Churches and Contracts

Churches, along with many other organizations, often fail to recognize the need for great care when entering into contracts. A recent British Columbia Supreme Court decision shows the types of problems that can result from poorly drafted agreements.

In 1989 the St. Vartan Armenian Apostolic Church of British Columbia entered into a contract with the predecessor of Alderwoods Group Canada Inc., the owner of Victory Memorial Park Cemetery in Surrey.  St. Vartan believed that it had reserved portions of the cemetery for the use of the members of the Armenian community. Under the contract, 800 burial plots were to be reserved with the right of first refusal granted on a further 800 plots.

St. Vartan would encourage its members and those in the broader Armenian community to purchase their burial plots in the area of the cemetery set aside specifically for Armenians.   Presumably they would buy other death care services such as grave markers from Alderwoods. In return, a portion of the revenue generated by Alderwoods through St. Vartan referrals would be donated back to St. Vartan.

However, between 1989 and 2005 members of the Armenian community purchased less than 300 burial plots. Alderwoods was running out of unreserved space in the cemetery and the value of the burial plots had increased dramatically since 1989.

The problem was that the St. Vartan contract did not say how long the right were to last. Nor did it give either party the right to unilaterally terminate the contract on reasonable notice or otherwise.

Nevertheless, Alderwoods gave St. Vartan written notice in September 2005 that in three months time it intended to terminate the contract. They invited St. Vartan to encourage the Armenian community to purchase burial plots during this three-month period at the reduced contract rate. In response, St. Vartan commenced a court action seeking to enforce the contract.

Should a contract be subject to termination if there is no express right to do so?  In dealing with the question, “Should the court imply a term into the contract giving Alderwoods the right to unilaterally terminate the contract upon reasonable notice?” the court stated:

The main objective of the agreement was to provide a parcel of 800 burial plots for this particular ethnic or religious group. Each individual from the Armenian community who purchased a burial plot in the parcel did so on the basis of the agreement which guaranteed that he or she would be buried in an area dedicated solely to Armenians. Unilateral termination by the cemetery on reasonable notice is not consistent with the overall objective or intent of the contract.

The court further held that there was no requirement to imply a termination clause in order to make the agreement work. Instead the court found that the parties contemplated that the agreement would last for 80 years, the longest permitted according to the Perpetuity Act. As a result, the church won and the court upheld the contract. Interestingly, the court refused to substitute monetary damages instead of enforcing the agreement because the scheme was marketed as a unique opportunity for individual Armenians to “show their cultural or religious expression,” and damages would not be an adequate remedy. The court further ordered that Alderwoods was required to pay St. Vartan over $17,000 to account for their share of the burial plots that had already been sold.

What churches need to be very careful when they enter into contracts, ensuring that they accurately record what has been agreed and adequately provide for an acceptable exit strategy if things do not work out as originally intended.

This article was written by Robert G. Kuhn and Ian C. Moes, lawyers who practice in charity and not-for-profit law with the law firm of Kuhn LLP. It is only intended as a guide and cannot cover every situation. It is important to get legal advice for specific situations. If you have questions or comments about this case or other construction law matters, please contact us at 604-864-8877.