Liability of Church Board Members for Seizing a “Corporate Opportunity”

Church boards have mandated fiduciary duties.

White Gates Skeet Club, Inc. v. Lightfine, 658 N.E.2d 864 (Ill. App. 1995)

Background. The law imposes special “fiduciary duties” upon the board members of churches and other charities. The idea is simple. Board members are chosen to represent the organization, and so they must abide by the highest principles of integrity and loyalty in their dealings with it. One of these fiduciary duties is the duty not to “usurp” or misappropriate a corporate opportunity. What this means is this—board members cannot buy property that they know the church would have an interest in, and then sell it to the church for a profit. Such behavior violates the fiduciary duty the board members owe to the church.

A recent case. This principle was illustrated in a recent case. Some of the officers of a charity knew that the charity needed adjacent land. When they learned that adjacent land was available for sale they bought it in their own names, planning to later sell it to the charity at a profit. The charity sued the officers, and a court ruled that the officers held the property “in trust” for the charity. It observed that the courts have been “uncompromising” in ruling that under these circumstances board members hold title “in trust” for their corporation. This rule is “based on a wise public policy that, for the purpose of removing all temptation, extinguishes all possibility of profit flowing from a breach of the confidence imposed by the fiduciary relation.”

Relevance to church treasurers. Many church board members are unaware of the fiduciary duties they owe to the church. As this case illustrates, unfamiliarity with these duties can result in embarrassment and personal liability. Church treasurers can help by having church board members review this article.

Example. Bill is a member of the board of his church. He knows that the church needs to purchase six adjacent homes to expand its parking lot. He learns that the owners of one of the homes are interested in selling their home. Bill privately meets with the homeowners, and offers to pay $60,000 for their home. His offer is accepted, and he becomes the owner of the home. Bill later offers to sell the home to the church for $75,000. Bill views himself as a shrewd investor trying to make an honest profit. He is wrong. He has violated a fiduciary duty by “usurping” a corporate opportunity.

This article originally appeared in Church Treasurer Alert, November 1996.

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

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