Pasadena Hospital Ass'n v. Los Angeles County

• Citation: 35 Cal.2d 779,221 P.2d 62
• Court: United States State Supreme Court (California)
• Decision Date: 18 August 1950
• Parties: PASADENA HOSPITAL ASS'N, Limited, v. LOS ANGELES COUNTY. L. A. 20609.

Page 62

221 P.2d 62

35 Cal.2d 779

PASADENA HOSPITAL ASS'N, Limited, v. LOS ANGELES COUNTY.

L. A. 20609.

Supreme Court of California, in Bank.

Aug. 18, 1950.

Gibson, Dunn & Crutcher, Bert A. Lewis and Samuel O. Pruitt, Jr., all of Los Angeles, for appellant.

Harold W. Kennedy, County Counsel, and Andrew O. Porter, Deputy County Counsel, Los Angeles, for respondent.

SPENCE, Justice.

This action for the recovery of taxes paid under protest for the tax year 1946-1947 likewise involves the construction of the recently enacted welfare exemption law, Cal.Const. art. XIII, § 1c; Rev. & Tax.Code, § 214, in relation to hospital property. Accordingly it was consolidated for hearing with six other hospital cases as noticed in an opinion this day filed, Cedars of Lebanon Hospital v. County of Los Angeles, Cal.Sup., 221 P.2d 31.

Plaintiff here framed its complaint to allege two causes of action for application of the welfare exemption: (1) as to the portion of the property used for a nurses' home and for a nurses' school operated in connection with the hospital; and (2) as to all of its property on the premise of irrevocable dedication to exempt purposes. Rev. & Tax. Code, § 214(6). Defendant interposed a general demurrer, which was sustained without leave to amend, on the ground that it affirmatively appeared from the complaint that 'none of (plaintiff's) property was irrevocably dedicated to the (required) purposes * * * on March 4, 1946 (the tax day in question).' From the judgment accordingly entered in defendant's favor, plaintiff has appealed.

Though as appears from our opinion in the consolidated hospital cases, Cedars of Lebanon Hospital v. County of Los Angeles, Cal.Sup., 221 P.2d 31, the tax exempt status of the portion of the hospital property used for a nurses' home and for a nurses' school was sustained, such consideration is of no avail to plaintiff unless plaintiff qualified in all other respects as an institution entitled to claim the welfare tax exemption on the first Monday in March, 1946 concededly March 4, 1946. Section 214, subdivision (6), of the Revenue and Taxation Code provides that property used exclusively for hospital purposes is exempt from taxation if '(t)he property is irrevocably dedicated to religious, charitable, scientific, or hospital purposes and upon the liquidation, dissolution or abandonment of the owner will not inure to the benefit of any private person except a fund, foundation or corporation organized and operated for religious, hospital, scientific, or charitable purposes.'

Plaintiff argues these alternative grounds as constituting its compliance with the quoted statutory requirement of irrevocable dedication: (1) its articles of incorporation prior to the 1946 amendment thereof as interpreted in the light of its longcontinued use of its property for hospital purposes; (2) so-called amalgamation with a hospital trust; and (3) express amendment in 1946 of its articles of incorporation subsequent to the adoption of the welfare exemption law. Defendant, on the other hand, challenges the efficacy of any of these factors to effect the tax exemption here sought. An examination of the record in the light of applicable legal principles shows defendant's position to be well taken and sustains the propriety of the trial court's ruling denying plaintt's exemption claims.

According to its complaint, plaintiff was organized as a nonprofit corporation in 1892 and has operated exclusively as such ever since. For many years it has been exempt from all federal and state income, corporation, franchise, and social security taxes as a charitable hospital. Plaintiff's assets stem from these two sources: (1) the major part from charitable gifts, and (2) the balance from the excess of receipts over disbursements, which has been realized in certain of its prior years' operations and invested in hospital property. Plaintiff has never made any distribution of assets to any individual, and it has never used any asset except in furtherance of the charitable hospital purpose for which it was organized.

