National Bank of Burlington v. Huneke

• Decision Date: 24 July 1959
• Docket Number: Nos. 49751,49752,s. 49751
• Citation: 250 Iowa 1030,98 N.W.2d 7
• Parties: NATIONAL BANK OF BURLINGTON, Trustee under the Will of F. Albert Klein, deceased, Appellee, v. Emil F. HUNEKE, Chairman, and Board of Review of the City of Burlington, Iowa, Appellants. NATIONAL BANK OF BURLINGTON, Executor of the Estate of F. Albert Klein, deceased, Appellee, v. Emil F. HUNEKE, Chairman, and Board of Review of the City of Burlington, Iowa, Appellants.
• Court: Iowa Supreme Court

Page 7

98 N.W.2d 7

250 Iowa 1030

NATIONAL BANK OF BURLINGTON, Trustee under the Will of F. Albert Klein, deceased, Appellee, v. Emil F. HUNEKE, Chairman, and Board of Review of the City of Burlington, Iowa, Appellants.

NATIONAL BANK OF BURLINGTON, Executor of the Estate of F. Albert Klein, deceased, Appellee, v. Emil F. HUNEKE, Chairman, and Board of Review of the City of Burlington, Iowa, Appellants.

Nos. 49751, 49752.

Supreme Court of Iowa.

July 24, 1959.

H. C. Walsh, City Solicitor, and Pryor, Hale, Plock, Riley & Jones, Burlington, for appellants.

Poor, Cray, Walter & Youngstrom, Burlington, for appellee.

LARSON, Justice.

The issue before us in this appeal is whether funds held in trust for the purpose of establishing and maintaining a nonprofit hospital are exempt from moneys and credits tax by the provisions of Chapter 427, Code of Iowa, 1958, I.C.A. The trial court held they were, and we concur in that conclusion.

The facts are not in dispute. F. Albert Klein, deceased, by will left the residue of his estate to the National Bank of Burlington, Iowa, in trust for the express purpose of establishing a nonprofit hospital. The bank was also appointed executor of the will. When the Board of Review denied two claims filed for moneys and credits tax exemption, the matter was taken to the district court. The bank commenced two suits, one as executor pertaining to part of the funds, and the other as trustee. The suits involved assessments of $73,157 and $1,422,406 respectively. The issues being substantially the same in each case, they were consolidated for trial and, under stipulation of the parties, are considered together in this appeal.

The defendant Board does not deny that by the terms of the Klein will a charitable trust was created, nor that the Burlington National Bank was a proper or qualified trustee. It does contend that the trust created was not such a charitable trust as would fall within the class of trusts specifically exempt from tax by the language in Section 427.1 of the Code, I.C.A., and that the bank itself could not qualify as an 'institution' referred to in subsection 10 thereof. The contention is argued in three propositions.

I. By the express terms of Item VII of the Klein will, a trust was created to establish and maintain a charitable institution. Item VII of this will provides:

'Keenly conscious of the fact that the estate which I have been permitted to accumulate has been acquired in the community of my birth and my entire life, it is my last with and purpose to return it to the people of that community for the charitable, scientific and educational purposes herein expressed.

'I, therefore, hereby give, bequeath, and devise all the rest and residue of my estate wherever situated and in whatsoever form the same may be unto: National Bank of Burlington as Trustee for the express and sole purpose of acquiring, constructing, maintaining, and operating a charitable, Protestant Hospital in, or adjacent to, the City of Burlington, Iowa, said trustee being specifically hereby authorized to acquire a suitable and appropriate site for said hospital in, or adjacent to, the City of Burlington, Iowa, away from the congested business district, and to construct thereon a modern hospital as may best comply with the needs of the people of the City of Burlington, Iowa, and the surrounding territory, and to operate the aforesaid hospital on a strictly charitable, scientific and educational basis, so that none who need the use of said facilities may be denied admittance, and I do hereby specifically direct that no substantial part of the activities of such trustee shall be carrying on propaganda or otherwise attempting to influence legislation, and I further hereby specifically direct that the aforesaid hospital shall be operated on a strictly nonprofit basis and that in the management thereof only such charges may be made from patients admitted as may be necessary to meet current operating and maintenance expenses, and that no profit shall be charged any persons seeking admittance thereto.

'Said hospital shall be known and designated Klein Memorial Hospital and the trust herein created shall be designated Klein Memorial Hospital Trust.

'I further hereby direct that said trust shall be managed and controlled by the National Bank of Burlington as trustee and, if a vacancy occurs by resignation of the trustee, said vacancy shall be filled by a corporation or persons appointed by the two Judges of the District Court of the Twentieth Judicial District of the State of Iowa.'

