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District Court of Appeal, Second District, Division 1, California.


Civ. 16572.

Decided: May 31, 1949

James Don Keller, District Attorney and County Counsel; Carroll H. Smith, Chief Trial Deputy, San Diego (Fred N. Howser, Attorney General; E.G. Benard, Deputy Attorney General, of counsel), for appellant. Gray, Cary, Ames & Driscoll and John M. Cranston, San Diego, for respondent.

Respondent, a non-profit corporation operating a home for elderly people on a “life-care contract” basis, sought exemption from taxation under section 1c, Article XIII of the Constitution of California, as a charitable corporation devoting its property exclusively to charitable purposes. Its claim for exemption being denied by the county assessor, it paid the taxes assessed against its property under protest and brought this action for refund thereof. The trial court found that all of respondent's property except a portion leased by it for commercial purposes was exempt from taxation and rendered judgment accordingly, from which judgment the County of San Diego prosecutes this appeal.

Section 1c of Article XIII of the Constitution of California, adopted by the people on November 7, 1944, provides as follows:

“In addition to such exemptions as are now provided in this Constitution, the Legislature may exempt from taxation all or any portion of property used exclusively for religious, hospital or charitable purposes and owned by community chests, funds, foundations or corporations organized and operated for religious, hospital or charitable purposes, not conducted for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual.”

Pursuant to this constitutional authority, the Legislature in 1945 adopted section 214 of the Revenue and Taxation Code, setting forth the requirements of what is known as the “welfare exemption.” The section provides:

“Property used exclusively for religious, hospital, scientific, or charitable purposes * is exempt from taxation if:

“(1) The owner is not organized or operated for profit;

“(2) No part of the net earnings of the owner inures to the benefit of any private shareholder or individual;

“(3) The property is not used or operated by the owner or by any other person for profit regardless of the purposes to which the profit is devoted;

“(4) The property is not used or operated by the owner or by any other person so as to benefit any officer, trustee, director, shareholder, member, employee, contributor, or bondholder of the owner or operator, or any other person, through the distribution of profits, payment of excessive charges or compensations or the more advantageous pursuit of their business or profession;

“(5) The property is not used by the owner or members thereof for fraternal or lodge purposes, or for social club purposes except where such use is clearly incidental to a primary religious, hospital, scientific, or charitable purpose;

“(6) The 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.

“ ‘The exemption provided for herein shall be known as the “welfare exemption.” *.’ ”

Respondent was incorporated in 1908 and received as a gift certain land and buildings. Subsequent buildings were donated, and in 1916 a trust fund of $200,000 was created. It is conceded that respondent is a non-profit corporation organized for the purpose of maintaining a home for aged people and that its property is used exclusively for such purpose and irrevocably dedicated thereto; that all of its income, whether from charges to inmates, investments, or gifts or donations, is used entirely in the maintenance and operation of the home; that the members of its board of directors serve without compensation, and the compensation paid its employees is not excessive. It is the position of appellant, nevertheless, that respondent does not qualify under the welfare exemption because “it appears that no services or facilities are free, that no services are rendered to the needy or destitute, and that life care contracts are entered into only with those who meet the personal approval of respondent and pay a fee of such substantial size that any question of need is immediately dispelled.”

Applicants for admission to the home must have attained the age of 69, be in good health, and meet the approval of the board of directors. Prior to November 1, 1944, applicants were required to pay a fixed fee and execute a trust agreement whereby three-fifths of the applicant's estate would go to the home upon death of the applicant. The trust agreement requirement was eliminated after November, 1944. In consideration of the life care contract, the home furnished room, board and certain hospital services. The applicant was required to make separate provision for burial and certain special services, and provide his own clothing and spending money. The applicant was required to furnish the quarters to be occupied by him, such furniture to become the property of the home upon the death of the applicant.

The trial court found that after November, 1945, all newly admitted residents were required to pay a minimum fee of $5,500. During the fiscal year ending June 30, 1945, 21 new residents were admitted, 16 of them under the policy of charging a minimum fee of $5,500, the average fee being $6,264.04, and the highest being $9,700. The court found that the total amounts received by respondent from its inmates and from the endowment fund have always been insufficient to pay the operating expenses of the home and that the deficit has been made up by voluntary gifts and contributions from persons not inmates of the home.

