The Danger of “Exclusive” Contracts

Such contracts can force a church to sign on a loan it doesn’t want.

Allstar Consulting Group v. Trinity Church & Christian Center, 2007 WL 120046 (Tenn. App. 2007)

Background. A finance broker and church entered into an agreement under which the broker was to assist the church in obtaining a loan, and the church would pay the broker a 3% fee for this service. The agreement was a form document that left certain contractual terms blank for the parties to complete. In one provision, the parties were given the option of hiring the broker on an exclusive or nonexclusive basis, and boxes were placed next to each option for the parties to mark their choice. The agreement had an “x” in the box beside “exclusive,” indicating that the broker had the “exclusive” right to arrange a loan for the church for a period of ninety (90) days under the contract. The broker obtained financing suitable for the church’s needs with a bank, and the church’s senior pastor signed and approved a loan proposal.

The senior pastor insisted that he did not believe that the broker had an “exclusive” contract. He said that he was open at all times to other offers, and that he had been directed by the church’s board of trustees to seek more favorable financing terms. The pastor denied that the “exclusive” box on the agreement was checked in his presence, and asserted that the box was checked without his consent. He admitted that he signed the proposed loan agreement obtained by the broker.

The pastor claimed that he and the broker were not “getting along” in their work for the financing, and that he felt that she was pushy and made an excessive number of personal appearances at the church. For her part, the broker denied any such intrusion and said that she was only trying to get the church to do what it had promised to do.

The church eventually signed obtained a loan for $700,000 with a local bank, without using the services of the broker. The broker insisted that her exclusive broker’s agreement with the church called for the payment of a 3% fee to her on this loan. When the church refused to pay the fee, the broker sued the church for breach of contract. A trial court ruled in favor of the broker, and the church appealed.

The appeals court agreed with the trial court that the brokers agreement was exclusive, and had been breached by the church. It ordered the church to pay the broker the fee called for under their agreement, plus costs.

Relevance to church leaders. This case is important for the following reasons.

1. Church leaders should carefully review any proposed contracts before signing them. If a contract for a product or service specifies that it is an “exclusive” contract, then a church may be required to pay the fee called for under the contract if it goes out and finds a “better deal” on its own initiative.

2. The contract is this case allowed the parties to check boxes indicating that it was either “exclusive” or “nonexclusive.” If you have such a choice, it often is preferable to select the “nonexclusive” box. This will provide the church with more options. If the church finds a better deal, on its own initiative and without the assistance of the other contracting party, then this may avoid having to pay the fee called for under the original contract.

3. Some contracts will not give you a choice of checking “exclusive” or “nonexclusive” boxes. The agreement specifies that it is exclusive. Under these circumstances, church leaders can attempt to negotiate a nonexclusive agreement, and to make this a condition of doing business.

4. Remember, an exclusive agreement should be earned, not coerced. This is especially true if you are not familiar with a company or its representatives.

5. If there does not appear to be any alternative to an exclusive agreement, then limit its duration as much as possible. For example, instead of a contract term of one year or six months, propose 90 days.

This article first appeared in Church Treasurer Alert, May 2007.

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

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