In the Restatement of the Law of Trusts, Second, Chapter 11, section 376, comment (c), we find the following:

'A trust to establish or maintain an educational institution or hospital or home for poor persons is charitable although it is provided that the pupils or patients or inmates shall pay fees or otherwise contribute to the expense of maintaining the institution if the income so derived is to be used only to maintain the institution or for some other charitable purpose.'

That a hospital is an institution cannot be denied. It is generally and legally referred to as an institution, and we may take judicial notice of that fact. Webster's New International Dictionary, 2d Ed., defines a hospital as 'an institution or place in which patients or injured persons are given medical or surgical care', and defines an institution as 'an established society or corporation; an establishment, esp. one of a public character; a foundation; as, a literary or charitable institution.' For other definitions of that term we have recognized, see Samuelson v. Horn, 221 Iowa 208, 210, 265 N.W. 168, 169. We are satisfied the Klein Memorial Hospital, when activated under the terms of the Klein will, will be in fact a charitable institution and an establishment of a public character. While it is no doubt true that the people of the Burlington vicinity will receive considerable benefit from the trust because they will be afforded a suitable place to obtain proper care and treatment for their ill, yet the real beneficiary of the trust funds and the equitable titleholder of them is the Klein Memorial Hospital. It is the functioning of this institution which will perform a public purpose in the sense that the burden of the taxpayer within the community will be somewhat reduced. Board of Directors of Fort Dodge etc. v. Board of Supr's of Webster County, 228 Iowa 544, 293 N.W. 38. The immediate use of the funds is to construct and maintain the charitable institution, and the attorney general of the state and the courts will act to enforce that use. In re Owen's Estate, 244 Iowa 533, 57 N.W.2d 193, 194.

II. It is the character and type of the benefit that determines whether the trust is charitable, whether it is for a public use and, if so, whether it is tax exempt under the provisions of Chapter 427 of the Code, I.C.A. In re Cooper's Estate, 229 Iowa 921, 295 N.W. 448; Board of Directors of Fort Dodge etc. v. Board of Supr's of Webster County, supra. There are many kinds or types of charities. Restatement of the Law of Trusts, 2d, § 368, page 246; 10 Am.Jur., Charities, § 52, page 621.

The trust funds here were solely committed to the establishing of the Klein Memorial Hospital, an institution devoted to a charitable and public use. The clearlystated purpose was to aid the public health and welfare of the community by the establishment and maintenance of a nonprofit hospital. When in operation, the public will share the benefits, and the burden upon the taxpayer to furnish such facilities for the public will be reduced by the existence of this trust. It clearly provides a public use. Board of Directors of Fort Dodge etc. v. Board of Supr's of Webster County, supra. By designation in the will of F. Albert Klein, the trust establishes this institution, obviously of a scientific, charitable and benevolent character. Restatement, Trusts, 2d, § 372, page 255.

III. The type and character of the Klein Memorial Trust is of the type and character included in the tax exemption provisions in Section 427.1 of the Code, I.C.A. Section 427.1 of the 1958 Code of Iowa, I.C.A. provides:

'The following classes of property shall not be taxed:

* * *

* * *

'7. All grounds and buildings used by cemetery associations and societies for cemetery purposes.

'8. All grounds and buildings used for public libraries, public art galleries, and libraries and art galleries owned and kept by private individuals, associations, or corporations, for public use and not for private profit.

'9. All grounds and buildings used by literary, scientific, charitable, benevolent, agricultural, and religious institutions and societies solely for their appropriate objects, not exceeding three hundred twenty acres in extent and not leased or otherwise used with a view to pecuniary profit. * * *

'10. Moneys and credits belonging exclusively to the institutions named in subsections 7, 8, and 9 and devoted solely to sustaining them, but not exceeding in amount or income the amount prescribed by their charters or articles of incorporation; * * *.'

No authority is necessary to sustain the appellant's proposition that statutes passed for the purpose of exempting property from taxation must be strictly construed. If there is any doubt upon the question, it must be resolved against the exemption and in favor of taxation. Readlyn Hospital v. Hoth, 223 Iowa 341, 344, 272 N.W. 90, 91; Board of Directors of Fort Dodge etc. v. Board of Supr's of Webster County, supra, 228 Iowa 544, 546, 293 N.W. 38. Unquestionably, then, it was appellee's burden to show that the trust created herein was of the type and purpose that falls within the letter of the tax exemption statute. We think it did, although...