The Separation of Church Estate: Who Gets the Property?

American Flag In Front Of An Old ChurchAsk anyone what the Constitution says about religion, and chances are they will mention “the separation of church and state.” Most would be surprised to learn that the phrase nowhere appears in the Constitution. What’s more, there are times when the state has to become involved in the affairs of the church, and when that happens, it gives us insight into how to treat real estate deals where a religious or other non-profit institution is involved. Diocese of San Joaquin v. Gunner was one such instance.

The Diocese of San Joaquin is a division of the Episcopal Church in America. It is led by its Bishop. In a unique feature of the law, the office of the Bishop is actually a special kind of corporation, called a Corporation Sole. What that means is that the Corporation has no shareholders, and its only officer is the person appointed to fill the position. Thus, references to the Bishop can be either to the office or to the person holding the office. This distinction can be—if you’ll pardon the expression—the Devil’s playground where a transfer of the Diocese’s property is concerned.

In the Gunner case, a dispute arose over church doctrine, and the members of the Diocese of San Joaquin, led by their Bishop (the person John-David Schofield), decided to separate from the national body and associate with another Episcopal church body based in South America. In response, the national church body issued an instruction to Schofield relieving him or his religious duties and telling him to maintain his role solely as overseer of the church’s property until a new Bishop could be appointed. Schofield countered by filing papers with the California Secretary of State to change the official name of the Bishop’s corporation sole, and then he attempted to transfer the property held in the former name to the new name.

A couple of months later, the national body removed Schofield as the Bishop, and the few churches in the Diocese of San Joaquin who had not voted to leave the national body chose a new temporary Bishop. This left the question of who had the rights to the real and personal property that had been ostensibly transferred by Schofield to the new name of the Bishop, which he contended he controlled. Where angels fear to tread, sometimes judges have to, and the litigation over title to the church property began.

In an earlier decision regarding the same parties, the court was asked to decide whether the Diocese could leave the Episcopal Church, and which Bishop, Schofield or his temporary successor, was the rightful Bishop. The Court said that it could not decide these issues without violating the principles of separation of church and state because the questions depended on religious doctrine. But, where title to the property was concerned, the Court essentially had no choice, and clearly, it felt more comfortable deciding the questions, even though it had to delve into some of the same issues of religious doctrine that it earlier declined to address. To do so, the Court tried as much as possible to avoid the religious questions and simply to apply the law.

The court found that Schofield’s attempt to change the name of the corporation sole was invalid because doing so conflicted with the national church’s canons and had not been approved by the national organization. The Court then addressed the real property question and concluded that because the name of the corporation sole was never validly changed, when Schofield executed and recorded the deeds transferring the real property, he was granting the property to an entity that did not exist. While it might be contrary to common sense, the Court found no clear California case that said such a transfer was invalid, so instead, the Court relied on two out-of-state cases (from Minnesota and Utah) that invalidated a conveyance of real property to a non-existent entity. The Court adopted the rule for California, the result being that the real property was never transferred, and remained the entire time with original corporation sole.

The lesson here is that when dealing with situations where a transferor of real property is a religious or other non-profit entity, it is always important to confirm the authority of the transferor to grant away the property of the organization, just as with any other entity. In addition, it is important to confirm the existence of any entity receiving title to the property; otherwise, the transfer might lead to apocalyptic results.