Hope Lutheran Church v. Chellew, 1-1082

• Decision Date: 29 March 1984
• Docket Number: No. 1-1082,1-1082
• Citation: 460 N.E.2d 1244
• Parties: HOPE LUTHERAN CHURCH, St. Matthew Lutheran Church, Cross and Crown Lutheran Church, Faith Lutheran Church, St. Mark Lutheran Church (A.L.C.), King of Glory Lutheran Church, Ascension Lutheran Church, Calvary Lutheran Church, Concordia Lutheran Church, Emmaus Lutheran Church, Messiah Lutheran Church, Our Saviour Lutheran Church, Our Shephard Lutheran Church, Peace Lutheran Church, St. John Evangelical Lutheran Church, St. Paul's Evangelical Lutheran Church, St. Peter Evangelical Lutheran Church, Trinity Lutheran Church, Zion Lutheran Church, and Carmel Lutheran Church, Defendants-Appellants, v. Edward M. CHELLEW, Marion S. Chellew, Harold E. Sawyer, Alice E. Sawyer, John H. Waldo, Ruth Kent, Robert W. Kellum, Elizabeth P. Kellum, Carleton B. Edwards, Olive M. Edwards and Esther R. Chapman, Plaintiffs-Appellees. A 320.
• Court: Indiana Appellate Court

Page 1244

460 N.E.2d 1244

HOPE LUTHERAN CHURCH, St. Matthew Lutheran Church, Cross and Crown Lutheran Church, Faith Lutheran Church, St. Mark Lutheran Church (A.L.C.), King of Glory Lutheran Church Ascension Lutheran Church, Calvary Lutheran Church Concordia Lutheran Church, Emmaus Lutheran Church, Messiah Lutheran Church, Our Saviour Lutheran Church, Our Shephard Lutheran Church, Peace Lutheran Church, St. John Evangelical Lutheran Church, St. Paul's Evangelical Lutheran Church, St Peter Evangelical Lutheran Church, Trinity Lutheran Church Zion Lutheran Church, and Carmel Lutheran Church, Defendants-Appellants, v. Edward M. CHELLEW, Marion S. Chellew, Harold E. Sawyer, Alice E. Sawyer, John H. Waldo, Ruth Kent, Robert W. Kellum, Elizabeth P. Kellum, Carleton B. Edwards, Olive M. Edwards and Esther R. Chapman, Plaintiffs-Appellees.

No. 1-1082 A 320.

Court of Appeals of Indiana, First District.

March 29, 1984.

Michael R. Fruehwald, Barnes & Thornburg, Indianapolis, for defendants-appellants.

William S. Ellis, Ellis, Stringfellow, Patton & Leibovitz, New York City, for amici curiae.

Ralph Ogden, M. Anne Wilcox, Wilcox, Ogden & DuMond, Indianapolis, Peter L. Obremskey, Parr, Richey, Obremskey & Morton, Lebanon, for plaintiffs-appellees.

RATLIFF, Judge.

STATEMENT OF THE CASE

In a class action ¹ brought by the named plaintiff, Edward M. Chellew, and 65 other individuals against Hope Lutheran Church and 18 other Lutheran Churches, ² a Boone Superior Court jury awarded the plaintiffs $319,471.45 in damages. The churches now appeal.

We reverse.

FACTS

In 1972, Harold Ott, a retired Lutheran minister, approached the Federation of Lutheran Churches of Indianapolis ³ with a proposal that a retirement home for elderly Lutherans be established in the Indianapolis area. Interested in Ott's proposal, the Federation appointed an ad hoc committee to give it consideration. At Ott's request, the Federation also granted the committee a $10,000 loan to enable it to obtain an option on a parcel of real estate where the retirement home could be established.

Following the committee's initial meeting in July of 1973, the newly formed subcommittee for legal matters drafted proposed bylaws and articles of incorporation for the creation of a not-for-profit corporation which would operate the retirement home. The name selected by the committee for the corporation was "Central Indiana Lutheran Retirement Home, Incorporated". Explaining the choice of the name, Ott stated it was meant to convey that "membership was to be restricted to Lutheran congregations across [central Indiana]." Record at 794.

Among other things, the articles of incorporation established a fifteen member board of directors to be composed of nine lay persons and six ministers from the member congregations. Of the fifteen directors, five were to be from churches belonging to each of the three national Lutheran bodies. ⁴ The articles also limited membership to Lutheran congregations in central Indiana. Of particular interest in the instant case was the language in the articles of incorporation which declared:

"This Corporation shall be a joint agency of the participating congregations of The American Lutheran Church, The Lutheran Church in America, and The Lutheran Church-Missouri Synod and the purposes for which it is formed are purely religious, charitable and educational, for the providing of assistance, aid, care and treatment for the moral, social, mental and physical betterment of elderly persons ...."

Record at 768 (emphasis supplied).

In the spring of 1974, Central approved membership application forms and sent these along with the proposed bylaws and articles of incorporation to all Lutheran Churches in central Indiana. The membership applications provided, inter alia:

"The undersigned, [member congregation] having been duly authorized in accordance with its Constitution and By-Laws requirements, so to do, does hereby apply for membership in the proposed Central Indiana Lutheran Retirement Home, Inc., a corporation proposed to be formed under the Indiana Not-For-Profit Corporation Act of 1971.

