New Liberty Medical & Hospital Corp. v. E. F. Hutton & Co.
| Decision Date | 13 December 1971 |
| Docket Number | No. 57002,57002 |
| Citation | 474 S.W.2d 1 |
| Parties | NEW LIBERTY MEDICAL AND HOSPITAL CORPORATION, a Missouri general not-for-profit corporation, (Plaintiff) Respondent, v. E. F. HUTTON AND COMPANY, Inc., a corporation, and New Liberty Hospital District, (Defendants) Appellants. |
| Court | Missouri Supreme Court |
Bruce G. Heavner, Norman E. Gaar, Alvin D. Wilken, Kansas City, for respondent; Heavner, Jarrett & Kimball and Stinson, Mag, Thomson, McEvers & Fizzell, Kansas City, of counsel.
Fred Wilkins, Kansas City, for appellants; Shughart, Thomson & Kilroy, Kansas City, of counsel.
The decisive issue presented is whether a public hospital district incurred indebtedness in violation of Article VI, § 26(b) of the Constitution V.A.M.S. 1 by entering into a long-term lease for rental of a hospital building when said lease unconditionally obligates the hospital district for the entire term of the lease, regardless of any contingencies, to pay rentals which cover principal and interest of debentures covering the cost of building and equipping the proposed hospital. The question is presented by an appeal from a declaratory judgment wherein the trial court held that the lease agreement did not violate the constitutional provision and that plaintiff (lessor) could issue valid debentures to raise money for constructing the hospital. We have jurisdiction because of the amount involved and because constitutional issues are raised. We reverse and remand with directions to the trial court to enter a declaratory judgment in accordance with the views herein expressed.
The facts on which the case is submitted were stipulated. Defendant hospital district was organized under Chapter 206 2 by order of the Circuit Court of Clay County for the purpose of furnishing hospital and medical services to residents of the district. Thereafter, plaintiff corporation was granted a charter as a not-for-profit corporation under Chapter 355. Plaintiff proposed to build and equip a hospital building and then to lease it to defendant hospital district which would operate the same. In order to finance said building, plaintiff proposed to issue and sell $3,000,000 of first mortgage hospital debentures maturing over a 30-year period and payable solely from rentals to be received for the new facility. Defendant Hutton, by a contract dated November 5, 1970, agreed to buy said bonds if legally issued.
After the execution of the above contract, a lease agreement between plaintiff company and defendant hospital district was authorized and executed. In brief, it provided that plaintiff should acquire a site on which it would construct and equip a hospital and related facilities. These facilities were leased by the agreement to defendant hospital district for a term of 30 years. Rentals were to be paid semi-annually and were to be in such amounts as were required by lessor (plaintiff) to pay the principal and interest on its debentures, plus all costs incident to the retirement of the debentures, including all fees, charges and expenses of the trustee or paying agent, and other items denominated Additional Rent. Rentals were to be paid from operating receipts of the hospital and from tax receipts of the district.
The lease provided that 'for the express benefit of the Lessor and the holders of the Debentures,' lessee (hospital district) agreed to pay all rentals called for in the agreement 'without abatement, deduction, set-off, counterclaim, recoupment or defense or any right of termination or cancellation arising from any circumstance whatsoever, whether now existing or hereafter arising, and irrespective of whether the Project shall have been started or completed, or whether Lessor's title thereto or to any part thereof is defective or nonexistent, and notwithstanding any damage to, loss, theft or destruction of the project or any part thereof, any failure of consideration or commercial frustration of purpose, the taking by eminent domain of title to or of the right of temporary use of all or any part of the Project, legal curtailment of Lessee's use thereof, the eviction or constructive eviction of Lessee, any change in the tax or other law of the United States of America, the State of Missouri, or any political subdivision of either thereof, any change in Lessor's legal organization or status, or any default of Lessor hereunder, and regardless of the invalidity of any action of the Lessor, and regardless of the invalidity of any portion of this Lease, and Lessee hereby waives the provisions of any statute or other law now or hereafter in effect contrary to any of its obligations, covenants, or agreements under this Lease or which releases or purports to release Lessee therefrom.' Subsequently, the lease states, 'it being the intent of this Lease that the Lessee shall be unconditionally and absolutely obligated to perform fully all of its obligations, agreements and covenants under this Lease (including the obligation to pay Basic Rent and Additional Rent) for the benefit of the holders of the Debentures.'
