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

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).

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