Like for-profit businesses, charities also have corporate boards and corporate officers. The board and officers of a charity have a fiduciary duty in conducting the charity’s affairs. Under Massachusetts law, the board of a charity cannot broadly delegate to corporate officers the authority to enter into extraordinary transactions or enter into contracts that would encumber or divest the corporation of a substantial portion of its assets.

The Massachusetts Appeals Court recently decided First Bostonview Management, LLC v. Bostonview Corporation, a case in which nearly all of a church’s property was to be sold. The church corporation had been organized for “religious, charitable, scientific and education purposes” and to hold property titles and give the income to the church. The certificate of corporation was later amended to allow the corporation to acquire property and to enter into and perform any contracts necessary for or in connection with achieving the purposes of the corporation.

Defendant Kennedy was once on the church corporation’s board and subsequently served as president. Defendant MacKenzie was treasurer and director of operations. In 2004, Kennedy as president and MacKenzie as treasurer signed a purchase and sale agreement for church property, including 146 apartments, a number of parking spaces, offices, a sanctuary, and a meeting hall for the parish. MacKenzie also signed the agreement as treasurer. The purchaser was a limited liability company managed by a real estate developer.

The agreement stated the purchase price was $30 million. It also acknowledged a $50,000 payment had been received. The purchaser claimed to have made the $50,000 payment, along with a total of $15,000 in cash payments to Kennedy and MacKenzie. He also stated that he paid for a Mercedes for the church secretary, paid $10,000 into a trust for MacKenzie’s daughter, and paid $20,000 to a trust set up by Kennedy.

No one from the church corporation appeared on the scheduled closing date. Kennedy and MacKenzie later told the manager that closing had been delayed because of litigation, and they would need additional payments. The manager paid an additional $60,000 into the trusts.

The purchaser claimed that the parties later entered into an exclusive option to purchase agreement signed by the church corporation’s then-president, Burke. The option was to expire three years later. It did not state a price, deposit, or even how the purchaser could exercise the option. A few weeks after the option, a Resolution from the Board of Trustees stated that the purchaser was given first option on the property for $30 million, plus four apartments and several parking spaces. There was no church seal on the resolution, even though it stated that it was only valid with the seal. The document also bore eight board members’ signatures, but four of them said they did not sign it.

After the first option expired, another option was executed by the manager of the purchasing company. It also bore the signature of the chairman of the board of trustees, who claimed he did not sign it. This option did not contain a price or manner of exercising the option. This option also stated that it superseded all other agreements. The manager claimed that he and his partner wrote checks totaling $30,000.

The purchaser filed suit for breach of the purchase and sale agreement, breach of an indemnification agreement, misrepresentation, and other counts. The church corporation, Kennedy, and MacKenzie were named defendants. The church corporation moved for summary judgment. The trial court found that the corporate officers did not have the authority to bind the church corporation to the purchase and sale agreement.

The plaintiff appealed the judgment, arguing that Kennedy and MacKenzie had actual authority to contract on behalf of the church corporation as a result of their position as officers and the corporate by-laws that allowed the president to sign certain contracts.

The appeals court found that corporate officers must have a specific authorization to sell the corporation’s principal asset. Furthermore, officers of charitable corporations may only bind the charitable organization to an extraordinary transaction with specific authorization from the board. The board of a charitable organization cannot delegate authority to enter a contract that would divest the corporation “of the very essence” of its existence. The appeals court found that the sale of substantially all of the church property was an extraordinary transaction that would divest the church corporation of the essence of its existence. The appeals court held that the board did not have the power to delegate the authority to enter into the purchase contract to the corporate officers, and even if it did have that power, such delegation required a specific authorization. The court rejected the plaintiff’s argument that specific authorization was not required here because two officers had signed it.

The plaintiff further argued that Kennedy and MacKenzie had apparent authority to sign the contract. The appeals court, however, found that apparent authority did not apply in this case because apparent authority cannot be relied upon to enforce an agreement to transfer the primary asset of a charitable organization. Additionally, apparent authority does not apply to the sale of corporate real estate when that activity is outside the scope of the company’s usual activity.

The plaintiff also argued that the board of trustees ratified the agreement, but the appeals court held that, in the case of a charitable corporation, subsequent approval by the board does not overcome the requirement of a prior specific authorization to bind the charity to an extraordinary transaction. The appeals court affirmed the trial court’s judgment.

Corporate authority can be a complicated matter, especially when charities are involved. If you have a business dispute, an experienced Massachusetts business litigation lawyer can help you. Call the Law Offices of Richard Mucci at (781) 729-3999 to schedule an appointment.