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Southern Methodist Hospital v. Wilson

Supreme Court of Arizona

March 21, 1938

MAX EUGENE WILSON, a Minor, by His Guardian ad Litem, BERYL E. WILSON, Appellee

APPEAL from a judgment of the Superior Court of the County of Pima. Wm. G. Hall, Judge. Judgment reversed.

Mr. Samuel L. Pattee, for Appellant.

Mr. Frederick G. Nave and Mr. Henry R. Merchant, Jr., for Appellee.


Page 459

[51 Ariz. 426] LOCKWOOD, J.

This is the second time this case has been before the court. Southern Methodist Hospital and Sanatorium v. Wilson, 45 Ariz. 507, 46 P.2d 118. The facts which gave rise to the action are stated fully in the previous opinion, and no further statement is made except as it may be necessary in regard to new matters appearing at the second trial. On the previous appeal the only questions which were considered by this court were whether or not charitable institutions were subject to the rule of respondeat superior, and what evidence it took to establish the character of such an institution. Our holding on these two points was as follows:

"We hold, therefore, that, under the law of Arizona, the application of the doctrine of respondeat superior to charitable

Page 460

institutions is limited, for reasons of public policy and so far as the beneficiaries of such institutions are concerned, to cases where the institution has not used due care in the selection of the employees and agents who have actually been guilty of the acts of negligence which have caused damages to such beneficiary.

"... What constitutes a charitable institution has been considered frequently. The word 'charity' has a well known and acknowledged meaning. It has been defined as a 'gift to a general public use, which extends to the poor as well as to the rich.' When charity is to be extended, not sporadically and to a few individuals, [51 Ariz. 427] but to a large number over a long period of time, it is generally administered by some association, corporation or institution. The principal and distinctive features of institutions of this character are that they have no capital stock and no provisions for making dividends or profits, but derive their funds, to a considerable degree at least, from public and private charities, and above all, that they hold them in trust for the obligation of the institution, or, to put the matter in other language, the test of whether an institution is charitable is whether it exists to carry out a purpose recognized in law as charitable, or whether it is maintained for gain, profit, or private advantage. (Citing cases.) Generally speaking, the nature of the institution, if a corporation, and its purposes and objects are primarily determined by its charter or articles of association (citing cases); and ordinarily extrinsic evidence is not admissible to establish that purpose. (Citing cases.) When, however, it is contended that although the articles of incorporation show the institution to be a charitable one, it is not carrying out the purposes of those articles, parol evidence is admissible to contradict the prima facie case made by the articles themselves. We hold, therefore, that the articles of incorporation of defendant are prima facie evidence of its character as a charitable institution, but that such evidence may be rebutted by a showing on behalf of plaintiff that it has not lived up to the principles set forth in such articles, for its responsibility is fixed, not by its intended purpose, but by what it was actually doing at the time of the alleged injury."

And we reversed the case for a new trial to determine whether or not, as a matter of fact, the defendant was living up to the principles set forth in its articles of incorporation. The record shows the following situation on that point. In the year 1926 there was existing in the city of Tucson a general hospital and sanatorium, owned and operated by the Tucson Hospital Association. It owned certain property suitable for such purpose, which was encumbered by various mortgages and debts, amounting then to approximately [51 Ariz. 428] $52,000. The burden of carrying on this hospital was more than those who owned it cared to continue, and when the general conference of the Methodist Episcopal Church, South, which is a religious society, met in Memphis in May, 1926, an offer was made to deed the property to it. The matter was investigated, and the church determined that it would acquire such property in trust for hospital purposes, and designated certain persons to take over for the church the property above referred to. It was thought advisable that the institution should be incorporated as a religious and charitable corporation, without pecuniary profit as its object, under the laws of the state of Arizona, and on the 12th day of January, 1927, this was done and the property transferred to the new corporation. It appears clearly from the articles of incorporation that the purpose of the corporation was to operate a benevolent and charitable institution in Tucson for the care of the sick, and that there were to be no profits or benefits for any person or organization resulting from the operation of the institution. The corporation took over the hospital and operated it from the early part of 1927 until the present time. There is, and can be, no question that the original intention and purpose of the incorporators of defendant was to establish a charitable hospital in the city of Tucson, and to operate it as such. Nor is this disputed by plaintiff, his contention being that the institution, in its operation, departed widely from its original purpose. He bases this on the fact, as shown by the records of the hospital, that the vast majority of the patients who were treated by it during its existence paid a greater or lesser sum for the services rendered them, and that there was very little free medical or hospital attendance given to anyone. The records show clearly that this is substantially true. Generally speaking, the operating costs of the hospital approximated [51 Ariz. 429] eighty to a hundred thousand dollars per year. Of its total revenues, approximately 90 per cent. was from fees received from its patients, and

