Malone-Hogan Hospital Clinic Foundation, Inc. v. City of Big Spring

• Decision Date: 24 February 1956
• Docket Number: MALONE-HOGAN,No. 3224,3224
• Citation: 288 S.W.2d 550
• Court: Texas Court of Appeals
• Parties: HOSPITAL CLINIC FOUNDATION, Inc., Appellant, v. The CITY OF BIG SPRING et al., Appellees.

Page 550

288 S.W.2d 550

MALONE-HOGAN HOSPITAL CLINIC FOUNDATION, Inc., Appellant, v. The CITY OF BIG SPRING et al., Appellees.

No. 3224.

Court of Civil Appeals of Texas, Eastland.

Feb. 24, 1956.

Rehearing Denied March 23, 1956.

Piranio, Piranio & Ballowe, Dallas, James Little, Big Spring, Philip R. Overton, Austin, for appellant.

Scarborough, Yates, Scarborough & Black, Abilene, Walton S. Morrison, Harvey C. Hooser, Jr., Big Spring, for appellees.

GRISSOM, Chief Justice.

The City of Big Spring, Big Spring Independent School District, State of Texas, Howard County and Howard County Junior College sued Malone-Hogan Hospital Clinic Foundation, Inc. for taxes on the Foundation's hospital and grounds. It was stipulated that the only question to be determined was whether the Foundation was a purely public charity and, therefore, that its hospital and grounds were exempt from taxation. One issue was submitted to a jury, to-tiw: 'From the preponderance of the evidence do you find that the hospital of the defendant corporation, since it acquired said property, has been operated as a purely public charity, as that term has been defined to you?' The jury answered, 'No'. In connection with said issue the court gave the following definition: 'By the term 'purely public charity' as used in this charge, is meant that it makes no gain or profit, accomplishes ends wholly benevolent, and benefits persons indefinite in numbers and personalities by preventing them, through absolute gratuity, from becoming burdens to socity or to state.' Judgment was rendered for the taxes and the Foundation has appealed. Its points are that the court erred in overruling appellant's motions (1) for an instructed verdict and (2) for a new trial; (3) that said issue was a question of law, or a mixed question of law and fact, and (4) that the court erred in not giving appellant's requested instructions.

Appellant contends the evidence conclusively shows that it is a purely public charity because it is undisputed that all its revenues, which were derived almost entirely from pay patients, were expended in paying doctors and nurses, paying for materials and in discharging its 'lien obligations'; that it was conclusively established that the foundation used its hospital and grounds exclusively for operating its hospital and care of its patients, both for pay and charity, and that it did not permit its premises to be rented to or used by another for his business; that it has paid no dividends; that it has no capital stock; that there has been no payment of profits, 'as such', and that its hospital has been operated exclusively as a charitable institution. Appellant says that the jury based its answer on the unwarranted legal conclusion that, because of the genesis of the organization, it was not a purely public charity, notwithstanding it was conclusively shown that appellant made no profits and paid no dividends, 'as such', and that, under its charter, by-laws and constitution, it is devoted to a purely charitable purpose within the meaning of Article 8, Section 2, of the Constitution of Texas, Vernon's Ann.St., and Article 7150, Section 7, R.S. of Texas, as construed by the courts of Texas. It cites Santa Rosa Infirmary v. City of San Antonio, Tex.Com.App., 259 S.W. 926; Scott v. All Saints Hospital, Tex.Civ.App., 203 S.W. 146; City of Houston v. Scottish Rite Benev. Ass'n, Tex.Civ.App., 233 S.W. 551; Republic Reciprocal Ins. Ass'n v. Colgin Hospital & Clinic, Tex.Com.App., 123 Tex. 31, 65 S.W.2d 286, and some opinions of the Attorney General.

