Texas Court Allows Church’s Fraud Claim Against Former Pastor to Proceed

Case shows civil courts may not always be barred from resolving internal church disputes.

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State: Texas
Categories: Church Property

Key point 9-07. The First Amendment allows civil courts to resolve internal church disputes so long as they can do so without interpreting doctrine or polity.

Background

A Texas court ruled that it was not barred by the ecclesiastical abstention doctrine from resolving a church’s lawsuit alleging that a former pastor had committed fraud, breach of fiduciary duty, and conversion in his handling of church finances.

A church was formed nearly 100 years ago as an unincorporated entity. On September 14, 2008, it adopted its constitution and bylaws. Under the terms of the constitution and bylaws, the government of the church was vested in its board of deacons.

In 2015, the pastor organized the church as a Texas nonprofit corporation and received a certificate of incorporation from the secretary of state.

In 2017, the church building collapsed, and the church received a $300,000 check from its insurance carrier. The check was deposited into the church’s account and allegedly withdrawn by the pastor without any authorization.

In January 2021, the board of deacons and church members requested an accounting from the pastor showing how the $300,000 was spent. The pastor refused to provide the information or otherwise respond to the church’s request. Instead of explaining the use of the funds, the pastor resigned.

In May 2021, the church sued the pastor for fraud, breach of fiduciary duty, and conversion. The pastor denied the claims. The trial court dismissed the lawsuit. The church appealed.

The appellate court’s analysis

The appeals court noted that the Texas Supreme Court has recognized that churches have a fundamental right under the First Amendment to the United States Constitution ”to decide for themselves, free from state interference, matters of church government as well as those of faith and doctrine.”

Accordingly, the First Amendment “severely circumscribes” the role that civil courts may play in resolving church-related ecclesiastical disputes.

For example, civil courts cannot inquire into matters concerning “theological controversy, church discipline, ecclesiastical government, or the conformity of the members of the church to the standard of morals required of them.”

To enforce this constitutional provision, Texas courts have utilized the “ecclesiastical abstention doctrine.”

The ecclesiastical abstention doctrine “is more than just a limitation on a court’s actions, it is a limitation on its . . . jurisdiction.”

But this court-made doctrine “does not foreclose civil court subject matter jurisdiction over all disputes involving religious entities.” Because churches and their congregations “exist and function within the civil community,” they are “amenable to rules governing property rights, torts, and criminal conduct. . . . Religious practices that threaten the public’s health, safety, or general welfare cannot be tolerated as protected religious belief. . . . Churches, their congregations, and hierarchy exist and function within the civil community, they can be as amenable to rules governing civil, contract, or property rights as any other societal Entity.”

The court separately evaluated the application of the ecclesiastical abstention doctrine to each of the pastor’s claims:

A. Fraud

The church claimed that the pastor had committed fraud.

The court noted that “fraud requires a showing of a material misrepresentation, which (1) was false, (2) was either known to be false when made or was asserted without knowledge of the truth, (3) was intended to be acted upon, (4) was relied upon, and (5) caused injury.”

The court noted that the pastor’s fraud claim “was primarily based on [the pastor’s] financial activities regarding money purportedly belonging to the church.”

According to the church, a $300,000 check “was withdrawn from the church’s account without the authorization of the board of deacons and deposited into a personal account held by [the pastor] and his wife.”

The church also alleged that the pastor sought an SBA loan in the amount of $150,000 using the church’s name and withdrew over $25,000 from general funds belonging to the church via CashApp. After a series of unauthorized transactions, the church sought an accounting of expenditures requesting “bank statements, itemized lists, and receipts’ of anything purchased by [the pastor] while he served as the pastor.” Thus, at the heart of [the church’s] fraud claim, the issue is whether the pastor used his authority to mislead financial institutions when he allegedly misappropriated church funds for his own personal gain.

The court concluded:

At first glance, resolution of these causes of action will require the examination of church documents, church governance, and organizational structures. If this were true, then adjudication of [the church’s] fraud claim would be out of our reach because the ecclesiastical abstention doctrine is a limitation on [the court’s] jurisdiction. However, upon closer inspection, the resolution of these causes of action does not depend on the interpretation of [the church’s] bylaws and constitution or other relevant provisions of governing documents. Indeed, this is an example of a civil law controversy in which a church official happens to be involved. Any interpretation otherwise would inextricably allow church officials that misappropriate church funds to escape liability under the shield of the ecclesiastical abstention doctrine. . . . Properly exercising jurisdiction requires courts to apply neutral principles of law to non-ecclesiastical issues involving religious entities in the same manner as they apply those principles to other entities and issues. In sum, because the court can adjudicate [the church’s] fraud [claim] by applying neutral principles of law, the trial court properly exercised jurisdiction.

B. Breach of Fiduciary Duty

To prevail in a breach of fiduciary duty claim, a plaintiff must prove that “(1) there is a fiduciary relationship between the plaintiff and defendant, (2) the defendant breached his fiduciary duty to the plaintiff, and (3) the breach resulted in an injury to the plaintiff or benefit to the defendant.”

The church claimed that the pastor breached his fiduciary duty by “converting funds and property to his use without the knowledge or informed consent of the church, by tendering to himself sums without an accounting of disbursements, fees and expenses, and thus misrepresenting the payments made on behalf of the church . . . or paid to himself.”

The court concluded that the church’s allegation that the pastor breached a fiduciary duty could be resolved by the trial court without implicating religious doctrine.

It observed:

[T]hough a church official happens to be involved in this case, his pastoral role does not change our ability to apply neutral principles of law to review whether or not he engaged in self-dealing and misappropriation of church funds. . . . . The court can resolve the dispute regarding the accounting and alleged misappropriation of church funds by applying neutral principles of law.

C. Conversion

Conversion is the unauthorized and unlawful assumption and exercise of dominion and control over the personal property of another to the exclusion of, or inconsistent with, the owner’s rights.

The elements of conversion are:

(1) the plaintiff owned, had legal possession of, or was entitled to possession of the property;
(2) the defendant assumed and exercised dominion and control over the property in an unlawful and unauthorized manner, to the exclusion of, and inconsistent with, the plaintiff’s rights; and
(3) the defendant refused the plaintiff’s demand for return of the property.

A conversion claim is, at its core, a property dispute, which the Texas Supreme Court has expressly declared to be a matter courts can decide using the neutral-principles methodology. . . . Under the neutral-principles methodology, courts decide non-

ecclesiastical issues such as property ownership based on the same neutral principles of law applicable to other entities.

The court concluded that the church’s conversion claim was based on the pastor’s efforts “to assume control of insurance proceeds and real property belonging to the church.” Since the church’s conversion claim could be decided without reference to church doctrine, the ecclesiastical abstention doctrine did not apply.

What this case means for churches

This case demonstrates that the civil courts will not necessarily be barred by the ecclesiastical abstention doctrine from resolving internal church disputes if they can do so on the basis of “neutral principles of law” involving no examination of religious doctrine, governance, or polity.

New Bethel Baptist Church v. Taylor, 2023 LEXIS 6697 (Tex. App. 2023).

Legal Developments

Arkansas Church Succeeds in Removing Reversionary Clause From Deed

This Arkansas court case is an important reminder for pastors to always understand whether their church property deed contains a reversionary clause

State: Arkansas
Categories: Church Property

Key point 7-14 Some deeds to church property contain a “reversion” clause stating that title will revert back to the previous owner in the event that a specified condition occurs. The courts will enforce such provisions, so long as they can do so without interpreting church doctrine.

Restrictions in deeds to church property may be removed by mutual consent of the parties. A case in Arkansas illustrates how.

Background

A “non-instrumental” Church of Christ congregation in Quitman, Arkansas, acquired title to its property by means of a warranty deed executed by the previous owners in 1945.

The deed contained a provision that such property be used in accordance with the doctrine of the Church of Christ [denomination] specifically forbidding the introduction of any instrument of music into the services of the Church, the title of said property remaining with the above-named Trustees, or the trustee, or the group of trustees succeeding them, who are opposed to instrumental music in worship. Should such an individual or group fail to remain in Quitman the title shall pass to the nearest Church of Christ and Trustees thereof, who are opposed to the use of Instrumental Music in Worship.

In recent years the church desired to remove this restriction so that the property could be more readily sold with no restrictions. It asked a court to remove the restriction on the basis of the consent of all the parties.

This important court case out of New Jersey drives home the point that pastors and church leaders should always understand when church deeds contain restrictive clauses.

In granting this request the court observed:

The law favors free use of property and considering all interested parties have consented to the change in the deed, the law favors the change to ownership in fee simple absolute with no restrictions. Therefore, the Warranty Deed to the Petitioner recorded on Nov. 15, 1945 to the Church of Christ, Quitman, Arkansas for the real property described in paragraph three, shall be reformed to remove the restrictions set out in paragraph five and the Petitioner shall own the property in fee simple absolute with no restrictions on the property.

What this means for churches

A church should not purchase property without a clear understanding of the existence of any restrictions on the church’s use of the property.

Such restrictions often are explained in the title company’s report on the status of the title associated with the property being acquired.

Any restrictions should be carefully examined to determine if the restrictions are acceptable, or if they can be removed.

This case demonstrates that restrictions in some cases can be removed by common consent of the buyer, seller, and representatives of the persons (or their heirs) responsible for inserting the restriction in the deed.

Quitman Church of Christ v. Guy Church of Christ, 2023 Ark. Cir. LEXIS 18816.

Reversionary clauses: A checklist for churches

Many churches received title to their property by means of a deed containing a restriction. It is imperative for church leaders to be aware of such conditions.

Consider the following points:

Never purchase property without a clear understanding of the existence of any restrictive covenants and how such covenants may limit the church’s use of the property. The presence of a restrictive covenant can prevent a church from using property for its intended purpose. In most cases, restrictive covenants will be spelled out, or referenced, in the deeds to church property.

If your church owns property, be sure you are familiar with any restrictive covenants before you plan any changes in the use of the property.

Deeds to property may contain restrictions on the sale of the property. Two common restrictions are “powers of reentry” and “possibilities of reverter.” These interests are very similar, but they have very different legal consequences. A possibility of reverter arises when one person transfers property to another by means of a deed containing language clearly providing that title will automatically revert to the prior owner if the current owner violates a restriction in the deed. Language creating a possibility of reverter includes words such as “so long as,” “until,” or “until such time as.” To illustrate, assume that A transfers land to B with a deed specifying that title is transferred “so long as” B uses the property for church purposes. Here, the language is clear that if the land ceases to be used for church purposes, it will automatically revert to A. The significance of this is that the reversion of title to A is automatic, and requires no action by a court. On the other hand, deeds often contain conditions that do not call for an automatic reversion of title to the previous owner upon the occurrence of some condition. In such cases the prior owner has a “right of reentry.” Such a right does not vest automatically in the prior owner. Rather, the prior owner must go to court to have his or her interest recognized. As this case illustrates, this is a more uncertain interest in property, since it does not operate automatically.

Churches should check their deeds to see if they contain a condition that may give the prior owner either a possibility of reverter or a right of reentry. In either case, the prior owner may attempt to claim title to the church’s property in the event the specified condition is violated. However, if the prior owner retained a possibility of reverter, the transfer of title back to the prior owner occurs immediately. This can cause major problems for a church when it belatedly discovers that it no longer owns the property.

The courts generally have a negative attitude toward restrictions on the sale of property by charities. Some states have enacted laws giving the civil courts some leeway in extinguishing such restrictions. If your church deed contains restrictions on the sale of property, you may want to consult with a local attorney concerning the existence of such a law in your state.

In some cases, restrictive covenants can be modified or ignored because of widespread disregard by property owners, or because of substantial changes in the properties subject to the restrictions. However, as the church in this case learned, establishing such an exception can be a very costly legal battle that may take years. The attorneys fees you incur ordinarily will not be covered by any insurance policy, so they will be an expense the church must bear. Church leaders should never assume that a covenant can be ignored. Check with a real estate attorney for an opinion regarding the current viability of a covenant.

It is possible in some cases to have conditions “released” by the previous owner (if he or she is willing to do so). Often this is done by having the previous owner execute a quitclaim deed. If the previous owner is no longer living (a fairly common circumstance), then the condition can be released only by all of the legal heirs of the deceased owner. This can be a very cumbersome process.

Be sure your church complies with any deed restrictions to the extent you are unsuccessful in getting them removed.

When acquiring property through purchase or gift, discourage the property owner from encumbering the title with any restrictions that could later create substantial inconvenience for the church.

Church leaders also should be aware that restrictive covenants often provide that a property owner who violates the restrictions is required to pay the legal fees incurred by other property owners in enforcing them. In other words, restrictive covenants not only may prevent a church from using property for a purpose that violates the covenant, but they also may force the church to incur an unbudgeted and possibly substantial expense in paying the legal fees of neighbors who successfully sue to enforce the covenant.

Legal Developments

Florida Court Defers to Ecclesiastical Abstention Doctrine in Church Property Dispute

Appellate court says an existing relationship between a church and denomination prevents it from deciding a dispute.

