By Richard R. Hammar, J.D., LL.M., CPA
© Copyright 1989, 1998 by Church Law & Tax Report. All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided 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. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m56 m21 c0589
Can an officer or trustee of an
unincorporated religious organization legally sell the
organization's property? No, concluded the New Hampshire
Supreme Court. In 1957, the Benedictine Sisters was organized in
Bedford, New Hampshire as a nonprofit corporation. In 1977, the
corporation was dissolved by the secretary of state for failure to
file an information return and fee. Some seven years later, in
1984, Sister Simonis (the mother superior and former president of
the nonprofit corporation) entered into a contract with a local
real estate broker to sell him 8 of the 40 acres owned by the
Benedictine Sisters. The broker was not represented by an attorney,
and made no effort to verify the authority of Sister Simonis to
execute the contract on behalf of the Sisters. While the broker was
seeking city approval to subdivide the 8 acres into a real estate
development, Sister Simonis notified the city and real estate
broker that she wished to cancel the agreement. The broker sued the
Sisters for damages, and requested a court order compelling the
enforcement of the agreement. Sister Simonis argued that the
agreement could not be enforced because (1) the Benedictine Sisters
no longer existed as a corporation, (2) whether or not the Sisters
existed as a corporation, Sister Simonis had acted outside her
authority in executing the sales agreement, and (3) enforcement of
the agreement would cause undue hardship. The broker maintained
that even if the corporation had ceased to exist, the Sisters
constituted an unincorporated association and as such had legal
authority to enter into a sales contract. A trial court and state
appeals court ruled in favor of the Sisters, and the broker
appealed the case to the state supreme court which also ruled in
favor of the Sisters. The court emphasized that Sister Simonis had
no actual or implied authority to sign contracts whether the
Benedictine Sisters was a corporation or an unincorporated
association. It added: "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 Sister Simonis had obtained any authorization or
consent for the proposed land sale from any membership group." The
court further noted that the broker made no attempt to verify the
corporation's existence or the authority of Sister Simonis to sign
the contract, and observed that "when a . . . broker signs a
purchase and sale agreement without making any attempt to verify
either the existence of the corporation with which he is
contracting, or the authority of the person with whom he is dealing
. . . he fails to exercise reasonable diligence." The court
acknowledged that the broker could sue Sister Simonis individually,
but added that "we doubt the technical or practical merit of such
a claim in light of the fact that the defendant would be an
eighty-year-old nun who had long before taken a vow of poverty."
This case is significant for three reasons. First, it illustrates
the fact that in many states a nonprofit corporation may cease to
exist if it fails to file periodic reports (accompanied by a fee)
with the state. These requirements typically apply only to
organizations that are incorporated under the state "General
Nonprofit Corporation Act" (which has been adopted by most states).
However, many churches incorporate under this Act, and the
corporate status of many such churches has lapsed inadvertently
because of failure to file periodic reports with the secretary of
state's office. Neither Sister Simonis nor the Benedictine Sisters
was aware, in 1984, that the corporate status of the Sisters had
terminated seven years earlier. Churches that have incorporated
under the General Nonprofit Corporation Act (sometimes referred to
as the Model Nonprofit Corporations Act) should contact the
secretary of state's office in their state capital to confirm that
they are in fact corporations in good standing. Many will discover
that they are not. Second, the case demonstrates that a single
officer or trustee of an incorporated or unincorporated church
cannot sign legal documents on behalf of the church without
authorization. Third, the case demonstrates that an individual
officer or trustee who unsuccessfully attempts to sell church
property to a third party can be personally sued for damages
incurred by the third party as a result of the unsuccessful sale.
Shakra v. Benedictine Sisters of Bedford, 553 A.2d 1327 (N.H.
1989).