Corporations Code Saves Church Property

Allen Matkins

Allen Matkins

The  AME Zion Church of Palo Alto, Inc. was founded in 1918 and has occupied its sanctuary for over a half century.  In 2018, the Bishop of the Western Episcopal District of The African Method Episcopal Zion Church importuned the church's pastor into deeding the church to a corporation that the Bishop had formed.  The corporation then borrowed, without the church's knowledge, several million dollars using the church's property as collateral.   When the the lenders filed noticed of default and attempted to foreclose, the church filed for protection under Chapter 11 of the Bankruptcy Code and then sued the lenders.

Bankruptcy Judge Frederick E. Clement refused the lenders' motion to dismiss the church's claim, finding that irregularities in the deed put the lenders on notice of the existence of an ultra vires deed.  Judge Clement cited Section 313 of the California Corporations Code which protects transferees and encumbrances when instruments are signed by two specified officers:

Subject to the provisions of subdivision (a) of Section 208, any note, mortgage, evidence of indebtedness, contract, share certificate, initial transaction statement or written statement, conveyance, or other instrument in writing, and any assignment or endorsement thereof, executed or entered into between any corporation and any other person, when signed by the chairperson of the board, the president or any vice president and the secretary, any assistant secretary, the chief financial officer or any assistant treasurer of such corporation, is not invalidated as to the corporation by any lack of authority of the signing officers in the absence of actual knowledge on the part of the other person that the signing officers had no authority to execute the same.

The deed at issue in this case was not signed by two officers as specified in Section 313.

There is one problem with Judge Clement's analysis, however.  Section 313 if part of the General Corporation Law whereas the church was apparently a corporation formed under California's Religious Corporation Law (the opinion is not specific on this point).  Judge Clement cites Saks v. Charity Mission Baptist Church, 90 Cal. App. 4th 1115 (2001).   While that case does discuss Section 313, there is no need to apply Section 313 to religious corporations because the Religious Corporation Law includes an analogous rule in Section 9214.

The case is AME Zion Church of Palo Alto, Inc. v. Ame Zion W. Episcopal Dist. (In re Ame Zion W. Episcopal Dist.), 2021 Bankr. LEXIS 1177.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Allen Matkins | Attorney Advertising

Written by:

Allen Matkins

Allen Matkins on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.