• 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.
• 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.
State Court Rulings Regarding Church Property Disputes
Internal Property Dispute Resolution Procedures
* A North Carolina court ruled that the property of a local church that voted to withdraw from a denomination automatically vested in the denomination because of a “trust” provision in the denomination’s canons. The Protestant Episcopal Church in the United States of America (“PECUSA”) is a hierarchical or connectional church composed of 109 geographical dioceses. One such diocese, The Diocese of East Carolina (“Diocese”), admitted a missionary congregation called St. Andrew’s Episcopal Church of Morehead City (“St. Andrew’s”) as a parish in 1952. As a parish within the Diocese’s boundaries, St. Andrew’s was bound by the Constitutions and Canons of that diocese, as well as the Constitutions and Canons of PECUSA. Upon admission into the Diocese, St. Andrew’s was deeded a parcel of land by the Diocese. The deed conveyed the land to the “vestrymen and trustees for St. Andrew’s Episcopal Church … and their successors in office.” Over the next several years, St. Andrew’s acquired nine other lots and parts of two others.
Following its establishment as a parish in the Diocese, St. Andrew’s acted with full parish status and complied with the Canons of PECUSA and the Diocese. However, in 2000, the vestry of St. Andrew’s unanimously resolved to withdraw from PECUSA and the Diocese. Its decision was announced at a subsequent parish meeting, and a majority of the parishioners supported the withdrawal. The vestry sent a letter to the Bishop of the Diocese, stating St. Andrew’s was withdrawing from PECUSA to join the “Interim Anglican Expression in the United States.” The letter further stated that the name of the new parish would be “St. Andrew’s Anglican Church.” The Bishop answered the letter, acknowledging the withdrawal from the Episcopal Church, but advised that “no vestry has the authority to withdraw a parish from membership.” The Bishop also laid claim to all property belonging to St. Andrew’s because, pursuant to PECUSA Canons I.7.4 and II.6.2, which provide,
All real or 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. PECUSA Canon I.7.4.
In the event of the dissolution of any Parish or Mission by the Convention, the real and personal property of the Parish or Mission shall immediately vest in the Trustees of the Diocese, in trust for the dissolved Parish or Mission. Diocese Canon II.6.2.
The Diocese filed suit against the former vestry of St. Andrew’s and three other former clergymen of the parish (the “defendants”). The trial court granted a summary judgment in favor of the Diocese. It declared the Diocese to be the legal owner of the church property; prohibited the defendants from using the name “St. Andrew’s Episcopal Church” or any name confusingly similar; required the defendants to make a written accounting for any funds received from the date of the church’s withdrawal from the Diocese; and declared “null and void” the deeds recorded by defendants purporting to convey the church building to another parish. The defendants appealed.
The appeals court began its opinion by observing, “Prior to its withdrawal, the entire St. Andrew’s congregation had adhered to the Constitutions and Canons of PECUSA and the Diocese for nearly fifty years. During that time, St. Andrew’s elected delegates to participate in various conventions at which new and revised canons were adopted, and did not contest the adoption of those canons thereafter. Under the language of these canons, it is clear that the St. Andrew’s property was to be held in trust for the Diocese. Its withdrawal essentially resulted in a dissolution of the parish whereby the property immediately vested in the Diocesan trustees until the Executive Council of the Diocese passed a resolution recognizing those members of the original St. Andrew’s congregation that remained loyal to PECUSA and the Diocese as the new St. Andrew’s. Thus, the canons clearly established a form of governance impliedly assented to by the defendants that precluded the seceding vestry from taking control of the St. Andrew’s property.” The court then responded to several arguments raised by the defendants.
The defendants claimed that PECUSA Canon I.7.4 (quoted above) established a deed of trust in the church property, and since it was never recorded with the Register of Deeds it could not create an interest for the Diocese in the property. The court disagreed, “North Carolina recognizes that the registration of deeds is primarily for the protection of purchasers for value and creditors; an unregistered deed is good as between the parties and the fact that it is not registered does not affect the equities between the parties …. [The defendants] had knowledge of PECUSA Canon I.7.4. Thus, while it is likely this unrecorded canon would have been unenforceable against innocent purchasers for value or creditors, it is enforceable against the defendants.”
The defendants claimed that it acquired title to its property, free from PECUSA Canon I.7.4, through adverse possession. The court disagreed, “The defendants did not produce evidence that their possession of the property was hostile, an essential element of adverse possession. A hostile use is simply a use of such nature and exercised under such circumstances as to manifest and give notice that the use is being made under claim of right. The record does not indicate that the defendants’ possession of any of the property was hostile prior to their decision to withdraw from PECUSA.”
statute of frauds
The Statute of Frauds requires deeds and other conveyances of real estate to be contained in a signed writing. The defendants claimed that PECUSA Canon I.7.4 violated the Statute of Frauds and therefore did not govern the ownership of the St. Andrew’s property because they never signed it. The court disagreed, noting that “St. Andrew’s is a connectional church that agreed to be bound by the Constitutions and Canons of PECUSA. In doing so, it … accepted PECUSA Canon I.7.4 as establishing a deed of trust in which the St. Andrew’s property would be held upon their resignation and withdrawal. Therefore, this canon did create a valid trust even though it was not signed.”
the church name
The defendants challenged the trial court’s order barring them from using the name “St. Andrew’s Episcopal Church” or any other confusingly similar name. The defendants claimed that the words “St. Andrew’s” and “Episcopal” are so common and generic that their use of these words as the name of their new defendants will not result in confusion of the public. The court disagreed,
The right to use the name inheres in the institution, not in its members; and, when they cease to be members of the institution, use by them of the name is misleading and, if injurious to the institution, should be enjoined. No question of religious liberty is involved. Men have the right to worship God according to the dictates of conscience; but they have no right in doing so to make use of a name which will enable them to appropriate the good will which has been built up by an organization with which they are no longer connected …. It is said that the word … “Episcopal” is a generic term and that [the defendants] have the right to use it for that reason, but the defendants are not proposing to use the word in a new name so different from the old that no confusion could result …. The question is, not whether they have the right to use “Episcopal” in a new name so constructed as to avoid confusion, but whether they have the right to use the old name in a way that amounts, as we think it does, to implied misrepresentation to the damage of [the Diocese] …. Therefore … we conclude summary judgment was properly granted in favor of [the Diocese] enjoining the defendants from using the name “St. Andrew’s Episcopal Church” or any name confusingly similar.
liability of board members
The vestry (board) members of the church were found to be personally liable by the trial court. On appeal, they claimed that they were immune from liability because of a state “charitable immunity” law that provides, “a person serving as a trustee … or a director or officer of a religious society shall be immune individually from civil liability for monetary damages, except to the extent covered by insurance, for any act or failure to act arising out of this service.”
The Diocese argued that the vestry members were not immune from individual liability because they were not acting within their official duties as vestry members or clergymen of St. Andrew’s when they appropriated the church’s property after seceding from the PECUSA. The court agreed with the vestry members that they could not be personally liable. It concluded, “Whether they were acting as trustees or directors of the original St. Andrew’s or of the church they formed after withdrawal from the PECUSA, they were nonetheless still acting on behalf of a religious society. Thus, the trial court erred in finding them individually liable.” Daniel v. Wray, 580 S.E.2d 711 (N.C. App. 2003).
© Copyright 2004 by Church Law & Tax Report. All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m21 c0304