Scott E. Mollen

Dispute Over Ownership of Hindu Temple – Contract Was Never Approved By Board of Trustees and “Umbrella” Organization – Adverse Possession, Equitable Title, Unjust Enrichment and Implied Covenant of Good Faith and Fair Dealing Claims Rejected

The plaintiff and the defendant are two “Hindu religious organizations.” The defendant temple (defendant) moved for partial summary judgment dismissing a complaint, and for a judgment declaring, “pursuant to RPAPL Article 15, that plaintiff…and every person claiming under it,” (plaintiff) are “barred from all claims to an estate, interest or lien in, to, or upon the subject premises;” (premises or property) “declaring, pursuant to RPAPL Article 15, that [defendant], against [plaintiff]…, is vested with an absolute and unencumbered title…to the…premises;” “declaring, pursuant to RPAPL Article 6, that sole…possession be awarded to [defendant], and…a warrant of eviction, ordering [plaintiff]…, to remove themselves from the…premises and be dispossessed of the…premises;” “declaring, pursuant to RPAPL Article 15, that [plaintiff]…, by title accruing after the filing of the judgment-roll, or of the notice of the pendency of the action, as prescribed by law, be forever barred from asserting such claim to an estate or interest, the invalidity of which is established in this action;” “awarding damages to [defendant] against [plaintiff] for…withholding of possession of the…premises;” and “granting rent arrears against [plaintiff]” in the amount of approximately $413,000, plus the fair value of use and occupancy (U & O) of the premises after May 31, 2015, together with costs and disbursements.

The defendant was incorporated as a not-for-profit corporation (NFPC) in 1972, and is also a religious corporation. In 1993, the defendant purchased the property, for $900,000. In 1994, the defendant purchased another parcel, also for $900,000. The defendant paid the seller $200,000 in cash, and executed a purchase money note and mortgage for $700,000 (PM Mortgage). The defendant thereafter combined the adjoining properties to create “a large Hindu temple, known as Divya Dham Temple” (DDT). DDT “operates as a branch of [defendant], and is affiliated with” an organization located in India. “A,” a Hindu monk, founded DDT and the defendant. “B” a different Hindu monk, was affiliated with an American branch of a different Hindu organization.

In 2001, “A” experienced medical problems and requested the assistance of “B.” Sometime in 2001, “A” and the defendant agreed to permit “B” and the plaintiff, also a not-for-profit corporation, to occupy DDT as a Hindu Temple. The plaintiff had been incorporated in August 2001, and had taken occupancy of DDT in September or October 2001.

In June 2001, “A” and “B” signed a contract of sale (contract) pursuant to which “A,” on behalf of the defendant, agreed to convey the properties to “C,” another Hindu temple. A handwritten change was made to the name of the purchaser in a June 11, 2001 rider, to that of the plaintiff. The change of the purchaser was only initialed by “B,” who executed the contracted on behalf of the plaintiff. The contract also contained a provision initialed by “B,” that the purchaser would “pay all tax arrears now outstanding at the tax rate of $1500 per month….” The contract specified that the purchase price was to be “$0.” However, the sale was subject to “the balance of the existing mortgage.” The contract noted that the outstanding PM Mortgage, amounting to approximately $472,000, was due on March 8, 2002. The purchaser was also obligated to pay for operational expenses and to maintain the building. Additionally, the contract provided that for a period of 21 years, the purchaser would use the temple for “the religious practices of ‘Sanatan Dharma’ or as a Hindu Community Center, and for no other purpose” and a breach of such condition would result in a “reversion” of the property to the grantor. A rider containing such provisions was executed by both “A” and “B” and a typewritten name of “C” was crossed out and initialed only by “B.”

The closing never occurred in June 2001. The plaintiff never executed or delivered a promissory note and PM Mortgage in favor of the defendant. The defendant had never transferred the property by delivering a deed to the plaintiff. Neither party executed a written modification of the contract. During the period 2001 through Feb. 2009, the plaintiff tendered checks to the defendant, which were intended to cover the defendant’s monthly mortgage payments.

“A” died in December 2005, and “D” submitted an affidavit, wherein he stated that “he became Head Swami of [defendant] in January 2006, and…its president.” He stated that in March 2009, “B” showed “D” a copy of the contract and requested conveyance of the property housing DDT to the plaintiff. “D” asserted that he had not been unaware of the contract and informed “B” that he would never convey the DDT temple. The plaintiff asserted that between March 2009 until May 2010, it made monthly mortgage payments directly to the defendant’s mortgagee and the mortgage has been satisfied. The plaintiff thereafter commenced the subject action, filing a complaint and a notice of pendency on Aug. 22, 2012.