Richard R. Hammar, Attorney, CPA

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State: Florida
Categories: Church Property

A Florida appellate court ruled that the “ecclesiastical abstention doctrine” prevented it from deciding whether a local church or a parent denomination owned the church’s property.

Key point 7-03.2 Some courts apply the “compulsory deference” rule in resolving disputes over the ownership and control of property in “hierarchical” churches. Under this rule, the civil courts defer to the determinations of denominational agencies in resolving such disputes.

A man was ordained as a pastor by the Church of the Nazarene, and founded the “Iglesia Church,” (“Iglesia”) serving as its pastor.

The bylaws of Iglesia were the “Manual of the Church of the Nazarene” (“the Manual”), which is the governing document of the denomination.

In 2003, Iglesia sought to purchase property but could not qualify for a mortgage, so the district (a regional denominational agency) agreed to co-sign for the mortgage. Title to the property was then conveyed to the district at the sale closing.

By 2007, the district had been assessed over $1 million in fines for municipal code violations on the property. The district then recorded a warranty deed transferring title and fee simple ownership of the property to Iglesia.

Notably, the warranty deed’s language contained no restrictions or reversionary rights in favor of the district, and simply conveyed title to the property to Iglesia.

In 2014, Iglesia resolved to withdraw from the denomination, formalizing a corporate resolution stating that Iglesia would take all necessary action required by the Manual to withdraw. Specifically, the corporate resolution provided that, at a meeting of Iglesias’s corporate directors, the following action was authorized:

To take all necessary action required by the Manual of the Church of the Nazarene to withdraw Iglesia from the Church of the Nazarene including the execution of all documents [necessary] to meet all requirements necessary to complete the withdrawal.

Thereafter, the district voted to declare Iglesia a “church in crisis” per the Manual, to remove the names of the local church board members as the corporate officers, to appoint replacement persons as the local church’s governing board, and to transfer the subject property from Iglesia back to the district.

The church sued the district to establish its control over the church property. The district insisted the “ecclesiastical abstention doctrine” applied because of its hierarchical relationship with Iglesia. The ecclesiastical abstention doctrine is a court-made doctrine based on the First Amendment. It bars civil courts from resolving internal church disputes involving matters of governance and doctrine.

The district asserted that, pursuant to this doctrine, a civil court “cannot adjudicate who, within a church, is authorized to run that church,” and “to resolve the dispute of ownership of real property in this case, a court would necessarily need to decide which faction within the church controls it.”

The trial court acknowledged that if resolving the case required it to interpret provisions of the Manual—a matter reserved for the church—then that would be inappropriate.

When a United Pentecostal Church pastor in Texas fought to regain his post after resigning due to allegations of immoral behavior, he sued and lost in a case that shows how some courts define “church hierarchies” and apply the “deference rule” to those hierarchies.

The court also acknowledged that the issue of what occurred when the church was declared to be “in crisis,” and how the board was replaced, “presented circumstances very similar to cases in which the courts do not get involved, as such cases appear to relate to internal decisions dealing with subordinate churches.”

However, the trial court ruled in favor of the church. The trial court said it was irrelevant whether the church was hierarchical or not, and instead applied “neutral principles of Florida real estate and corporate law to real estate transactions between two nonprofit Florida corporations.”

The district appealed.

The appellate court’s ruling

On appeal, the district again contended that the trial court should have dismissed the lawsuit pursuant to the ecclesiastical abstention doctrine.

The appellate court, applying a “two-pronged inquiry” established by the US Supreme Court (Watson v. Jones, 80 U.S. 679 (1872)) as well as prior Florida court decisions, concluded first that the trial court failed to give proper deference to church authority. Applying such deference, the appellate court said “the trial court was obligated to defer to [the district’s] characterization of the Church of the Nazarene as hierarchical in nature and to recognize, as a matter of law, that it is a hierarchical church.”

Continuing the inquiry, the appellate court secondly concluded the record showed Iglesia “was affiliated with the Church of the Nazarene, and that its withdrawal from the Church of the Nazarene would need to meet the Manual’s requirements,” raising questions of governance, control, and process “subject to the ecclesiastical abstention doctrine.”

The appellate court remanded the case to the trial court to correctly apply the two-pronged inquiry based on Watson and Florida precedent.

What this means for churches

This case demonstrates the ways civil courts carefully examine relationships between local churches and denominational agencies. Because of constitutional considerations, courts are concerned whether the ecclesiastical abstention doctrine bars them from resolving church disputes.

Here, the trial court reached one conclusion based on its examination, only for the appellate court to conclude the trial court made a mistake. The ecclesiastical abstention doctrine applied.

Additionally, this case again shows how church property disputes can trigger questions about governance and control between local churches and denominational agencies. In general, the United States Supreme Court has approved two methods for resolving church property disputes.

The first approach is the “principle of government” approach (sometimes called the “compulsory deference” approach), “whenever the questions of discipline, or of faith, or ecclesiastical rule, custom, or law have been decided by the highest of these church judicatories to which the matter has been carried, the legal tribunals must accept such decisions as final, and as binding on them, in their application to the case before them.” (Watson v. Jones, 80 U.S. 679 (1871)).

The second approach is called the “neutral principles of law” approach. Under this approach, the civil courts “rely upon provisions of state statutory law governing the holding of property by religious corporations, upon language in the deeds conveying the properties in question to the local church corporations, upon the terms of the charters of the corporations, and upon provisions in the constitution of the [national church] pertinent to the ownership and control of church property.” Md. & Va. Churches v. Sharpsburg Church, 396 U.S. 367 (1970).

Note two important points:

First, while a majority of courts have endorsed the “neutral principles approach,” many apply the “compulsory deference rule,” which allows denominations themselves to sort out and resolve controversies over the ownership of church property.

Second, even in states recognizing the neutral principles approach, there are at least three ways for denominational agencies to respond:

1. Denominational agencies can create trust provisions in their governing documents that are affirmatively accepted by affiliated churches. While the Florida court did not mention it, an argument can be made that churches in some cases do affirmatively consent to provisions in the governing documents of a parent denomination that seek to impose a trust on church property if, for example, churches and their representatives comprise some or all of the voting delegates at denominational meetings in which governing documents are adopted and amended.

Under these circumstances, which are common, denominational governing documents are not imposed unilaterally by the national church on affiliated churches. Rather, the churches themselves, by their delegates and representatives, adopt and amend the denominational governing documents at the official meetings of the denomination. This provides a compelling case of an affirmative assent by affiliated churches to the provisions of their denominational governing documents, but it is an argument that the Florida court failed to address, perhaps because it was not raised.

2. It is possible in some cases that church property is subject to an implied or resulting trust in favor of a denominational agency. Again, there must be an affirmative manifestation of intent by a church that its property is subject to such a trust.

3. In Jones v. Wolf, 443 U.S. 595 (1979), the Supreme Court noted there may be cases where a denomination’s governing documents incorporate “religious concepts in the provisions relating to the ownership of property. If in such a case the interpretation of the instruments of ownership would require the civil court to resolve a religious controversy, then the court must defer to the resolution of the doctrinal issue by the authoritative ecclesiastical body.” This means that it may be possible for the governing documents of national and regional churches to include provisions addressing ownership of local church property in a way that directly implicates religious doctrine. In such cases, the courts may be compelled to defer to the resolution of property disputes by the denominational authorities.

District Advisory Board v. Centro De Alabanza Oasis, 338 So. 3d 936 (Fla. App. 2022).

Legal Developments

City Ordered to Pay Fees, Damages for RLUIPA Violation

St. Pete Beach sought to restrict the beachfront church from soliciting donations from the public in exchange for the use of its parking lot.

Richard R. Hammar, Attorney, CPA

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State: Florida
Categories: Church Property

Key point 7-06.4 The federal Religious Land Use and Institutionalized Persons Act prohibits state and local governments from imposing a land use regulation in a manner that imposes a substantial burden on the exercise of religion unless the regulation is in furtherance of a compelling governmental interest and is the least restrictive means of furthering that compelling governmental interest.

A federal court in Florida awarded a church $254,000 in attorneys’ fees and $15,000 in damages in a lawsuit alleging a city government’s actions constituted a violation of the federal Religious Land Use and Institutionalized Persons Act of 2000 (RLUIPA).

The church sued after the city imposed its land use regulations to prohibit the church from allowing the public to park in its parking lot for free. The church solicited donations, but they were optional. The city fined the church $1,000.

The church alleged that the city violated RLUIPA by imposing its regulations to restrict the church’s use of its parking lot. The court entered a preliminary injunction securing the church’s religious rights with respect to the church’s use of its parking lot.

Wondering what RLUIPA means to your church or religious organization? Spend some time listening in on our virtual roundtable series addressing this important topic with Attorney and Church Law & Tax senior editorial advisor Midgett Parker.

The parties then reached a settlement agreement resolving all of the issues except for the amount of attorneys’ fees the church would be awarded.

In particular, the settlement agreement provided that the church may continue to allow the general public to park in its off-street parking lot and solicit charitable donations. The city also agreed to pay the church $15,000 in damages. Since the church was the prevailing party under RLUIPA, it became entitled to attorneys’ fees.

The court ultimately ruled the church was entitled to $254,000 in attorneys’ fees.

What this means for churches

RLUIPA specifies that state and local governments cannot subject religious organizations to a land use law that imposes substantial burdens on the free exercise of religion unless the law is supported by a compelling governmental interest. It specifies:

No government shall impose or implement a land use regulation in a manner that imposes a substantial burden on the religious exercise of a person, including a religious assembly or institution, unless the government demonstrates that imposition of the burden on that person, assembly, or institution—(A) is in furtherance of a compelling governmental interest; and (B) is the least restrictive means of furthering that compelling governmental interest.

It should be noted that RLUIPA provides for attorneys’ fees to the prevailing party in any litigation.

The law states: “In any action or proceeding to enforce a provision of … the Religious Land Use and Institutionalized Persons Act … the court, in its discretion, may allow the prevailing party, other than the United States, a reasonable attorney’s fee.” (42 USC §1988)

This is an important point for church leaders to keep in mind when they succeed in lawsuits against state and local government agencies for violations of RLUIPA.

Pass-A-Grille Beach Community Church v. City of St. Pete Beach 2022 WL 1242482 (M.D. Fla. 2022).

Legal Developments

A Church Loses Land to a Family That Maintained It for Years

A long list of multiple uses and actions performed by the plaintiffs over decades showed the property became theirs through “adverse possession.”

Richard R. Hammar, Attorney, CPA

Bio

State: Connecticut
Categories: Church Property

Key point 7-18. Churches can lose a portion of their property to a neighboring landowner as a result of “adverse possession,” if the neighbor openly and adversely occupies church property for the length of time prescribed by state law.

A Connecticut court ruled that a church lost property it owned as a result of adverse possession.

Background

Since 1997, a family (the “plaintiffs”) maintained a property in Connecticut that a church believed it owned. The plaintiffs performed all routine maintenance and landscaping, provided upgrades, and paid all property taxes and insurance. The plaintiffs also rented out the property to different parties at various times and collected the rent.

The types of maintenance, repairs, upgrades, and landscaping performed by the plaintiffs was extensive. They made improvements to the siding, windows, and electric system; drilled a new well; replaced a shower enclosure; replaced the roof twice; paved the driveway; replaced the oven and range; replaced flooring; replaced the furnace; remodeled the kitchen; and installed a new septic system.

Proving adverse possession

Based on the evidence list above, a court ruled that the church lost ownership of the property due to adverse possession. The court explained:

The law of adverse possession is well-established. [Connecticut law] establishes a fifteen-year statute of repose on an action to oust an adverse possessor. “The essential elements of adverse possession are that the owner shall be ousted from possession and kept out uninterruptedly for fifteen years under a claim of right by an open, visible and exclusive possession of the claimant without license or consent of the owner.”

“The legal significance of the open and visible element [of adverse possession] . . . requires a [court] to examine the extent and visibility of the claimant’s use of the . . . property so as to determine whether a reasonable owner would believe that the claimant was using that property as his or her own. In general, exclusive possession can be established by acts . . . as would ordinarily be exercised by an owner in appropriating the land to his own use and the exclusion of others. Thus, the claimant’s possession need only be a type of possession which would characterize an owner’s use. It is sufficient if the acts of ownership are of such a character as to openly and publicly indicate an assumed control or use such as is consistent with the character of the premises in question.”

“It is true . . . that it is not essential to the establishment of title by adverse user that a claim of ownership be made; title may be acquired even though the possessor knows that he is occupying wholly without right; all that is necessary to prove is that there was a user as of right, that is, one in disregard of any rights of the holder of the legal title.” . . . “Hostile occupancy implies lack of consent[.] . . . As a general proposition, to satisfy the hostility requirement of adverse possession, a claimant’s possession of the disputed land, from its inception, must be without permission, license or consent of the owner and must continue to be so throughout the required fifteen year period.”

The court noted that one of the plaintiffs provided an affidavit setting forth facts to establish each of the elements of adverse possession:

[The plaintiff] swore to over 24 years of exclusive use of the property together with a very explicit list of work at the property to demonstrate exclusive use. This use was of the sort that would have [been] ordinarily performed by an owner and would have been open and obvious to anyone looking at the property.