Page 461

the other 10 per cent. by contributions from various charitable organizations and institutions. Had the defendant, at the time of its organization, owned the hospital property, fully equipped and free from debt, it is probable that, over the period of its organization, as a whole its operating revenue would have slightly exceeded its total expenses. It was not, however, in this fortunate condition. The property which it took over was heavily burdened with debt, and while there were various contributions made from time to time, amounting to forty or fifty thousand dollars in all, which went into its capital and assets, defendant was forced to assume the existing indebtedness, together with other necessary expenditures for improvement and maintenance, the bonded indebtedness reaching at one time $75,000, and the floating indebtedness varying in amount, sometimes running as high as twenty or twenty-five thousand dollars additional. When the carrying charges of the indebtedness are added to the operating expenses of the institution, it appears that it was able to pay tittle, if anything, on the reduction of the principal of the indebtedness at any time, and in its later years was unable to pay even the carrying charges of the debt in full, so that it never made a true profit, in the sense that profit is reckoned by a private corporation, during the course of its existence. No dividends of course were ever paid, and most of the officers and directors, aside from those engaged continuously in the operation of the physical plant, gave their services free at all times.

The question then is, whether an institution with the purpose we have described above, operated in the manner in which we have pointed out, is, within the meaning of the law, a charitable institution. The [51 Ariz. 430] word "charity" has many definitions, the one most commonly thought of by the ordinary person being defined by Webster as "whatever is bestowed gratuitously on the needy or suffering for their relief," and its synonym is "alms." It is also, however, defined as "an institution founded by a gift and intended for the use of the public as a hospital, a library, a school, a museum, etc." The idea which is back of all of the definitions of charity, we think, may well be described as "an act or feeling of benevolence." It is based primarily upon the motive behind the act which is that of benefit to another, without private profit to the donor. When charity is not to consist of a few sporadic acts for a small number of individuals, but is to be extended to the public in general through a long period of time, it is generally handled by some institution which is able to collect the small gifts of the many, whether in money or service, and dispense them where they will do the greatest good, just as a reservoir collects the water from a thousand springs and passes it out in a regulated manner to its beneficiaries. Were all the funds of an institution which was established for a charitable purpose contributed by those who receive no direct benefit from the institution, without any expectation of return, and were the services of the institution given absolutely free of any charge whatever, it would be recognized by all that the institution was, in the strictest interpretation of the word, a charitable one. But if we are to limit the application of the phrase "charitable institution" to those of this nature, the list would be small, indeed, and if those who gave of their time and money, without hope of personal return therefrom, to keep the many hospitals of this country open were to be told that their contribution must be sufficient to support the institution entirely, without any payment whatever by anyone for the services which it [51 Ariz. 431] rendered, we are certain that a vast majority of those hospitals would be closed tomorrow. There are few of them, indeed, that are able to dispense unlimited hospitalization free of charge. Only the nursing sisters of religious organizations, as a rule, will give their personal services indefinitely without remuneration, and even they must be fed and clothed. There are few communities where the food necessary for the inmates of such an institution, the fuel to warm them, the medicine to cure their ills, will be given in ...

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