In 1932, in satisfaction of a legacy of $2,000,000, the executors of the estate of Henry E. Huntington distributed funds to certain trustees, in trust however, to use a portion thereof for the purpose of establishing a memorial hospital and to use the remainder as an endowment fund to invest and reinvest so that it would yield an income for the perpetual maintenance of the hospital. In 1963, the directors and members of plaintiff hospital association accepted a proposal of the trustees under the Huntington will that the hospital owned by plaintiff be conducted thereafter as the 'Collis P. and Howard Huntington Memorial Hospital' becoming the hospital contemplated by the said testator and operating under the trust. At that time all the members and directors of plaintiff hospital association resigned, and the trustees of the aforesaid trust became the only directors and members thereof. None of the trustees has ever contributed any property to plaintiff or had ever been a member or director of plaintiff prior to the 'amalgamation.' 'None of (the) trustee members and directors have any basis for claiming any interest in plaintiff's property, should it dissolve.' Since the 'amalgamation' in 1936, 'the entire hospital property has been operated as one unit, some of it being owned by the trust and some of it being owned by plaintiff.'

Plaintiff's governing articles of incorporation are recited in full as 'Exhibit A,' attached to the complaint. Certain provisions thereof pertinent to the question of dedication are as follows:

'Know All Men By These Presents: That we, the undersigned, citizens and residents of the State of California, do hereby voluntarily associate ourselves together for the purpose of incorporating under the laws of the State of California a private corporation.

'And We Do Hereby Certify:

* * *

* * *

'Second (A) That the objects and purposes for which this corporation are (is) formed are:

'(1) To establish, maintain, and carry on within the County of Los Angeles, State of California, a hospital for the sick and injured, and for that purpose or any other lawful purpose where pecuniary profit is not the object thereof, to purchase, lease * * * (etc.)

* * *

* * *

'(7) To convey all or any portion of the corporate property in trust for such lawful purposes as the Board of Directors may deem advisable; to receive endowments and to invest the same.

* * *

* * *

'(9) To do and perform every act and thing necessary to carry out the foregoing purposes and powers in other states and jurisdiction, which like corporations or corporations organized for social, charitable or religious purposes under the laws of such states and jurisdictions may lawfully do or cause to be done therein.

'(10) To do each and every thing necessary, appropriate or adapted to carry into effect any and all of the foregoing purposes and powers, or to attain any one or more of the objects herein enumerated, or which shall at any time appear conducive to or expedient for the protection or benefit of this Corporation, and, generally, to do any act, or transact any business in connection with said purposes and powers which a copartnership or natural person could do or exercise, and which now or hereafter may be authorized by law; to carry on any other lawful business, enterprise, or activity whatsoever which may seem capable of being carried on in connection with the foregoing, or calculated, directly or indirectly, to promote the interests of this Corporation or to enhance the value of its properties.

'(B) This is a corporation which does not contemplate pecuniary gain or profit to the members thereof. No part of the net earnings of this corporation shall inure to the benefit of any private member or individual, and no substantial part of the activities of this corporation shall be devoted to carrying on propaganda or otherwise attempting to influence legislation.' (Emphasis added.)

After the welfare exemption became a part of the Revenue and Taxation Code, plaintiff, on December 21, 1945, adopted a resolution amending the foregoing section 'B' to read as follows: '(B) This corporation has no capital stock, is not formed for profit, and is a corporation which does not contemplate pecuniary gain, profit or dividends to the members thereof. No part of the net earnings of this corporation shall inure to the benefit of any member or individual, and no part of the activities of this corporation shall be devoted to carrying on propaganda or otherwise attempting to influence legislation. The property of this corporation is irrevocably dedicated to charitable, scientific, educational and hospital purposes, and upon the abandonment, liquidation or dissolution of this corporation said property shall not inure to the benefit of any private person but shall be distributed to a fund, foundation or corporation organized and operated for hospital, scientific, educational or charitable purposes, or to the United States of America, the State of California, or any political subdivision thereof.' (Emphasis added.)

This amendment received the consent of all the members of plaintiff on March 1, 1946, but was not indorsed as filed in the office of the Secretary of State unitl March 14, 1946.

As will hereinafter appear, we have concluded that the 1946 amendment to plaintiff's articles of incorporation did not take effect until after the first Monday in March, 1946. It therefore becomes necessary to determine whether upon that date and under its then effective articles of incorporation, plaintiff's properties were 'irrevocably dedicated' to exempt purposes within the meaning of the welfare exemption law.

The term 'irrevocably dedicated' appears to be new to tax law, and neither counsel nor independent research has disclosed any case wherein that phrase has been construed. Nevertheless, one of the specified conditions for ...