Additionally, the church did not present any evidence refuting what the plaintiffs stated.

The court concluded that the plaintiffs “have presented evidence which clearly and positively proves all of the elements of adverse possession.” It found in favor of the plaintiffs, determining them to be “the rightful owners of the property by virtue of the doctrine of adverse possession.”

What this means for churches

This case illustrates an important point. Churches may lose title and ownership of some—or even all—of their property by adverse possession if another party uses the church’s property openly and in defiance of the church’s interest.

More about Adverse Possession

Learn more about adverse possession in the Legal Library.

Also see how an Indiana court ruled against a church in a different adverse possession case, which involved a discrepancy over a property line between a church and a neighboring landowner. The court emphasized the four clear and convincing elements that could lead to loss of land through adverse possession.

In many cases, a church loses ownership of property through adverse possession because it fails to object to another’s substantial use of its property. This often will include maintaining the property (i.e., mowing the yard, shoveling snow, erecting a fence, and so on), making repairs to the property, paying for insurance, and paying taxes.

Note that the adverse use must be for a period of time specified by state law. This can be as few as 5 years, but it is more commonly 10, 15, or 20 years.

Freedman v. Teachers Coll., Colum. Univ., 2021 WL 6551965 (Conn. App. 2021)

Legal Developments

Understanding Restrictions Placed on Property Deeds

Ruling offers insights into two types of conditions that may affect how a church owns, uses, sells, or gives away its land.

Richard R. Hammar, Attorney, CPA

Bio

State: Texas
Categories: Church Property

Key point 7-14. Some deeds to church property contain a “reversion” clause stating that title will revert back to the previous owner in the event that a specified condition occurs. The courts will enforce such provisions, so long as they can do so without interpreting church doctrine.

Deeds to church property may contain restrictions on the sale or use of the property imposed by the prior owner. A recent ruling by a Texas court illustrates why it is important for church leaders to be familiar with any such restrictions prior to any changes involving church property, including a different type of use or a transfer of the property to another party through a sale or gift.

Background

In 1935, George Dew conveyed to a church a two-acre tract of land. The deed provides:

It is the intention and purpose of the grantor herein to convey the surface rights in the above described land to said religious organization and its successors, for use as a church premises and for such religious purposes, with the understanding and agreement that if said premises are not used for said purposes, or if used and thereafter abandoned for religious purposes, then said premises herein granted are to revert to the grantor.

To have and to hold said premises as above described unto said religious organization and its successors and assigns, for use only as a church premises and for religious purposes so long as said premises are used for said purposes, subject to the condition that said premises herein granted shall in the event said premises are not used for said purposes, or should they be used for religious purposes and thereafter abandoned for said purposes, then said premises are to revert to the grantor.

Dew died a few weeks after the conveyance.

In recent years, the church sued Dew’s heirs in order to determine the status of the property. The church asked the court for a declaration that Dew’s reversionary interest terminated upon his death.

The church alleged, and the court found, that donors and investors were denying the church financial assistance to expand “because it is believed that [Dew’s heirs] may have some future nonpossessory vested interest in the property.”

One of Dew’s heirs counterclaimed for a declaratory judgment that she is “a holder of a reversionary interest under the terms of the deed.”

The trial court concluded:

Dew conveyed to the church “a fee simple surface estate, subject to a condition subsequent” and not a “fee simple determinable with possibility of reverter”;

Any right of entry for breach of the condition subsequent “was solely for the life of [Dew] and terminated upon his death on December 28, 1935, and therefore the condition subsequent is now invalid and unenforceable[.]”

The trial court signed a final judgment consistent with these findings, declaring, among other things, that Dew’s heirs have no future interest in the property.

One of the heirs appealed.

“Possibility of reverter” or “right of entry”

On appeal, the parties agreed that the following excerpts from George Dew’s will created a “future interest” (emphasis added):

“[W]ith the understanding and agreement that if said premises are not used for [religious] purposes . . . then said premises herein granted are to revert to the grantor.”

“[S]ubject to the condition that said premises herein granted shall in the event said premises are not used for said purposes . . . then said premises are to revert to the grantor.”

The parties asked the court to determine if the “reversionary interest” in George Dew’s will was a “possibility of reverter” or “right of entry.” The court explained the difference between these two kinds of future interests in property:

The historical distinction between the two types of reversionary interests is that a possibility of reverter is said to transfer possession of the property automatically to the holder of the reversionary interest upon satisfaction of a condition, while a right of entry requires some action on behalf of the holder of the interest to take possession of the property after the condition is broken. . . . Although the distinction often makes no difference. . . . We agree with the trial court and the Church that [the heir’s] interest was a right of entry rather than a possibility of reverter.

The parties agree that the deed uses language that has been associated with creating either a possibility of reverter or a right of entry. Language such as “so long as” and “revert” may indicate a possibility of reverter while language such as “subject to the condition” may indicate a right of entry. . . . When there is doubt which type of interest was intended, the doubt must be resolved in favor of a right of entry as it is “in a sense less onerous upon the grantee in that, under such a construction, the estate does not terminate automatically with the occurrence of the stated contingency, but only after re-entry or its equivalent is made by the grantor.”

Accordingly, we resolve any doubt in the church’s favor and hold that [Dew’s heirs] retained a right of entry rather than a possibility of reverter under the deed.

What this means for churches

This case is relevant to churches for three reasons.

1. Deeds to property may contain conditions on uses and transfers of the property

Two common restrictions on property (whether related to uses or transfers) are “powers of reentry” and “possibilities of reverter.” These interests are similar, but they have very different legal consequences. A possibility of reverter arises when one person transfers property to another by means of a deed containing language clearly providing that title will automatically revert to the prior owner if the current owner violates a restriction in the deed.

Language creating a possibility of reverter includes words such as “so long as,” “until,’ or “until such time as.”

To illustrate, assume that A transfers land to B with a deed specifying that title is transferred “so long as” B uses the property for church purposes. Here, the language is clear that if the land ceases to be used for church purposes, it will automatically revert to A. The significance of this is that the reversion of title to A is automatic and requires no action by a court.

On the other hand, deeds often contain conditions that do not call for an automatic reversion of title to the previous owner upon the occurrence of some condition. In such cases the prior owner has a “right of reentry.” Such a right does not vest automatically in the prior owner. Rather, the prior owner must go to court to have his or her interest recognized. As this case illustrates, this is a more uncertain interest in property since it does not operate automatically.

2. Check the church’s property deed for restrictions

Church leaders should check their property deeds to see if they contain conditions that may give the prior owner either a possibility of reverter or a right of reentry. In either case, the prior owner may attempt to claim title to the church’s property in the event the specified condition is violated.

However, if the prior owner retained a possibility of reverter, the transfer of title back to the prior owner occurs immediately. This can cause major problems for a church when it belatedly discovers that it no longer owns its property.

3. This case illustrates the courts’ negative attitude toward restrictions

This case demonstrates the negative attitude the courts have toward restrictions on the sale of property by charities. In some states, laws have been enacted giving the civil courts the authority to extinguish such restrictions. If your church deed contains restrictions on the sale of property, you may want to consult with a local attorney concerning the existence of such a law in your state.

Moroney v. St. John Missionary Baptist Church, 638 S.W.3d 698 (Tex. App. 2021)

Legal Developments

Protester Could Be Banned from Church Property—but Distance Restriction Found Improper

Attempt to prohibit a disruptive person from coming within 5,000 feet went too far, appellate court says.

Richard R. Hammar, Attorney, CPA

Bio

State: Pennsylvania
Categories: Church Property

Key point 7-17. Churches do not have to tolerate persons who disrupt religious services. Church leaders can ask a court to issue an order barring the disruptive person from the church’s premises. If the person violates the order, he or she may be removed from church premises by the police and may be found to be in contempt of court.

A state appellate court in Pennsylvania ruled that a trial court acted properly in banning a disruptive protester from church property, but it went too far in prohibiting the protester from coming within 5,000 feet of the church’s property.

Background

A man (the “protester”) moved to Philadelphia in 2008 and joined the Tenth Presbyterian Church, where he remained a member until the church excommunicated him in August 2016. The protester thereafter began picketing at the church regarding his excommunication and the conduct of certain current and prior church officials. The protester brought a defamation action against individual members of the church, but ultimately, a jury tendered a verdict against him.

After the verdict in the defamation action, the protester picketed outside of the church every Sunday, both before and after church services.

The church filed a complaint

On July 24, 2019, the church filed a complaint for an injunction and an emergency motion for a preliminary injunction seeking to restrict the protester from coming within 1,000 feet of all properties owned by the church. Following oral argument, the protester temporarily agreed to the church’s requested relief.

The trial court subsequently conducted a hearing on the church’s motion for a preliminary injunction in early 2020. The trial court described the evidence presented at that hearing as follows:

[The protester] testified [that] he began picketing outside [of the Church] after the March 22, 2019, jury verdict more frequently, with a sign that contained the phrase . . . “lying,” and rape[,]” because he was displeased with the results of the case. [The protester] further testified that he had protested while wearing a body camera and film[ed] congregants outside [of the Church property]. [The protester] testified that [a trial court Order and subsequent Opinion in the defamation case] misrepresented the truth. [The Church’s former administrator] testified that [the protester] frequently wore a visibl[y] “concealed” firearm to [C]hurch when he was a member[,] and that he continued the practice while picketing with the sign and body camera. [The former administrator] testified that [the protester] would verbally harass and yell at congregants outside [the Church] and then post body camera videos on a blog. [The senior pastor of the Church] testified that [the protester] called him the “son of Satan” and a liar. [The pastor] testified that [the protester] had verbally disparaged [the protester’s] own family for not committing to his protest and not being faithful, including referring to [the protester’s] wife as Job’s wife. . . . [The pastor] also testified that [the protester] seemed preoccupied with safety and firearms, such that he would stand beside [the pastor] and point out individuals who[m] he thought were carrying firearms. [The protester’s] fixation on security and policing[,] even minor behavior of [the C]hurch congregants[,] went on for years and included concerns about stolen phones, money, and immigrants. [The protester] himself provided testimony that he has been the only individual telling the truth, that he has mailed 100 pages of material to 200 members of the Church, that he will never stop any of his behaviors until [the Church’s] leadership has resigned in full, and that [the Church] was trying to poison him and hire a hitman to assassinate him. . . . [A congregant] testified that outside of [C]hurch services on June 16, 2019, [the protester] told her he was an instrument of God, similar to a prophet, and that only [he] knows the true nature of [the pastor’s] soul. [The protester] went on to tell [the congregant] that [the pastor] was a son of Satan, and that any congregants who support [him] are doing Satan’s work. [The protester] also told [the congregant] that he was unhappy with his wife, described her as Job’s wife because she did not support him, and that his oath to remove [the pastor] from the [C]hurch was more important to him than his family.

. . . [The trial court] granted [the Church’s] motion and enjoined [the protester] from appearing within five thousand (5,000) feet of [the Church’s] properties.

The protester claimed his activities were constitutionally protected

Thereafter, the protester appealed, claiming that the trial court improperly barred him from constitutionally protected peaceful protest. He insisted that his activities were protected under the First Amendment to the United States Constitution.

According to the protester, his claims implicate his constitutional right to freedom of speech. The First Amendment provides as follows:

Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.

The United States Supreme Court has mandated that court orders affecting First Amendment rights “must be tailored as precisely as possible to the exact needs of the case.” . . . Therefore, “[a]n order issued in the area of First Amendment rights must be couched in the narrowest terms that will accomplish the pin-pointed objective permitted by constitutional mandate and the essential needs of the public order” (emphasis added).

In addition, the Pennsylvania Constitution provides:

The free communication of thoughts and opinions is one of the invaluable rights of man, and every citizen may freely speak, write and print on any subject, being responsible for the abuse of that liberty.

Thus, under Pennsylvania law, “peaceful picketing conducted in a lawful manner and for a lawful purpose is lawful.”

While the appellate court agreed with the trial court that an injunction barring the protester from church property was valid, it concluded that the trial court’s decision banning him from being within 5,000 feet of the church was excessive:

[W]e agree that the trial court had “apparently reasonable grounds” for the imposition of a preliminary injunction against [the protester]. . . . However, we cannot conclude that the five-thousand-foot injunction imposed upon [the protester] was crafted so as to “be no broader than is necessary for the petitioner’s interim protection.” . . . Rather, the trial court couched its preliminary injunction in the broadest terms to protect the interest of the Church and its members, disregarding [the protester’s] constitutional right to protest the Church and its leadership. A five-thousand-foot restriction places [the protester] well beyond the point at which his constitutional right to protest is utterly extinguished. Put succinctly, the five-thousand-foot restriction is not “couched in the narrowest terms that will accomplish the pin-pointed objective permitted by constitutional mandate and the essential needs of public order.”

What this means for churches

While the First Amendment guarantee of free speech is robust, a church need not tolerate disruptive individuals. The courts will issue injunctions to ban a disruptive individual from attending church so long as this is done in the least restrictive means to ensure that the constitutional protection of speech is not compromised or infringed.

