In my opinion, the defendant hospital association is a charitable institution and therefore, by virtue of § 110-201 (3) O.C.L.A., is exempt from taxation. The contention of the plaintiff that the defendant hospital, although organized in 1926 as an eleemosynary institution, is being conducted as a profit-making enterprise in the interests of its second mortgage bondholders and as a subterfuge to evade payment of taxes, has no foundation in fact and is unjust.
The hospital, as reorganized, has no capital stock and no provision has been made for the distribution of dividends or profits. Its purpose, as stated in its articles of incorporation and by-laws, is to care for the sick, distressed, and injured. Any profits are applied to reduce its indebtedness and to improve the hospital service to the community. The mere fact that the second mortgage bondholders may, in the years to come, be paid what is legally due them does not change the character of the hospital as a charitable institution. Payment of what is due the original stockholders is not compensation to them. What difference in principle *Page 494 is there between payment of the bonds and of any other indebtedness of the association? As a matter of fact, there has been no payment of principal or interest to the holders of the second mortgage bonds and, according to the undisputed evidence, there is no intention in the future to thus apply the revenues of the hospital. Let it be remembered that these public-spirited citizens exchanged their stock for bonds representing actual money put into the construction of the hospital. The great majority of those who purchased stock in 1923 in order to build a hospital were not thinking in terms of dividends. They were actuated by the highest and best of motives. They did not even consider the purchase of such bonds as an investment. Hospitals are generally not money making institutions.
In 1926 the hospital was rapidly going on the rocks and had been for some time prior thereto. It was then that the reorganization plan was conceived. When the stock was exchanged for bonds at that time, will it be argued that these men had in mind some scheme to operate the hospital as a pretended charitable institution? As long as they held the stock there was a bare possibility of profits or dividends; when the stock was exchanged for bonds there was none.
Counsel for respondent Benton County urge that the position of the second mortgage bondholders is different from the first mortgage bondholders and, since they were stockholders of the original corporation and bondholders of the second corporation, the operation of the hospital is for their profit. Assume it is true that they will ultimately be paid, as well as the first bondholders, does this in any way interfere with the charitable nature of the hospital? If it does, then it is the method of financing the hospital and not *Page 495 the method of its operation that is the test to determine whether or not it is a charitable concern.
I agree that, if the hospital were operated for profit and gain, it would not be a charitable institution, although its articles of incorporation declared its purpose to be a charity. It is the purpose for which the property of the association is actually used that determines its classification, so far as the right to exemption is concerned: Cooley on Taxation (4 Ed.) § 739. As stated in 30 C.J. 462 and cited with approval inCorporation of Sisters of Mercy v. Lane Co., 123 Or. 144,261 P. 694:
"The test which determines whether a hospital is charitable or otherwise is in its purpose, that is whether it is maintained for gain, profit, or advantage, or not. * * * Where a hospital can otherwise be classed as a charitable institution, the fact that patients who are able to pay are required to do so does not deprive it of its charitable character."
We would inquire then how this hospital was conducted or operated. The evidence shows beyond doubt that the doors of the hospital were open alike to the rich and the poor. No patient in need of treatment was ever turned away for lack of funds. The mere fact that those who were able to pay were charged for services rendered or that efforts were made to protect the hospital against "dead beats" does not change the character of the hospital as a charitable institution.
What does the evidence show as to the manner in which the hospital was operated?
Mr. J.F. Porter, president of the board of trustees and one of the members of the board, who borrowed *Page 496 $800 at the bank on his personal note "to keep the thing going" testified:
"It has been the instruction of the Board of Trustees, when I was the president, whether C.W. Woodcock was president or Bob Johnson, that no one, regardless of who or where he came from ever be denied admission to the hospital. * * * we have never refused admittance to a patient, and I am sure that has been the rule ever since the hospital was organized.
"Q. Is there anybody that has made any money or under this present corporation is there any way for anyone to make any money for profit out of the corporation? A. No, no, it isn't the intention to make any money."
F.L. Walker, who has been manager of the hospital since 1933 and whose efficient service enabled it to survive, testified:
"Q. Then you have never in a single instance that you know of since you have been there where a person needed physical — surgical or medical care, has been turned away because of lack of funds? A. Never, absolutely, no."
Dr. R.L. Bosworth, a physician and surgeon who has practiced in Corvallis for approximately 30 years, testified:
*Page 497"There was never any one turned away from the hospital for the lack of funds. Neither is there in Benton County any one turned down by any physician for medical care. It makes no difference in the hospital in Benton County as to whether a person can pay for his service or not. He gets his service, and equally good service, as though he were paying the price."
Dr. Henry Garnjobst, a physician and surgeon who has practiced in Corvallis since 1923, testified:
"Q. Well, just state whether any of your patients have been denied the service, hospitalization for surgical work in the hospital because of lack of funds or because of poverty? A. No, never have.
"Q. Has there been any distinction of color or creed as to who may be admitted into the hospital? A. No.
"Q. State whether or not the hospital has been open and has received all your patients irrespective of their ability to pay during the time that you have practiced in Corvallis? A. There has never been any discrimination."
Dr. E.L. Potter, who has been a professor at Oregon State College for over 30 years and a member of the board of trustees of the hospital for 13 years, testified:
*Page 498 Hamilton v. Corvallis General Hospital, 146 Or. 168,30 P.2d 9, has no application to the facts in this case. In the previous case — an action for personal injuries — the court held it to be a question of fact for the jury whether the defendant hospital was a charitable institution. Here we are concerned not with a tort but with a question of tax exemption."Q. What is the fact about whether there is any discrimination as to creeds, anything of that kind? That is, will a colored boy or a Chinese boy or girl be admitted the same as a white person? A. Oh, yes. If not, it is certainly contrary to Board rules.
"Q. Can anyone in any way make a profit through any individual? A. No, you see we have no capital stock upon which we can pay dividends. We have no legal means for disbursing earnings to anybody, so that any earnings must go into the hospital for improvements or lowering rates, betterment to the community, because we have no legal outlet. There is no stock; we can't pay dividends and there is no legal means to pay it, but of course those of us working for the public benefit don't desire to pay it, but it is not so organized to pay it."
In my opinion, the hospital has functioned as a charitable institution and should be exempt from payment of taxes.
The decree should be reversed. *Page 499