PACIFIC HOME v. COUNTY OF LOS ANGELES et al.*
Plaintiff brought these three actions to recover taxes paid under protest, claiming specific properties were exempt from taxation under the welfare exemption law. Cal. Const., Art. XIII, § 1c; Revenue & Taxation Code, § 214. The properties were duly assessed for the tax years 1946–1947, 1947–1948, and 1948–1949. Plaintiff filed its claim for the exemption, which was denied, and paid the taxes under protest. One action seeks recovery of the taxes paid for 1946–1947; one, those paid for 1947–1948; the other, those paid for 1948–1949. Defendants had judgment in each action. Plaintiff appealed. The appeals are here consolidated.
Plaintiff is a nonprofit California corporation whose membership consists exclusively of the members of the Southern California-Arizona Annual Conference of the Methodist Church. It has no capital stock. It is organized to establish, maintain, support, and operate a charitable home or homes for worthy aged and infirm persons. It is operated in furtherance of authority granted by the discipline of the Methodist Church. During the tax years in question plaintiff operated and maintained a home for worthy aged and infirm persons in Los Angeles, who numbered from 350 in 1946 to 375 in 1948. Admission to the home is on a single-fee life-care contract. The rate is determined by the life expectancy of the person and the accommodations selected. The rate is fixed so 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. Plaintiff operated at a loss during the years in question.
Revenue and Taxation Code, section 214, in relevant part provides: ‘Property used exclusively for religious, hospital, scientific, or charitable purposes owned and operated by community chests, funds, foundations or corporations organized and operated 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; * * * (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'. This exemption is known as the ‘welfare exemption.’
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 the 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 exclusively for religious, hospital, or charitable purposes within the meaning of section 214(6). If found, however, that on the first Mondays of March of 1946, 1947 and 1948, the properties were not irrevocably dedicated to religious, charitable, or hospital purposes.
The parties agree that plaintiff and the subject property met the requirements of subdivisions (1) to (5) inclusive, of section 214, on the tax-lien dates in question. The dispute is as to whether the property qualified for the exemption under subdivision (6).
Section 214 is to be given a strict but reasonable construction, and plaintiff has the burden of showing that it clearly comes within the terms of the exemption. Pasadena Hospital Ass'n v. County of L. A., 35 Cal.2d 779, 785, 221 P.2d 62; Cedars of Lebanon Hosp. v. County of L. A., 35 Cal.2d 729, 734, 221 P.2d 31, 15 A.L.R.2d 1045. Any doubt must be resolved against the right of exemption. Sutter Hospital v. City of Sacramento, 39 Cal.2d 33, 39, 244 P.2d 390.
The question is whether the subject property was irrevocably dedicated to religious, charitable, or hospital purposes on the tax dates in question. Defendants contend that plaintiff, at any time during its corporate life, may divert all or any part of its property to nonexempt purposes, and that, therefore, it is not irrevocably dedicated to exempt purposes.
Pasadena Hospital Ass'n v. County of L. A., 35 Cal.2d 779, 221 P.2d 62, set up a number of guideposts for determining whether property is irrevocably dedicated to exempt purposes. They are:
1. The requirement is concerned with ultimate purposes rather than with present uses.
2. The requirement, in itself, is not necessarily ‘affected by any diversion, through sale or otherwise, of any particular piece or portion of the property to nonexempt uses provided the proceeds of such sale or nonexempt uses are irrevocably dedicated to exempt purposes.’
3. Whether the requirement has been met is ordinarily to be determined by ascertaining the powers of the owner with respect to its assets, including its properties and the proceeds thereof.
4. ‘[P]laintiff's manner of operation and plaintiff's use, past or present, of its properties are wholly immaterial. The sole consideration in determining the question of irrevocable dedication of its properties is that of plaintiff's powers with respect thereto.’
5. The extent of the powers of a corporation is to be determined from its articles of incorporation.
6. Where such powers permit the present use of its properties for, or the ultimate and permanent diversion of all of the corporation's assets to, nonexempt purposes, the requirement of irrevocable dedication to exempt purposes has not been satisfied.