The court in this case concluded that banning a disruptive individual within 5,000 feet of the church’s property “places [the protester] well beyond the point at which his constitutional right to protest is utterly extinguished. Put succinctly, the five-thousand-foot restriction is not ‘couched in the narrowest terms that will accomplish’’’ the public interest.

Tenth Presbyterian Church v. Snyder, 266 A.3d 640 (Pa. App. 2021)

Legal Developments

Church Loses Property after Violating Deed Restriction

Why a New York court said a diocese’s building and land must be returned to the previous owner.

Richard R. Hammar, Attorney, CPA

Bio

State: New York
Categories: Church Property

Key point 7-14. Some deeds to church property contain a “reversion” clause stating that title will revert back to the previous owner in the event that a specified condition occurs. The courts will enforce such provisions, so long as they can do so without interpreting church doctrine.

A New York court enforced a provision in a deed of property to a Catholic diocese that called for the return of the property to the prior owner in the event it ceased to be used for religious purposes.

Background

In 1896, the president of a business corporation (the grantor) executed a deed by which the grantor transferred property in New York to a Catholic diocese.

The deed stated that the property was to be used “for [c]hurch purposes only . . . and in case the said premises shall be devoted to any other use than for [c]hurch purposes . . . this conveyance shall be void and the [grantor] shall have the right to re-enter and take possession of said premises and every part thereof.” Shortly thereafter, a church was erected on the property.

In 1937, the last surviving son of the grantor died. The will created a college and transferred to it all assets and legal interests. This included the right to reenter the property in the event the diocese no longer used it for religious purposes.

Appeals court: the property “reverted” to the grantor

In 2015, the diocese issued a decree that relegated the property to secular use and directed the removal of sacred objects. The college subsequently filed a lawsuit seeking a determination that these acts of the diocese caused title to the property to revert to the grantor and his successors. A trial court ruled in favor of the diocese, and the grantor appealed.

A state appeals court reversed the trial court’s ruling and concluded that the diocese was not the rightful owner of the property. It noted:

The main issue upon appeal is what interest, if any, remains in the [grantor and his heirs] as a result of the provision in the 1896 deed limiting [the diocese’s] use of the property to “[c]hurch purposes only.”

The court concluded:

[T]he 2015 decree from the Bishop . . . relegated the church “to profane but not sordid use,” and indicated that parishioners would be served by a nearby parish. The stained-glass windows and the altar were later removed, leaving only the pews. Under the canon law of the Roman Catholic Church, “if a church cannot be used in any way for divine worship and there is no possibility of repairing it,” it can be relegated to profane but not sordid use. “Profane use means use for purposes other than a Roman Catholic worship service,” and “sordid” limits that use, prohibiting any use that is disrespectful to the Catholic Church. Contrary to [the diocese’s] contentions, we find that [its] use of the property for church purposes ceased pursuant to the 2015 decree, thus violating the limitation in the 1896 deed. Accordingly, it reverted to [the grantor] which now owns the property . . .

[The diocese] took possession of the property and erected and enjoyed full use of the church for well over a century, fully aware of the limitation contained in the 1896 deed to use the property only for such purpose; upon ceasing to so use it, the property reverted . . . to [the grantor and his heirs], together with the fixtures thereon.

What this means for churches

Many churches received title to their property by means of a deed containing a restriction. It is imperative for church leaders to be aware of such conditions. Consider the following points.

Deeds to property may contain restrictions

Deeds to property may contain restrictions on the future sale of the property. Two common restrictions are “powers of reentry” and “possibilities of reverter.”

These interests are very similar, but they have very different legal consequences. A possibility of reverter arises when one person transfers property to another by means of a deed containing language clearly providing that title will automatically revert to the prior owner if the current owner violates a restriction in the deed. Language creating a possibility of reverter includes words such as “so long as,” “until,” or “until such time as.”

To illustrate, assume that Owner A transfers land to Church B with a deed specifying that title is transferred “so long as” Church B uses the property for church purposes. Here, the language is clear that if the land ceases to be used for church purposes, it will automatically revert to Owner A and his or her heirs.

The significance of this is that the reversion of title to Owner A is automatic and requires no action by a court.

On the other hand, deeds often contain conditions that do not call for an automatic reversion of title to the previous owner upon the occurrence of some condition.

In such cases the prior owner has a “right of reentry.” Such a right does not vest automatically in the prior owner. Rather, the prior owner must go to court to have his or her interest recognized. As this case illustrates, this is a more uncertain interest in property since it does not operate automatically.

Know what your deed says about reverter or right of reentry

Churches should check their deeds to see if they contain a condition that may give the prior owner either a possibility of reverter or a right of reentry.

In either case, the prior owner may attempt to claim title to the church’s property in the event the specified condition is violated. However, if the prior owner retained a possibility of reverter, the transfer of title back to the prior owner occurs immediately. This can cause major problems for a church when it belatedly discovers that it no longer owns its property.

Courts generally dislike deed restrictions that limit property owners

The courts generally have a negative attitude toward any restrictions placed on deeds. Some states have enacted laws giving the civil courts some leeway in extinguishing such restrictions. If your church deed contains restrictions on the sale of property, you may want to consult with a local attorney concerning the existence of such a law in your state.

Conditions could be “released” by the previous owner

It is possible in some cases to have conditions “released” by the previous owner (if he or she is willing to do so). Often this is done by having the previous owner execute a quitclaim deed. If the previous owner is no longer living (a fairly common circumstance), then the condition can be released only by all of the legal heirs of the deceased owner. This can be a very cumbersome process.

Discourage restrictions

When acquiring property through purchase or gift, discourage the property owner from encumbering the title with any restrictions that could later create substantial inconvenience for the church.

Note: For case studies and additional information, see “Reversion of Church Property to the Prior Owner,” the section in our Legal Library from which the above points were taken.

Paul Smith’s College of Arts and Sciences v. Roman Catholic Diocese, 130 N.Y.S.3d 547 (N.Y. App. 2020).

Legal Developments

Churches Sued for Damages to a Neighboring Property

Landowners may face liability if their actions result in environmental damage to neighboring properties.

Richard R. Hammar, Attorney, CPA

Bio

State: Connecticut
Categories: Church Property

Key point. A church should understand three things about liability for environmental damages to a neighboring property: (1) such damages often are excluded from coverage under conventional liability insurance policies; (2) churches should not acquire property by purchase or gift without conducting an environmental site assessment; (3) churches might be protected by satisfying certain requirements under the Comprehensive Environmental Response, Compensation, and Liability Act.

A Connecticut appeals court ruled that two churches jointly owning property could be responsible for environmental damage they caused to a neighboring property due to a leaking fuel tank.

Background

A man (the plaintiff) purchased residential property in 2004. In preparation for his purchase, he hired a home inspection company to perform an inspection. The inspector noted that there was minor oil seepage from an oil tank in the plaintiff’s basement, and that there was a strong odor of fuel oil.

Since 1951, two neighboring churches (the defendants) have jointly owned property abutting the plaintiff’s property. In 2006, the defendants removed a 550-gallon underground oil tank located approximately four feet from the plaintiff’s property. They replaced it with a 275-gallon above-ground steel tank, which was placed in their building’s basement.

After heavy rains in the spring of 2009, a neighbor noticed oil coming from a pipe that carried excess water from the plaintiff’s basement sump pump to the walkway in front of the plaintiff’s house. The neighbor called the fire department, which shut off the sump pump.

Eventually, the Connecticut Department of Energy and Environmental Protection (department) became involved. The supervising environmental analyst for the department’s remediation division conducted an investigation of potential contamination of the defendants’ property.

The department completed a limited subsurface investigation report in which it noted that it had found the presence of fuel oil in the soil and in the groundwater of the properties.

The report concluded that the oil being released from the sump pump in the plaintiff’s basement originated from the underground oil tank that had been removed from the defendants’ property. The report also concluded that it could not rule out a secondary source for the soil contamination in the plaintiff’s basement.

The department requested that the defendants retain an environmental consultant to assist in further investigation and remediation of contamination on the properties.

The defendants hired a local environmental contractor to excavate the area where the underground storage tank had been located. In 2011, the contractor removed approximately ten tons of contaminated soil and placed it under a polyethylene cover on the paved driveway of the plaintiff’s property.

The defendants also hired another firm to investigate the properties and develop a remediation plan. The defendants hired the company that had removed their underground tank to remediate the contaminated soil. The company excavated soil from a depth of approximately eight feet, beginning at the location of the former oil tank.

Evidence of soil contamination, including odors and elevated organic vapor readings, was noted from approximately five and one-half feet to eight feet below the ground throughout the excavation area. Soil samples were collected, however, and testing of the samples confirmed the existence of distilled home heating oil, a type of fuel oil, in excess of the department’s remediation criteria. The company concluded that there remained significant concentrations of petroleum in the soil near the plaintiff’s home and garage. The company further concluded:

the source of the contamination under the home and in the soil adjacent to the home and garage was the defendants’ former underground oil tank,

it would take tens of years for the petroleum to degrade to a safe level, and

the cost of excavation and disposal of the remaining contaminated soil could exceed the value of the plaintiff’s property.

The Plaintiff sues the churches for ongoing contamination

The defendants declined to pay for any additional remediation costs, including those recommended by the department.

In 2016, the plaintiff sued the defendant churches for the ongoing contamination of the soil, groundwater, and the basement on the plaintiff’s property. Following several days of testimony by environmental experts, a jury returned a verdict in favor of the defendants.

The plaintiff immediately appealed. A state appeals court reversed the trial court’s ruling and ordered the case to proceed to a new trial. It reasoned that the trial court’s decision was “clearly erroneous and . . . legally unsound.”

What this means for churches

This case illustrates the potential liability a landowner faces if its actions result in environmental damage to neighboring properties. Here are a few things church leaders should do or keep in mind.

Find out if your church has coverage for environmental damage

Environmental damages often are excluded from coverage under conventional liability insurance policies, meaning that a landowner may be responsible for some or all costs of remediation. Check with your church’s insurer to see if this coverage can be provided.

Don’t purchase or accept a gift of land without an environmental site assessment

Churches should not acquire property by purchase or gift without conducting an environmental site assessment to determine if contamination is present. In general, this assessment provides answers to many of the questions regarding potential cleanup costs and environmental liability associated with contaminated properties. Potential buyers of a contaminated site may reduce their liability if the appropriate environmental site assessments are performed prior to purchase.

Phase I of an environmental site assessment aims to identify recognized environmental conditions that may be further investigated through a phase II assessment. If the phase I assessment does not identify any recognized environmental conditions, a phase II assessment is not needed. If a phase I assessment identifies any recognized environmental conditions, a phase II assessment may be conducted.

Understand the “innocent landowner defense”

Historically, under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA, commonly known as Superfund), the current or former owner of a contaminated property could be held responsible for the property’s cleanup, based solely on current or prior ownership (i.e., the contamination is noted in the chain of title). As a result, parties that wanted to purchase contaminated properties were often concerned about incurring Superfund liability once they acquired the property.

To address this concern, CERCLA was amended in 1986 and 2002 to create an “innocent landowner defense.” However, the 2002 CERCLA amendments clarified the “innocent landowner defense” to require the landowner to meet a set of continuing obligations.

CERCLA distinguishes three types of innocent landowners. The one most relevant to churches pertains to purchasers who acquire property without knowledge of contamination and who have no reason to know about the contamination.

However, note that persons desiring to qualify as innocent landowners must perform “all appropriate inquiries” prior to purchase and cannot know, or have reason to know, of contamination in order to have a viable defense as an innocent landowner. The 2002 amendments amended the innocent landowner defense by elaborating on the “all appropriate inquiries” requirement.

In some cases churches will be protected by the innocent landowner defense to environmental contamination claims, but this assumes that they satisfy the “continuing obligations” and “all appropriate inquiries” requirements. These are highly technical matters for which legal counsel is essential. Crouzet v. First Baptist Church, 239 A.3d 321 (Conn. App. 2020)

Legal Developments

Church Loses Land Title by “Adverse Possession”

A church lost title by adverse possession to a portion of its property that was openly and continuously used by a neighboring landowner for several years without objection.

Richard R. Hammar, Attorney, CPA

Bio

State: Indiana
Categories: Church Property

Key point 7-18. Churches can lose a portion of their property to a neighboring landowner as a result of “adverse possession,” if the neighbor openly and adversely occupies church property for the length of time prescribed by state law.

An Indiana court ruled that a church lost title by adverse possession to a portion of its property that was openly and continuously used by a neighboring landowner for several years without objection.

A church subdivided part of its property as part of a plan to sell a portion of it. A survey was conducted prior to the subdivision of the property. This survey revealed a discrepancy in the property line between the church’s property and the property of a neighboring landowner (the “plaintiffs”). The area in question (the “disputed area”) was a triangular shaped area along the parties’ property lines. The disputed area was confirmed in a subsequent survey.