Appellant recognizes that it has the burden to clearly establish the fact that as organized and operated it is a purely public charity, therefore, we shall attempt to state the facts directly testified to or that may reasonably be inferred from the evidence tending to support said jury finding. In 1950 the Foundation's hospital and grounds, with the exception of a laboratory which has been added by the Foundation, was owned by Malone & Hogan Properties, Inc., which will hereafter be referred to as Properties Inc. The stock holders of Properties Inc. were Dr. Malone, Dr. Hogan and Mr. Riley. In the hospital building owned by Properties Inc. a partnership composed of Malone, Hogan and Riley operated a hospital with the partnership renting from said corporation. Mr. Riley was the business manager. Properties Inc. and said partnership were businesses organized and operated for profit. In March, 1951, when the partners transferred their accounts and stock and Properites Inc. transferred its hospital and grounds to the Foundation, Properties Inc. owned the following unsecured debts: Mr. Riley, $6,000; Dr. Malone, $46,000; Dr. Hogan, $6,000 and a Big Spring bank about $50,000. The note of Properties Inc. to a Big Spring bank for approximately $50,000 was endorsed by Malone and Hogan. Malone, Hogan and Riley transferred their stock in Properties Inc. to the Foundation for $373,300 in notes secured by a second lien on the hospital and grounds. The Foundation also assumed payment of the outstanding debts of Properties Inc. The partnership of Malone, Hogan and Riley owned the stock in Properties Inc. and the hospital's accounts. They transferred the accounts to the Foundation under in agreement that it was to pay said partnership 25 per cent of the amount collected on accounts less than 90 days old and 10 per cent on those more than 90 days old. In the purchase of the hospital and grounds the Foundation executed notes to Malone and Hogan for $186,000 each, secured by a second lien on the hospital and grounds. These notes were payable to Malone and Hogan at the rate of $1,066 each per month. At the time of the trial the Foundation was three or four months behind in said payments. In April, 1955, the Foundation had reduced Equitable's $200,000 loan to $139,000. The Foundation obtained another loan from Equitable raising the amount of said indebtendness from $139,000 back to $200,000, which was secured by a first lien on the hospital and grounds, and out of this loan the Foundation paid off the balance of the debt to the Big Spring bank amounting to $27,900, which note was endorsed by Malone and Hogan, and paid for a laboratory added by the Foundation. Soon thereafter Riley was paid a debt of $744. When the property was transferred to the Foundation, in addition to the consideration heretofore mentioned, Doctors Malone and Hogan received a 'down payment' of $1,000. In 1951 Properties Inc. paid the taxes on the hospital and grounds but the amount thereof was paid back to Malone, Hogan and Riley by the Foundation and, according to the testimony of Mr. Riley, the Foundation 'put it down as additional cost of property.'

Mr. McGibbon, who is the president of the Foundation, seems to have been the president of Properties Inc. when it transferred the hospital and grounds to the Foundation. Mr. Gound, who was secretary of Properties Inc. when it transferred the hospital and grounds to the Foundation, was a member of the original board of trustees of the Foundation and occupied that position at the time of the conveyance. Mr. Riley, who was the general manager of the partnership of Malone, Hogan and Riley that operated the hospital and rented it from Properties Inc., whose stock was owned by Malone, Hogan and Riley, became the administrator and general manager of the hospital operated by the Foundation. While the directors testified that they controlled the Foundation, it is admitted that both Doctors Malone and Hogan usually attend the meetings of its board of directors. The record is susceptible to the interpretation that there has been no controlling change in the handling of charity cases by the old partnership and the Foundation and that the percentage of accounts collected and of the charity work done has not materially changed. When the hospital was operated by the partnership of Malone, Hogan and Riley it collected approximately 90 per cent of its charges and took care of charity patients without regard to race, color or other material conditions. The record would support a conclusion that there has not been any controlling change in the manner of handling these matters by the Foundation. Since the Foundation acquired the hospital the greatest amount of charity work done in any one year was approximately 5 per cent of its total business. Howard County and other counties pay part of the accounts of their charity patients. The doctors have a written contract with the Foundation for all their services. Four of the doctors are paid $29,440 net annually and the lowest paid doctor receives $15,000 net annually. In addition to their salaries, the doctors are furnished their offices, nurses, instruments, journals, books, telephones, and stationery. The doctors are furnished one meal a day without charge. The Foundation pays the premiums on the doctors' health and accident policies and a policy to protect them from suits for malpractice. Everything necessary in carrying on their practice is furnished or paid for by the Foundation, except automobiles. They are paid ten cents a mile for the use of their automobiles away from the hospital on business. The written contract with each of the doctors and a resolution of the board provides that the doctors' salaries may be raised or lowered every three months. One of the directors of the Foundation at one place testified: 'And when the earnings or revenue has been sufficient you have raised the salaries of the doctors, have you not? Yes, sir.' Mr. Riley, the general manager of both the old and new hospital, testified: 'In other words the amount of salary paid to doctors depends on the income of the hospital foundation, does it not? Yes, sir.' An applicable rule is stated in Volume 2, Restatement of the Law of Trusts, page 1167, Section 376, as follows:

'The mere fact that persons who are not objects of charity incidentally benefit from the maintenance of a charitable...