The United Methodist Church has asked the Supreme Court to dismiss it as a defendant in a $500 million lawsuit based on allegations of fraud, breach of contract, and violations of federal securities laws, all in connection with a group of homes for the aged in three western states.

The issue before the justices is a narrow one: whether to review the first court ruling that a major international religious denomination is an "unincorporated association" that, like a political party or a labor union, can be sued.

The UMC has more than 10 million members and more than 43,000 local churches, including about 39,000 in the United States.

The ruling was handed down last March by a unanimous California Court of Appeal. To hold that the UMC can be sued, the court's opinion said, is not to interfere with its internal affairs in violation of the First Amendment guarantee of the free exercise of religion. The court added:

"There is no evidence to show that rendering UMC amenable to suit would affect the distribution of power or property within the denomination, would modify or interfere with the modes of workship affected by Methodists or would have any effect other than to oblige UMC to defend itself when sued upon civil obligations it is alleged to have incurred."

By contract, three UMC leaders, in their petition for Supreme Court review, wrote: "To defend the lawsuit would require a restructuring of the government of the denomination to create a monolithic unit, able to speak with one voice and act in a unified manner. To default would threaten each local church, conference and board with judgement against whatever is later deemed 'association' property in its control."

The National Council of the Churches of Christ, in a friend-of-the-court brief, warned that the ruling, if left standing, "would unconstitutionally abridge the free exercise of religion, for it would necessarily force all religious denominations to reexamine and reorganize their internal church policies in light of the unprecedented potential for civil liabilities . . . "

The case is one of a series centering on Pacific Homes, Inc., a nonprofit corporation formed in 1929 by the UMC's Pacific and Southwest Annual Conference. The 1,900 residents -- in facilities in California, Hawaii, and Arizona -- each had a contract for lifetime care, including accommodations; convalescent, medical and nursing care, and, in most cases, food service.

Most of the residents paid in advance, entitling them to the lifetime care at no additional cost. Others agreed to make lifelong monthly payments guaranteed never to increase, or to increase only in keeping with inflation.

Allegedly, Pacific Homes put revenues from the lifetime contracts into new facilities and speculative realty ventures rather than into liquid investments.

In February 1977 the enterprise filed for bankruptcy. Since then the homes have been operated -- without interruption of services -- by a court-appointed trustee. But the residents, despite their supposedly ironclad contracts, have been forced to put up more money.

In September 1977, about 150 of the residents filed a damage suit in Supreme Court in San Diego against UMC and four of its units, including the General Council on Finance and Administration.

Court aides attempted to serve legal papers on, among others, Bishop Charles F. Golden, who presides over the Pacific and Southwest conference; Paul W. Milhouse, a former president of the denomination's Council of Bishops, and James M. Walton Myers, a former assistant general secretary of the finance council.

The attempt to serve papers is what the Supreme Court case is about.

The three officials argue that they couldn't be served because they lack any power or authority to speak for the UMC. They also contend that in seeking reversal of the appellate court, they are acting neither for their own benefit nor for the benefit of someone they represent.

The plaintiffs counter that, if the officials are correct, they don't have a right to petition the Supreme Court "because they are not aggrieved. They also lack standing to raise the constitutional rights of individuals or entitles not before the court," the plaintiffs assert.

In March 1978, Judge Ross G. Tharp dismissed the fraud suit, saying it was barred by the constitutional guarantees of religious freedom and due process of law. His four-paragraph opinion, citing a 1959 encyclopedia definition of Methodism, termed the UMC a 'spiritual confederation'" that would be destroyed were it to be declared an unincorporated asssociation.

The Court of Appeal reversed. It cited documentary evidence that the UMC is a "hierarchic" entity that can't dissociate itself from Pacific Homes, adding: "The international eclesiastical judicial system of UMC does not provide any method of redress. The use of the courts as a method of dispute resolution cannot be foreclosed to this class of plaintiffs . . . because one of the named defendants is a religious body."

In a related case, the Supreme Court has been asked to dismiss the UMC as a defendant in a $5 million lawsuit arising from a default on bonds issued by the Pacific Methodist Investment Fund. The fund was established to raise money for Pacific Homes.

An effort by the UMC to be dismissed had been denied by U.S. District Court Judge Edward J. Schwartz in San Diego, who said that the church's "Book of Discipline" provides that "at every level of authority . . . any unit which holds property does so in trust for the United Methodist Church." The 9th U.S. Circuit Court of Appeals upheld Schwartz without writing an opinion.