The plaintiffs’ garage has been partially located in the disputed area since before the plaintiffs purchased the property in 1983. A shed belonging to the plaintiffs is also located in the disputed area. In 1995, the plaintiffs replaced the original fencing and, in 2003, rebuilt their garage. Both the new fencing and the garage were rebuilt in the exact location as the prior fence and garage. The plaintiffs have always taken responsibility for the upkeep of the disputed area and have always used the land in question and mowed it. The plaintiffs have been paying taxes on the disputed area since purchasing their property in 1983.

In 2014, the plaintiffs filed a lawsuit to determine ownership of the disputed area. The trial court issued an order awarding title to the disputed area to the plaintiffs. The church appealed.

A state appeals court noted that the doctrine of adverse possession entitles a person without title to obtain ownership to a parcel of land upon clear and convincing proof of control, intent, notice, and duration, as follows:

Control—The claimant must exercise a degree of use and control over the parcel that is normal and customary considering the characteristics of the land (reflecting the former elements of actual, and in some ways exclusive, possession);

Intent—The claimant must demonstrate intent to claim full ownership of the tract superior to the rights of all others, particularly the legal owner (reflecting the former elements of claim of right, exclusive, hostile, and adverse);

Notice—The claimant’s actions with respect to the land must be sufficient to give actual or constructive notice to the legal owner of the claimant’s intent and exclusive control (reflecting the former visible, open, notorious, and in some ways the hostile, elements); and

Duration—the claimant must satisfy each of these elements continuously for [ten years].

In addition to these elements, “the adverse possessor must pay all taxes and special assessments that the adverse possessor reasonably believes in good faith to be due on the real property during the period the adverse possessor claims to have adversely possessed the real property.” Once the elements of adverse possession are established, “title to the disputed tract of land is conferred upon the possessor by operation of law, and title is extinguished in the original owner.” Further, “once title vests in a party at the conclusion of the ten-year possessory period, the title may not be lost, abandoned, or forfeited, even where the party pays rent to the titleholder, agrees to a survey to attempt to find the true boundary line, expresses satisfaction with a survey whose results are inconsistent with the property adversely possessed by him, or states that he does not claim the land and offers to buy it.”

In this case, the plaintiffs “continuously demonstrated the elements of adverse possession of the entire disputed area since 1983. As such, title vested with the plaintiffs no later than 1993, well before the church subdivided and sold a portion of its property. . . . We therefore conclude that any subsequent objection to the plaintiffs’ use of the disputed area by . . . the church was insufficient to undermine the plaintiffs’ ownership of the disputed area.”

What This Means For Churches:

This case illustrates an important point. Churches may lose legal title to property that they allow a neighboring landowner to use openly, adversely, and without objection for the prescribed period of time. As in this case, the question of adverse possession often arises as a result of a survey. And, as this court concluded, once title vests in a party by adverse possession, “the title may not be lost, abandoned, or forfeited, even where the party pays rent to the titleholder, agrees to a survey to attempt to find the true boundary line, expresses satisfaction with a survey whose results are inconsistent with the property adversely possessed by him, or states that he does not claim the land and offers to buy it.” Boas v. Hayden Methodist Church, 110 N.E.3d 1190 (Ind. App. 2018).

Legal Developments

Episcopal Diocese Wins Property Case in Breakaway Parish Movement

Most church property disputes can be resolved on the basis of neutral principles of law contained in deeds, local church charters and bylaws, and denominational bylaws.

Richard R. Hammar, Attorney, CPA

Bio

State: New York
Categories: Church Property

Key point 7-03.3. Most courts apply the “neutral principles of law” rule in resolving disputes over the ownership and control of property in “hierarchical” churches. Under this rule, the civil courts apply neutral principles of law, involving no inquiry into church doctrine, in resolving church property disputes. Generally, this means applying neutral legal principles to nondoctrinal language in any one or more of the following documents: (1) deeds to church property; (2) a church’s corporate charter; (3) a state law addressing the resolution of church property disputes; (4) church bylaws; or (5) a parent denomination’s bylaws.

A New York intermediate appellate court ruled that an Episcopal diocese was the rightful owner of the property of a local church that voted to disaffiliate from the denomination.

After operating as an Episcopal congregation for more than 100 years, the members of an affiliated church voted to incorporate as a nondenominational church. The following year the Episcopal diocese declared the church to be “extinct.” The diocese asked a court to determine who owned the church property. The trial court ruled that the diocese was the rightful owner of the church property, and this ruling was affirmed on appeal.

The appeals court began its opinion by noting that “by accepting the principles of the national church and the diocese for approximately 100 years, the [church] was subject to their canons, rules, and practices.” Those principles included the so-called “Dennis Canons,” adopted as Canons I.7.4 and I.7.5 of the Episcopal Church in 1979. These canons were adopted in response to the United States Supreme Court’s decision in Jones v. Wolf, 443 U.S. 595 (1979), in which the Court ruled that the governing documents of a hierarchical church can be crafted to recite an express trust in its favor concerning the ownership and control of local church property:

Through appropriate reversionary clauses and trust provisions, religious societies can specify what is to happen to church property in the event of a particular contingency, or what religious body will determine the ownership in the event of a schism or doctrinal controversy. In this manner, a religious organization can ensure that a dispute over the ownership of church property will be resolved in accord with the desires of the members.

To that end, Canon I.7.4 provides that all real and personal property held by or for the benefit of any parish, mission, or congregation is held in trust for the Episcopal Church and the diocese in which such parish, mission, or congregation is located. This canon also provides that the existence of this trust shall in no way limit the power and authority of the parish, mission, or congregation otherwise existing over such property, so long as that parish, mission, or congregation remains a part of, and subject to, the Episcopal Church and its constitution and canons.

The court noted that “the fact that the dissident church preexisted the Dennis Canons did not render those canons inapplicable” since “there is sufficient evidence of an intent to create an implied trust to hold church property in favor of the Episcopal Church and the diocese, based upon the … Episcopal Church’s establishment of an express trust in the relevant canons. Accordingly, both an express trust and an implied trust exist for the benefit of the [diocese] with respect to the real property held by the church. Consequently, upon the church’s schism from the Episcopal Church and the diocese in 2008, the church forfeited the real property under Canon I.7.4 of the Episcopal Church.”

What This Means For Churches:

The court correctly noted that most church property disputes can be resolved on the basis of neutral principles of law contained in deeds, local church charters and bylaws, and denominational bylaws. So long as a civil court can resolve such a dispute by referring to neutral provisions in these documents, without any inquiry into doctrine or polity, it may do so. It is worth observing that the United States Supreme Court has noted that one of the principal advantages of the neutral principles of law approach to resolving church property disputes is that it permits religious organizations to “order their affairs” in advance of a property dispute through “appropriate reversionary clauses and trust provisions” that could reflect the intentions of a church and its members. Many churches and denominational agencies have done so.

It is noteworthy that the court rejected the dissident church’s argument that it was not bound by the Dennis Canons since it never agreed to them. The court observed:

“[T]he fact that the dissident church preexisted the Dennis Canons did not render those canons inapplicable” since “there is sufficient evidence of an intent to create an implied trust to hold church property in favor of the Episcopal Church and the diocese, based upon the … Episcopal Church’s establishment of an express trust in the relevant canons.”

Episcopal Diocese of Long Island v. St. Matthias Nondenominational Ministries, Inc., 157 A.D.3d 769 (N.Y. Sup. 2018).

Legal Developments

Denominational Church Has No Ownership Interest in Breakaway Church, Rules South Carolina Court

Church Law and Tax Report Denominational Church Has No Ownership Interest in Breakaway Church, Rules

State: South Carolina
Categories: Church Property

Church Law and Tax Report

Denominational Church Has No Ownership Interest in Breakaway Church, Rules South Carolina Court

Key point 7-03.3. Most courts apply the “neutral principles of law” rule in resolving disputes over the ownership and control of property in “hierarchical” churches. Under this rule, the civil courts apply neutral principles of law, involving no inquiry into church doctrine, in resolving church property disputes. Generally, this means applying neutral legal principles to non- doctrinal language in any one or more of the following documents: (1) deeds to church property;(2) a church’s corporate charter; (3) a state law addressing the resolution of church property disputes; (4) church bylaws; or (5) a parent denomination’s bylaws.

Key point 7-04.Churches and denominational agencies can avoid church property disputes by adopting appropriate nondoctrinal language in deeds, trusts, local church bylaws, or denominational bylaws.

A South Carolina appeals court ruled that a denomination did not have a legal interest in the property of a local church that voted to disaffiliate from the denomination. A regional denominational agency of the African Methodist Episcopal Church (the “regional church”) claimed an interest in a 5-acre tract and bank account of a church that voted to disaffiliate from the denomination. A trial court ruled that the regional church failed to prove any ownership interest in the property or bank account, and the regional church appealed.

A state appeals court agreed with the trial court. In rejecting the regional church’s argument that the properties of all affiliated churches were held in trust for the national church according to the denomination’s Book of Discipline, the court pointed to a state law specifying that “to be valid, a trust of real property, created by transfer in trust or by declaration of trust, must be proved by some writing signed by the party creating the trust.” The court referred to a ruling by the state supreme court that provisions in denominational governing documents purporting to impose a trust on the property of affiliated churches “could not have created a trust over the local church’s property because, without legal title to the property, a denominational church could not declare the property was held in trust … . It is an axiomatic principle of law that a person or entity must hold title to property in order to declare that it is held in trust for the benefit of another or transfer legal title to one person for the benefit of another.” All Saints Parish Waccamaw v. Protestant Episcopal Church, 685 S.E.2d 163 (S.C. 2009).

The court noted that “nothing in the chain of title for the 5-acre tract suggests [that the local church] intended to hold the property in trust for the [national church] … . The [regional church] presented no signed documentation to indicate [the local church] ever intended or explicitly agreed to hold such property in trust for the [national church].”

The court also noted that simply including the denomination’s name in the church’s name did not demonstrate that the 5-acre tract was held in trust for the national church.

The court agreed with the trial court’s determination that the denomination had no legal interest in the church’s bank account. It noted that the disputed account consisted largely of donations by members for repair of the sanctuary, and that there was no evidence that the church intended for these funds to be held in trust for the denomination.

The church also owned a 13-acre tract, and when this tract was purchased, the deed provided that the tract was held in trust for the denomination. The court concluded that this tract was held in trust for the denomination, and that the church could not, on its own initiative, avoid this limitation: “A trust does not terminate or lapse merely by reason of the violation of the trust by the trustee.” The court noted that there was no evidence that the national church authorized the local church to convey the property to itself. Further, there was no evidence that the church had authority to revoke the trust or that the national denomination approved such a transfer.

What This Means For Churches:

This case illustrates the “neutral principles of law” approach to resolving disputes over the ownership of the property of local churches that vote to disaffiliate from a parent denomination. According to this court, a provision in a denomination’s governing document purporting to impose a trust upon the property of every affiliated church in favor of the denomination will be enforceable only if it comports with the requirements of a valid trust prescribed by state law. And, in South Carolina, this requires signed consent by a church to the imposition of the trust. It cannot be done unilaterally without the express consent of the churches that will be directly affected.

Note two important points. First, not all courts agree with this case. While a majority of courts have endorsed the neutral principles approach, many apply the “compulsory deference rule,” which allows denominations themselves to sort out and resolve controversies over the ownership of church property. Second, even in states recognizing the neutral principles approach, there are at least three ways for denominational agencies to respond:

1. They can create trust provisions in their governing documents that are affirmatively accepted by affiliated churches. While the South Carolina court did not mention it, an argument can be made that churches in some cases do affirmatively consent to provisions in the governing documents of a parent denomination that seek to impose a trust on church property if, for example, churches and their representatives comprise some or all of the voting delegates at denominational meetings in which governing documents are adopted and amended. Under these circumstances, which are common, denominational governing documents are not imposed unilaterally by the national church on affiliated churches. Rather, the churches themselves, by their delegates and representatives, adopt and amend the denominational governing documents at the official meetings of the denomination. This provides a compelling case of an affirmative assent by affiliated churches to the provisions of their denominational governing documents, but it is an argument that the South Carolina court failed to address, perhaps because it was not raised.

2. It is possible in some cases that church property is subject to an implied or resulting trust in favor of a denominational agency. Again, there must be an affirmative manifestation of intent by a church that its property is subject to such a trust.

3. The United States Supreme Court noted in the Jones case that there may be cases where a denomination’s governing documents incorporate “religious concepts in the provisions relating to the ownership of property. If in such a case the interpretation of the instruments of ownership would require the civil court to resolve a religious controversy, then the court must defer to the resolution of the doctrinal issue by the authoritative ecclesiastical body.” Jones v. Wolf, 443 U.S. 595 (1979). This means that it may be possible for the governing documents of national and regional churches to include provisions addressing ownership of local church property in a way that directly implicates religious doctrine. In such cases, the courts may be compelled to defer to the resolution of property disputes by the denominational authorities. McPherson v. Banks, 2015 WL 4275948 (S.C. App. 2015).