The only right of early termination given to defendant hospital district was contingent on prepayment by the hospital district to the trustee of such amount as would be required to redeem all outstanding debentures, plus expenses incident thereto. The lease also contained an option to purchase, but this too, was contingent upon payment in full.
Finally, the agreement provided that if the debentures and all interest thereon and all other sums due under the lease had been paid in full, the property was to be conveyed automatically to defendant hospital district for no consideration.
Lessor (plaintiff) was given an option, in case of default in rental payments by the hospital district, to terminate the lease or, in the alternative, to take possession and relet the premises for the account of lessee (hospital district) without relieving lessee of any liability under the lease.
After issuance of the debentures had been authorized by plaintiff, and after plaintiff and defendant hospital district had authorized execution of the foregoing lease and a proposed mortgage and indenture of trust to secure the debentures had been authorized, defendant Hutton, by letter to plaintiff, refused to accept delivery of or to pay for the debentures on the basis that for various specified reasons, plaintiff was believed to be unable to issue valid debentures.
Thereafter, this declaratory judgment action was instituted. After the pleadings had been filed, the case, as previously indicated, was submitted on an agreed statement of facts, which, among other things, included a stipulation that the rentals called for were reasonable.
On June 3, 1971, the trial court entered judgment holding that plaintiff had authority, as a lawfully organized not-for-profit corporation, to issue the proposed debentures; that both plaintiff and defendant hospital district had authority to enter into the lease contract; that defendant hospital district could use its funds, including both those received from operation of the hospital and from tax levies, to make the lease rental payments; that Missouri constitutional provisions were not violated by any of the agreements; and that defendant Hutton was obligated under its contract to purchase and pay for the $3,000,000 in debentures. This appeal followed.
At the outset, appellants' brief asserts that plaintiff is not a lawfully organized not-for-profit corporation and consequently cannot issue valid debentures. We find no merit in this contention. The parties have stipulated that plaintiff is a Missouri corporation holding a certificate of incorporation granted under the provisions of Chapter 355 by the Secretary of State of Missouri. That certificate incorporates it as a not-for-profit corporation. Appellants have no standing to challenge the legality of plaintiff's legal existence in this proceeding. 'The general rule is that on grounds of sovereignty and public policy the legal existence of a corporation cannot be attacked collaterally by private suitors, but only in a direct proceeding instituted by the State.' Evangelical Lutheran Synod of Missouri, Ohio and Other States v. Hoehn, 355 Mo. 257, 196 S.W.2d 134, 141.
Appellants' next proposition is that the act of plaintiff in leasing all of its property to the defendant hospital district is ultra vires on the theory that it is outside of and beyond the purposes for which plaintiff was organized. Again, we disagree. Plaintiff was organized for civic, charitable, scientific and educational purposes, including the establishment, erection, ownership, leasing, and operation of one or more hospitals. Section 355.090(6) of the statutes specifically authorizes a corporation organized under Chapter 355 'to sell, convey, mortgage, pledge, lease as lessor, and otherwise dispose of all or any part of its property and assets.' That statute permits exactly what plaintiff undertook to do in this instance. It contracted to erect and equip a hospital and then to lease it to the defendant hospital district to be operated as a hospital. That accomplished one of the purposes for which the corporation was organized. It did result in a change in management of those services, but that did not make the act of leasing the property ultra vires. It was not an abandonment of the corporate purpose of providing hospital services.
Appellants' third point is that the plan incorporated in the lease agreement was one in which defendant hospital district was lending its credit to plaintiff, a private corporation, in violation of Article VI, § 25 of the Constitution. They argue that this whole plan was directed toward financing a hospital facility for the hospital district and that it was said district's credit (its ability to pay) which would support the debentures which plaintiff proposes to issue. This position is predicated on the idea that from the standpoint of purchasers of the...
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