The plaintiff alleged that it owned the property, based upon the contract. The plaintiff claimed that it had “assumed the mortgage of the…properties and immediately took control and possession of same.” The plaintiff asserted that it paid the monthly mortgage payments to the defendant, amounting to approximately $700,000. The plaintiff also alleged that it had used the temple “independent and at the exclusion of [defendant].” The plaintiff further asserted that it paid approximately $159,000 to extinguish a tax lien that had accrued during the defendant’s occupancy of the property. The plaintiff contended that the defendant had offered to convey title to relieve its financial burden, if the plaintiff assumed “the mortgage and continued to use the properties as a Hindu Temple.” The plaintiff alleged that in reliance on that agreement, it had paid more than $700,000 with “the understanding that the deed would be conveyed upon the satisfaction of the mortgage; and that the mortgage is fully satisfied and…[defendant] has refused to convey title.”

Additionally, the plaintiff asserted claims for adverse possession, unjust enrichment, breach of the implied covenant of good faith and fair dealing and breach of contract. The defendant had served a notice on the plaintiff terminating its tenancy at DDT and a notice to quit pursuant to RPAPL Art. 6. However, the plaintiff remained in occupancy at DDT.

The defendant asserted numerous affirmative defenses and counterclaims and made the aforementioned motion for partial summary judgment. The defendant contended that the “contract…is unenforceable…and an ultra vires act, as it was never approved by the [defendant’s] Board of Trustees” (board) “as required by [NFPCL] §509(1),” the contract was unenforceable for lack of consideration, since the plaintiff never executed and delivered to the defendant, a note secured by a PM Mortgage, as required by the contract; that “the alleged consideration paid by [plaintiff] was materially different in character from that identified in the contract and was more in the nature of rent or use and occupancy” (U & O); and that “the best interests of [defendant] and its congregation would not be served by the enforcement of said contract.” The defendant alternatively argued that if the contract was valid and enforceable, “it is entitled to rescission on the grounds that it was unauthorized, illegal and unfair, without consideration, and against [defendant’s] interests and purposes.” As an “alternative remedy in the event that [defendant] is not awarded judgment” on the prior counterclaims, the defendant sought “to incorporate into any deed and to run for 21 years, certain deed restrictions contained in the contract.”

The plaintiff’s time to reply to the counterclaims had expired and it was in default on the counterclaims. The court considered the plaintiff’s submissions only in opposition to the defendant’s motion, since the plaintiff had not “properly moved to vacate its default in replying to the counterclaims.”

The court noted that the defendant is “governed by both the (N-PCL) and the Religious Corporations Law [RCL].” The court further explained that:

[t]he sale, lease,…or other disposition of all, or substantially all, of a not-for-profit corporation’s assets, requires authorization, in the manner specified in section 510 (a) of N-PCL. If there are members entitled to vote, the board must adopt a resolution that is then submitted to the members for a vote at an annual or special meeting; each member and each holder of subvention certificates or bonds must be given a notice of the meeting; and at the meeting the members by two-thirds vote may approve the resolution or, in the alternative, may approve the disposition, and may authorize the board to modify the conditions and terms thereof (N-PCL §510 [a] [1]). If there are no members, the disposition must be approved by at least two-thirds of the entire board; in the event that there are 21 or more directors, the majority of the board is sufficient to approve the disposition (N-PCL §510 [a] [2]). Where, as here, the corporation is a Type B corporation, judicial approval of the disposition is also required (N-PCL §510 [a] [3]). The procedure for obtaining leave of the Supreme Court is set forth in N-PCL §511 (a), and section 511 (b) requires that notice be given to the Attorney General.

Religious Corporations Law §12 (1) provides that, in order to sell any of its real property, a religious corporation must apply for, and obtain leave of court pursuant to N-PCL §511.…

N-PCL §511 (a) (7) and (8) provide that a petition seeking court approval for the sale must set forth that the trustees of the religious corporation, and, if necessary, the members thereof, have validly authorized and consented, respectively, to such a sale. In addition, N-PCL §511 (d) provides that the court may authorize the sale if it appears to its satisfaction that “the consideration and the terms of the transaction are fair and reasonable to the corporation and that the purposes of the corporation or the interests of the members will be promoted.”

“D’s” affidavit stated that the defendant’s by laws provide that the defendant’s property shall be vested in “A,” the board and an official representative of the “umbrella” organization located in India. “D” further stated that the DDT temple is the defendant’s most valuable asset, the “umbrella” organization representatives had been “deeply involved in creating the temple” and “A” and the board would have had to obtain authorization from the “umbrella” organization to sell the properties and such organization had never consented to the sale of the properties.

The court found that the plaintiff could not “avoid the consequences of [RCL] and the N-PCL by seeking to quiet title pursuant to Article 15 of the RPAPL.” There was no evidence that the defendant’s “governing board authorized and consented to the contract…” Therefore, notwithstanding the contract signed by “A,” the defendant’s founder and leader, the contract was not binding against the defendant, since it was not approved by the defendant’s board and other members of the governing body. The court emphasized “a contract concerning real property entered into by a religious corporation, without the consent of its governing body, is ‘void ab initio.’” Additionally, the contract violated N-PCL §510, since the properties housing the DDT temple, constituted “the major assets of [defendant], and the contract…was not approved by at least two-thirds of the ]board].”