Legal Developments

Churches May Have Some Exemptions Without Violating Nonestablishment Clause

Church Law and Tax Report Churches May Have Some Exemptions Without Violating Nonestablishment Clause Key

State: Rhode Island
Categories: Church Property

Church Law and Tax Report

Churches May Have Some Exemptions Without Violating Nonestablishment Clause

Key point 7-09. A nuisance is any use of property that results in significant annoyance or discomfort to neighboring landowners. Some church activities may constitute a nuisance. The courts will weigh the annoyance and discomfort to neighboring landowners with the church’s constitutional right to exercise its religion. In some cases the courts may order a church to limit the activity causing the nuisance, or eliminate it entirely.

A federal district court in Rhode Island ruled that a city’s sound ordinance that exempted church bells did not violate the nonestablishment of religion clause of the First Amendment. A homeowner (the “plaintiff”) claimed that the excessive clapping, gonging, tolling, pealing, ringing, and chiming of the bells of two neighboring churches profoundly disturbed his right to the quiet enjoyment of his home, effectively forcing on him a “call to worship” that he does not want to hear. The plaintiff sued the city, claiming that its noise ordinance’s exemption of church bells violated his constitutional rights and constituted a public nuisance.

In 1995, a man (the plaintiff), his wife, and four children moved into an older home in the seaside Town of Narragansett, Rhode Island, located three blocks from the shores of Narragansett Bay. Because of the cooling effect of the Bay breezes, the home has never been air-conditioned. The family’s home was a block away from two churches, both of which had bell towers housing at least one bell. However, at that time, the bell in “Church A’s” belfry was inoperable and silent, while “Church B’s” bell was unamplified.

In 2001, Church A repaired and upgraded its bell, adding electronic amplification, a motor, a timer and a clapper. Church B also added electronic amplification. Since then, the bells of Church A chime four times on Saturday and Sunday, three times on Monday through Friday, in addition to marking weddings, funerals, and other special occasions. At 6 p.m. daily, the bells of Church A ring out a call to pray “the Christian prayer and devotion, the ‘Angelus.’ Meanwhile, the bells of Church B mark the hours during daylight. The plaintiff has measured the intensity level of the chiming, gonging, clapping, pealing, and pounding of these bells and alleges that it has approached 100 decibels.

The plaintiff claimed that the impact of this accumulation of sound has been catastrophic: despite no air-conditioning, he is forced to keep the storm windows closed and to wear earplugs, his marriage has collapsed, and he has been alienated from his children. Fearful of the impact of the amplified sound, he refrains from inviting his infant grandchildren to his home. Further, as someone who professes no religion, he alleges that he is deeply troubled by being forced to hear a call to worship in which he is not interested; he perceives that the amplified bells are forcing him to listen to proselytizing from which he cannot escape even in the privacy of his home.

The Town of Narragansett has had a noise ordinance that is designed to “promote an environment free from excessive noise without unduly prohibiting, limiting, or otherwise regulating the function of certain noise-producing equipment which is not amenable to such controls and yet is essential to the quality of life in the community.” The ordinance contains several exemptions, including “devices used in conjunction with places of religious worship” along with various secular bell exemptions.

The plaintiff sued the city of Narragansett, claiming its noise ordinance violated the nonestablishment of religion clause of the First Amendment. The court noted that the most common test for evaluating the constitutionality of a government practice challenged under the nonestablishment of religion clause was announced by the United States Supreme Court in a 1971 ruling, Lemon v. Kurtzman, 403 U.S. 602 (1971). Under the so-called Lemon test, a government law or regulation must satisfy three criteria to survive a challenge under the First Amendment’s nonestablishment of religion clause: It must (1) reflect a clearly secular purpose, (2) have a primary effect that neither advances nor inhibits religion, and (3) avoid excessive government entanglement with religion. The court concluded that each of these three conditions was met, and therefore the noise ordinance did not violate the First Amendment:

First, the noise ordinance’s “expressly stated purpose is purely secular—it regulates decibels, blind to the content of the affected speech, to protect town residents from noise disturbances while permitting noises that are essential to the quality of life.” The court noted that the noise ordinance exempted “performances by the ringing of bells in a tower,” a purely secular exemption “unrelated to religion since it applied equally to bells in a school, university, governmental building, factory, in short anywhere, and represent the secular determination of the town council that bells are a positive contributor to the quality of life in Narragansett and should not be subject to restrictions on sound.” The court concluded, “Mindful of the history and tradition of bell-ringing in Rhode Island and New England, I find that the noise ordinance reflects a clearly secular purpose.”

Second, the court concluded that the noise ordinance’s primary effect was not the advancement of religion. It acknowledged that the ordinance may benefit places of worship that have bells, but noted that “the nature of the benefit is secular and totally unrelated to whatever content the churches might choose to inject. Moreover … allowing people with religious faith to advance their religions is not what is meant by ‘establishment of religion.'” The court noted that Church B used it bells solely to toll time—an activity devoid of religious significance.

Third, the court concluded that the noise ordinance created no excessive entanglement between church and state.

The court referred to prior rulings by the Supreme Court concluding that two “religious” practices (legislative chaplains and opening city council meetings with prayer) survived establishment clause challenges on the basis of their long-standing status dating back to the founding of the nation and its Constitution. For example, the very Congress that adopted the First Amendment itself opened sessions with prayer and approved the employment of chaplains. The appeals court summarized the historical significance of bell ringing:

In New England, at the time of the founding of the nation, “eighteenth-century Americans inhabited a world in which bells sounded frequently, in different ways, and for a variety of purposes,” quoting Lubken, Joyful Ringing, Solemn Tolling: Methods and Meanings of Early American Tower Bells, 69 Wm. & Mary Q. 823, 823 (2012). For example, “tolling bells rang in Providence, Rhode Island, on March 2, 1775, when the Sons of Liberty consigned East India tea to the flames of a bonfire. Most communities used ringing to mark the passage of time, to open markets, to summon churchgoers to religious services and civic leaders to meetings, and to call inhabitants to mutual assistance in moments of danger. Ringing was also the method used for veneration and celebration: to observe the king’s (and later the president’s) birthday, to honor the arrival of important figures, to mark significant dates such as Christmas Eve and the anniversary of the thwarted Gunpowder Plot, and to respond to news of military and political victories.” As one historian put it, “bells and other devices—some seldom thought of as sonic instruments—did more than ring out to the heavens; they rang in the state.” Rath, How Early America Sounded 50 (2003). “New England towns used instrumental sounds to order their worlds. Bells were important from the very beginning of Puritan New England.” Id. Since the seventeenth century, they have become deeply embedded in both the New England and the national tradition. Narragansett’s decision to exempt performing and signaling bells—both secular and sectarian—reflects this historic legacy … .

Accordingly, this court must “acknowledge a practice that was accepted by the Framers [of the Constitution] and has withstood the critical scrutiny of time and political change.” (quoting the Supreme Court’s decision in Town of Greece, 134 S.Ct. at 1819)

The court noted that the United States Supreme Court “has long recognized a zone of permissible accommodation of religion within which governments may, and sometimes must, exempt religious practice from regulation without running afoul of the Establishment Clause” (citing Hobbie v. Unemployment Appeals Comm’n, 480 U.S. 136 (1987)). It then added:

To the extent that they have considered the question, courts have concluded that an exemption to a noise ordinance for church bells and chimes, even when allegedly content-based because linked to religious services, is a legitimate accommodation to religious belief. Such an exemption is not an impermissible establishment of religion under the First Amendment because church bells are a common part of the background noise of a city, a “traditional and generally unobtrusive aspect of a tranquil environment,” and have become “part of the fabric of our society … a tolerable acknowledgment of beliefs widely held among the people of this country.”

What This Means For Churches:

This case represents the most thorough analysis of the constitutional status of city noise ordinances that exempt specified religious and secular uses of bells from regulation. To the extent that such ordinances are neutral in scope, and do not accord religious organizations special favor that is denied secular organizations, there is no constitutional violation. Devaney v. Kilmartin, 88 F.Supp.3d 34 (D.R.I. 2015).

Legal Developments

The Importance—and Lack of Exceptions—for Filing Lawsuits, Claims within the Statute of Limitations

Key point 10-16.7. A liability insurance policy provides a church with a legal defense to

Richard R. Hammar, Attorney, CPA

Bio

State: South Dakota
Categories: Church Property

Key point 10-16.7. A liability insurance policy provides a church with a legal defense to lawsuits claiming that the church is responsible for an injury, and it will pay any adverse settlement or judgment up to the limit specified in the policy. Liability insurance policies exclude a number of claims. For example, some policies exclude injuries based on criminal or intentional acts and claims for punitive damages. A church has an obligation to promptly notify its insurer of any potential claim, and to cooperate with the insurer in its investigation of claims .

The Supreme Court of South Dakota ruled that a church's lawsuit seeking monetary damages against a contractor whose negligence in completing a remodeling project allegedly caused significant water infiltration had to be dismissed since it was filed after the deadline specified by the statute of limitations.

In 2002 a church contracted with a company ("contractor") for construction of a new addition and renovation of its existing structure. The contractor hired subcontractors to perform much of the work. The project was completed in 2003, and almost immediately the church experienced a variety of problems throughout the structure, including ice dams, bats in the church, chipping concrete, hail penetration, and drainage issues. But the overriding problem was water infiltration "throughout the structure." The water infiltration persisted and resulted in the church filing a lawsuit in 2010 against the contractor and subcontractors ("defendants"). The defendants asked the court to dismiss the lawsuit on the ground that it was filed after the six-year deadline imposed by the statute of limitations.

The church responded that its lawsuit was based in part on the project's structural design errors and construction errors. Because it did not know of the structural design errors and construction errors until it obtained an engineer's report in 2010, its claims did not accrue until 2010, making its suit timely. The church also argued that the doctrine of "equitable estoppel" prevented the defendants from benefiting from the statute of limitations.

Statute of limitations

The court noted that it was undisputed that the church knew water infiltration existed throughout the building almost immediately after construction was completed in 2003, and therefore the lawsuit's water infiltration claims were barred by the six-year statute of limitations.

The court then addressed the church's argument that "many of the structural deficiencies and defects discovered in 2010 had nothing to do with water infiltration," and as a result they were not time-barred by the statute of limitations. The defendants countered that "there have not been different acts constituting separate breaches of contract, but only the church learning the full extent of its damages."

The court noted that "statutes of limitations begin to run when plaintiffs first become aware of facts prompting a reasonably prudent person to seek information about the problem and its cause." The court concluded: "The church had actual notice of the water infiltration throughout its building prior to 2004. Whether that actual notice is enough to put it on constructive notice of its structural design error and construction error claims (making the structural design error and construction error claims accrue prior to 2004), is the heart of this case." The court stressed that it lacked sufficient information to resolve this question, and so it remanded the case back to the trial court to determine if the church's "actual notice of the water infiltration constitutes a sufficient circumstance to put a prudent person on inquiry of each of the construction error and design error claims." If the church "was put on actual or constructive notice of the alleged deficiency because of the actual notice of the water infiltration, then a claim based on that alleged deficiency is not a separate cause of action but accrued at the time of the water infiltration and is therefore barred by the statute of limitations." But, if the church was not put on actual or constructive notice of the alleged deficiency because of the actual notice of the water infiltration, then a claim based on that alleged deficiency is a separate cause of action with a separate accrual date."

Equitable Estoppel

The court noted that the statute of limitations may be "tolled" or suspended if the following four factors are established by clear and convincing evidence: (1) Defendants made false representations to or concealed material facts from the church; (2) the church did not have knowledge of the real facts; (3) the misrepresentations or concealment was made with the intention that it should be acted upon; and (4) the church relied upon those misrepresentations or concealment to its prejudice or injury.

The church claimed that the defendants lulled it into a "false sense of security" when they continually reassured it that the water infiltration would be fixed. The court disagreed: "Even if the church was lulled into a false sense of security that its problems would be fixed, it fails to identify a single fact demonstrating that defendants misrepresented or concealed material facts. Indeed, the defendants, on numerous occasions, attempted to fix the water infiltration and even stated that it did not know why the infiltration continued. In addition, the church had knowledge of the real facts of the case—that there was leaking throughout the building."

What this means for churches

This case illustrates an important point. No matter how meritorious a church's claims are against contractors and other vendors, those claims must be contained in a lawsuit that is filed prior to the expiration of the applicable statute of limitations. Statutes of limitations vary from state to state, and so it is important to be familiar with applicable state law. All states have different statutes of limitations based on the type of injury. For example, there will be different time limits for breach of contract, fraud, breach of warranty, and property damage. The takeaway point is to consult with legal counsel as soon as you believe that the church has a viable legal claim against another party. NEXT, Inc., 852 N.W.2d 434 (S.D. 2014).

Legal Developments

National Episcopal Church Owns Local Church Property

Local church votes to disaffiliate and loses ownership of church building.

State: Virginia
Categories: Church Property

Church Law and Tax Report

National Episcopal Church Owns Local Church Property

Local church votes to disaffiliate and loses ownership of church building.