The finding that the properties upon liquidation, dissolution, or abandonment of plaintiff would have inured to the benefit of a fund, foundation, or corporation organized and operated exclusively for religious, hospital, or charitable purposes, is impliedly condemned by defendants. Defendants did not appeal. They cannot impugn this finding; it is binding upon them and they are now precluded from questioning the sufficiency of the evidence to support it. This court may not review or consider any error committed against the defendants. We must, therefore, accept the findings adverse to defendants as a true determination of the facts so found. Ray v. Parker, 15 Cal.2d 275, 281, 101 P.2d 665; California C. P. Growers v. Williams, 11 Cal.2d 233, 238, 78 P.2d 1161; Heden v. Point Reyes Land Co., 185 Cal. 121, 122, 196 P. 44; Turner v. East Side Canal, etc., Co., 168 Cal. 103, 108, 142 P. 69; Kern Oil Co. v. Crawford, 143 Cal. 298, 302, 76 P. 1111, 3 L.R.A.,N.S., 993; In re Estate of Olmsted, 122 Cal. 224, 229, 54 P. 745; MacDonald v. Pacific Nat. Bank, 66 Cal.App.2d 357, 363, 152 P.2d 360; Bank of America of California v. Granger, 115 Cal.App. 210, 219, 1 P.2d 479; Todd v. Temple Hospital Ass'n, Inc., 96 Cal.App. 42, 48, 273 P. 595; Garibaldi v. Grillo, 17 Cal.App. 540, 541, 120 P. 425; 4 Cal.Jur.2d 413, § 552.
The question compels analysis of plaintiff's articles of incorporation as they existed on the tax-lien dates in question. They read:
‘That the purposes for which said corporation is formed are:
‘(a) To establish, maintain, support and operate a home or homes for worthy aged and infirm persons; to provide for and carry on such other activities in connection therewith as may be necessary and convenient properly to establish, maintain and operate said home or homes; to provide for and carry on such other charitable work in connection therewith as may be consistent with the history and purposes of the corporation.
‘(b) To provide from its funds and pay over annually to the Board of Trustees of Southern California—Arizona Annual Conference of the Methodist Church for the benefit of the retired ministers of the said Annual Conference, their widows and dependents, a sum of money, the amount of which shall be determined at intervals of five years, or more frequent intervals if mutually agreed upon by the Directors of this corporation and the Board of Trustees of the Southern California—Arizona Annual Conference of the Methodist Church, beginning in May, 1943, by a joint conference of the directors of this corporation with the Board of Trustees of the said Annual Conference, subject to ratification by the membership of the said Conference at its next ensuing annual session; provided, however, that in the interval between the adoption of these Articles of Incorporation and May, 1943, the sum for Thirty-five Hundred and Forty ($3,540) Dollars shall continue to be paid annually under the agreement now in effect.
‘(c) To buy, seel or otherwise acquire, hold, own, use, manage, improve, develop, lease, rent, mortgage or otherwise encumber, and to exchange or transfer real property and personal property of every kind and of any interest therein, and as is necessary, auxiliary, incidental or convenient to the needs and purposes of this corporation.
‘(d) To borrow and lend money, either with or without security and to make and issue promissory notes, bills of exchange, bonds, debentures and obligations, and evidence of indebtedness of all kinds, either secured by mortgage, pledge, deed of trust or otherwise, and to secure the same by mortgage, pledge, deed of trust or otherwise.
‘(e) To make and enter into contracts of every sort and kind with any individual, firm, corporation or association, convenient or necessary to carry out the purposes and objects of this corporation;
‘(f) To receive bequests and devises for its own use and upon trust and to appoint attorneys-in-fact;
‘(g) To do all and everything necessary, suitable and proper for the accomlishment of the foregoing purposes and anything which the Board of Directors of the corporation may deem conducive or expedient for the proper conduct of said Home and for the carrying out of purposes of the corporation.
