Pacific Home v. Los Angeles County

• Decision Date: 23 December 1953
• Citation: 41 Cal.2d 844,264 P.2d 539
• Court: California Supreme Court
• Parties: PACIFIC HOME v. LOS ANGELES COUNTY et al. L. A. 22495 to L. A. 22497.

Page 539

264 P.2d 539

41 Cal.2d 844

PACIFIC HOME v. LOS ANGELES COUNTY et al.

L. A. 22495 to L. A. 22497.

Supreme Court of California, In Bank.

Dec. 23, 1953.

Newby, Holder & Newby and Charles R. Newby, Los Angeles, for appellant.

Harold W. Kennedy, County Counsel, Arvo Van Alstyne and Gordon Boller, Deputy County Counsel, Ray L. Chesebro and Roger Arnebergh, City Attys., and Louis A. Babior, Deputy City Atty., Los Angeles, for respondents.

SPENCE, Justice.

Plaintiff brought these three actions to recover taxes paid under protest, for the respective tax years 1946-1947, 1947-1948, and 1948-1949 on certain properties which it claims to be exempt under the welfare exemption law. Cal.Const. art. XIII, § 1c; Revenue & Taxation Code, § 214. The trial court determined that plaintiff did not meet the statutory requirement of irrevocable dedication of its properties to exempt purposes. Revenue & Taxation Code, § 214, subd. (6). From judgments accordingly entered in defendants' favor in each action, plaintiff appeals. Upon consideration of the undisputed facts, we have concluded that the trial court improperly denied the tax relief sought.

Plaintiff is a nonprofit California corporation, having no capital stock and with a membership consisting exclusively of the members of the Southern California-Arizona Annual Conference of the Methodist Church. It is organized to 'establish, maintain, support, and operate a home or homes for worthy aged and infirm persons * * * and carry on such other charitable work in connection therewith as may be consistent' with its history and purposes. During the tax years in question and under authority granted by the Discipline of the Methodist Church, plaintiff operated and maintained such a home in Los Angeles, with the number of inmates ranging from 350 in 1946 to 375 in 1948. Admission to the home is on a single-fee life care contract with the entry charge determined by the life expectancy of the applicant and the accommodations selected. The rate is fixed with the intent that plaintiff will 'break even' on the operation. Preference for admission to the home is given to active members of some church and, if possible, to members of the Methodist Church who are selected primarily because of their record of service as missionaries, ministers, teachers, and social workers. A substantial portion of plaintiff's reserve and endowment funds is invested in income-producing properties. An annual contribution of $2,000 was made in these tax years to the retired ministers' fund of the abovementioned Conference, a 'charitable fund' under stipulation of the parties. Throughout these years plaintiff operated at a loss.

The parties stipulated and the court found that plaintiff is not organized for profit; that no part of its net earnings inures to the benefit of any private shareholder or individual; and that the properties were used exclusively in the maintenance and operation of a home for the aged, and to house members and necessary employees of the home. The court also found that the properties were not used or operated by plaintiff or by any other person for profit regardless of the purposes to which the profit is devoted; and that the properties on liquidation, dissolution, or abandonment of plaintiff would have inured to the benefit of a fund, foundation, or corporation organized and operated for religious, hospital or charitable purposes within the meaning of subdivision 6 of section 214 of the Revenue and Taxation Code. However, the court further found that on the first Mondays of March 1946, 1947, and 1948, the properties were 'not irrevocably dedicated to religious, charitable, or hospital purposes.' The sole question presented on this appeal concerns the propriety of this latter determination.