Applying the “neutral principles of law” approach, the Virginia Supreme Court ruled that the national Episcopal Church owned the property of a local church that voted to disaffiliate from the denomination and align with the Church of Nigeria. The Protestant Episcopal Church in the United States of America (the “Episcopal Church”), organized in 1789, was the product of secession of the Anglican church in the colonies from the Church of England, the latter church itself being the product of secession from the Church of Rome in 1534. The Episcopal Church is governed by a general convention and a presiding bishop. In the United States, the Episcopal Church is divided geographically into dioceses, including the Diocese of Virginia. Each diocese is governed by a diocesan convention and a bishop. A diocese is itself divided into missions and parishes, which are individual churches where members meet to worship. A parish is governed by a rector and a board of elected lay persons called the vestry.

The Dennis Canon, and mutual consent

In 1979, the Episcopal Church added section 4 to Canon I.7 (Canon I.7.4, sometimes referred to as the “Dennis Canon”), which states:

All real and personal property held by or for the benefit of any Parish, Mission or Congregation is held in trust for this Church and the Diocese thereof in which such Parish, Mission or Congregation is located. The existence of this trust, however, shall in no way limit the power and authority of the Parish, Mission or Congregation otherwise existing over such property so long as the particular Parish, Mission or Congregation remains a part of, and subject to, this Church and its Constitution and Canons.

The dissident church claimed that the Dennis Canon did not apply to it since there was no evidence that it ever consented to it, or in any other manner conferred any rights in its property to the national church. The court, in rejecting this argument, observed:

To determine the issue of mutual assent, we look exclusively to the expressions of the parties’ intentions which are communicated between them. Here, the record clearly establishes that [dissident church] affirmatively assented to the constitution and canons. Upon joining the Episcopal Church and the diocese in 1836, it agreed to “be benefited and bound … by every rule and canon which shall be framed, by any Convention acting under this constitution, for the government of this church in ecclesiastical concerns.” Moreover, [dissident church’s] Vestry Manual states “The church is subject to the constitution and canons of the national church and of the Diocese.” Thus, contrary to its argument, it is clear that the church agreed to be bound by the constitutions and canons of both the Episcopal Church and the diocese.

Similarly, the court rejected the dissident church’s argument that the Episcopal Church and diocese acted in a unilateral manner in passing certain canons:

The record demonstrates that the adoption of the canons is hardly “unilateral.” The triennial General Convention, the highest governing body of the Episcopal Church, adopts … the constitution and canons. The General Convention is composed of representatives from each diocese. The legislative body of each diocese (referred to in Virginia as the “Annual Council”) selects the representatives that are sent to the General Convention. The Annual Council is composed of representatives from each of the churches and other congregations within the Diocese. Thus, it is clear that each canon, including the Dennis Canon, is enacted through a process resembling a representative form of government.

Moreover, even if the implementation of the canons were unilateral, the court concluded it would not matter. It quoted from an earlier ruling by the United States Supreme Court: “Religious freedom encompasses the power [of religious bodies] to decide for themselves, free from state interference, matters of church government as well as those of faith and doctrine.'” Kedroff v. St. Nicholas Cathedral, 344 U.S. 94 (1952). As a result, “even if implementation of the Dennis Canon was unilateral, this court would be powerless to address any issues of inequity wrought thereby, as to do so would involve judicial interference with religion and clearly violate the First Amendment.”

Course of dealing

The court found the prior “course of dealing” between the parties to be relevant to the ownership of the dissident church’s property. It observed:

Turning to the course of dealing between the parties, the record clearly demonstrates that the church allowed the diocese to play an active role in its overall operations. Indeed, the trial court found that on at least two occasions, the diocese vetoed the employment of clergy at church [which] complied with the decision; bishops of the diocese and other bishops within the Episcopal Church have visited the church every year between 1934 and 2005; and the vestry members of the church have regularly “subscribed to the oath or declaration prescribed by Diocesan Canons.” It is worth noting that the church actively participated in the diocese, having sent representatives to the Annual Convention every year for at least 100 years (1909-2010).

Constructive trust

The court further concluded that “when one considers the constitution and canons, specifically the adoption of the Dennis Canon, and the course of dealing between the parties [the parties] intended, agreed and expected that the property at issue would be held in trust by the dissident church as trustee for the benefit of the Episcopal Church and diocese. As such, we find that the fiduciary relationship required to impose a constructive trust has been shown to exist. The fact that the church attempted to withdraw from the Episcopal Church and diocese and yet still maintain the property represents a violation of its fiduciary obligation to the Episcopal Church and diocese. Therefore, equity dictates that a constructive trust be imposed on the property for the benefit of the Episcopal Church and diocese.”

What This Means For Churches:

Church leaders should consider the following points:

1. In general. A decision by the Virginia Supreme Court is not binding on any federal or state court in any other state. Nevertheless, the case represents one of the most extended discussions of church property disputes in recent years by a respected state court, and as a result, it may be given special consideration by other courts. The impact of the case is doubtless enhanced by the court’s unanimous ruling in favor of the Episcopal Church.

2. Judicial resolution of church property disputes—in general. The United States Supreme Court has noted that a state “may adopt any one of various approaches for settling church property disputes so long as it involves no consideration of doctrinal matters, whether the ritual and liturgy of worship or the tenets of faith.” Jones v. Wolf, 443 U.S. 595 (1979). No single approach is prescribed by law. The only requirement is that a state court’s approach to resolving such disputes does not involve the interpretation or application of religious doctrine.

To illustrate, the so-called “departure from doctrine” approach that was used for many years to resolve church property disputes is no longer allowed since it requires civil courts to determine which faction in a church property dispute has departed from church doctrine. Such an inquiry is clearly barred by the First Amendment.

The Supreme Court has approved two methods for resolving church property disputes:

Under the “principle of government” approach (sometimes called the “compulsory deference” approach), “whenever the questions of discipline, or of faith, or ecclesiastical rule, custom, or law have been decided by the highest of these church judicatories to which the matter has been carried, the legal tribunals must accept such decisions as final, and as binding on them, in their application to the case before them.” Watson v. Jones, 80 U.S. (13 Wall.) 679 (1871).

Under the “neutral principles of law” approach, the civil courts “rely upon provisions of state statutory law governing the holding of property by religious corporations, upon language in the deeds conveying the properties in question to the local church corporations, upon the terms of the charters of the corporations, and upon provisions in the constitution of the [national church] pertinent to the ownership and control of church property.” Md. & Va. Churches v. Sharpsburg Church, 396 U.S. 367 (1970).

3. The canons of the Episcopal Church. The Supreme Court has explained the neutral principles of law approach as follows:

Through appropriate reversionary clauses and trust provisions, religious societies can specify what is to happen to church property in the event of a particular contingency, or what religious body will determine the ownership in the event of a schism or doctrinal controversy. In this manner, a religious organization can ensure that a dispute over the ownership of church property will be resolved in accord with the desires of the members. Jones v. Wolf, 443 U.S. 595 (1979).

In 1979, shortly after the Jones case was decided, the Episcopal Church responded to the Jones decision by enacting Canon I.7.4 (the “Dennis Canon”) in an attempt, in the words of Jones, “through appropriate … trust provisions [to] specify what is to happen to church property in the event of a particular contingency [and] in this manner [to] ensure that a dispute over the ownership of church property will be resolved in accord with the desires of the members. The Virginia Supreme Court concluded that the Dennis Canon was a legitimate effort by the Episcopal Church to create a mechanism for resolving church property disputes internally.

The court’s ruling will serve as support for the efforts of any denomination to resolve church property disputes internally through the adoption of trust language, reversionary clauses, or any other “neutral principle of law” that can be applied by the civil courts without delving into church doctrine.

4. Limitations on the neutral principles of law approach. The Supreme Court has cautioned:

The neutral-principles method … requires a civil court to examine certain religious documents, such as a church constitution, for language of trust in favor of the general church. In undertaking such an examination, a civil court must take special care to scrutinize the document in purely secular terms, and not to rely on religious precepts in determining whether the document indicates that the parties have intended to create a trust. In addition, there may be cases where the deed, the corporate charter, or the constitution of the general church incorporates religious concepts in the provisions relating to the ownership of property. If in such a case the interpretation of the instruments of ownership would require the civil court to resolve a religious controversy, then the court must defer to the resolution of the doctrinal issue by the authoritative ecclesiastical body.” Jones v. Wolf, 443 U.S. 595 (1979).

5. Mutual assent. One of the most important aspects of the court’s ruling was its rejection of the dissident church’s argument that it could not be subject to the Dennis Canon because it never formally consented to it. As the court noted: “The triennial General Convention, the highest governing body of the Episcopal Church, adopts … the constitution and canons. The General Convention is composed of representatives from each diocese. The legislative body of each diocese (referred to in Virginia as the Annual Council) selects the representatives that are sent to the General Convention. The Annual Council is composed of representatives from each of the churches and other congregations within the Diocese. Thus, it is clear that each canon, including the Dennis Canon, is enacted through a process resembling a representative form of government.”

This is the very point that was missed by the Texas Supreme Court in a recent case in which it found that the Dennis Canon could not serve as the basis for resolving a property dispute between the Episcopal Church and a dissident congregation since the congregation never explicitly assented to it. Masterson v. Diocese of Northwest Texas, 2013 WL 4608632 (Tex. 2013).

Similarly, the Indiana Supreme Court issued a ruling in 2012 in a church property dispute in which it refused to award title to the property of a dissident church to the Presbyterian Church on the basis of a trust provision in the denominational Book of Order. The court concluded that the trust provision did not apply since the local church had never consented to it. Presbytery of Ohio Valley, Inc. v. OPC, Inc., 973 N.E.2d 1099 (Ind. 2012). While the court did not mention it in the Indiana case, an argument can be made that churches in some cases do affirmatively consent to provisions in the governing documents of a parent denomination that seek to impose a trust on church property if, for example, churches and their representatives comprise some or all of the voting delegates at denominational meetings in which governing documents are adopted and amended. Under these circumstances, which are common, denominational governing documents are not “imposed” by the national church on affiliated churches. Rather, the churches themselves, by their delegates and representatives, adopt and amend the denominational governing documents at the official meetings of the national church. This provides a compelling case of an affirmative assent by affiliated churches to the provisions of their denominational governing documents, but it is an argument that the Indiana Supreme Court failed to address, perhaps because it was not raised.

6. Course of dealing. The court found the dissident church’s long involvement in the Episcopal Church supported the existence of a fiduciary relationship that was breached by the dissident congregation’s attempt to disaffiliate and retain its property. Falls Church v. Protestant Episcopal Church, 740 S.E.2d 530 (Va. 2013).

Legal Developments

Church’s Rights to Build Larger Facility Violated by County

Federal appeals court rules rights under Religious Land Use and Institutionalized Persons Act were violated.

State: Maryland
Categories: Church Property

Church Law and Tax Report

Church’s Rights to Build Larger Facility Violated by County

Federal appeals court rules rights under Religious Land Use and Institutionalized Persons Act were violated.

Key point § 7-06.4. The federal Religious Land Use and Institutionalized Persons Act prohibits state and local governments from imposing a land-use regulation in a manner that imposes a substantial burden on the exercise of religion unless the regulation is in furtherance of a compelling governmental interest and is the least restrictive means of furthering that compelling governmental interest.

A federal appeals court ruled that a church’s rights under the federal Religious Land Use and Institutionalized Persons Act may have been violated by a county’s refusal to allow it to build a new and larger facility to accommodate its growing congregation. A Maryland church owns a place of worship and rents a nearby satellite facility. Its main facility seats 450 people and the satellite facility seats 300. Total weekly attendance for all services is about 1,500 people. To accommodate its congregation, the church must host four services every Sunday—three in its main facility and one in its satellite facility. The number of services restricts the length of the services, and forces communion to take place after the services.

Time and space limitations also sometimes require the church to cut short its important “altar call” practice, in which attendees may publicly dedicate their lives to Christ, join the church, or request specific prayers. After the service, the director of the altar call ministry conducts conversations with those who have come forward regarding their spiritual beliefs. Because the church itself lacks facilities to accommodate these conversations, the director must use a small, partitioned area in the visitor center.

Even with four services each Sunday, the church faces overcrowding, and ushers must sometimes prevent worshipers from entering the sanctuary. The church also lacks facilities for other programs, including religious education, health education, and various counseling services. And because adults use all available classrooms, the church is unable to provide programs for its youth.

For all of these reasons, the church purchased a 119-acre property in 2004 to construct a 3,000-seat church, a school, a daycare building, a social hall, and offices. The property is located in an area the county designated as an “agricultural reserve.” Under the county’s water and sewer plan, however, the county generally did not provide public service to properties in the agricultural reserve. The county denied the church’s request for an exception, but county officials rejected the request at a meeting in which they also approved an amendment to the water and sewer plan prohibiting public water and sewer service to private institutional facilities in the agricultural reserve.

The church challenged the county’s denial of its application for public water and sewer service as unlawful, arbitrary, capricious, unsupported by substantial evidence, and a violation of the Religious Land Use and Institutionalized Persons Act of 2000 (“RLUIPA”). Two years later, a federal court dismissed the church’s challenge, and the church appealed.

The appeals court’s ruling

RLUIPA is a federal law that prohibits the implementation of any land-use regulation in a manner that:

imposes a substantial burden on the religious exercise of a person, including a religious assembly or institution, unless the government demonstrates that imposition of the burden on that person, assembly, or institution—

(A) is in furtherance of a compelling governmental interest; and

(B) is the least restrictive means of furthering that compelling governmental interest.