‘The foregoing clauses shall be construed both as objects and powers and it is hereby expressly provided that the foregoing enumeration of specific powers shall not be held to limit or restrict in any manner the powers of this corporation. This corporation shall be conducted in accordance with the laws of the State of California, and insofar as permitted by the laws of the State of California, subject to the uses and Discipline of the Methodist Church as from time to time authorized and declared by the General Conference of said Church and by the Annual Conference within whose bounds the said corporation is located. In the event this corporation shall abandon the conducting of any Home under its control or management and shall be dissolved voluntarily or involuntarily, all of the corporation assets of said corporation, wherever situated, remaining after the payment of all its obligations in the manner provided by law, shall be subject to the disposition and control of the Southern California—Arizona Annual Conference of the Methodist Church or its successors.’
We are of the opinion it is manifest from plaintiff's articles that the objects and purposes for which it is organized and exists is to establish, maintain, support, and operate a charitable home or homes for worthy aged and infirm persons. Its articles, taken as a whole, are not fairly or reasonably subject to the construction that it may maintain, support, or operate a noncharitable home for the aged or infirm. ‘As was pertinently said in Estate of Henderson, supra, 17 Cal.2d 853, at page 857, 112 P.2d 605, at page 607: ‘Since the enactment of the Statute of Charitable Uses during the reign of Elizabeth, aid to the aged and infirm has been recognized as charitable.’' Fredericka Home for the Aged v. County of San Diego, 35 Cal.2d 789, 794, 221 P.2d 68, 71. Plaintiff's objects and purposes are exclusively charitable.
The statement of the objects or purposes in the articles results in defining the scope of authorized corporate activity and limits the powers of the corporate officers and agents, and is controlling over the powers, both those stated in the articles and those given by statute.
The powers of a charitable corporation are construed with reference to the objects and purposes of its corporate existence. The powers, while not limitations assertible against third persons, are limitations on the actual authority of the representatives of the corporation as between it and its officers and members, or as between it and the state. Corporations Code, § 803. Powers are to be deemed as ancillary to the objects and purposes and are limited thereby. General Conference of Free Baptists v. Berkey, 156 Cal. 466, 105 P. 411; Ballantine, California Corporation Laws, 171, §§ 184, 187; 46 Harv.L.Rev. 1337.
All of the powers given are to be construed as incidental to the purposes or ends of the corporation; are to be employed to advance the authorized objects and purposes; and are to be exercised in subordination to them as means to enable the corporation to accomplish its objects and purposes. In General Conference of Free Baptists v. Berkey, supra, 156 Cal. 466, at pages 469, 470, 105 P. at page 412, it was said of the charter of a nonprofit religious corporation;
‘It seems clear that the plaintiff herein is a corporation similar in character to those whose creation is authorized by section 593 of the Civil Code. That section authorizes incorporation of persons for any purpose ‘where pecuniary profit is not their object.’ The purposes for which the plaintiff was organized are defined in its charter as ‘religious, missionary, educational and charitable,’ and the power granted to it to acquire and sell property is a power to be exercised in subordination to the main purposes for which the corporation is created. The act of incorporation does not confer any power to enter into the business of buying and selling property for the purpose of advancing the pecuniary profit of the corporators. The corporation is therefore, in all essential particulars, similar in character to those described in section 593. * * * As we have said, in another connection, its charter plainly indicates that the power conferred upon it to make such purchase and sale was not granted for the purpose of enabling it to do such acts as a means of making a profit thereon. The buying and selling permitted to it were merely incidental to the carrying on of the main purposes of the corporation. A distinction is to be drawn between the purposes of a corporation and its powers. (Floyd v. Perrin, 30 S.C. 1, 12, 8 S.E. 14, 2 L.R.A. 242). The purposes of the plaintiff, as defined in the articles of incorporation, are ‘religious, missionary, educational and charitable.’ As incidental to these purposes, it is granted a variety of powers, i. e., the power to prosecute and defend suits at law, the power to use a common seal, the power to take and hold for the objects of said corporation any real or personal property, and the power to sell and convey any estate which the interests of the corporation may require to be sold and conveyed. All of these powers are to be exercised in subordination to the main purposes as first declared. The purchase and sale of property by such a corporation is not one of the ends for which it is organized, but is merely a means to enable it to accomplish those ends. Property is to be acquired only for the objects of the corporation, and to be sold only when the interests of the corporation require such sale. The power to sell property by a corporation of this character is as purely incidental to the prosecution of its main purposes as are the other powers enumerated in the charter, as, for example, the power to prosecute and defend suits at law.'
