Avoiding the Risk of Default Judgments

Never ignore a lawsuit that names your church as a defendant.

Church Finance Today

Avoiding the Risk of Default Judgments

Never ignore a lawsuit that names your church as a defendant.

Background. An Ohio church leased a Ricoh copier system from a local dealer for sixty months at a monthly payment of $1,068. The lease contract stated that if the dealer ever “assigned” the lease to another company, the rights of the parties would be enforced in accordance with the laws of the state of incorporation of the other company. Shortly after the church signed the lease contract, the leasing company assigned the contract to a New Jersey company. The church made monthly payments required under the contract for nearly two years, and then stopped making payments.

The New Jersey company sued the church in a New Jersey court. The church failed to respond to this out-of-state lawsuit, and a default judgment in the amount of $38,000 was entered against it by the New Jersey court. This judgment was filed with an Ohio court pursuant to the “Uniform Enforcement of Foreign Judgments Act” (a law that has been enacted by most states, and that permits legal judgments in one state to be enforced in other states) and an Ohio court entered a judgment against the church in the amount of $38,000.

The church raised several arguments to avoid enforcement of the New Jersey judgment, including the fact that the New Jersey courts had no jurisdiction over an Ohio church. The court rejected all of these arguments, noting that in the lease contract the church not only agreed that the contract could be enforced by an out-of-state assignee, but also consented to personal jurisdiction in any other state.

Relevance to church treasurers. This case illustrates three important points:

1. Never ignore a lawsuit that names your church as a defendant. As the church in this case learned, failure to respond to a lawsuit can result in a default judgment being entered against you. A default judgment is a judgment ordered by a court that grants what the plaintiff requested in the lawsuit, no matter how frivolous.

Key point. In order to avoid a default judgment, you must file an “answer” to a lawsuit within the time period prescribed by state law. In many states, this period is as short as 20 days. If you are served with a lawsuit, turn it over to your liability insurance company immediately. If your policy provides coverage for some or all of the claims made in the lawsuit, then you will be provided with an attorney who will answer the lawsuit on your behalf. But, if your insurance policy does not cover any of the claims, you will need to retain your own attorney.

2. Out-of-state lawsuits. Like the church in this case, your church may one day be served with a lawsuit informing you that you have been sued in another state. Do not assume that you can ignore such paperwork because you have no “presence” in the other state.

3. Understand what you are signing. Many churches have entered into lease contracts for copiers, computers, and other items. It is important to read these contracts before signing them, so that you are familiar with their terms. In this case, the church signed a lease contract consenting to being sued by an assignee of the contract in another state. If there are terms in a lease contract that are unacceptable, then ask that the contract be modified. Since this ordinarily will not be possible, you may want to do business with another dealer. Copelco Capital, Inc. v. St. Mark’s Presbyterian Church, N.E.2d (Ohio App. 2001).

This article first appeared in Church Treasurer Alert, March 2002.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

This content is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. "From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations." Due to the nature of the U.S. legal system, laws and regulations constantly change. The editors encourage readers to carefully search the site for all content related to the topic of interest and consult qualified local counsel to verify the status of specific statutes, laws, regulations, and precedential court holdings.

ajax-loader-largecaret-downcloseHamburger Menuicon_amazonApple PodcastsBio Iconicon_cards_grid_caretChild Abuse Reporting Laws by State IconChurchSalary Iconicon_facebookGoogle Podcastsicon_instagramLegal Library IconLegal Library Iconicon_linkedinLock IconMegaphone IconOnline Learning IconPodcast IconRecent Legal Developments IconRecommended Reading IconRSS IconSubmiticon_select-arrowSpotify IconAlaska State MapAlabama State MapArkansas State MapArizona State MapCalifornia State MapColorado State MapConnecticut State MapWashington DC State MapDelaware State MapFederal MapFlorida State MapGeorgia State MapHawaii State MapIowa State MapIdaho State MapIllinois State MapIndiana State MapKansas State MapKentucky State MapLouisiana State MapMassachusetts State MapMaryland State MapMaine State MapMichigan State MapMinnesota State MapMissouri State MapMississippi State MapMontana State MapMulti State MapNorth Carolina State MapNorth Dakota State MapNebraska State MapNew Hampshire State MapNew Jersey State MapNew Mexico IconNevada State MapNew York State MapOhio State MapOklahoma State MapOregon State MapPennsylvania State MapRhode Island State MapSouth Carolina State MapSouth Dakota State MapTennessee State MapTexas State MapUtah State MapVirginia State MapVermont State MapWashington State MapWisconsin State MapWest Virginia State MapWyoming State IconShopping Cart IconTax Calendar Iconicon_twitteryoutubepauseplay