RLUIPA defines “religious exercise” to include “the use, building, or conversion of real property for the purpose of religious exercise.”

The appeals court observed that “when a religious organization buys property reasonably expecting to build a church, governmental action impeding the building of that church may impose a substantial burden,” and “this is so even though other suitable properties might be available, because the delay, uncertainty, and expense” of selling the current property and finding a new one are themselves burdensome.”

In rejecting the county’s argument that any burden to the church was not substantial because it already owned one facility and rented another, the court noted:

[The church] has presented considerable evidence that its current facilities inadequately serve its needs. Specifically, insufficient space forces it to hold four services every Sunday, and to shorten services, interfering with Communion and the church’s altar call practice. Its present facilities are overcrowded, requiring ushers to turn people away from services and limiting its ability to offer various programs. The pastor testified that the lack of adequate facilities creates a sense of disunity because the congregation is divided into so many separate services.

The court stressed that “a governmental regulation violates RLUIPA by imposing a substantial burden on religious exercise only if the regulation [is not] the least restrictive means of furthering a compelling governmental interest.” The court concluded the county failed to demonstrate that its water and sewer plan was the least restrictive means of furthering that interest, and noted that the county failed to present any evidence that its interest in preserving the integrity of the agricultural reserve “could not be served by less restrictive means, like a minimum lot-size requirement or an individualized review process.”

What This Means For Churches:

This case illustrates the application of RLUIPA to churches, and demonstrates how this law can provide churches with valuable protection when their building plans are obstructed by government regulations. Bethel World Outreach Ministries v. Montgomery County Council, 706 F.3d 548 (4th Cir. 2013).

Key point 7-03.3. Most courts apply the “neutral principles of law” rule in resolving disputes over the ownership and control of property in “hierarchical” churches. Under this rule, the civil courts apply neutral principles of law, involving no inquiry into church doctrine, in resolving church property disputes. Generally, this means applying neutral legal principles to nondoctrinal language in any one or more of the following documents: (1) deeds to church property; (2) a church’s corporate charter; (3) a state law addressing the resolution of church property disputes; (4) church bylaws; or (5) a parent denomination’s bylaws.

Legal Developments

Document Stating Affiliated-Denomination Properties Were Owned by Denomination Is Not Enforceable

Indiana Supreme Court says PCUSA trust law clashed with Indiana trust law, gives ownership of church building to local church.

Richard R. Hammar, Attorney, CPA

Bio

State: Indiana
Categories: Church Property

Church Law and Tax Report

Document Stating Affiliated-Denomination Properties Were Owned by Denomination Is Not Enforceable

Indiana Supreme Court says PCUSA trust law clashed with Indiana trust law, gives ownership of church building to local church.

Richard R. Hammar

Key point 7-03.3. Most courts apply the “neutral principles of law” rule in resolving disputes over the ownership and control of property in “hierarchical” churches. Under this rule, the civil courts apply neutral principles of law, involving no inquiry into church doctrine, in resolving church property disputes. Generally, this means applying neutral legal principles to nondoctrinal language in any one or more of the following documents: (1) deeds to church property; (2) a church’s corporate charter; (3) a state law addressing the resolution of church property disputes; (4) church bylaws; or (5) a parent denomination’s bylaws.

The Indiana Supreme Court ruled that a provision in a denomination’s governing document stating that the properties of all affiliated churches were held in trust for the denomination was not enforceable. In 1900, a church affiliated with a predecessor to the Presbyterian Church USA. In 1968, the church acquired real estate and built its church building using its own resources. Beginning at least as far back as 1994, the congregation began to have doctrinal disputes with the PCUSA, “including disputes about church policies and positions on abortion, ordination, Christology and theology.” In 2006, with a 98 percent approval vote of its congregation, the church decided to disassociate from the PCUSA.

When the church declined to relinquish ownership of its church property, the PCUSA, through its presbytery, filed a lawsuit claiming that the church’s property was held in trust for the PCUSA and asking the court to issue an order divesting the church of all right, title, and interest in its property. The PCUSA relied on the following provision in its Book of Order:

All property held by or for a particular church, a presbytery, a synod, the General Assembly, or the Presbyterian Church (U.S.A.), whether legal title is lodged in a corporation, a trustee or trustees, or an unincorporated association, and whether the property is used in programs of a particular church or of a more inclusive governing body or retained for the production of income, is held in trust nevertheless for the use and benefit of the Presbyterian Church (U.S.A.).

The trial court concluded that the contested property belonged exclusively to the local church, and that the property was not held in trust in favor of the PCUSA.

ON CHURCHLAWANDTAX.COM: Watch attorney Frank Sommerville, an Editorial Advisor for CHURCH LAW & TAX REPORT, further explain what’s at stake in property disputes between local churches and denominations.

The PCUSA appealed directly to the state supreme court. The court declined to apply the “deference” rule that has been endorsed by some courts and that generally requires the civil courts to defer to the judgments of denominational agencies in property disputes. Instead, it applied the “neutral principles of law” approach, which has been endorsed by other courts and that resolves church property disputes on the basis of non-doctrinal provisions in the deeds to church property, state statutes, and the governing documents of churches and parent denominational agencies. In applying the neutral principles approach, the courts “must take special care to scrutinize the documents in purely secular terms. In this respect, the civil courts will give effect to the intention of the parties, provided it is embodied in some legally cognizable form. This allows states, religious organizations, and individuals to structure relationships involving church property so as not to require the civil courts to resolve ecclesiastical questions.” (quoting the United States Supreme Court in Jones v. Wolf, 443 U.S. 595 (1979). The lesson of Jones, the court noted, is that “states are free to apply their own “well-established concepts of trust and property law” to church property disputes.)

The court acknowledged that several other courts had construed the United States Supreme Court’s ruling in the Jones case as “requiring the imposition of a trust whenever the denominational church organization enshrines such language in its constitution.” The court, in rejecting this view, observed:

We do not understand Jones as creating such a rule. First, such a rule would result in de facto compulsory deference by enforcing the claim of the denominational church organization merely because the trust claim is added to the denominational church organization’s constitution and regardless of any contrary evidence or state law. Not only did the Court reject imposing a “compulsory deference” rule in all cases [but it] specifically [ruled] that states may resolve church property disputes under any method so long as that approach does not abridge the First Amendment … . Second, the Court approved the neutral-principles approach as an acceptable means of applying state property and trust law … .Thus, the Supreme Court’s expression that “the constitution of the general church can be made to recite an express trust in favor of the denominational church” organization, was one example of a means by which parties may be able to express their intent, “provided it is embodied in some legally cognizable form” under state law … . Under Indiana trust law, whether under an express or implied trust theory, the intent of the owner (settlor) to create a trust must be demonstrated. Thus, under Indiana law, a claim of trust by the purported beneficiary (e.g., insertion of a trust clause into a denominational church organization’s constitution), without indicia of intent on the part of the owner (settlor), is insufficient to impose a trust.

The court noted that in applying the neutral principles approach, Indiana courts may consider

Indiana statutes, the language of the deeds and conveyances, the local church charters or articles of incorporation, the constitution of the denominational church organization, and any other relevant and admissible evidence provided they scrutinize these documents in purely secular terms consistent with Indiana law. In this respect, Indiana courts should apply neutral principles of Indiana trust and property law without regard to the organizational structure of the religious denomination … whether interpreting the language of a deed or conveyance or determining whether there exists an express or implied (constructive or resulting) trust.

The court concluded that the attempt by the PCUSA to impose an express trust on the property of every affiliated church (in Indiana) was ineffective since it failed to comply with the requirements of Indiana trust law. Under Indiana law, “an express trust must be evidenced by a writing signed by the owner of the property … . Such heightened proof is necessary to protect the sanctity of property ownership against trust claims not intended by the owner.”

However, the court concluded that it was possible that churches held property subject to an “implied” trust in favor of the PCUSA, and it remanded the case back to the trial court for consideration of this claim. The court noted that one form of implied trust is a “resulting trust” which is generally imposed in three circumstances: “(1) where an express trust fails in whole or in part; (2) where an express trust is fully performed without exhausting the trust estate; (3) where property is purchased and the purchase price is paid by one person and at his direction the vendor conveys the property to another person.” The court noted that it was only the first of these circumstances—the failure of an express trust—that was implicated by the facts of this case: “Such a resulting trust is created by operation of law to give effect to the parties’ intentions when they have otherwise failed to satisfy the statutory requirements for creating an express trust. And, as in the case of express trusts, the party seeking to impose the trust bears the burden of proof. As with express trusts, the settlor’s intent is crucial to the resulting trust analysis.”

The court instructed the trial court to determine if the church manifested an “unequivocal intent” to create a resulting trust in favor of the PCUSA.

What This Means For Churches:

This case illustrates the neutral principles of law approach to resolving disputes over the ownership of the property of local churches that vote to disaffiliate from a parent denominational agency. According to the Indiana Supreme Court, a provision in a denomination’s governing document purporting to impose a trust upon the property of every affiliated church in favor of the denomination will be enforceable only if it comports with the requirements of a valid trust prescribed by state law. And, in Indiana, this requires signed consent by a church to the imposition of the trust. It cannot be done unilaterally without the express consent of the churches that will be directly affected.

Note two important points. First, not all courts agree with this case. While a majority of courts have endorsed the neutral principles approach, many apply the compulsory deference rule which allows denominations themselves to sort out and resolve controversies over the ownership of church property. Second, even in states recognizing the neutral principles approach, there are at least three ways for denominational agencies to respond:

They can create trust provisions in their governing documents that are affirmatively accepted by affiliated churches. While the court did not mention it in the Indiana case, an argument can be made that churches in some cases do affirmatively consent to provisions in the governing documents of a parent denomination that seek to impose a trust on church property if, for example, churches and their representatives comprise some or all of the voting delegates at denominational meetings in which governing documents are adopted and amended. Under these circumstances, which are common, denominational governing documents are not imposed by the national church on affiliated churches. Rather, the churches themselves, by their delegates and representatives, adopt and amend the denominational governing documents at the official meetings of the national church. This provides a compelling case of an affirmative assent by affiliated churches to the provisions of their denominational governing documents, but it is an argument that the Indiana Supreme Court failed to address, perhaps because it was not raised.
It is possible in some cases that church property is subject to an implied or resulting trust in favor of a denominational agency. Again, there must be an affirmative manifestation of intent by a church that its property is subject to such a trust.
The United States Supreme Court noted in the Jones case that there may be cases where a denomination’s governing documents incorporate “religious concepts in the provisions relating to the ownership of property. If in such a case the interpretation of the instruments of ownership would require the civil court to resolve a religious controversy, then the court must defer to the resolution of the doctrinal issue by the authoritative ecclesiastical body.” This means that it may be possible for the governing documents of national and regional churches to include provisions addressing ownership of local church property in a way that directly implicates religious doctrine. In such cases, the courts may be compelled to defer to the resolution of property disputes by the denominational authorities. Presbytery of Ohio Valley, Inc. v. OPC, Inc., 973 N.E.2d 1099 (Ind. 2012).

Background

The appellate court’s analysis

A. Fraud

B. Breach of Fiduciary Duty

C. Conversion

What this case means for churches

Background

What this means for churches

Reversionary clauses: A checklist for churches

The appellate court’s ruling

What this means for churches

Note two important points:

What this means for churches

Background

Proving adverse possession

What this means for churches

More about Adverse Possession

Background

“Possibility of reverter” or “right of entry”

What this means for churches

1. Deeds to property may contain conditions on uses and transfers of the property

2. Check the church’s property deed for restrictions

3. This case illustrates the courts’ negative attitude toward restrictions

Background

The church filed a complaint

The protester claimed his activities were constitutionally protected

What this means for churches

Background

Appeals court: the property “reverted” to the grantor

What this means for churches

Deeds to property may contain restrictions

Know what your deed says about reverter or right of reentry

Courts generally dislike deed restrictions that limit property owners

Conditions could be “released” by the previous owner

Discourage restrictions

Background

The Plaintiff sues the churches for ongoing contamination

What this means for churches

Find out if your church has coverage for environmental damage

Don’t purchase or accept a gift of land without an environmental site assessment

Understand the “innocent landowner defense”

What This Means For Churches:

What This Means For Churches:

Denominational Church Has No Ownership Interest in Breakaway Church, Rules South Carolina Court

What This Means For Churches:

Churches May Have Some Exemptions Without Violating Nonestablishment Clause

What This Means For Churches:

Statute of limitations

Equitable Estoppel

What this means for churches

National Episcopal Church Owns Local Church Property

The Dennis Canon, and mutual consent

Course of dealing

Constructive trust

What This Means For Churches:

Church’s Rights to Build Larger Facility Violated by County

The appeals court’s ruling

What This Means For Churches:

Document Stating Affiliated-Denomination Properties Were Owned by Denomination Is Not Enforceable

What This Means For Churches:

Disaffiliating from a Parent Denomination

What this means for churches

Neutral Principle of Law Applied to Church Property Dispute