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.

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.

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:

  1. 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.
  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.” 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).

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