Key point 6-06.02. Officers and directors must be legally authorized to act on behalf of their church. Legal authority can be express, implied, inherent, or apparent. In addition, a church can ratify the unauthorized actions of its officers or directors, but this is not required.
It is often said that church officers may perform only those acts for which they have authority, and that the authority of church officers is similar to that exercised by officers of private corporations.173 Lewis v. Wolfe, 413 S.W.2d 314 (Mo. 1967).
The legal authority of a corporate officer may derive from four sources:
- express authority
- implied authority
- inherent authority
- apparent authority
The most basic kind of authority possessed by a church officer consists of express authority deriving from those powers and prerogatives conferred by statute, charter, bylaw, or resolution. Some nonprofit corporation laws confer certain powers upon the officers of church corporations, but by far the greatest sources of express authority are a church’s charter, bylaws, and resolutions. Article V of the Model Nonprofit Corporation Bylaws lists the powers of corporate officers as follows:
President. The President shall be the principal executive officer of the corporation and shall in general supervise and control all of the business affairs of the corporation. He shall preside at all meetings of the Board of Directors. He may sign, with the Secretary or any other proper officer of the corporation authorized by the Board of Directors, any deeds, mortgages, bonds, contracts, or other instruments which the Board has authorized to be executed, except in cases where the signing and execution thereof shall be expressly delegated by the Board of Directors or by these bylaws or by statute to some other officer or agent of the corporation; and in general shall perform all duties incident to the office of President and such other duties as may be prescribed by the Board of Directors from time to time.
Vice President. In the absence of the President or in the event of his inability or refusal to act, the Vice President (or, in the event that there be more than one Vice President, the Vice Presidents in the order of their election) shall perform the duties of the President, and when so acting, shall have all powers of and be subject to all the restrictions upon the President. Any Vice President shall perform such other duties as from time to time may be assigned to him by the President or by the Board of Directors.
Treasurer. If required by the Board of Directors, the Treasurer shall give a bond for the faithful discharge of his duties in such sum and with such surety or sureties as the Board of Directors shall determine. He shall have charge and custody of and be responsible for all funds and securities of the corporation; receive and give receipts for moneys due and payable to the corporation from any source whatsoever, and deposit all such moneys in the name of the corporation in such banks, trust companies or other depositories as shall be selected in accordance with the provisions of … these bylaws; and in general perform all the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by the President or by the Board of Directors.
Secretary. The Secretary shall keep the minutes of the meetings of the Board of Directors in one or more books provided for that purpose; see that all notices are duly given in accordance with the provisions of these bylaws or as required by law; be custodian of the corporate records and of the seal of the corporation and see that the seal of the corporation is affixed to all documents, the execution of which on behalf of the corporation under its seal is duly authorized in accordance with the provisions of these bylaws … and in general perform all duties incident to the office of Secretary and such other duties as from time to time may be assigned to him by the President or by the Board of Directors.
Officers also possess implied authority to perform all those acts that are necessary in performing an express power. The law essentially implies the existence of such authority, without which the express powers would be frustrated. To illustrate, the courts have held that express authority to manage a business includes the power to enter into contracts and to make purchases on behalf of the company. Authority to sell property has been held to include the power to execute a mortgage necessary for the sale of the property. And, authority to borrow money has been held to include the power to execute a guaranty.
Certain powers often are said to be inherent in a particular office, whether or not expressly granted in an organization’s charter, bylaws, or resolutions. For example, it commonly is said that the president has inherent authority to preside at meetings of the corporation, that the vice-president has inherent authority to act as president if the president is absent or incapacitated, that the secretary has inherent authority to maintain the corporate seal and records and to serve as secretary in all corporate meetings, and that the treasurer has inherent authority to receive money for the corporation.174 FLETCHER CYC. CORP. § 441 (perm. ed. 2008).
Officers occasionally possess apparent authority, that is, authority that has not actually been granted by the corporation but which the corporation through its actions and representations leads others to believe has been granted.175 Continental-Wirt Electronics Corp. v. Sprague Electric Co., 329 F. Supp. 959 (E.D. Pa. 1971).The doctrine of apparent authority rests on the principle of estoppel, which forbids persons or organizations to give an officer or agent an appearance of authority that does not in fact exist and to benefit from such misleading conduct to the detriment of one who has relied on it.
Transactions entered into by church officers acting without authority are invalid. To illustrate, one court concluded that a land sales contract executed by a church secretary and treasurer was not legally enforceable.176 Daniel Webster Council v. St. James Association, 533 A.2d 329 (N.H. 1987).The court observed that the officers of a corporation “have only those powers conferred on them by the bylaws of the corporation or by the resolution of the directors.” Neither the bylaws of the church nor any resolution by the board vested the secretary and treasurer with authority to enter into contracts on behalf of the church. Another court rejected the validity of a land sales contract executed by an officer of an unincorporated religious organization.177 Shakra v. Benedictine Sisters of Bedford, 553 A.2d 1327 (N.H. 1989). Accord Biscegelia v. Bernadine Sisters, 560 N.E.2d 567 (Mass. App. 1990).
