Ackerman v. Physicians and Surgeons Hospital

• Citation: 207 Or. 646,298 P.2d 1026
• Parties: Dolores ACKERMAN, Appellant, v. PHYSICIANS AND SURGEONS HOSPITAL, an Oregon corporation, Respondent.
• Decision Date: 27 June 1956
• Court: Supreme Court of Oregon

Page 1026

298 P.2d 1026

207 Or. 646

Dolores ACKERMAN, Appellant, v. PHYSICIANS AND SURGEONS HOSPITAL, an Oregon corporation, Respondent.

Supreme Court of Oregon.

Argued and Submitted On Rehearing Jan. 25, 1956.

Decided June 27, 1956.

Dwight L. Schwab, Portland, argued the cause for appellant. With him on the briefs wer Cake, Jaureguy & Hardy and Jonathan U. Newman, Portland.

Cleveland C. Cory, Portland, argued the cause for respondent. With him on the brief were Hart, Spencer, McCulloch, Rockwood & Davies, Hugh L. Biggs and George H. Fraser, Portland.

Before WARNER, C. J., and ROSSMAN, LUSK, BRAND, LATOURETTE and PERRY, JJ.

PER CURIAM.

This is a rehearing petitioned for by plaintiff. Our original opinion was handed down October 26, 1955, 288 P.2d 1064, wherein we affirmed a judgment non obstante veredicto in favor of the defendant. In so doing we sustained a finding that the evidence conclusively showed that the defendant hospital was an eleemosynary institution at the time of plaintiff's injuries and, as such, was exempt from liability arising out of the negligence of its employee.

The sole issue presented by the plaintiff's petition, as well as in the original appeal, is whether or not the defendant institution is, in fact, eleemosynary in character, for as we said in our original opinion: '* * * if it is not an eleemosynary institution, then it must respond to a judgment for damages accruing by reason of its negligence.' 288 P.2d 1064, 1065.

We preface what follows by noting that on appeal from a judgment notwithstanding the verdict the evidence will be construed in the light most favorable to the plaintiff. Baird v. Boyer, 187 Or. 131, 140, 210 P.2d 118; Callander v. Brown, 181 Or. 279, 282, 178 P.2d 922.

Immunity from liability upon the ground of being a public charity is an affirmative defense and therefore the burden of establishing the eleemosynary character of the institution was upon the party asserting that defense. Walsh v. Sisters of Charity of St. Vincent's Hospital, 47 Ohio App. 228, 191 N.E. 791, 792. Also see 14 C.J.S., Charities, § 75, p. 551.

Hospitals, as such, are not necessarily public charities. 'The articles of incorporation are prima facie evidence of the character of the corporation as a charitable institution, but such prima facie evidence may be rebutted by evidence that in fact the corporation has not lived up to its chartered objects.' Benton County v. Allen, 170 Or. 481, 484, 485, 133 P.2d 991, 993; Hamilton v. Corvallis General Hospital Association, 146 Or. 168, 176, 30 P.2d 9; White v. Central Dispensary and Emergency Hospital, 69 App.D.C. 122, 99 F.2d 355, 119 A.L.R. 1002.

We turn our attention to the various tests of the eleemosynary character of an institution as established by this court in previous decisions in an effort to determine whether or not there was any substantial evidence presented during the trial below from which the jury might justly conclude that the defendant hospital was not a charitable institution.

In Corporation of Sisters of Mercy v. Lane County, 123 Or. 144, 155, 261 P. 694, 698, this court, quoting from 30 C.J. 462, stated:

"The test which determines whether a hospital is charitable or otherwise is its purpose; that is, whether it is maintained for gain, profit, or advantage, or not. * * *" See, also, 14 C.J.S., Charities, § 2, p. 416.

Also see Hamilton v. Corvallis General Hospital Association, supra, 146 Or. at page 186, 30 P.2d at page 16.

We now reexamine the evidence bearing on the question of 'whether it [the defendant] is maintained for gain, profit, or advantage.' The forerunner of the defendant institution, and which occupied the same premises, was a private hospital known as the Coffey Memorial Hospital. After the death of Dr. J. R. Coffey, his estate indicated a desire to sell the hospital and its assets. Thereupon a group of 15 doctors, later referred to as the founders, some of whom had previously practiced at the Coffey Hospital, associated themselves for the purpose of purchasing the Coffey Hospital. Some of the reasons motivating their action are found in the testimony of Dr. Manville, one of the founders, which follows:

'Q. Will you tell the court and jury why Physicians and Surgeons Hospital was incorporated and what type of a corporation you and the other incorporators sought to make? Let's start,--why was it incorporated?

