Are there church member liabilities in a church bankruptcy?
Nestor
In a move to cut expenses the Trustees did not subscribe to insurance
for the church trustees. Presumably the Trustees will be financially
liable if the church goes broke.
But what about the lay membership, the congregants? I presume the
Trustees do not have insurance for the members either.
Under Texas law, are the church members financially liable for the
church's unpaid bills?
Don
It is difficult to understand how being a "member" of a church would
be decided in the first place. In the case of the churches I knew
about in my younger days, you were a member if you showed up on most
Sundays and ceased to be a member when you didn't show up any more. To
me the question is like asking: If a fast food chain goes broke, are
all the people who bought hamburgers there financially liable? Granted
some churches may keep "membership" records: I don't know.
slide
Note: there may be special rules in TX applying to churches which I know
nothing about. My answer is in the general case.
In general, the liability of entities is dependent upon law and business
organization. Historically, most churches have been limited liability
corporations. If you church is organized like that, then, except for
special cases, the liability only extends to the assets of the corporation.
Recently some churches organize informally. They aren't really
businesses any more than when friends get together for a game of bridge
is that a business entity. If that's the case, then the church cannot
conduct itself as a business nor would any member be liable. Since you
imply that the church did business as a named entity, that also implies
it is organized as some sort of entity such as partnership, LLC,
corporation or whatever.
The true answer to your question would require you to say the nature of
your church's organization and the nature of its debts. That is, did the
membership co-sign for certain debts?
Mike Jacobs
> It looks like a church will be unable to pay its bills in the near future.
Is this church incorporated, or not? What is its form of
organization? I will assume it is some kind of corporation under
your state's law.
> In a move to cut expenses the Trustees did not subscribe to insurance
> for the church trustees.
Even if they had insurance, that would cover their TORTS (general
wrongs committed against others) not the church's CONTRACT debts.
Are there outstanding tort claims you are worried about (car crash,
slip-and-fall, sex harrassment, etcetera)? If not, lack of insurance
is a non-issue IMO.
> Presumably the Trustees will be financially
> liable if the church goes broke.
Maybe. If the church is a corporation it, and not any of its
stockholders or trustees, is the only entity liable for its debts.
Unless one or more creditors asked one or more trustees for a PERSONAL
GUARANTEE on some debt of the church. You would need to inquire.
> But what about the lay membership, the congregants?
What about them? Why would they be liable for debts just because
they were "customers" of that church? They did not make any of the
decisions that ran it into the ground, the trustees are the ones who
made financial decisions for the corporation, and even if they did so
in all good faith and with good business sense, the bad economy may
just have done them in.
> I presume the
> Trustees do not have insurance for the members either.
Again, insurance would only cover TORTS or other similar claims for
general wrongs committed, not contract debts.
> Under Texas law, are the church members financially liable for the
> church's unpaid bills?
I don't know TX law. But I don't imagine they are harsher on
churchgoers than the general commonlaw rule would be. If still in
doubt, and if YOU have actual money at stake, consult an actual TX
lawyer.
--
This posting is for discussion purposes, not professional advice.
Anything you post on this Newsgroup is public information.
I am not your lawyer, and you are not my client in any specific legal
matter.
For confidential professional advice, consult your own lawyer in a
private communication.
Mike Jacobs
LAW OFFICE OF W. MICHAEL JACOBS
10440 Little Patuxent Pkwy #300
Columbia, MD 21044
(tel) 410-740-5685
Barry Gold
"It depends."
** I am not a lawyer and this is not legal advice **
Most of the time, a church is a corporation. There are tax and other
advantages to incorporation(*). If the church is a corporation, and
goes through the _forms_ of being a corporation (maintaining separate
records, having the required meetings of the directors/trustees, etc.),
then individual members are not liable for the debts of the corporation
-- except when they are liable because they, themselves, did the act
that led to the debt.
For example, assume somebody leaves an obstacle in a pathway, and
somebody trips over it and is injured. THe church would be liable. So
is whoever left the obstacle there -- forming a corporation does not
relieve you of liability for your own misdeeds, even if done in the name
of or for benefit of the corporation. ****The above rule is for tort
debts, not to contract debts*** If the corporation contracts to buy 100
widgets at $1000 each, and then fails to pay and goes bankrupt, the
seller can recover from the bankruptcy trustee -- whatever percentage is
available to unsecured creditors -- but the officer who signed the
contract does not have to pay the $100,000. That's assuming that (1)
the officer is a proper agent of the corporation and entitled to sign
contracts on its behalf, and (2) that the contract specifies the
corporation rather than the officer as the buyer. (If no written
contract, it depends on whether the seller was told that the buyer is a
corporation.)