Appellant's reliance upon the principle of strict construction of tax exemption statutes is answered by what we said in the consolidated hospital cases, Cedars of Lebanon Hospital v. Los Angeles County, Cal.App., 206 P.2d 915, wherein we in effect held that when the language of a constitution or statute is clear, plain and unambiguous, there is no room for construction, strict or otherwise, Lockhart v. Wolden, 17 Cal.2d 628, 631, 111 P.2d 319, and that in any event, the rule of strict construction should never be applied to the exclusion of the rule of reasonableness, or in such an arbitrary manner against the taxpayer as to defeat the apparent legislative intent or lead to injustice, oppression and absurd consequences.

Appellant's contention that the trial court's finding to the effect that the occupants of the home do not pay the full cost of their support and maintenance is not supported by the evidence, cannot be sustained. Aside from the testimony given by Ralph E. Bach, a director of respondent home, there was abundant evidence, oral and documentary, that 35% of respondent's income came from interest on the endowment fund and from donations, while only 65% came from fees of the members.

The appellant further objects to the court's finding that in fixing the rates to be charged the directors do not endeavor to make a profit or even to meet all operating expenses, but rather endeavor to set rates as low as possible without creating a deficit so large that it cannot be met by reasonably anticipated gifts and contributions. This finding is directly supported by the uncontradicted testimony of respondent's director, Mr. Bach, that the rates were set so that the amounts received from the inmates, together with ‘income from the endowment and from other sources,” would equal expenses, Obviously, that testimony alone demonstrates the correctness of the challenged finding without recourse to much other documentary evidence showing that over one-fourth of the gross cash income of respondent, as well as the value of the use of the lands and buildings, comes from sources other than residents.

The basic ground upon which appellant urges its claim that respondent cannot be a charitable institution is that “no services or facilities are free,” and “no services are rendered to the needy or destitute.” Appellant's argument that unless something is given free to the poor and destitute there is no charity, is cogently answered by our Supreme Court in Scripps Memorial Hospital, Inc., v. California Employment Commission, 24 Cal.2d 669, wherein, at page 675, 151 P.2d 109, 113, 155 A.L.R. 360, there is quoted with approval from Dingwell v. Seymour, 91 Cal.App. 483, 267 P. 327, the following:

“Any person, the rich as well as the poor, may fall sick or be injured or wounded and become a fit subject for charity. St. Luke, chapter 10, verses 30–37. A trust may be and often is charitable in its nature, uses, and purposes without giving alms to the poor. It is true that poverty is a condition which, even when brought about by indolence and waste of life's opportunities, arrests the attention and commands the consideration of charity. Yet perhaps more worthy and deserving members of society than the ne'er-do-well poor may under certain conditions be proper objects of charity. A gift to establish and maintain a public institution where the misery and unhappiness of any person of high or low degree, rich or poor, may be considered and sanely dealt with would come within the purview of the definition of a public charity.”

While the evidence herein supports the statement that the residents of respondent's home do not receive all respondent's services absolutely free of charge, it will not support a claim that full value is given by the residents for all that they receive, or that each resident does not receive a great deal for which he pays nothing. If we assume what the evidence shows, that one-fourth of the total income of respondent comes from other sources than its inmates, and all of its land, buildings and endowment fund were so derived, this would indicate, for purposes of illustration, that every fourth meal of each resident is furnished free, and that for one month out of four no charge is made for operating expenses. In this sense, every resident of respondent's home receives one-fourth of its services free.

There is substantial evidence in the record to support the statement that though respondent has not accepted residents who are entirely destitute, it has so ministered to them through its endowment, legacies and facilities, that in the years after their entrance to the home, when the amount of their contribution thereto had been consumed, they did not become paupers or public charges, as they would have become when their assets had been consumed had they not entered respondent's home.