Applying the rules stated, we are of the opinion the enumerated powers in plaintiff's articles include only those activities that are incidental to and reasonably necessary to the accomplishment of the charitable purposes and usefulness for which plaintiff is organized and exists: ‘to establish, maintain, support, and operate a home or homes for worthy aged and infirm persons.’ It was stipulated below and the court found, which finding is conclusive on defendants (see authorities cited supra), that the authority to make contributions to the retired ministers' fund of the Conference was charitable within the meaning of section 214. Plaintiff is empowered to acquire and dispose of property as is ‘auxiliary, incidental or convenient’ to its needs and purposes; to borrow and lend money; to make contracts of every sort and kind ‘convenient or necessary’ to carry out its purposes and objects; to receive bequests and devises; to do all and everything ‘necessary, suitable and proper’ for the accomplishment of those purposes, and anything which its Board of Directors ‘may deem conductive or expedient for the proper conduct of said Home and for the carrying out of [the] purposes of the corporation.’ The power to buy and sell property, to make contracts, to receive devises and 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, and which plaintiff would possess without their recital in its articles. Corp.Code, §§ 9501, 9002, 801, 802; Davis v. Pacific Studios Corp., 84 Cal.App. 611, 615, 258 P. 440. The statement in the articles that the ‘enumeration of specific powers shall not be held to limit or restrict in any manner the powers of this corporation’ is not a general grant of power. It merely means that the incidental powers reasonably necessary to effectuate plaintiff's main purposes shall not be limited by the specific enumeration of them. (See 7 Fletcher, Cyclopedia Corporations, 780, § 3648.) It does not give plaintiff any power except such as are specifically given in the articles and those given by statute. The enumerated powers are limited in their exercise. They are not unlimited grants or power, but are subordinate to the primary objects and purposes of the corporation which are entirely charitable.
All that plaintiff was empowered to do during the years in question, was to establish, maintain, support, and operate a charitable home or homes for worthy aged and infirm persons, and in so doing, to exercise the powers given it by its articles and by statute, all of which are incidental to and reasonably necessary to the accomplishment of those purposes, and to provide funds for the retired ministers' fund of the Conference.
From the fact that in the exercise of its powers plaintiff may have had income during the tax years in question it does not follow that the subject property was not irrevocably dedicated to exempt purposes. As was said in Young Mens Christian Ass'n v. County of L. A., 35 Cal.2d 760, 771, 221 P.2d 47, 54: ‘Furthermore, the mere fact that the exempt institution may have income or earnings from its property is not necessarily decisive in determining the tax status of its property or any portion thereof. Both the constitutional provision and the statute contemplate that the exempt institution may have income and even ‘net earnings' without losing the benefit of its exemption, provided such earnings are derived from the normal pursuit of its exempt purposes and provided further that all other conditions, enumerated in § 214 of the Revenue and Taxation Code, are met.’ While this statement was made with respect to the question of whether the use made of the property was for exempt purposes it is equally applicable to the question whether the powers given in the articles are incidental to and reasonably necessary for the accomplishment of plaintiff's main purposes and usefulness. Fredericka Home for the Aged v. County of San Diego, 35 Cal.2d 789, 221 P.2d 68.
