Community Memorial Hospital v. City of Moberly

• Decision Date: 11 December 1967
• Docket Number: No. 52562,No. 1,52562,1
• Citation: 422 S.W.2d 290
• Parties: COMMUNITY MEMORIAL HOSPITAL, a Not for Profit Corporation, Respondent, v. CITY OF MOBERLY, Missouri, et al., Appellants
• Court: Missouri Supreme Court

Page 290

422 S.W.2d 290

COMMUNITY MEMORIAL HOSPITAL, a Not for Profit Corporation, Respondent, v. CITY OF MOBERLY, Missouri, et al., Appellants.

No. 52562.

Supreme Court of Missouri, Division No. 1.

Dec. 11, 1967.

Motion for Rehearing or to Transfer to Court En Banc Denied

Jan. 8, 1968.

Roy D. Williams, Williams, Williams & Reesman, Boonville, Edwards, Hess & Collins, Macon, for respondent, Community Memorial Hospital.

Marion E. Lamb, Moberly, for appellants, City of Moberly and others.

HIGGINS, Commissioner.

Action for declaratory judgment and injunctive relief in which respondent had judgment exempting its real estate and personal property from taxation by County of Randolph and City of Moberly for years 1958 through 1965 and enjoining collection of taxes levied against those properties for the years in question. The judgment contained a finding that the properties were, during those years, 'actually and regularly used exclusively for purposes purely charitable and not held for private or corporate profit.' Art. X, Sec. 6, Constitution of Missouri, V.A.M.S.; Sec. 137.100(5) V.A.M.S.

Respondent, Community Memorial Hospital (Osteopathic), was incorporated June 28, 1957, under the General Not-For-Profit Corporation Act of Missouri, Chapter 355, V.A.M.S., with purposes: 'To establish and maintain a hospital for the care of persons suffering from illnesses or disabilities which require that the patients receive hospital care; to carry on any educational activities related to rendering care to the sick and injured or the promotion of health, which in the opinion of the Board of Trustees may be justified by the facilities, personnel, funds or other requirements that are or can be made available; to promote and carry on scientific research relating to the care of the sick and injured insofar as, in the opinion of the Board of Trustees, such research can be carried on in, or in connection with the hospital; to participate, so far as circumstances may warrant, in any activity designed and carried on to promote the general health of the community; to receive gifts, bequests, devises and other conveyances of personal and real property and to accept same with or without limitations or as endowments or as memorials or in trust for the benefit of or for any purpose or purposes for which the corporation is organized; to maintain an out-patient clinic and to foster, encourage and promote study, investigation and research in the art of diagnosis, healing and relieving human suffering and to foster and spread knowledge of medicine and treatment in relieving human suffering and disease; to procure the attendance of competent physicians and surgeons, (both D.O. and M.D.), nurses and attendants including laboratory technicians, scientists, and other persons necessary, usual or beneficial in carrying out the purposes of the corporation and to maintain free beds for such disabled and indigent persons and to furnish proper attendance for their care as may be admitted to the hospital, subject to such special rules and regulations as the Board of Trustees may establish from time to time for their admission, care and treatment. The hospital shall be conducted independent of sectarianism, and shall be open to any sect or creed. No charge for board, room, general nursing, medicines, medical care and attention shall be made of those patients who are unable to pay.'

Examination of respondent's charter shows that there is no provision for stock shares. No dividends ever have been paid to any person, and no mileage or compensation has been paid to any person serving as a member of the board of trustees. No salaries have been paid to the medical staff which is open to all doctors, M.D. or D.O., upon application and qualification, and all income has been devoted to the hospital and its improvement. In the event of dissolution of respondent, 'no part of the assets (over and above liabilities) shall be distributed to members of the corporation' unless provision be made against 'diversion of such assets from not-for-profit purposes.' Section 355.230, V.A.M.S.

