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Property Trust Clauses Interpreted By Indiana Court of Appeals

A recent case out of the Indiana Court of Appeals addressed the issue of Trust Clauses. In Church of Brethren South/Central Indiana District v. Roann Church of The Brethren, Inc., ___In. App ___ Nov. 17, 2014, the Court affirmed the lower court decision holding that the Congregation did not place its property in irrevocable trust, express or implied, for the benefit of the Denomination.

In this case, the Denomination dated back 1708 and the Congregation traced back to 1835. The two affiliated with one another in the late 1930s. The Congregation began sending delegates to Denomination’s Annual Conference in 1939. The Denomination recorded and published denomination polity in its Organization and Polity Manual but did not bind local congregations to the manual and did not impose discipline for any given congregation’s denominational polity.

In 1947, the Denomination approved the placement of the following language into its Organization and Polity Manual:

The commission believes that [,] for the sake of uniformity and greater security in ownership of [the Denomination’s] property, the title to all local church property should be held by local trustees, in trust, for the teaching and dissemination of the gospel of Jesus Christ, according to the beliefs, practices, and doctrines of [the Denomination], as set forth and promulgated from time to time by Annual Conference.

The Denomination later amended the Polity Manual to suggest language for local congregations’ constitutions that established the Trust Relationship. The Denomination encouraged, but did not require, that all congregations adopt the suggested Trust language.

In the 1980s, the Congregation acquired three separate warranty deeds, the property at issue in the litigation. The deeds were all titled in the Congregation’s name, yet none of the deeds contained the restrictive covenant recommended by the Denomination. The property was purchased using Member donations and an interest bearing loan from the Denomination, which was later repaid in full.

In 2002, the Congregation amended its Constitutional Guidelines and Bylaws to reflect some of the Polity Manual’s language to define the relationship with the Church Denomination. Notably, it did not include the Trust Language from the Manual, and a later provision reserved the unqualified right to amend the Constitution and Bylaws.

In 2010 a schism developed in the Congregation regarding continuing its relationship with the Denomination, and the Congregation amended the Constitution to remove some of the national language.

In March 2012, the Congregation voted to leave the denomination. Shortly thereafter, in April 2012, the Denomination recorded an Affidavit of Transfer of Land to transfer title of the Congregation’s property to the district. Then in May 2012, the Denomination filed a complaint for declaratory and injunctive relief that asked the court to declare that the 2002 Constitution created a trust in its favor, and was irrevocable under Indiana law.

The trial court relied on several factors in finding that the property was not in express or implied trust citing several reasons:

– The Congregation and Denomination received mutual benefit from affiliating with one another.

– None of the three separate deeds that acquired the Congregation’s property provided for any trust interest in the Denomination.

– Financial accounts of the Congregation remained separate title from the Denomination

– The Denomination was never listed as an additional insured

– The Denomination never inquired as to whether the Congregation’s deeds contained the Trust language or that amended deeds containing the Trust language be prepared and recorded.

The appellate court agreed. There was no express language creating trust in the Denomination where neither the Deeds nor the Constitution contained the relevant language to create a trust. The language of the 2002 Constitution did not create a fiduciary relationship, and even if it did, was nonbinding and revocable by the Congregation.

The court also rejected the argument that an implied trust was created, under the same reasoning. The appellate court found that the trial court properly weighed the evidence and there was no clear error. The trial court’s decision was affirmed in all respects.

As churches continue to evolve and congregations separate from their denominations, Trust clauses will continue to be of relevance in determining how to divide the property. This case is illustrative in that it showed the many factors courts will consider in making its decision. Should your Congregation or Denomination have questions on this issue, please contact the attorneys at Dalton & Tomich, PLC as they are well versed in these matters.

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