Pastor, Church & Law

Contract Liability

§ 4.06

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.

Whether clergy will be personally liable on contracts they sign depends upon two factors: (1) whether their employing church is disclosed in the contract, and (2) whether they sign in a representative capacity, such as “Rev. John Smith, President.” If both elements are observed, generally a minister will not be personally liable for the contract. The church’s identity usually is disclosed by listing the church as one of the parties to the contract. Clergy who sign a contract on behalf of a church without disclosing their title or office will not be personally liable if the church is identified in the contract and the circumstances clearly reveal that they signed in an official capacity.99 Kenneally v. First National Bank of Anoka, 400 F.2d 838 (8th Cir. 1968), cert. denied, 393 U.S. 1063 (1969).This view, however, is not universally accepted. As a result, ministers should be careful to disclose their representative capacity when signing a contract on behalf of a church, and clearly identify the church in the body of the contract as the party to the agreement.

One legal authority has stated that “if there is no disclosure of the [corporation] in the body of the contract, the mere appending of words descriptive of the signer as, for example, the word ‘president,’ would not be sufficient of itself to relieve the signer of individual liability.”100 FLETCHER CYC. CORP. § 3034 (1978 & Supp. 1999).

The above discussion assumes that the contract was authorized by appropriate church action. If a minister signs a contract that has not been so authorized, the general rule is that he or she will be personally liable on the contract. The church, of course, can “ratify” an unauthorized contract, in which case the church becomes liable for it.

In many cases it is unclear whether a minister in fact has been authorized to sign a contract on behalf of the church. This obviously is a very important question, for clergy who sign contracts without authorization may be personally liable. Clergy should be certain that the contract has been duly authorized by appropriate action and that they are authorized to sign. The church’s charter and bylaws must be reviewed, as well as resolutions of the church board and pertinent state laws. To illustrate, many churches have adopted bylaws requiring that disposition of church property be authorized only by congregational vote. Even if the board of deacons or trustees of such a church independently approves the disposition of church property, any subsequent contract of sale would be unauthorized. And even if the church congregation has approved the sale in a church business meeting, the minister should be satisfied that all of the procedural requirements for such a meeting—such as notice and quorum—have been met.

Tip. Clergy 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”).

In no event should clergy assume that they are authorized to enter into contracts on behalf of their church simply by virtue of their position. One court observed:

The mere proclaiming of [oneself] as the religious superior of the congregation may suffice to establish that fact in spiritual matters of his church, but it does not effect legal superiority in secular matters. There must be clear and convincing evidence of congregational acknowledgement of and acquiescence in the concept of legal superiority and authority over church business and property matters.101 Gospel Tabernacle Body of Christ Church v. Peace Publishers & Co., 506 P.2d 1135, 1138 (Kan. 1973). See also American Legion v. Southwest Title and Insurance Co., 207 So.2d 393 (La. 1968), reversed on other grounds, 218 So.2d 612 (La. 1969) (lease entered into by minister without knowledge of church was held to be a “nullity”); Hill v. Hill, 241 S.W.2d 865 (Tenn. 1951).

A minister of an unincorporated church who signs a contract on behalf of the church may be personally liable on the contract even if the church is identified in the contract and the minister signs in a representative capacity. Several courts have concluded that ministers and trustees of unincorporated churches who sign contracts on behalf of their churches will be personally liable on them.102 See, e.g., I.W. Phillips & Co. v. Hall, 128 So. 635 (Fla. 1930); Abrams v. Brent, 362 S.W.2d 155 (Tex. 1962); Mitterhausen v. South Wisconsin Conference Assoc. of Seventh-Day Adventists, 14 N.W.2d 19 (Wis. 1944).

Case study. A corporate officer signed a check in the amount of $43,000 on behalf of his company. The company’s name was imprinted on the check, so there was no doubt that it was an obligation of the company. However, the officer’s signature did not indicate that he was signing in a “representative capacity”—that is, as a representative of the company rather than in his personal or individual capacity. A bank dishonored the check on the basis of insufficient funds, and the recipient sued the officer directly. The officer insisted that he could not be personally liable for the amount of the check, since the company’s name had been imprinted on it. The court disagreed. It referred to a state law specifying that an authorized representative who signs his or her name to an instrument “is personally obligated if the instrument names the [company] represented but does not show that the representative signed in a representative capacity.” In summary, the officer was personally liable for payment of the check even though the company’s name was imprinted on it, since the officer did not indicate clearly that he was signing in a representative capacity.103 Hind-Marsh v. Puglia, 665 So.2d 1091 (Fla. App. 1995).

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