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Business, Financial or Investment Dealings with Members |
Below are just a few examples of ministers and churches that
engaged in business, financial or investment dealings with
members that have not turned out as expected. We hope you learn
from their experience.
DO NOT DABBLE IN AREAS WHERE YOU LACK EXPERTISE
A minister in Silicon Valley who continued to be associated with
a local church felt called to launch a ministry to the business
community. He agreed to sit on the board of directors of a
start-up technology company that claimed to have a revolutionary
new technology in the final stage of “development”. The CEO who
claimed to be a Christian swore the technology would change the
way the world did business. The minister had no expertise in
this technology or in operating businesses of this kind. Excited
about being on the cutting edge of break through technology that
was destined to make investors rich, the minister used his
influence to convince church members to purchase shares in the
company. Irregularities occurred, the technology stalled, no
product was produced, and accusations of fraud by the CEO
surfaced. The CEO was indicted and disgruntled investors sued.
The minister was named as a defendant, along with others, in a
suit where federal RICO violations were alleged.
A LOAN IS NOT ALWAYS REPAID IN KIND
For decades a minister was a spiritual father to many young
people in his northern California church. Occasionally he would
help members who were having difficulty buy a car or finance a
home. He learned a hard lesson when he made a loan to a
30-year-old member of his church who married a non-member. They
were living in a cramped apartment and could not afford to
purchase a home. The minister offered to sell them his mobile
home if they took over the loan payments and repaid his down
payment upon sale of the mobile home. The note was unsecured and
the minister failed to record a UCC lien on the mobile home.
Several years later the mobile home had increased in value
nearly $30,000. Influenced by his spouse, the member secretly
sold the mobile home, moved out of town, and purchased a new
home with the profits from the sale of the mobile home. The
pastor learned what he had done and requested the former member
repay the promissory note. Despite the couple having made a
substantial profit off the sale, plus keeping the minister’s
down payment of $10,000, the next thing the minister knew the
spouse had hired an attorney who threatened to sue for “breach
of fiduciary duty”. The minister could have sued for repayment
of the promissory note, but the suit would have subjected the
minister to a cross-complaint for undue influence and the cost
of attorneys’ fees would likely have exceeded the amount due.
DUE DILIGENCE IS NEEDED WHEN HIRING MEMBERS
A pastor hired a member of his church who was a general
contractor to build a master addition onto his home. Trusting
the general contractor because he was a member of the church,
the pastor paid the contractor all cash, up-front, to build the
addition. Home Improvement laws only allow contractors to charge
consumers a maximum $1000 deposit, plus receipt of progress
payments after phases of the work are complete. The pastor then
took his family out-of-town to stay with grandparents during the
construction. The pastor returned one-month later to find the
general contractor and the money gone, the addition unfinished,
and the subcontractors demanding payment and threatening to
record mechanic’s liens against the pastor’s home. The pastor
ended up paying the unpaid subcontractors who had a right to
lien the property, as well as bearing the cost to hire a
replacement contractor to complete the job.
KNOW YOUR BY-LAWS
A pastor and board hired a real estate agent in the congregation
to list church property for sale. The broker’s exclusive listing
and right to sale agreement entitled the broker to a commission
upon procuring a ready, willing and able buyer acceptable to the
board. Unbeknownst to the pastor and board, the church by-laws
required all sales of church real estate to be approved by 2/3
vote of the congregation. The board approved a full price
purchase offer by another church and the church entered into a
contract to sell the property to the other church. After all
contingencies had been waived, the pastor announced the sale to
the church and a long-standing member of the congregation
objected to the sale. A congregational vote was belatedly held
to approve the sale, but the motion failed to pass by the
requisite number of votes. Fortunately for the seller church,
the buyer church was willing to cancel the purchase contract.
Unfortunately for the seller church, the real estate agent’s
broker (who was not a member of the church) was not so
understanding and demanded payment of his commission due under
the listing agreement. The board’s failure to comply with church
by-laws cost the church a substantial sum of money.
WRITTEN CONTRACTS SHOULD BE USED
A church hired a Christian architect in the congregation to
design tenant improvements for a new rented church facility. The
agreement was on a handshake and there was no performance
deadline in the oral agreement. The architect made material
design errors that resulted in major delays in construction and
the ability to occupy the new facility. The contractor charged
the church for extended overhead during the period of delay. In
the meantime, the church’s lease expired at the old facility and
the church found itself homeless. In addition to the extra
construction costs, the church incurred substantial
out-of-pocket expenses paying rent to the landlord of the new
unfinished facility as well as rent to a temporary replacement
facility at a local hotel. The architect’s errors and omissions
insurer took the position that the church had no recourse
against the architect because there was no contractual
obligation for the architect to perform his work by a given
deadline. The church on principle was unwilling to sue a member
so the church alone absorbed the damages resulting from the
architect’s negligence. |
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The purpose of the legal testimonials is to educate and aid
clergy members in evaluating their mandatory reporting
obligations. The comments herein are not intended as a
substitute for legal advice about a specific situation. Any
clergy who is faced with a legal issue is urged to consult
legal counsel familiar with their case to protect both
themselves and their church. |
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