On July 1, 1957, Community Memorial Hospital acquired all the physical properties and assets of McCormick Osteopathic Hospital, a corporation organized under the General and Business Corporation Law of Missouri, for $75,000. (Three doctors who owned all the stock of this corporation, together with four laymen, were the first board of trustees in the Articles of Incorporation of Community Memorial Hospital). The items so acquired consisted of Lots, 4, 5, and 6, Block 12, Burkholder's First Addition to the City of Moberly, Missouri, upon which was situate a hospital building, hospital equipment and building contents, $3,000 bank account, $6,000 savings and loan account, and $120,000 accounts receivable. The three doctors who owned the McCormick Hospital each made a $1,500 gift 'for operating account' and respondent executed interest-free promissory notes to each of the three doctors totaling $70,500 payable in ten years in $300 monthly installments for the purchase price of McCormick's real estate and personal properties. Respondent also assumed $4,000--$6,000 in current liabilities of McCormick. Lots 1, 2, and 3, Block 12, Burkholder's Addition, were acquired March 27, 1962, by purchase from H. Mae McCormick, widow of Dr. W. H. McCormick, one of the owners of McCormick Hospital. These lots are contiguous to the hospital and are used as a unit with the hospital for driveway, parking, and physical therapy.

Merle Rice, respondent's administrator since 1964, had been acquainted with the use by Community Memorial Hospital of its properties since its incorporation to time of trial; Clifford Falzone acted as administrator in parts of 1963 and 1964, and Wylie Mears had been chairman of the board of trustees for a year and a half and was an incorporator and on the board since organization of Community Memorial in 1957. All three testified that all the properties owned by Community Memorial had been used regularly and exclusively for hospital purposes and not for investment or other purposes. 'It has been used by the general public, anyone that comes to the door,' and by both pay and indigent patients. Respondent's rates for room and other hospital services are comparable and 'run a little lower' than rates charged by other hospitals in the area; employees' wages are average and the operation has been efficient in that assets have been improved and increased in value and indebtedness is practically retired.

Respondent's hospital and services at all times have been available equally both to pay patients and those who could not pay. Average occupancy rate shows that the hospital has never operated at capacity and rooms and services always have been available for both types of patients. Respondent's financial reports show that in each year of operation from 1957 through 1965 respondent hospital and its services have been utilized for the benefit of persons who were unable to pay. In 1964 and 1965 approximately 9 per cent of respondent's patients could not pay, and for the years 1957--1963 the average number of nonpaying patients was about 8 per cent or between 5 per cent and 10 per cent of all patients admitted each year. Respondent made efforts to collect from all patients who could pay and such payments constituted most of its income. Other income was received through participation in the vendor program of Missouri which makes payments for services rendered to patients on public assistance. Such payments do not cover all of such accounts and not all public assistance patients' injuries or sicknesses come under the program.

Appellants have analyzed respondent's financial reports for each of the fiscal years July 1, 1957 through June 30, 1965 to show that in that period respondent received $1,878,497.49 from pay patients, and that services, including some bad debts, valued at $26,069.16 were claimed as charity. By further analysis they show a margin of $19,458.11 income over expenses and no charity claimed for the first fiscal year, a negative balance of $1,549.84 and no charity claimed for the second fiscal year, $21,162.25 margin and no charity claimed for the third fiscal year, $20,821.61 margin and $1,526.72 charity for the fourth fiscal year, $10,537.07 margin and no charity claimed for the fifth fiscal year, $9,873.69 margin and $409.55 charity for the sixth fiscal year, $27,411.88 margin and $8,883.94 charity for the seventh fiscal year, $41,604.92 margin and $15,248.98 charity for the eighth fiscal year. At the end of the eighth fiscal year, June 30, 1965 respondent's net worth had increased to $184,822.37. All such margin of income over expenses in each year has been expended on improvement of building, facilities, equipment, services, and retirement of debts.

Respondent's corporate charter and bylaws were submitted by the Prosecuting Attorney of Randolph County to the office of the Attorney General of Missouri, and Attorney General John M. Dalton on February 12, 1959 was of the opinion 'that the charter and bylaws of the Community Memorial Hospital would not appear to prevent its being a charitable institution and entitled to tax exemption if, as a matter of fact, the operation of such hospital is such as to entitle it to be considered a charitable institution.' Respondent has filed an annual report with the Office of the Secretary of State of Missouri as required by the General Not-For-Profit Corporation Act. It has never paid unemployment compensation and it has not been required to file a state income tax return. Respondent received a refund from the United States Internal Revenue Service of income tax and interest for fiscal 1957 to 1958, and has since filed tax returns on IRS form 990--A, Return of Organization Exempt from Income Tax.

Until just prior to this litigation defendant Randolph County had entered orders exempting respondent from taxation and abating any...