'A. The Coffey estate, upon the death of Dr. J. R. Coffey, who was the oldest son of the original founder, upon his death the estate desired to sell the hospital. For myself, I had been practicing there for several years. It seemed like home. I wanted to continue to practice there if it were at all possible. So with myself and 14 other doctors, some of whom had practiced at the hospital the same as I had for some little time, we formed a group for the purchase of the hospital, which was done, and it was organized on a nonprofit, charitable basis for the purpose of carrying on the practice of medicine, for making available in this community hospital services, which were--of which there was a definite shortage at that time, and to serve this community to the best of our ability in a hospital that we could continue running under the high standards before--on which it had been existing before.'

Pursuant to an understanding with the Coffey estate, the founding doctors advanced $70,000 from their own funds as a down payment. The balance of the $250,000 purchase price was secured by a mortgage to the Coffey estate. Articles of incorporation were prepared and the defendant hospital was incorporated in June, 1945, under its present name as a charitable, nonprofit institution under the provisions of ORS 61.010 to 61.160. Article III of its charter reads in part as follows:

'This corporation is a purely nonprofit corporation and is not formed for the purpose of pecuniary profit, and no portion of this corporation's income, profit or surplus shall ever be devited or paid over or used in any way for the benefit of any of its members, or the pecuniary benefit of any private individual.'

Later in the corporate organization the 15 founding doctors were known as 'the members' of the corporation, and still later the name 'governors' was substituted by the by-laws (July, 1951) for the term 'members'. 'The members' together constituted the body which periodically selected from its own number the six trustees, one of whom was an alternate trustee. The trustees in turn were the active managing body of the hospital. We shall, from this point on, refer to the founding doctors as 'the members'. This makes the internal organization of the hospital somewhat unique in that it vests absolute control of the institution in the 15 members who were the founding doctors. All power, control and authority in the corporation consequently flows from the founders. These men, according to the testimony of W. G. Lamer, defendant's administrator and its executive officer, remain in office until they either resign, die, or quit practicing medicine.

We note that the successful operation of the corporation made it possible in the years following to repay to the 15 founding members all but $1.00 each of the $70,000 originally advanced by them. Each member maintains this token investment in order to comply with certain corporation laws of this state which require officers of a corporation to be interested parties. The corporation was organized without capital stock. No dividends have been paid, nor are there any provisions for the payment of dividends. During the life of the corporation no salaries, premiums, or rewards have ever been paid to any member of the staff or other individuals other than to employees. Income over and above operation expenses is directed to better patient care, equipment, buildings or such charity as the hospital extended and which charity is later referred to. Salaries are paid only to regular employees. There is no discrimination made with respect to the admission of patients because of race, creed or color.

The hospital had a medical staff at the time of trial numbering about 132 doctors. Medical policies are determined by this staff subject to the approval of the trustees. Appointments to the medical staff are made by the trustees for a period of one year. The staff members are entitled to use the facilities of the hospital but they have no control over the internal management of the corporation.

Plaintiff argues that this complete and absolute control of the respondent hospital was, and is, a gain or private advantage to the governors. Plaintiff also claims that since the appointment of doctors to the medical staff must be approved by the board of trustees each and every year, the members of the medical staff would not wish to incur the displeasure of the board by failing to support any of the medical policies recommended by the governors. In addition, argues the plaintiff, all the equipment, facilities and prestige of this modern hospital are available to the governors for life at no cost to themselves.

Plaintiff emphasizes the provision in Art. I, § 1 of the Modified By-laws of 1947, reading:

'Provided, that any child or children of an active member who has died or has resigned may become an active member herein by meeting all of the requirements above specified [the qualifications that the founding members imposed upon themselves] save and except the practice period of Five (5) years which in this particular instance shall be cancelled.'

and maintains that a jury could infer from that by-law that the medical governors thereby created for their sons or designees the same private advantages accruing from the control of the hospital as they themselves now enjoy, one of which is the assurance that their offspring will have positions of control in a successful hospital should they choose to enter the field of medicine. Plaintiff also asserts that the right to designate one's successor could be...