Are the trustee liable? Not all the time. If the trustees failed to
take reasonable steps to protect the corporation, they might be liable
_to the membership_ under negligence theory or for failure of fiduciary
duty. If, OTOH, the corporation really had insufficient assets to pay
its insurance and continue operating, then the trustees action might
have been reasonable and they would not be liable.
In either case, I doubt the trustees would be liable to the third party
who is injured and unable to collect because the corporation is bankrupt
and has no insurance.
(*) Contributions to the church, including membership, tithes, gifts of
most sorts, are tax deductible. As with most corporations, the owners
-- the congregation?-- are not responsible for the debts of the
corporation. Finally, creating a non-profit corporation is fairly cheap
in most cases. (I think the fee is $30 in California.)
d...@practical.org
> It looks like a church will be unable to pay its bills in the near
> future.
>
> In a move to cut expenses the Trustees did not subscribe to
> insurance for the church trustees. Presumably the Trustees will
> be financially liable if the church goes broke.
>
> But what about the lay membership, the congregants? I presume
> the Trustees do not have insurance for the members either.
>
> Under Texas law, are the church members financially liable for
> the church's unpaid bills?
Maybe. BUT your posting in the factually incomplete form
above amounts in effect to this: Too Little Information and
Desirability Of Consulting A Texas Lawyer Face-to-Face Alert!
Is the church incorporated, or not? An unincorporated
association? Exactly what sorts of debts incurred on behalf of the
organization by what person in relation to the organization? What if
anything has the organization acting as a body in accordance with
whatever are its governing rules and procedures said and done to
ratify what you refer to as debts?
Hutchins v. Grace Tabernacle United Pentecostal Church, et
al., 804 S.W.2d 598 (Tex.App. - Houston 1991, no writ), held that the
members of an unincorporated religious association may become liable
under a contract signed by another member of the association if the
members assented to or ratified the contract, saying this:
An unincorporated association is a voluntary group of
persons, without a charter, formed by mutual consent
for purposes of promoting a common enterprise. Black's
Law Dictionary 1373 (5th ed. 1979). An unincorporated
association is not liable on its contracts, which are re-
garded as the liability of the individuals who sign them.
Summerhill v. Wilkes, 133 S.W. 492, 493 (Tex.Civ.App.-
Dallas 1910, no writ) (contract signed by the chairman
of the building committee was not the liability of the
unincorporated church association). The members of
an unincorporated association are not bound by the
unauthorized or unratified representations of a member.
Kuteman v. Lacy, 144 S.W. 1184, 1186 (Tex.Civ.App. -
Austin 1912, no writ). If the members of an association
assent to or ratify a contract in its name, they become
liable under them. Hardy v. Carter, 163 S.W. 1003, 1010
(Tex.Civ.App. - Amarillo 1914, writ dism'd or ref'd) (op.
on reh'g). Members of an unincorporated association may
become liable for a contract by estoppel. Abrams v. Brent,
362 S.W.2d 155, 158-59 (Tex.Civ.App. - Austin 1962, writ
ref'd n.r.e.).
Members of an unincorporated association are individually
liable for tortious acts of agents or employees of the
association if the tort is committed within the scope of
their authority. Golden v. Wilder, 4 S.W.2d 140, 143-44
(Tex.Civ.App. - Fort Worth 1928, no writ)(op. on reh'g).
Addressing whether only such an association/church, not in the
first instance its individual members, may be sued for
church/association debts the court concluded:
The Church is an unincorporated association that cannot be
liable for its own contracts, see Summerhill, 133 S.W. at 493,
or torts, see Kuteman, 144 S.W. at 1186. Liability belongs
to the members of the association who sign the contracts,
Summerhill, 133 S.W. at 493, or to the members when agents
or employees of the association commit torts within the scope
of their authority, Golden, 4 S.W.2d at 143-44. Accordingly,
we hold that the Church, which cannot be liable, is not in a
position to be the representative party for those who can be.
Holberg & Co., et al. v. Citizens Nat'l, etc., 856 S.W.2d 515
(Tex. Ct. of App .- Houston [1st Dist.] 1994), said:
The Texas Supreme Court has recently confirmed that
'historically, unincorporated associations were not
considered separate legal entities and had no existence
apart from their individual members.' Cox v. Thee Evergreen
Church , 836 S.W.2d 167, 169 (Tex.1992). Members incurring
the debt on behalf of the association or assenting to its
creation are personally liable. Id . at 170.
Different principles apply to for-profit and not-for-profit
corporations.
In addition, who if anyone a trustee in bankruptcy or a
creditor in bankruptcy may and will sue can entail any number of
procedural issues, too, any one of which may provide an occasion for
consensual resolution. If the prospective defendant is knowledgeable
about all the relevant facts and acts diligently. And also before a
lawsuit, there ordinarily are any number of opportunities for
collective action and negotiation.
And so, again:
Too Little Information and Desirability Of Consulting A Texas
Lawyer Face-to-Face Alert!