Decision Number 190
SUBJECT TO FINAL EDITING
The Right of the North Carolina Annual Conference to Direct Its Trustees Concerning the Investment of Trust Funds
Digest
An Annual Conference has broad powers to direct its Board of Trustees concerning the investment of its trust funds including the right to instruct its Board of Trustees not to commingle the funds in its hands with other funds.
Statement of Facts
On November 7, 1951, pursuant to Paragraph 709 of the 1948 Discipline of The Methodist Church (now Paragraph 711 of the 1960 Discipline) the North Carolina Annual Conference (Southeastern Jurisdiction) of The Methodist Church sought and obtained a Certificate of Incorporation for "The Board of Trustees of The North Carolina Conference of The Methodist Church, Incorporated." The original Corporate Charter thereof has been amended as hereinafter noted.
In November of 1953 the North Carolina Conference of the Southeastern Jurisdiction of The Methodist Church created a Central Treasury, which Central Treasury was given authority to handle the receipt and disbursement of the funds coming into the hands of the North Carolina Annual Conference.
In 1955 the North Carolina Conference authorized the creation of a corporation known as the Methodist Fund, Inc., which corporation was authorized by the conference to buy and sell securities for the Central Treasury of the North Carolina Annual Conference. Thereafter, the Methodist Fund, Inc. was issued a Corporate Charter in the State of North Carolina.
In 1958 the name of the Methodist Fund, Inc. was changed to "The Methodist Foundation, Inc., a North Carolina Corporation."
Under the prevailing custom in the North Carolina Annual Conference the Central Treasury handles the funds of the Boards, Commissions and Agencies of the Conference.
On June 25, 1959, the North Carolina Annual Conference adopted a resolution directing the presiding Bishop to appoint a committee of five or more persons to study and consider "the Charter, Amendments to Charters and By-Laws of all corporations auxiliary to and/or controlled by the Annual Conference and to consider any and all other matters which the committee may determine pertinent and to report to the next Annual Session of the Annual Conference with such recommendations as said committee may determine necessary for appropriate action to be taken in reference thereto by the Annual Conference." (Page 14, Minutes of the North Carolina Annual Conference, 1960 Session) The Bishop duly appointed the committee required by the foregoing resolution and this committee made its report to the Annual Conference on June 28, 1960. Said committee report included inter alia a recommendation that the Charter of The Board of Trustees of the North Carolina Annual Conference of The Methodist Church, Incorporated, be amended "to allow the Board of Trustees of the North Carolina Annual Conference, Southeastern Jurisdiction of The Methodist Church, the explicit right to turn over funds to the Methodist Fund or Methodist Foundation, Inc. for the purpose of investment by the Methodist Foundation, Inc., as agents for the Board of Trustees and to invest the permanent funds of said Church but that said funds shall not be commingled with other funds of the Methodist Foundation, Inc." This resolution was adopted by the North Carolina Annual Conference following which a resolution was adopted by the conference referring Section 2 of the report (from which the quotation set forth above is taken) to the Judicial Council for ruling as to its legality and constitutionality.
The 1961 Session of the North Carolina Conference, Southeastern Jurisdiction, authorized an application to the Secretary of State of North Carolina for certain amendments to the Corporate Charter of The Board of Trustees of the North Carolina Conference of The Methodist Church, Incorporated, which would:
(a) Change the name of the Corporation to "The Board of Trustees of The North Carolina Annual Conference, Southeastern Jurisdiction of The Methodist Church, Incorporated."
(b) Specifically provide that said Corporation "shall be under the jurisdiction, control and direction of the North Carolina Annual Conference, Southeastern Jurisdiction of The Methodist Church."
(c) Specifically provide that the Corporation should administer the assets delivered to it in accord with the Discipline of The Methodist Church.
(d) Provide that any alteration or amendment to the Corporate Charter would first have to be approved by the North Carolina Annual Conference, Southeastern Jurisdiction of The Methodist Church.
The Corporate Charter of the Corporation was duly amended in accord with the action of the Annual Conference.
The corporate By-Laws of the Corporation were amended to provide:
(a) That any amendment to said By-Laws must first be approved by the North Carolina Annual Conference.
(b) That the Board of Directors of the Corporation be given the specific authority "to place with the Methodist Foundation, Inc., a creature of the North Carolina Annual Conference, Southeastern Jurisdiction of The Methodist Church, such funds as it may deem proper for the purpose of investment by the Foundation. The Methodist Foundation, Inc. serving as agent for the Trustees shall be required to keep an accurate accounting of all funds held and invested for the Board of Trustees. Further, a financial report shall be placed in the hands of the President and Secretary of the Board of Trustees once each quarter, indicating the investment transactions during the period, the valuation of all funds of the Foundation and showing specifically the funds held for the Board of Trustees. A certified copy of an annual audit performed by a certified public accountant shall be placed in the hands of the Secretary of the Board of Trustees annually. The Methodist Foundation shall have as a fully qualified and voting member one representative elected by the Conference Board of Trustees. Finally, any funds of the North Carolina Annual Conference held in trust by the Board of Trustees and placed in the hands of the Methodist Foundation, Inc. for investment must be payable to the Board of Trustees on demand, as its equity appears."
Most of the agencies of the North Carolina Conference, Southeastern Jurisdiction, including the Board of Trustees of The North Carolina Annual Conference, Southeastern Jurisdiction, of The Methodist Church, Incorporated, invest their funds with The Methodist Foundation, Inc., under an arrangement by which said agencies in effect purchase units or shares in The Methodist Foundation, Inc., the purchase price of which units or shares is in direct proportion to the book value of such shares or units as of the date of purchase.
Jurisdiction
The Judicial Council takes jurisdiction of this matter under Paragraph 914 (8) of the 1960 Discipline of The Methodist Church.
Analysis and Rationale
This matter comes to us from the North Carolina Annual Conference requesting a decision as to the legality and constitutionality of a resolution of said conference permitting its Board of Trustees "the explicit right to turn over funds to the Methodist Fund or Methodist Foundation, Inc. for the purpose of investment" . . . but directing that "said funds shall not be commingled with other funds of The Methodist Foundation, Inc."
On the record before us no constitutional question is made to appear. We, therefore, confine ourselves to the question of the legality of the action of the North Carolina Conference in adopting the resolution from which an appeal was taken.
Briefly stated the questions before us are: (1) Can the North Carolina Annual Conference direct or permit its Conference Board of Trustees to invest trust funds in The Methodist Foundation, Inc. as set out in the foregoing statement of facts? (2) Can the North Carolina Annual Conference direct its Board of Trustees that in the investment of its trust funds they shall not be commingled with other funds?
Both of these questions are answered in the affirmative.
Paragraph 711 of the 1960 Discipline states:
"1. Each Annual Conference shall have an incorporated Board of Trustees." Then follow instructions as to the election of members of such board. "2. The said corporation shall receive, collect, and hold in trust for the benefit of the Annual Conference any and all donations, bequests, and devises of any kind or character, real or personal, that may be given, devised, bequeathed or conveyed to the said board or to the Annual Conference as such for any benevolent, charitable, or religious purpose, and shall administer the same and the income therefrom in accordance with the direction of the donor, trustor, or testator, and in the interest of the church, society, institution, or agency contemplated by such donor trustor, or testator, under the direction of the Annual Conference. The Board shall have power to invest, reinvest, buy, sell, transfer, and convey any and all funds and properties which it may hold in trust, subject always to the terms of the legacy, devise, or donation. . . . Funds committed to this board may be invested by it only in collateral that is amply secured and after such investments have been approved by the said board or its agency or committee charged with such investment, unless otherwise directed by the Annual Conference." (Emphasis added)
Under the above quoted provisions of Paragraph 711 (2) of the 1960 Discipline, it is clear that neither the Board of Trustees of the Annual Conference nor the Annual Conference itself may legally direct the investments of funds entrusted to it in violation or disregard of the specific terms governing the investment of funds which have been entrusted to it.
"The board shall have power to invest, reinvest, buy, sell, transfer and convey any and all funds and properties which it may hold in trust subject always to the terms of the legacy, devise or donation."
It seems that this principle of administration is so clearly set forth in Paragraph 711 (2) of the Discipline, that it is not open to question. If, therefore, the limiting conditions governing any particular fund or trust provide that such funds shall be forever maintained intact and not commingled with other funds held by the Board of Trustees, they are forbidden by this law of the church to disregard such limiting condition.
Funds not specifically designated and restricted by conditions under which a "donation, bequest, or devise" comes into possession of an Annual Conference, become a part of the "Permanent Fund" of the Annual Conference, and are held in trust by the Board of Trustees of the Annual Conference. Paragraph 711 (2) of the Discipline gives broad discretionary power to the Board of Trustees of the Annual Conference in determining how the funds entrusted to it shall be invested but always subject to any direction the Annual Conference may give.
It is the opinion of the Council, and we so hold, that the Board of Trustees of the North Carolina Annual Conference, Southeastern Jurisdiction of The Methodist Church, Incorporated. when authorized to do so by the North Carolina Annual Conference, Southeastern Jurisdiction, may invest funds held by it and which are not assets of a legacy, devise or donation under a trust agreement or arrangement prohibiting such investment in the purchase of shares or units in The Methodist Foundation, Inc. in the same way in which it can invest such funds in the shares, obligations, bonds or stocks of some other person, firm or corporation.
We direct attention to the fact that the investment procedure followed by the Board of Trustees of The North Carolina Annual Conference, Southeastern Jurisdiction, of The Methodist Church, Incorporated as herein outlined does not constitute a commingling of the funds of such Board of Trustees with the funds of others. Nor does it constitute a turning over of its funds to some other person, firm or corporation for investment purposes. Rather, it is a purchase by said Board of Trustees of shares or units in an investment corporation: to wit, The Methodist Foundation, Incorporated. Such investment is represented by a certificate from the Foundation to the Board showing the number of shares or units owned by it, and such shares or units may be liquidated or cashed-in on demand by said Board of Trustees. The legal relationship of The Board and The Foundation is not one of creditor and debtor, but The Board is a shareholder or unit holder in The Foundation, and in case of a liquidation thereof The Board would be entitled to share pro rata with the other unit or share holders in the net assets of The Foundation after its creditors have been paid. In other words, the relationship of The Board of Trustees to The Foundation is the same as its relationship would be to any other corporation in which it is a stockholder. Under the facts of this case the position of The Board is strengthened by the fact that the beneficiary of the trust funds which it administers, The North Carolina Annual Conference, Southeastern Jurisdiction of The Methodist Church, has specifically authorized it to invest in the shares or units of The Foundation. For thus the Annual Conference shares the responsibility for the making of such an investment and could not be heard to complain if for any reason such investment proved to be unwise or improvident.
With reference to the right of The North Carolina Annual Conference to direct its Board of Trustees not to commingle its trust funds with the funds of others we think there can be no doubt that the Annual Conference has the right to give such a direction to its trustees in view of the provisions of Paragraph 711 (2) of the Discipline.
Decision
It is therefore the decision of the Judicial Council:
1. That it is legal for The Board of Trustees of The North Carolina Annual Conference, Southeastern Jurisdiction of The Methodist Church, Incorporated, to invest funds entrusted to it in shares or units of The Methodist Foundation, Inc., provided that in doing so it does not violate the terms of any specific trust.
2. That the North Carolina Annual Conference has the legal right to direct its trustees not to commingle its trust funds with the funds of others.