The court found that the plaintiff lacked an interest in the properties and its cause of action to quiet title pursuant to Art. 15 of the RPAPL, had to be dismissed. The contract was executed at the time when the plaintiff had not yet been incorporated and the defacto corporation doctrine was inapplicable, since there was no evidence that the plaintiff had made “a ‘colorable attempt’ to comply with the statutes governing the formation of a not-for-profit Type B corporation.” The plaintiff had argued that it was an “intended beneficiary” and that, shortly after the plaintiff was formed, “B” assigned the contract to the plaintiff. The court found that such claims were not supported by the evidence and since the plaintiff did not exist at the time the contract was executed, it could not take title to the properties pursuant to such contract and there was not a contract vendee.

Additionally, the plaintiff’s allegations that it paid the defendant’s mortgage were “insufficient to support a RPAPL Article 15 action.” The plaintiff’s payments were made directly to the defendant for approximately 7 1/2 years, in an approximate amount of the defendant’s mortgage. The court found that such payments did not prove that the plaintiff had paid the defendant’s mortgage. The plaintiff had not contractually agreed to pay the existing mortgage in consideration of the defendant conveying title when the mortgage was satisfied.

The court also rejected the plaintiff’s adverse possession claim. The plaintiff’s occupation of the properties was, until the notice to quit was served, “permissive and, therefore, the ten-year period did not begin to run until May 2015, some two years and eight months” after the subject action was commenced. The court also held that the plaintiff’s payments did not “establish that it acquired equitable title.” The payments “did not divest [defendant] of its ownership interest,” since the contract was unenforceable and did not divest the defendant of its ownership interest.

The unjust enrichment claim was also dismissed. The defendant never relinquished legal title to the properties and it could not be “unjustly enriched by retaining it.” Although the plaintiff allegedly spent more than a million dollars to maintain and improve the properties, the “evidence of most of the costs incurred” were “not yet before this court” and the plaintiff’s submissions were “insufficient to raise a triable issue of fact.”

The court also rejected the implied covenant of good faith and fair dealing claim. No written agreement ever modified the contract and the contract was unenforceable. The plaintiff’s specific performance claim was also dismissed. The plaintiff had “never scheduled a ‘law day,’” had “never tendered the promissory note and [PM Mortgage]” and the defendant made a prima facie showing that the contract was unenforceable.

Additionally, the court held that the defendant was entitled to a default judgment on its counterclaim pursuant to RPAPL Art. 15, to the extent that the court declared that the defendant “is the lawful owner” of the properties and the plaintiff was “barred from asserting a claim to an estate or interest” in the properties. Although the court also granted the defendant’s motion for a default judgment on its claim for ejectment and a writ of possession, it denied the defendant’s claim for rent arrears for the period of June 2010 through May 31, 2015. To the extent that the plaintiff took occupancy under the mistaken belief that the contract was valid, the monthly payments were consistent with the terms of the contract. However, the defendant had not established that “there was a written or oral lease agreement between the parties whereby [plaintiff] agreed to pay” the alleged monthly rental amount. There was also no evidence that the defendant had sought or obtained the court’s permission to enter into a lease agreement for the subject period of time, as required by RCL §12. Thus, the court denied the defendant’s motion to recover de facto monthly rent for the period of June 2010 through May 2015.

Since the defendant had “failed to submit sufficient…evidence with respect to the value of [plaintiff’s] [U & O],” the court denied the claim for U & O after the notice to quit expired, “since same would amount to an acknowledgment that the parties had a valid and enforceable license or lease agreement before such time.”

Accordingly, the court granted, inter alia, the defendant summary judgment, dismissing the complaint and the defendant’s counterclaim to the extent that it declared that the defendant is the lawful owner of the properties. The court also granted the defendant a default judgment on its counterclaim for ejectment and for a writ of possession. The plaintiff was directed to vacate the premises within 60 days after service of a copy of the subject order, together with notice of entry.

Comment: This case is of interest since so many religious institutions have elected to sell their properties because they cannot afford to operate, repair and maintain their properties and the value of their properties has often increased. These organizations often need the sale proceeds in order to continue and expand their religious mission.

The “challenge” for buyers is that dissident factions of a congregation will often challenge such transactions. The dissidents usually claim, inter alia, that organizational approvals were never obtained because there was a lack of proper notice to members of a congregation, there is a dispute as to the “identity” or “status” of a congregation’s members entitled to vote, there were other violations of an organization’s governing documents or proper governmental approvals were never obtained, or if they were obtained, they were based on a congregation’s misrepresentations to a government agency or court.

These types of disputes help explain why certain lenders and purchasers are reluctant to lend to or buy from a religious institution. However, see N-FPCL §203 as to a third-party’s right to rely on appropriate governmental or judicial approvals of these types of transactions.

Divya Dham Sevashram Sangha v. Gita Temple-Ashram, 17594/2012, NYLJ 1202801006826, at *1 (Sup., QU, Decided Sept. 26, 2017), Elliot, J.

Scott E. Mollen is a partner at Herrick, Feinstein and an adjunct professor at St. John’s University School of Law.