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Holden Hosp. Corp. v. So. Ill. Hosp. Corp.

OPINION FILED MAY 19, 1961.

HOLDEN HOSPITAL CORPORATION, APPELLANT,

v.

SOUTHERN ILLINOIS HOSPITAL CORPORATION ET AL., APPELLEES.



APPEAL from the Circuit Court of Jackson County; the Hon. C. ROSS REYNOLDS, Judge, presiding.

MR. CHIEF JUSTICE SCHAEFER DELIVERED THE OPINION OF THE COURT:

Holden Hospital Corporation (Holden) brought this action to secure approval of a contract to sell all of its assets and to obtain instructions as to the distribution of the proceeds of the sale. Both Holden and the vendee, Southern Illinois Hospital Corporation (Southern), are charitable corporations. The defendants were Southern, the Attorney General of Illinois, The Southern Illinois Conference of the Methodist Episcopal Church (Methodist Conference) and The Southern Illinois Conference Woman's Society of Christian Service (Woman's Society). Both the Attorney General and a group of intervenors who alleged themselves to be "adversely affected" by the proposed sale filed counterclaims. The trial court dismissed the complaint for want of equity and, in accord with the prayer of the counterclaims, ordered Holden to continue to operate its hospital. The court also retained jurisdiction of "this cause and all parties hereto" for an indefinite period of time. Holden, Southern, Methodist Conference and Woman's Society have appealed directly to this court. The contract contemplated the sale of Holden's real estate, and a freehold is involved. McDonough County Orphanage v. Burnhart, 5 Ill.2d 230, Catholic Bishop of Chicago v. Murr, 3 Ill.2d 107, Altschuler v. Chicago City Bank and Trust Company, 380 Ill. 137.

The controversy arose in the following factual context. In 1912 Carrie Holden donated her house in Litchfield, Illinois, to the Home Missionary Society of the Methodist Church. For some time the Society used it for a hospital, but when it subsequently appeared that it was impractical to maintain a hospital in Litchfield, the Society first leased, and then bought, the former Amy Lewis hospital in Carbondale. The Society operated the hospital until 1925.

In that year, Holden Hospital Corporation was organized under the not-for-profit provisions of the Corporation Act of 1872. (Cahill's Ill. Rev. Stat. 1923, chap. 32, par. 159-164). Its charter stated its purposes in these terms: "The object for which it is formed is to own and maintain hospitals and equipment for the relief of the sick, needy and destitute, and conduct in connection therewith schools and homes for nurses; to maintain and conduct classes for first aid, education and relief, and maintain and conduct clinics and traveling instructors." Paragraph 5 of the charter stated that "The location is in the city of Carbondale" and gave the corporation's address.

At a meeting held at the First Methodist Episcopal Church on the day following incorporation, the conveyance of hospital property, including the old Amy Lewis building, from the Home Missionary Society was accepted and bylaws were adopted which provided that thirteen of the 27 members of the corporation were to be elected by the Home Missionary Society (the grantor), thirteen by the Methodist Conference and one by the board of trustees of the latter organization from its own members. In 1948 the bylaws were amended to provide that there should be 25 instead of 27 members, 12 to be elected from the Woman's Society, 12 from the Methodist Conference, as before, and the 25th to be the District Superintendent of the Methodist Conference.

The hospital was partially destroyed by fire in 1940. At that time, Holden launched a campaign to secure funds to rebuild and an appeal was made to the public. Part of the literature used in the campaign is in the record and although some of it indicates that the hospital is under religious supervision, it does not indicate the dominant role which the Methodist Church played in its operation. During the campaign, the hospital received $43,000. Although the record is not clear as to just when such gifts were made, it is plain that a wide variety of organizations and individuals have contributed to Holden over the years. For example, gifts of more than $250 were made by the Episcopal Church, the Baptist Church, the Lions Club, the Modern Woodmen of America, the Rotary Club, the Elks Club, and numerous other organizations, companies, and individuals. Although the record is vague in many respects, it is certain that since its incorporation Holden has received strong financial support both from the Methodist Church and its affiliated organizations, and from individuals and secular organizations in Carbondale. It has also received many gifts from outside sources, such as a grant of $20,000 from the Ford Foundation in 1957. So far as appears from the record, however all gifts made to Holden, including the original grant from the Home Missionary Society, were made free of any restrictions or provisions for reverter.