Section 214, subdivision (6), of the Revenue and Taxation Code provides that property used exclusively for religious, hospital, scientific or charitable purposes and owned and operated by a corporation organized and operated for any of such purposes is exempt from taxation if the property is 'irrevocably dedicated' to any of these purposes and 'upon the liquidation, dissolution or abandonment of the owner will not inure to the benefit of any private person' but only to 'a fund, foundation or corporation organized and operated for' any of such purposes. A 'strict but reasonable construction' must be given to this language to the end that the tax concession will be neither enlarged nor extended beyond the plain meaning of the words used. Cedars of Lebanon Hospital v. County of Los Angeles, 35 Cal.2d 729, 736, 221 P.2d 31, 35, 15 A.L.R.2d 1045; Pasadena Hospital Ass'n v. County of Los Angeles, 35 Cal.2d 779, 785, 221 P.2d 62. Plaintiff has the burden of showing that it clearly comes within the terms of the exemption, Cedars of Lebanon Hospital v. County of Los Angeles, supra, 35 Cal.2d at page 734, 221 P.2d at page 34, and any doubt must be resolved against the right thereto. Sutter Hospital of Sacramento v. City of Sacramento, 39 Cal.2d 33, 39, 244 P.2d 390.

The requirement of irrevocable dedication is concerned with ultimate purposes rather than with present uses. Thus, the claimant's manner of operation and its use, past or present, of its properties are wholly immaterial. The critical factor is its powers with respect to its properties; and these powers, in the case of a corporate claimant, must ordinarily be ascertained from its articles of incorporation. If such powers permit the ultimate and permanent diversion of all corporate assets to nonexempt purposes, there cannot be said to be an irrevocable dedication of such assets to exempt purposes and the exemption must be denied. Pasadena Hospital Ass'n v. County of Los Angeles, supra, 35 Cal.2d 779, 785-787, 221 P.2d 62.

According to its articles of incorporation, plaintiff was formed for the purpose of maintaining and operating 'a home or homes for worthy aged and infirm persons,' and providing and carrying on such other 'necessary and convenient' activities and 'such other charitable work in connection therewith as may be consistent with (its) history and purposes.' It is empowered to provide from its funds and pay over an annual amount to the Southern California-Arizona Annual Conference of the Methodist Church for the benefit of the retired ministers' fund as mutually agreed (stipulated as a charitable contribution). It is permitted to buy, sell, receive, or otherwise deal with real and personal property as 'is necessary, auxiliary, incidental or convenient to (its) needs and purposes'; to borrow and lend money; to enter into such contracts as 'convenient or necessary to carry out (its) purposes and objects'; to receive bequests and devises for its own use and upon trust; to 'do all and everything necessary, suitable and proper for the accomplishment of (its) purposes and anything which (its) Board of Directors * * * may deem conductive or expedient for the proper conduct of (the) Home and for the carrying out of (its) purposes.' It is further recited that the 'foregoing clauses shall be construed both as objects and powers and * * * that the foregoing enumeration of specific powers shall not be held to limit or restrict in any manner the powers of this corporation.' The laws of the State of California are declared to govern thd conduct of the corporation and so far as thereby permitted, it is subject to the 'uses and Discipline of the Methodist Church'. In the event of dissolution, all of the corporation's assets remaining after payment of its obligations are declared 'subject to the disposition and control of the Southern California-Arizona Annual conference of the Methodist Church or its successors.'

Reasonably construed as a whole, plaintiff's articles indicate its purpose to be the maintenance and operation of a charitable home for worthy aged and infirm persons, and that the conduct of a noncharitable home would be contrary to its authority. Moreover, the parties stipulated, as shown by the evidence, that plaintiff's home satisfied the requirement of a charitable purpose under the welfare exemption law. See Fredericka Home for the Aged v. County of San Diego, 35 Cal.2d 789, 792-795, 221 P.2d 68. Likewise, as stipulated by the parties and found by the court, plaintiff's authority to make annual contributions to the retired ministers' fund was charitable within the meaning of the welfare exemption law. The further enumerated powers of plaintiff to buy and sell property, to make contracts, to receive devises annd bequests, to borrow money, to contract debts and to do 'all other acts necessary or expedient for the administration of the affairs and attainment of the purposes of the corporation' are all powers which a nonprofit corporation has by statute, Corporations Code, § 9501, and which plaintiff would possess without their...