In the first blog of this series, I outlined the Supreme Court guidelines as to how religious property disputes are to be evaluated under state law. The second blog reviewed the governance of the United Methodist Church and how the “Connectional” nature of the denomination leads it to be more “Congregational” than “Hierarchal.” In the third blog of this series, I described the history and parameters of the Trust Clause as set forth in United Methodist Book of Discipline and also noted that all property law is subject to state law and pursuant to the Discipline, State Law prevails over the requirements of the Discipline. And in the fourth blog, I briefly review concepts of state law as they relate to the enforceability of the Trust Clause, focusing on Texas as a trial court in Dallas County recently found the Trust Clause to be unenforcible in a case involving Southern Methodist University. In this blog, I will dive a bit deeper into the weeds and examine Texas Statutory law and how it led a Court in Dallas County to the conclusion that the Methodist Trust Clause is unenforcible.
The Texas Trust Code
The Texas Trust Code,as it exists today, applies (1) to all trusts created on or after January 1, 1984, and to all transactions relating to such trusts; and (2) to all transactions occurring on or after January 1, 1984, relating to trusts created before January 1, 1984.
Prior to the enactment of the Texas Trust Code in 1983, a settlor’s manifestation of intent to create a trust was not an express statutory requirement. However, the fact that an express trust can be created only by the execution of an intention to create a trust—by the one having legal and equitable dominion over the property—has been long recognized in Texas. That well-established rule was codified by the Texas legislature: “A trust is created only if the settlor manifests an intention to create a trust.” Moreover, a promise to create a trust in the future is enforceable “only if the requirements for an enforceable contract are present.” Finally, a trust “cannot be created unless there is trust property. If there is a manifestation of intent to create a trust, it may be created in one of the following five ways:
(1) a property owner’s declaration that the owner holds the property as trustee for another person;
(2) a property owner’s inter vivos transfer of the property to another person as trustee for the transferor or a third person;
(3) a property owner’s testamentary transfer to another person as trustee for a third person;
(4) an appointment under a power of appointment to another person as trustee for the donee of the power or for a third person; or
(5) a promise to another person whose rights under the promise are to be held in trust for a third person.
Thus, the question for a Court will be is whether the Trust Clause in a deed or within the articles of incorporation falls with in the structure of the Trust code to be an express trust. In the SMU case, the answer was no.
Trusts by Operation of Law (Implied Trust)
Texas recognizes implied trusts, which are in turn classified as either resulting or constructive trusts. In Mills v. Gray, 210 S.W.2d 985 (Tex. 1948), the Supreme Court of Texas cited the American Jurisprudence on trusts for a clear and concise statement on the law pertaining to constructive and resulting trusts:
Resulting and constructive trusts are distinguishable, but there is some confusion between them. From a practical viewpoint, a resulting trust involves primarily the operation of the equitable doctrine of consideration-the doctrine that valuable consideration and not legal title determines the equitable title or interest resulting from a transaction-whereas a constructive trust generally involves primarily a presence of fraud, in view of which equitable title or interest should be recognized in some person other than the taker or holder of the legal title.
“A constructive trust does not, like an express trust, arise because of a manifestation of intention to create it. It is imposed by law because the person holding the title to property would profit by a wrong or would be unjustly enriched if he were permitted to keep the property.”
Thus, the question for a Court will be is whether the Trust Clause in the Book of Discipline is an enforceable implied trust. Again, in the SMU case, the answer was no.
Statute of Frauds Relating to Trusts
A trust in either real or personal property is enforceable only if there is written evidence of the trust’s terms bearing the signature of the settlor or the settlor’s authorized agent. A trust consisting of personal property, however, is enforceable if created by:
(1) a transfer of the trust property to a trustee who is neither settlor nor beneficiary if the transferor expresses simultaneously with or prior to the transfer the intention to create a trust; or
(2) a declaration in writing by the owner of property that the owner holds the property as trustee for another person or for the owner and another person as a beneficiary.
While this was not addressed in the SMU case, a question for a Court will be is whether the Trust Clause in the Book of Discipline, or stated in articles of incorporation or within a deed, is an enforceable implied or express trust
There are many other statutes that give rise to the legal arguments that one can make in similar cases in all states throughout the United States. The question for a Court reviewing this issue will be whether the United Methodist Trust Clause as stated in the Book of Discipline or in a deed or within articles of incorporation will be enforceable or not. Each state will need to examine the issue.
Should you have specific questions regarding your state law on religious property disputes, please reach out to Daniel Dalton at Dalton & Tomich PLC to discuss your case. You can read more about this topic in Daniel Dalton’s book, Religious Property Disputes, House of God, Laws of Man available at theAmerican Bar Association Book store or Amazon.