The court emphasized that the officer had no actual or implied authority to sign contracts, and it concluded that “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 [the officer] had obtained any authorization or consent for the proposed land sale from any membership group.”
Corporations can “ratify” the unauthorized acts of their officers and directors by consenting to them. Ratification generally is held to consist of three elements: acceptance by the corporation of the benefits of the officer’s action, full knowledge of the facts, and circumstances or affirmative conduct indicating an intention to adopt and approve the unauthorized action. Ratification may not occur before an unauthorized action, and must take place within a reasonable time after such action. Ratifications generally are considered to be irrevocable. Only that body possessing the power to perform or authorize an officer’s unauthorized action has the power to ratify it. This generally is the board of directors.
Ratification can be express, such as by formal, recorded action of the board of directors, or it can be implied from the acts and representations of the board. Implied ratification often occurs when a corporation knows or should have known of an unauthorized act and does nothing to repudiate it. Thus, when a church’s parish committee should have known of various mortgages executed by the church’s minister on behalf of the church but did nothing to disavow them, it was held to have ratified them by implication.178 Perkins v. Rich, 429 N.E.2d 1135 (Mass. 1982).
- A New York court ruled that a church could be liable on a contract for a construction project signed by its pastor, without board authorization, because the church had ratified similar transactions in the past.179 Butler v. Sacred Heart of Jesus English Rite Catholic Church, 680 N.Y.S.2d 909 (N.Y. 1998).
- Section 8.45 of the Revised Model Nonprofit Corporation Act specifies:
- Any contract or other instrument in writing executed or entered into between a corporation and any other person is not invalidated as to the corporation by any lack of authority of the signing officers in the absence of actual knowledge on the part of the other person that the signing officers had no authority to execute the contract or other instrument if it is signed by any two officers in category 1 [i.e., the presiding officer of the board and the president] or by one officer in category 1 [see above] and one officer in category 2 [i.e., a vice president, the secretary, treasurer and executive director].
- The Mississippi Supreme Court ruled that a church was legally bound by the misrepresentation of its financial secretary. The church signed a contract with a local contractor for the construction of a building at a cost of $1.2 million. From the start, payments under the contract were late. The contractor eventually informed the church that construction would be stopped until payments were brought up to date and the church placed in escrow sufficient monies to pay the balance of the contract. The church brought payments up to date, and then the church’s financial secretary provided the contractor with a letter stating that the church had placed monies in escrow sufficient to pay the balance of the contract. On the basis of this representation, the contractor resumed construction and continued to work until it was informed that no further funds were available. The contractor sued the church for the balance due on the contract (nearly $500,000), claiming that the financial secretary’s letter was false and fraudulent, that the financial secretary was an agent of the church, and that the church was responsible for its agent’s acts. The state supreme court ruled in favor of the contractor. The church insisted that it had not been aware of its financial secretary’s letter, that it did not condone fraud, and that it was an “innocent party.” While it acknowledged that the financial secretary was an agent of the church, it claimed that the church could not be responsible for an act of its agent that was unauthorized and contrary to the church’s teachings against fraud. The court did not agree. It noted that a church can be responsible for the unauthorized acts of an agent under the theory of “apparent agency” if the following three conditions are satisfied: (1) actions by the church indicating that the agent has authority, (2) reasonable reliance on those actions, and (3) a detrimental change in position as a result of that reliance. The court concluded that all three of these conditions were satisfied in this case, and accordingly that the church was liable for the misrepresentations of its financial secretary. 180 Christian Methodist Episcopal Church v. S & S Construction Company, Inc., 615 So.2d 568 (Miss. 1993).
- 2. DIRECTORS AND TRUSTEES
Like officers, the authority of directors and trustees is to be found primarily in a church’s charter or bylaws, or in some cases the state nonprofit corporation statute under which a church is incorporated. In addition, directors and trustees have implied authority to do those things that are necessary to fulfill their express powers, and they will be clothed with apparent authority when a church through its actions or representations leads others to believe that authority to perform a particular act has been granted.181 Straughter v. Holy Temple of Church of God in Christ, 150 So.2d 124 (La. App. 1963).
There is one significant difference between officers and directors with respect to authority—while one or two corporate officers often have authority to act on behalf of the corporation in certain matters, directors never have authority, acting individually or in small groups, to bind the corporation. Directors can only act as a board, not as individuals. Accordingly, a director has no authority, acting alone, to purchase equipment or land, hire employees, or otherwise make legally binding commitments on behalf of the corporation. One or two officers, however, may be vested with this authority.
The United States Supreme Court has stated that “the first place one must look to determine the powers of corporate directors is in the relevant state’s corporation law. Corporations are creatures of state law … and it is state law which is the font of corporate directors’ powers.”182 Burks v. Lasker, 441 U.S. 471, 478 (1979).The Model Nonprofit Corporation Act states that “the affairs of a corporation shall be managed by a board of directors.”183 MODEL NONPROFIT CORPORATION ACT § 16.Most states that have not adopted the Act have similar provisions in their religious or nonprofit corporation laws. As a result, most state nonprofit corporation laws confer general managerial authority upon the directors or trustees of incorporated churches. This authority often is very broad, even to the point of empowering the board to act on behalf of the church in the ordinary business of the corporation without the necessity of obtaining the consent or approval of the membership. This means that the board of a church corporation ordinarily has the authority to enter into contracts; elect officers; hire employees; authorize notes, deeds, and mortgages; and institute and settle lawsuits. The powers of the board, however, may be limited by church charter, bylaw, or resolution. The boards of unincorporated churches generally derive little if any authority from state law.
The courts often have held that a church board occupies a position similar to the managing directors of a business corporation, at least with respect to the temporal affairs of a church, and that the board has authority to act only at regularly assembled meetings.184 Coates v. Parchman, 334 S.W.2d 417 (Mo. 1960).Accordingly, when four out of seven directors met informally and agreed to change the location of an annual church meeting, the election of directors at such a meeting was invalid.185 Id.Another court observed that “only when acting as a board may trustees of a religious corporation perform or authorize acts binding on the corporation,” and therefore the attempt by an individual trustee of a church to employ an attorney on behalf of the church was invalidated.186 Krehel v. Eastern Orthodox Catholic Church, 195 N.Y.S.2d 334, 336 (1959), aff’d, 221 N.Y.S.2d 724 (1961).The Revised Model Nonprofit Corporation Act confers upon the board of directors limited “emergency powers” (pertaining to the amendment of bylaws, selection of successors to incapacitated officers, relocation of the corporation’s principal office, and notice and quorum requirements).187 REVISED MODEL NONPROFIT CORPORATION ACT §§ 2.07 and 3.03.
Directors and trustees may not perform acts not authorized either by state law or the church’s charter or bylaws. To illustrate, one court ruled that if a church charter gives the board of trustees authority to institute lawsuits in the corporation’s name only after being directed to do so by a majority vote of the church membership, then a lawsuit instituted by the board itself without congregational approval is unauthorized.188 Honey Creek Regular Baptist Church v. Wilson, 92 N.E.2d 419 (Ohio 1950).Another court ruled that the trustees of a church corporation do not possess the authority to adopt bylaws for the church unless the charter or constitution of the church specifically gives them such authority.189 Lewis v. Wolfe, 413 S.W.2d 314 (Mo. 1967).The Washington Supreme Court ruled that a church’s board of elders was powerless to amend the church’s articles of incorporation without the pastor’s approval.190 Barnett v. Hicks, 792 P.2d 150 (Wash. 1990).The church’s articles of incorporation specified that neither the articles nor the bylaws could be amended without the pastor’s approval. The church board members met without the pastor and voted to amend the articles by removing the provision requiring the pastor to approve all amendments to the articles. The pastor immediately filed a lawsuit asking a civil court to determine whether or not the elders had the authority to amend the articles without his approval. A trial court ruled in favor of the elders, and the pastor appealed.
The state Supreme Court ruled in favor of the pastor. It reasoned that the articles clearly specified that they could not be amended without the pastor’s approval, and that as a result the elders’ attempt to amend the articles without the pastor’s approval was null and void. The court observed: “Neither of the parties has called to our attention any case holding that any corporation law in the country, profit or nonprofit, prohibits a provision in the articles of incorporation requiring the concurrence of a special individual to amend the articles.” The court agreed that the church’s articles “might well, in retrospect, be viewed by some as an improvident provision,” but it concluded that “it is not the function of this court … to protect those who freely chose to enter into this kind of relationship.”
- An Indiana court ruled that a majority of a congregational church’s members, rather than the church’s board of trustees, had the legal authority to determine whether or not to retain their pastor. The court noted that for churches of congregational polity, “the religious organization is represented by a majority of its members,” and therefore “when presented with a dispute within a church of congregational polity, our courts will uphold the majority’s decision, whether that is to purchase property or even remove the minister, unless the church has established its own decision-making body with the power to override the will of the majority.” 191 Cole v. Holt, 725 N.E.2d 145 (Ind. App. 2000).
- A New York court ruled that an unincorporated nonprofit organization was not bound by three promissory notes executed by its treasurer without authorization. 192 Barrett v. Republican State Committee, 625 N.Y.S.2d 769 (A.D. 4 Dept. 1995).
- A Pennsylvania court ruled that a church board lacked the authority to remove a pastor because the church was hierarchical in nature and the board’s action was in violation of the national church’s constitution. 193 The American Carpatho-Russian Orthodox Greek Catholic Diocese of the U.S.A. v. Church Board, 749 A.2d 1003 (Common. Pa. 2000).