facts. A recent case illustrates the importance of being aware of the legal consequences of documents that are signed on behalf of a church.
Facts
A church entered into a contract with a general contractor for construction project. During and after the construction, disputes arose between the parties over several items including payment terms, additional items of work to be performed under the contract, and warranty claims. The general contractor and two church trustees later agreed during a telephone conversation to settle the dispute. The oral agreement called for the church to pay the general contractor $101,000.00 before a specified date.
Later that same day the church’s pastor faxed the general contractor a letter confirming the oral agreement. The letter, signed by the pastor and two trustees, read as follows:
This is to confirm our telephone agreement of earlier today. According to our understanding, a payment of $101,000 will satisfy the construction relationship between your company and the church. This figure is, on your part, a $15,000 deduction on the $116,000 your accountants believe the church owes. Additionally, it is our understanding that a payment of $101,000 will satisfy not only a final amount due on the original contract, but also all change orders including the last $5,145 on the roof, and accrued interest over the prior one year.
If this is indeed an accurate representation of our verbal agreement, please understand that it is our intention to remit $101,000 on or before [a specified date].
Should this meet your approval, please sign this and return it by fax. Otherwise, please send us your understanding in writing for us to sign. Thank you very much for your cooperation in our conversation and for your willingness to help us settle this today.
The general contractor accepted the written confirmation of the telephone agreement by signing the letter and faxing it back to the church. The general contractor indicated his acceptance of the agreement by writing on the bottom of the letter, “I agree that this is a complete settlement between my company and the church.”
A few days later the church faxed another letter to the general contractor attempting to revoke the settlement agreement. The church’s reason for its change of position was that, “Upon a review of our records of change orders approved and not approved that affect the total contract price we disagree on the amount of payment outstanding.”
When the church failed to make the payment of $101,000 agreed to in its previous fax, the general contractor filed a lawsuit the next day.
The church insisted that there was no agreement to resolve the disputed issues, and that its attempt to revoke the settlement agreement was merely a rejection of the general contractor’s “counteroffer.”
The court’s ruling
The court noted that settlement agreements like the one reached by the parties in this case are governed by general principles of contract law. For an agreement to constitute a valid contract, “the parties’ minds must meet as to all the terms. If any portion of the proposed terms is not settled, or no method agreed upon by which they may be settled, there is no agreement.” Further, “the courts interpret a contract according to the intent of the parties to the contract. If the plain language of a contract is clear, the intention of the parties is inferred from the words of the contract.” The court concluded,
The letter signed by both parties and memorializing the telephone agreement reached that same day constitutes a valid contract between the parties. The plain and unambiguous language in the agreement that the church acknowledged would “satisfy not only a final amount due on the original contract, but also all change orders and accrued interest” is valid and binding as a settlement agreement. As such, we hold that the church’s failure to “remit to the general contractor $101,000 on or before [the date specified]” was a breach of this contract.
Relevance to church leaders
This case illustrates a number of important points.
1. It is common for churches to have disputes with a contractor or vendor regarding an amount owed. In many cases church leaders settle such disputes. Such settlements can be very informal. In this case, the settlement agreement was a letter signed by the pastor and two church trustees, and faxed to the contractor who later accepted it with his signature. Perhaps because of the informality of the arrangement the church later sought to revoke the agreement and offer a lower amount. But as the court correctly noted, settlement agreements (no matter how informal, or how transmitted) can be legally enforceable if there is “meeting of the minds” with respect to “all terms” which can be inferred by the “plain language” of written communications. Even though the pastor and two trustees did not consider the letter they faxed to be legally binding, this was the “intent” that the court inferred from the plain language of the signed document in which the church agreed to pay $101,000 to “satisfy not only a final amount due on the original contract, but also all change orders … and accrued interest over the prior one year.”
2. Since church leaders may inadvertently bind the church when they sign documents pertaining to disputes with contractors and vendors, it is advisable to have an attorney review any document before signing it, especially if it relates to a substantial amount.
3. When signing contracts with contractors and vendors, it is a good practice to have a clause inserted in the original contract that addresses how modifications can be made. This helps to reduce the likelihood of disputes (which often stem from attempts by one party to “modify” the original contract terms).
4. The pastor and board members wanted to rescind the original settlement agreement because “upon a review of our records of change orders approved and not approved that affect the total contract price we disagree on the amount of payment outstanding.” This illustrates the importance of thoroughly understanding all the facts before signing any potentially enforceable agreements.
5. The court noted that settlement agreements are “favored” by the law, and this was one reason why the court upheld the agreement signed by the pastor and church trustees. Do not assume that you will be able to avoid the legal consequences of an improvident agreement.
6. Church leaders should never sign a contractual document without proper authorization. The necessary authorization may vary depending on the size and nature of the contract. For example, larger contracts may require congregational approval. Be sure to carefully review the church’s governing documents (i.e., charter, bylaws) and any pertinent resolutions adopted by the church membership or governing board in assessing the authorization that is needed. This principle applies not only to contracts, but also in some cases to contract modifications.
This article first appeared in Church Treasurer Alert, July 2004.