The facts presented by the record herein are too clear to require discussion, that the lands and buildings in question were dedicated to and used exclusively for a strictly charitable purpose. To adopt appellant's construction of the statute would confine the concept of charity solely to the relief of the destitute and exclude all humanitarian activities, though rendered at cost or less, which are maintained to care for the physical or mental well-being of the recipients, and make it less likely that they will become burdens on society, but on the contrary enabling them to establish themselves for life. Nothing could be further than appellant's contention from the legal concept of a charitable institution.

The test of whether an institution is a charitable one is not whether a few pay or all pay. The true test is whether such payments or compensation do not exceed what is required for the successful maintenance of the institution and are devoted to do the purposes for which the charitable institution was founded. If such payments do not exceed the expenses of the charity and are devoted to the aforesaid purposes, then the institution is no less a charity.

The statute with which we are here concerned makes no requirement that an institution must extend free services to the poor and destitute before it may be regarded as charitable. If it were the intention of the Legislature to require institutions to furnish free service to the needy as a condition precedent to tax exemption, appropriate language to that effect could readily have been employed. Courts are not privileged to legislate under the guise of judicial construction. If a change in the wording of the statute is desired, it must come from the Legislature.

Our conclusion that where, as in the case at bar, the payments made by residents are not commensurate with the benefits derived by them from respondent home, where there is no element of private gain, and where the use of all income is devoted to the purposes of the institution, the fact that such payments are made does not affect or destroy its charitable character, is supported by a veritable forest of authorities. Scripps Memorial Hospital v. California Employment Commission, supra, 24 Cal.2d 699 at page 675, 151 P.2d 109, 155 A.L.R. 360; In re Estate of Henderson, 17 Cal.2d 853, 857, 858, 112 P.2d 605; 51 A. Jur., Taxation, sec. 602; Powell & Jacobs' Reducing Realty Taxes, 3d Ed., pp. 202, 212, 224; Bishop & Chapter of Cathedral of St. John the Evangelist v. Treasurer of City & County of Denver, 37 Colo. 378, 379, 385, 386, 387, 388, 86 P. 1021; Brattleboro Retreat v. Town of Brattleboro, 106 Vt. 228, 173 A. 209, 212, 213; Gundry, Auditor General, v. R.B. Memorial Hospital Ass'n, 293 Mich. 36, 291 N.W. 213, 214, 215; Old Colony Trust Co. v. O.M. Fisher Home, Inc., 301 Mass. 1, 16 N.E.2d 10, 11; Salvation Army v. Hoehn, 354 Mo. 107, 188 S.W.2d 826, 829, 830, 831; In re Mendelsohn, 262 App.Div. 605, 31 N.Y.S.2d 435, 440, 441; People ex rel. Doctors Hospital, Inc. v. Sexton, 267 App.Div. 736, 48 N.Y.S.2d 201, 205, 207; Baylor University v. Boyd, Tex.Civ.App., 18 S.W.2d 700, 701; In re Will of Vassar, 127 N.Y. 1, 14, 15, 27 N.E. 394; Gooch v. Association for Relief of Aged Indigent Females, 109 Mass. 558; Boyce et al. v. Sumner, Collector of Taxes, 97 Vt. 473, 124 A. 853; Trinidad v. Sagrada, 263 U.S. 578, 44 S.Ct. 204, 68 L.Ed. 458.

We come now to a consideration of appellant's final contention that tax exemption should not be extended to that portion of respondent's property used to house personnel. In this regard it will suffice to say that there is in the record testimony that those of the personnel who live on the premises are required to live there so as to be available for immediate service and action day or night in case of fire or other emergency. In this connection it must also be remembered that a prerequisite for entrance to the home as a resident is that the applicant be at least 69 years of age. The foregoing testimony was not contradicted. Upon authority of and for the reasons stated in the so-called consolidated hospital cases, supra, with reference to a kindred issue, it follows that the portion of respondent's property used to house personnel, under the circumstances here present, is entitled to exemption.

For the foregoing reasons, the judgment is affirmed.

WHITE, Presiding Justice.

DORAN, J., concurs. DOOLING, J., assigned, deeming himself disqualified, did not participate. DRAPEAU, J., did not participate.