Internal Property Dispute Resolution Procedures

By Richard R. Hammar, J.D., LL.M., CPA

© Copyright 1991, 1998 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

In conclusion, how may a denomination ensure that it will retain the property of an affiliated church that votes to withdraw from the denomination? And how, if at all, may an independent church congregation ensure that its property will remain with a particular faction in the event of a church schism? Conversely, when may a local church seeking to disaffiliate from a particular denomination safely assume that it will retain the church property? And how will a faction (a majority or a minority of church members) in an independent church know what its rights are, if any, in church property following a schism? The Supreme Court responded to these concerns in Jones:

[T]he neutral principles analysis shares the peculiar genius of private--law systems in general—flexibility in ordering private rights and obligations to reflect the intentions of the parties. 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 insure that a dispute over the ownership of church property will be resolved in accord with the desires of the members.¹

Private resolution of church property disputes may be facilitated in the following ways:

b. A deed could specify that a local church holds title in trust for a parent denomination.²

c. A deed could vest title in the local church, subject however to a reversion clause or a possibility of reverter stipulating that in the event a stated condition occurs title will vest in a parent denomination or in a particular faction. The condition must be worded in such a way that a court could enforce it without the need for inquiries into religious doctrine or polity. Neutral conditions would probably include disaffiliation or a disagreement about who owns church property. In either case, a court would merely be called upon to determine whether a disaffiliation or a property dispute had in fact occurred. Such a determination would not necessarily involve religious doctrine.

Alternatively, a reverter clause could specify that a church's property immediately reverts to a parent religious body upon an attempted conveyance of property by the church. Such a provision would prevent a church from deleting a reverter clause in its deed by reconveying property to itself, either outright or through an intermediary, by a deed not containing the reverter clause. However, it must be recognized that any reverter clause conditioned on an attempted conveyance of church property would automatically vest title in a parent denomination upon any attempted conveyance, even those unrelated to a disaffiliation. Most conveyances of church property are not associated with a disaffiliation. Rather, they are prompted by a desire for a new location or a larger facility. But unless the church obtains a written release or renunciation of the reverter clause from the parent denomination and has it recorded in the office of the recorder of deeds for the county in which the property is located, the property will automatically revert to the denomination whenever a church conveys its property. Alternatively, in many states the parent denomination could execute a quitclaim deed in favor of the local church. The parent denomination of course could condition the execution of a release or quitclaim deed upon the inclusion of a reverter clause in the deed by which the local church receives title to its new property.

A church deed could contain a reverter clause conditioned on either an attempted conveyance of church property or disaffiliation. Such a clause presumably would be effective if it involved no interpretation of church doctrine.

A church whose property is held subject to a reversion in favor of a parent religious body, whether through a provision in a deed, charter, bylaw, or constitution, ordinarily is not permitted to borrow money from a commercial lending institution unless the parent body signs a “subordination agreement” agreeing to subordinate its interests under the reversionary clause to the mortgage securing the lender's loan. If such an agreement is not signed, a church mortgage may inadvertently trigger the reverter clause in favor of the parent religious body since a mortgage constitutes a conveyance of a church's legal or equitable interest in its property to the lending institution (or, in the case of a deed of trust, to a trustee) until such time as the loan is repaid. In addition, any attempt by the lender to foreclose on a church mortgage may also inadvertently trigger the reverter clause. Many commercial lending institutions remain unaware of the danger of failing to secure a subordination agreement from the beneficiary of a reverter clause.

d. A parent denomination could have title deeded to itself and the local church as joint tenants or tenants in common. This would normally not be satisfactory, since a majority faction voting to disassociate itself from the denomination could have the property partitioned (the denomination and the local church would each be declared absolute owner of a fraction of the whole).

would require an examination into religious doctrine of [the church], and a determination of who the real [beneficiary] is according to their current beliefs. . . . [S]uch an approach was . . . expressly declared unconstitutional by the United States Supreme Court in [Hull]. . . . [W]e hold that any express trust, sought to be enforced in favor of some specific doctrine or belief, must be written so that the court can enforce it on purely secular terms.¹

In the event of a church dispute, the local church charter or bylaws may also provide for the disposition of property. Again, to be effective, such a provision must not be made dependent upon any determinations involving religious doctrine or polity. This means of private resolution is of limited value, since most church bylaws can be amended by vote of the church membership.²

State legislatures can enact statutes that provide for the disposition of property in the event of a church dispute. Illustratively, the Georgia legislature has enacted a law which provides that “[t]he majority of those who adhere to its organization and doctrines represent the church. The withdrawal by one part of a congregation from the original body, or uniting with another church or denomination, is a relinquishment of all rights in the church abandoned.”³ Pennsylvania adopted a statute several years ago referred to as the “Lay Control of Church Property Act,” which provides:

Wheresoever any property, real or personal, has heretofore been or shall hereafter be bequeathed, devised or conveyed to any ecclesiastical corporation, bishop, ecclesiastic, or other person, for the use of any church . . . for or in trust for religious worship . . . the same shall be taken and held subject to the control and disposition of such officers or authorities of such church . . . which control and disposition shall be exercised in accordance with and subject to the rule and regulations, usages, canons, discipline and requirements of the religious body, denomination or organization to which such church . . . shall belong . . . .

