Trs. of Iowa Coll. v. Baillie

• Decision Date: 06 April 1945
• Docket Number: No. 46497.,46497.
• Parties: TRUSTEES OF IOWA COLLEGE v. BAILLIE et al.
• Court: Iowa Supreme Court

236 Iowa 235

17 N.W.2d 143

TRUSTEES OF IOWA COLLEGE

v.BAILLIE et al.

No. 46497.

Supreme Court of Iowa.

Jan. 9, 1945.

Rehearing Denied April 6, 1945.

Appeal from District Court, Polk County; Loy Ladd, Judge.

Action in equity to enjoin the assessment and collection of general taxes upon real estate claimed to be exempt. From decree and judgment for defendants, plaintiff appeals. Opinion states the facts.

Affirmed.

WENNERSTRUM, MILLER and MANTZ, JJ., dissenting. Brammer, Brody, Charlton & Parker, Carr, Cox, Evans & Riley, and Joseph Rosenfield, all of Des Moines, for appellant.

Herrick, Sloan & Langdon, Francis Kuble, and Bruce J. Flick, all of Des Moines, for appellees.

OLIVER, Justice.

This action is based upon subsection 11 of Section 6944, Code of Iowa 1939, which exempts from taxation: ‘Real estate owned by any educational institution of this state as a part of its endowment fund, to the extent of one hundred sixty acres in any civil township.’

The real estate here involved is a quarter block in Des Moines upon which are two buildings, one occupied by the J. C. Penney department store and the other by the F. & W. Grand 10-cent store. The buildings were owned by Benjamin A. Younker, Rachel Younker and Litton M. Younker. They owned all the ground except a strip 44 feet wide which they held under a long time lease at an annual rental of $3600 plus taxes, to be readjusted in 1955. June 30, 1942, the Younkers deeded the property to appellant, the Trustees of Iowa College (the corporate name of Grinnell College), an Iowa corporation, not for profit. The conveyance was subject to a mortgage debt of $175,000 to an insurance company.

The terms of the transaction were set out in a written offer made by the Younkers and accepted by appellant. The offer recites that the Younkers ‘in order to increase the endowment of Grinnell College, propose to transfer to you, subject to the terms and conditions hereof, certain real estate and securities as hereinafter described at a price which is approximately our cost, to wit, Three Hundred Thirty Thousand Dollars ($330,000.00). You are to hold, manage, control and dispose of the said real estate and securities and the income arising therefrom as more particularly hereinafter set forth.’

The offer states the securities have a market value of $45,000 and that the real estate is encumbered with a mortgage for $175,000.

‘The purchase price of $330,000.00 is to be paid and satisfied by you by making the payments provided for in paragraphs 1, 2 and 3 following and in no other manner whatsoever, * * *’.

‘In consideration of the foregoing, you will agree:’

(1) To pay any additional 1942 income taxes of the Younkers. Apparently there were none.

(2) To pay each of the three Younkers $1000 per month for life; ‘provided, that if the net income * * * of this Endowment shall from and after April 1, 1955, be insufficient in amount to fully satisfy the amounts payable by you in this paragraph, then the entire net income shall each month be applied ratably in satisfaction of your obligations set forth herein.’

(3) To pay to certain other persons, apparently members of the Younkers family, each month during their respective lives various amounts aggregating $4500 per year ‘to the extent that net income * * * from said Endowment shall be available,’.

‘In case the net income shall be insufficient in amount in any year to fully satisfy the amounts payable by you as provided in this paragraph, then the net income shall be applied ratably for the benefit of each of the persons entitled thereto, * * *.’

The offer defines net income as gross income less rent for the 44 foot strip, interest and required annual payments of $7000 on the principal of the $175,000 mortgage, taxes and special assessments, and operating expenses excluding management or supervision. (In addition to the foregoing monthly payments, all the income from the $45,000 in securities is to be paid to the Younkers during their respective lives.)

Subject to the foregoing the net income is to be used in the following order:

(4) To pay $750 annually to the Trustees of the Des Moines Museum of Fine Arts (after its completion) for art prizes. The museum has not yet been completed.

(5) To establish an Annuity Reserve Fund, in the discretion of appellant, ‘to make good any deficiency of net income to be paid on the $36,000 annuities to the three Younkers, until 1955.

(6) To award scholarships of $500 per year to students or prospective students of Grinnell, varying from 8 in 1942-43, to 32 in 1945-46 and each year thereafter.

