Contract Liability
By Richard R. Hammar, J.D., LL.M., CPA
© Copyright 1991, 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: m29
Whether the minister of an incorporated church will be personally liable on a contract that he signs depends upon two factors: (1) whether the identity of the minister's church is disclosed in the contract, and (2) whether the minister signs in a representative capacity, such as “Rev. John Smith, President.” If both elements are observed, generally a minister of an incorporated church will not be personally liable. The church's identity is usually disclosed by listing the church as one of the parties to the contract. Omission of a signer's title will not render him personally liable if his corporation is identified in the contract and where the circumstances clearly reveal that he signed in an official capacity.1 This view, however, is not universally accepted. Accordingly, ministers should be careful to disclose their representative capacity when signing a contract on behalf of a church.
Occasionally, contracts refer only to “the undersigned parties,” in which case the minister must be careful to link the church's name with his or her signature. This commonly is done by placing the church name directly above the signature line. The signature line either is preceded by the word by or specifically refers to the minister's representative capacity. Thus, if a church is not specifically mentioned in the body of a contract, the minister may avoid personal liability on the contract by signing in either of the following two ways:
#1 First Christian Church
by: ___________________________________________
#2 First Christian Church
______________________________________________
One authority has stated that “if there is no disclosure of the [corporation] in the body of the contract, the mere appending of words descriptive of the signer as, for example, the word `president,' would not be sufficient of itself to relieve the signer of individual liability.”2
The above discussion assumes that the contract was authorized by appropriate church action. If a minister signs a contract that has not been so authorized, the prevailing rule is that he or she will be personally liable on the contract. The church, of course, can “ratify” an unauthorized contract, in which case the church becomes liable on it.
In many cases it is unclear whether a minister in fact has been authorized to sign a contract on behalf of the church. This obviously is a very important question, for clergy who sign contracts without authorization may be personally liable. Clergy should be certain that the contract has been duly authorized by appropriate action and that they are authorized to sign. The church's charter and bylaws must be reviewed, as well as resolutions of the church board and pertinent state laws. To illustrate, many churches have adopted bylaws requiring that disposition of church property be authorized only by congregational vote. Even if the board of deacons or trustees of such a church independently approves the disposition of church property, any subsequent contract of sale would be unauthorized. And even if the church congregation has approved the sale in a church business meeting, the minister should be satisfied that all of the procedural requirements for such a meeting—such as notice and quorum—have been met.
Clergy should refrain from signing contracts unless they are certain that (1) the contract has been properly authorized, and (2) they are authorized to sign on behalf of the church.
In no event should clergy assume that they are authorized to enter into contracts on behalf of their church simply by virtue of their position. One court has held that:
The mere proclaiming of [oneself] as the religious superior of the congregation may suffice to establish that fact in spiritual matters of his church, but it does not effect legal superiority in secular matters. There must be clear and convincing evidence of congregational acknowledgement of and acquiescence in the concept of legal superiority and authority over church business and property matters.3
Finally, a minister of an unincorporated church who signs a contract on behalf of the church may be personally liable on the contract even if the church is identified in the contract and the minister signs in a representative capacity. Several courts have concluded that ministers and trustees of unincorporated churches who sign contracts on behalf of their churches will be personally liable on them.4
For related information on this topic see the following articles: