Corporations Code Saves Church Property

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