(7) $75,000 to build and equip a college hospital.

(8) $125,000 for a college dormitory, the income from which shall be used to create a $250,000 General Reserve Fund, which may be augmented by surplus income from this Endowment.

(9) Additional scholarships.

(10) Health welfare, etc., instruction and additional scholarships.

This endowment is called ‘The Marcus and Annie Berkson Younker Endowment.’ The offer states appellant will preserve the corpus of the property to the best of its ability. Accordingly the required installments of principal and interest on the mortgage shall first be paid. The Younkers shall retain a vendor's lien on the property and income as security for the payments provided in paragraphs 1, 2 and 3 and all the property and income and all reinvestments thereof, ‘shall constitute trust funds for the fulfillment of the purposes of said Endowment as embodied herein.’ Appellant shall place the property in the Grinnell Endowment Fund, segregate this Endowment from all other funds and perpetually so maintain it and the income therefrom, and shall keep separate records and render annual accounts to the Younkers. ‘Your corporate responsibility is not pledged for the payment of any items other than’ the annuities of $36,000, up to 1955. ‘However, you are to administer said Endowment and make distributions from the net income thereof so far as the same may be available according to the terms and conditions hereof.’

I. The general rule that exemption statutes must be strictly construed has been applied in cases of this kind. If there is any doubt upon the question it must be resolved against the exemption and in favor of taxation. A claim for exemption cannot be sustained unless it is clearly shown to be within the letter and spirit of the law. Board v. Board, 228 Iowa 544, 293 N.W. 38;Readlyn Hospital v. Hoth, 223 Iowa 341, 272 N.W. 90.

II. Was the real estate ‘owned’ by Grinnell College as a part of its endowment fund, within the meaning of the exemption statute? The word ‘owned’ as used in said statute means equitable or beneficial ownership rather than legal title. Ellsworth College v. Emmet County, 156 Iowa 52, 135 N.W. 594, 598, 42 L.R.A.,N.S., 530. In that case, which involved property held in trust, the court quoted with approval the following statement: ‘If the income from the property or from its proceeds were to go to another during the five years, then it would be very clear that the property or fund should be taxed under that period. When one is the equitable owner of property and is entitled to the income from it, he has the enjoyment of every benefit that could come to any one who might own the property.’

A trust has been defined as a fiduciary relationship with respect to property, subjecting the person by whom the property is held to equitable duties to deal with the property for the benefit of another person, which arises as a result of a manifestation of an intention to create it. Restatement of the Law of Trusts, Vol. I, p. 6. It has also been defined as a holding of property, subject to a duty of employing it or applying its proceeds according to directions given by the person from whom it was derived. 65 C.J. 212. A trust may be with or without consideration. Haulman v. Haulman, 164 Iowa 471, 145 N.W. 930.

Restatement of the Law of Trusts, Volume I, page 35, states: ‘Ordinarily where property is transferred to another ‘subject to the payment of’ a certain sum to a third person, or ‘paying’ such a sum, an equitable charge and not a trust is created, since the transferor does not thereby manifest an intention to impose a duty upon the transferee to deal with the property for the benefit of a third person. On the other hand, where property is transferred to another with a direction to pay to a third person a certain sum out of the property or its proceeds, or ‘subject to the payment from the property or its proceeds' or ‘paying from the property or its proceeds' such sums, a trust, and not an equitable charge is created, since the transferor thereby manifests an intention to impose a duty upon the transferee to deal with the property in part at least for the benefit of a third person.’

We are satisfied an express trust was created in this case and that the Younkers and other beneficiaries of the trust have beneficial interests in the real estate.

The agreement requires Grinnell College to hold, manage and dispose of the real estate as therein provided; to keep the property and income in the Endowment fund segregated from all other funds, to render to the Younkers annual accounts of receipts and disbursements, and to administer the endowment and make distributions from the net income according to the terms of the agreement. The agreement defines net income and indicates that payments to the Younkers and their relatives are to be made from such net income. With the exception of the $12,000 life annuity to each of the three Younkers, until 1955, all payments to the Younkers and members of their family are not fixed or certain but are expressly limited to net income. Strictly speaking, payments so limited are earnings and not annuities.

From the net income Grinnell is empowered to establish an Annuity Reserve Fund. When the Des Moines Museum of Fine Arts is completed Grinnell will be required to pay it $750 per year from the net income, if sufficient. From the net income...