The hospital was thus established by the Methodist Church in one of its various corporate forms, and has remained under its supervision. Its facilities, however, have always been open to everyone, regardless of religion, and, as noted above, it has received support from the community. Most of its 55 beds are constantly in use, and there is no dispute that it fills a need in the Carbondale area, in spite of the establishment and growth of other hospitals nearby.

Nevertheless, Holden has had financial difficulties. During 1956, it sustained an operating loss of more than $30,000, and a net loss in its nonoperating accounts as well. The corporation thus entered 1957 with a working capital deficit even though it had borrowed $25,000 during the year to meet operating expenses. Dr. W.A. Robinson, a Methodist minister and former Holden board chairman, testified that by the end of 1956 the hospital had gone $60,000 in debt and expended $118,000 of its reserves. It had been unable to obtain credit from local tradesmen and at one point was unable to pay its bills.

The board concluded that $160,000 would be needed to put the hospital's finances in order again and it launched a fund raising drive with this amount as the goal. Dr. Robinson testified that only $95,000 was pledged or contributed, and that approximately $70,000 of this amount came from the Woman's Society. The entire amount contributed was returned to the donors, and the pledges were cancelled.

In 1957, the corporation decided to accept an offer by Southern Illinois Hospital Corporation to purchase all of its assets for $275,000. This offer provided that the buyer would pay $25,000 at the time of the sale, and that two notes, one for $75,000 at 5% and another for $175,000 at 1%, both secured by a mortgage, would be given by the vendee. The $75,000 note would be paid over a four-year period, and the other over a maximum period of 18 years. Both notes were subject to the condition that if the hospital should be closed "by any municipal, state or federal authority, or by the fire marshal," the buyer would be released from further liability and would reconvey the property to the seller. As to the $175,000 note, there was a condition that "if, in the sole judgment of Buyer, the operation of the hospital shall be economically unsuccessful," the obligation would cease and the property be reconveyed to the seller. The contract also provided: "Buyer agrees that after delivery of the deed and bill of sale and while any portion of the indebtedness to the Seller is unpaid it will not voluntarily close the hospital and will not intentionally or wilfully do or cause to be done any act which will result in such closing by any municipal, state or federal authority or by the fire marshal."

Holden's complaint asked that the court decree that the parties to the sale could lawfully carry out their contract. In 1948 Holden had adopted a bylaw stating that title to its property was held in trust for the use of the Woman's Society and the Methodist Conference, and the complaint asked that the court decree that the funds received from the sale would be held upon the same trust, or, in the alternative, that the court decree that the funds be distributed "in accordance with a plan to be formulated by the Board of Directors of the plaintiff and submitted to this court for approval, or otherwise."

The Attorney General denied that the Methodist Conference and the Woman's Society had any interest, by virtue of the bylaw or otherwise, in Holden's assets or in the proceeds of the sale. It was his position that if the court should decide to authorize a sale for less than adequate consideration, it should also decree that Southern would hold the property subject to the terms of Holden's charter. He also asked, however, that the court order Holden to "continue its corporate existence and to carry out the purpose of said charitable trust * * *."

The decree found that Holden's charter did not authorize it to sell its property "so as to defeat the objectives and purposes for which it was formed" and that "it is neither impossible nor impracticable nor illegal for the plaintiff corporation to continue to operate as a charitable public trust * * *." It also found that the Woman's Society and the Methodist Conference had no interest in Holden's assets, that the offer for the purchase of those assets was "grossly inadequate," and that Holden's financial condition was "sound." It found that the directors of Holden had "abused their discretion" in attempting to sell its assets, and ordered that Holden should continue to operate the hospital, subject to the jurisdiction of the court.

On this appeal, the Attorney General urges that the court's decree was proper, laying special emphasis upon the court's finding that the sale price was inadequate and that it is not impractical for Holden to continue to operate. He also argues that the applicable statutes do not permit a sale "in breach of trust." In attacking the decree, Holden places its principal reliance upon the General Not-for-Profit Corporation Act, (Ill. Rev. Stat. 1959, chap. 32, pars. 163a-163a100.) Pointing out that it has done no more than ask the court for instructions about a proposed course of action, it objects strongly to the court's ...


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