Returning Building Fund Contributions to Donors

Where the courts stand on disputes over designated donations.

McDonald v. Macedonia Missionary Baptist Church, 2003 WL 1689618 (Mich. App. 2003)

Background. Most churches have established funds for specific purposes. Common examples include building funds and vehicle funds. Members are encouraged to donate funds for such projects, and donations are accumulated until the project is funded. Occasionally, donors will ask to have their contributions returned, often because the fund’s purpose has not been implemented. Is a church required to return contributions to donors who request them under such circumstances? Very few courts have addressed this question, and so definitive guidance is lacking. A Michigan court addressed this issue in a recent case. This article will briefly review the facts of the case, summarize the court’s ruling, and then assess the relevance of the case for church treasurers.

A recent case. A married couple donated $4,000 to their church’s “new building fund” in 1998. The congregation planned on constructing a new church in 1999, but these plans were put on hold when the church received an unused school building. The couple sued their church, seeking a return of their building fund donation on the basis of the church’s “breach of contract.” Church leaders noted that the church had $500,000 in its new building fund, and insisted that it still planned on building a new sanctuary as soon as the fund grew to $6 million.

A trial court agreed with the couple, and ordered the church to refund their contributions. The church appealed.

The appeals court’s ruling. A Michigan appeals court reversed the trial court’s ruling, and dismissed the case. It concluded that the civil courts are barred by the first amendment guaranty of religious freedom from intervening in such internal church disputes:

It is well settled that courts, both federal and state, are severely circumscribed by the first amendment [and the Michigan constitution] in resolution of disputes between a church and its members. Jurisdiction is limited to property rights which can be resolved by application of civil law. Whenever the trial court must stray into questions of ecclesiastical polity or religious doctrine the court loses jurisdiction… . We hold that this dispute involves a policy of the church for which our civil courts should not interfere. Because the decision of when and where to build a new church building is exclusively within the province of the church members and its officials, the trial court erred in not dismissing the couple’s lawsuit.

Relevance to church treasurers. This case is binding only in those counties in Michigan under the jurisdiction of the appeals court. It is not binding on any other court, in or outside of the state of Michigan. Nevertheless, very few courts have ever addressed the issue in this case, and so the court’s opinion may be given greater weight in other jurisdictions. The court concluded that the civil courts are barred by the first amendment guaranty of religious freedom from resolving demands by church members to have their donations to a church “building fund” refunded because the church has not begun the construction of a new building as quickly as the donors wanted. Such disputes involve the fundamental decision of “when and where to build a new church building,” and such a decision is “exclusively within the province of the church members and its officials.”

This article first appeared in Church Treasurer Alert, July 2003.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

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