[T]he undersigned does so with the strict limitation and understanding, that,

....

(b) membership in the proposed corporation will in no way or manner financially obligate the undersigned[.]"

Record at 2034. In addition to sending these materials, Ott and other committee members visited the congregations to explain the corporation's purpose and encourage participation. By September of 1974, 23 churches had applied for membership.

On November 3, 1974, delegates from the member congregations attended an organizational meeting at which time they approved the articles of incorporation and bylaws and elected Central's initial board of directors. Following this meeting the articles of incorporation were filed with the Indiana Secretary of State on December 19, 1974.

Pursuant to Central's articles of incorporation it was governed by its board of directors. Accordingly, these directors elected officers and authorized various corporate transactions. The delegates from member congregations did, however, meet on a yearly basis to elect new directors, vote on amendments to the articles of incorporation and bylaws, and receive reports on Central's activities.

In 1975 plans for the retirement home began to materialize as Central's board of directors solicited presentations from various developers for the construction of the facility. By December of that year Central's board contracted with John Gard Corporation as developer of the project. Gard proceeded to conduct a feasibility study and proposed a financing scheme which Central's board approved. At Gard's suggestion, Central adopted a formal name for the project: "Carmel Creek Manor, the Lutheran Retirement Home". Record at 865. At trial, Ott explained: "we [Central's board] ⁵ wanted to emphasize the fact it was a Lutheran home. We wanted to emphasize that factor." Record at 864.

By July of 1977, ⁶ Central's board of directors approved the contracts to be used in selling life memberships to prospective residents of the retirement home. Central, however, did not sell the memberships directly, but instead, contracted with John Gard to employ salesmen for this purpose. While the salesmen were under Gard's supervision, Central paid their commissions directly. In all, Central sold 64 individual or joint memberships to 89 different individuals. ⁷ However, prior to August of 1978, nine of these memberships were cancelled and the fifteen individuals involved received refunds of their down payments.

Prospects for the home dimmed in 1978, however. A necessary zoning change for the property upon which Central was to build the home was denied and essential financing for the project failed to materialize. Also, as a result of these and other difficulties, the contract with Gard was terminated. By this time much of the money received in the form of down payments from prospective life members had been depleted by development costs. Despite efforts by Central to revive the project, by May of 1978, bankruptcy was declared.

Shortly thereafter, the plaintiffs initiated this action for the return of their down payments.

Additional facts are stated in our discussion of the issues.

ISSUES

The issue requiring our review is:

Did the churches' participation in the creation and operation of Central give rise to an actual or apparent agency or agency by estoppel relationship between the parties?

DISCUSSION AND DECISION

Fundamentally, resolution of the instant case turns on whether there was sufficient evidence of either an actual or apparent agency or an agency by estoppel relationship between the churches and Central. Obviously, if sufficient evidence of any of these theories is present, the jury's verdict must be sustained. English Coal Co., Inc. v. Durcholz, (1981) Ind.App., 422 N.E.2d 302, 311, trans. denied. However, notwithstanding our limited standard of review which prohibits us from reweighing the evidence or judging the credibility of witnesses, James v. Brink & Erb, Inc., (1983) Ind.App., 452 N.E.2d 414, 416; Travis v. Hall, (1982) Ind.App., 431 N.E.2d 519, 520; Roberts v. Wabash Life Insurance Co., (1980) Ind.App., 410 N.E.2d 1377, 1382, trans. denied (1981), we agree with the churches that there was insufficient evidence to support any of the three theories.

As this court has defined actual agency, it is a relationship resulting from the manifestation of consent by one party to another that the latter will act as an agent for the former. Additionally, the agent must acquiesce to the arrangement and be subject to the principal's control. Lafayette Bank & Trust Co. v. Price, (1982) Ind.App., 440 N.E.2d 759, 761; Lewis v. Davis, (1980) Ind.App., 410 N.E.2d 1363, 1366; Mooney-Mueller-Ward, Inc. v. Woods, (1978) 175 Ind.App. 302, 307, 371 N.E.2d 400, 403. In short, the elements of an actual agency relationship are three: manifestation of consent by the principal; acquiescence by the agent; and control exerted by the principal.

Illustrative of this definition is the case of Mooney-Mueller-Ward, Inc. Therein, the lessee of a drugstore agreed to keep the inventory at a stated level by making only cash purchases. The lessor, however, maintained ownership of the inventory at all times. Notwithstanding this agreement, the lessee made several credit purchases, defaulted, and then declared bankruptcy. The supplier then brought an action against the lessor alleging the existence of an agency relationship between the lessor and lessee. Affirming a judgment for the lessor, we held that while the facts may have revealed an agreement the lessee would act on behalf of the lessor, there was no evidence indicative of the lessor exerting control over the lessee's operations. To the contrary, we found the lessee

"controlled every facet of the drugstore operation. He hired employees and set their wages and hours. He purchased...