A Pennsylvania state appeals court ruled that “[q]uite simply, the statute provides that local church property is to be held and controlled according to the rules, regulations or corporate requirements of the organization to which the local church belongs. The Supreme Court of Pennsylvania has without deviation held that the statute requires that properties attached to seceding local churches formerly in union with hierarchically governed denominations remain with the denomination.” The court concluded that its state law was consistent with and anticipated the neutral principles approach—and required that title to a seceding Presbyterian church revert to the denomination.⁴

Such statutes must not involve any determination regarding religious doctrine or polity. The Georgia statute previously quoted involves no doctrinal interpretations. A court has only to determine whether a faction in a particular congregation has withdrawn from the original body or united with another church or denomination. Such determinations normally would involve no interpretation of religious doctrine or polity, and thus would constitute an appropriate means of resolving church property disputes.

A local church that acquires property because of the contributions of a parent church body may hold title subject to a resulting trust in favor of the parent body in proportion to the parent's contribution. For example, a parent body contributing all or substantially all of the funds used to purchase a local church property should be entitled to the benefit of a resulting trust interest in the entire property.⁵

A constructive trust may be imposed whenever it is established that one person holds property which in equity and good conscience should be held by another. A constructive trust may arise as a result of several factors, including misrepresentation, failure to use property or funds for stated purposes, refusal to carry out the terms of an express trust, frustration of the terms of a will, or wrongful conveyance of another's property. It is possible for the law of constructive trusts to apply to church property so long as no inquiries into church doctrine or polity are involved.⁶

A buy--sell (or “preemption”) agreement requires the owner of a specified tract of property to offer the property to a designated person at a stipulated price before selling it to another. Religious denominations wanting to maintain control over the property of dissident churches could require churches to execute such an agreement, giving the parent denomination a preemptive right to purchase the church's property at a specified price at or below market value. Such an agreement obviously would be of no value unless a dissident church wanted to sell its property. Alternatively, a denomination could enter into a purchase agreement with a local church giving the denomination the right to purchase the church's property in the event of a disaffiliation. Such agreements, if supported by adequate consideration, ordinarily will be enforceable.⁷

If any of you has a dispute with another, dare he take it before the ungodly for judgment instead of before the saints? . . .  [I]f you have disputes about such matters, appoint as judges even men of little account in the church! I say this to shame you. Is it possible that there is nobody among you wise enough to judge a dispute between believers? But instead one brother goes to law against another—and this in front of unbelievers! The very fact that you have lawsuits among you means you have been completely defeated already. Why not rather be wronged. Why not rather be cheated?⁸

Paul's denunciation of lawsuits involving Christians is clearly based in part upon the fear that such suits will give unbelievers a negative impression of Christianity. This fear is still warranted. In the Watson decision, the United States Supreme Court itself remarked:

[W]e have held [the case] under advisement for a year; not uninfluenced by the hope, that . . .  charity, which is so large an element in the faith of both parties, and which, by one of the apostles of that religion, is said to be the greatest of all the Christian virtues, would have brought about a reconciliation. But we have been disappointed. It is not for us to determine or apportion the moral responsibility which attaches to the parties for this result.⁹

Similarly, a state court observed:

Any church dispute has a deep effect upon all involved. If we all followed the teachings of Jesus as to turning the other cheek, there would be no need for courts. Likewise, if the teachings of Paul were followed, a religious dispute would never reach the civil courts. However, these disputes have plagued churches from time immemorial. Paul's First Epistle to the Corinthians was written over such a dispute. As long as we are humans, such disputes will arise. In any religious dispute there is no winner; only losers. All sides lose and the cause for which the church was organized must lose.¹⁰

The decision to take other Christians to court, like most ethical determinations, is thus not a private decision. It is a decision that also affects outsiders' perceptions of the Christian faith. And, it is a decision that, in many cases, will directly contradict Paul's command in First Corinthians 6. Such considerations, at the least, should encourage utilization of the various methods of private resolution promoted by the Supreme Court in Jones v. Wolf. In most cases such methods would avoid litigation. Their effect, however, would be cosmetic, covering over real and festering disputes among believers for whom Jesus prayed “that they may be one.” Only grace—not courts or neutral principles—can resolve these disputes.

Supreme Court Rulings Regarding Church Property Disputes

State Court Rulings Regarding Church Property Disputes