Pasadena Hospital Ass'n v. County of L. A., 35 Cal.2d 779, 221 P.2d 62, 66, which held that the property of that plaintiff had not been irrevocably dedicated to exempt purposes, is not controlling. In that case the plaintiff's articles empowered it ‘to permanently divert all of its property to any lawful nonprofit purpose * * * though the welfare exemption does not extend to all lawful nonprofit purposes and, in fact, expressly excludes certain ones such as fraternal, lodge, or social purposes unless ‘clearly incidental’ in nature, Rev. & Tax. Code, § 214(5), its directors were empowered to convey all or part of its property in trust for any lawful purposes which they might deem advisable * * *; in carrying out its broad purposes, plaintiff's powers were likened to those of corporations organized for social as well as other purposes * * *; and finally, plaintiff was vested with authority ‘to carry on any other lawful business, enterprise or activity whatsoever’ which would ‘enhance the value of its properties' * * *.’ No such powers are to be found in the articles of plaintiff in the present case.
Defendants argue that the property of a nonprofit charitable corporation can be said only to have been irrevocably dedicated to exempt purposes when the articles contain a provision which expressly irrevocably dedicates its property to such purposes. The contention is untenable. The statute does not so provide. If such had been the intention of the Legislature, undoubtedly it would have said so. Pasadena Hospital Ass'n v. County of L. A., 35 Cal.2d 779, 221 P.2d 62, does not say so. There, the court stated, 35 Cal.2d 786, 221 P.2d 66, that the ‘requirement of irrevocable dedication is ordinarily to be determined by ascertaining the powers of the owner with respect to its assets, including its properties and the proceeds thereof.’ The court did not say that the requirement of irrevocable dedication is to be determined by ascertaining whether the articles contain a provision which expressly irrevocably dedicates the property to exempt purposes. The reasoning of Cedars of Lebanon Hosp. v. County of L. A., 35 Cal.2d 729, 221 P.2d 31, 15 A.L.R.2d 1045, and Young Men's Christian Ass'n v. County of L. A., 35 Cal.2d 760, 221 P.2d 47, negatives this contention. If defendants' argument was well taken none of the property of Cedars of Lebanon Hospital or of the Y.M.C.A. would have been exempt. So far as appears from the opinions and records in those cases, the articles of incorporation of the plaintiffs did not contain such a provision as defendants suggest. In those cases it was held that certain properties of the plaintiffs were exempt and that certain other properties were nonexempt. Obviously, the decisions in those cases were bottomed on the premise that the plaintiffs' exempt properties were irrevocably dedicated to exempt purposes without a provision in the articles expressly irrevocably dedicating the properties to such purposes, otherwise all of the properties would have been held subject to taxation because of the absence of a provision expressly dedicating them to exempt purposes. In other words, the presence of a provision in the articles expressly irrevocably dedicating the property to exempt purposes was not deemed essential to exemption. Nor does the fact that plaintiff may amend it articles to give it the power to use its property for nonexempt purposes affect the result. The question is whether the property was on the tax-lien dates * * * the first Mondays of March, 1946, 1947, and 1948 * * * irrevocably dedicated to exempt purposes. Rev. & Tax. Code, §§ 254, 254.5. The effective date of determining whether there is an irrevocable dedication is the tax-lien date. Pasadena Hospital Ass'n v. County of L. A., 35 Cal.2d 779, 788, 221 P.2d 62. It is plaintiff's powers, as fixed by its articles as they existed on the tax-lien dates, which is controlling. (Idem.)
We conclude that on the tax-lien dates in question plaintiff's articles of incorporation did not empower it to divert any of its property to nonexempt purposes.
Since plaintiff's articles of incorporation did not permit the present use of plaintiff's assets for nonexempt purposes, and since the court found that upon the liquidation, dissolution, or abandonment of plaintiff, its property would have inured to the benefit of a fund, foundation, or corporation organized and operated exclusively for religious, hospital, or charitable purposes within the meaning of section 214, the requirement of irrevocable dedication to exempt purposes has been satisfied.
Since the facts are undisputed and the parties agree that a question of law only is involved, it is appropriate to reverse the judgments with directions. The parties stipulated as to the amounts in controversy.
The judgment in each action is reversed with directions to the superior court to amend its findings of fact and conclusions of law, and to render judgment for plaintiff in accord with the stipulation of the parties as to the amounts in controversy.
SHINN, P. J., concurs. PARKER WOOD, J., being disqualified did not participate.