Opinion
No. 20875
Decided February 13, 1929.
Taxation — Exemptions — Charities — Conveyance containing option to a grantor to repurchase for nominal consideration — Or revesting title if grantee sued or became insolvent — Grantor's consent necessary to grantee's conveying title — Supreme Court — Concurring judges not in agreement upon grounds of affirmance.
ERROR to the Court of Appeals of Cuyahoga county.
This is a proceeding in error to reverse the Court of Appeals of Cuyahoga county. The facts incident to the controversy may be stated as follows:
Orlando Hall, on or about April 10, 1924, transferred to the Welfare Federation of Cleveland, Ohio, by a deed, certain property situated in the city of Cleveland. Said deed contained the following terms and conditions:
"1. The Grantor, his heirs and assigns, shall have the option to purchase the property conveyed by this deed from the Grantee for the sum of Ten Dollars ($10.00) at any time after one year from date. The foregoing option shall be a first lien upon the above described property and shall be a covenant running with the land.
"2. If the Grantee shall be sued or go into the hands of a receiver or into bankruptcy prior to the exercise of the foregoing option, the Grantor shall immediately have the right to exercise the said option.
"3. The Grantee shall, at the time this deed is delivered, execute a deed to the Grantor for the property described herein and place the same in escrow at The Union Trust Company.
"4. The Grantor shall exercise his option by giving thirty (30) days' notice in writing of his intention so to do to the Grantee and at the expiration of the thirty-day period by tender of Ten Dollars to the escrow agent, The Union Trust Company, which shall deliver to the Grantor the deed from the Grantee to the Grantor when the aforesaid tender is made. If, however, the Grantee shall be sued or go into the hands of a receiver or into bankruptcy, the Grantor may, if he desires, immediately tender Ten Dollars to The Union Trust Company, the escrow agent, which shall then deliver to the Grantor the aforesaid deed from the Grantee to the Grantor.
"5. The aforesaid thirty-day notice which the Grantor shall give to the Grantee prior to the exercise of the option shall be delivered by registered mail addressed to the Grantee at the premises herein described.
"6. The Grantee shall not convey or assign the premises herein described without the consent in writing of the Grantor."
On the 13th of June following, the Welfare Federation of Cleveland filed with the auditor of Cuyahoga county an application asking for exemption from taxation of the above-described property, upon the grounds that the same was property belonging to an institution used exclusively for charitable purposes. The auditor rejected this claim, whereupon the Welfare Federation filed a complaint with the tax commission of Ohio, which commission, on April 17, 1925, held that such property was not exempt from taxation, and ordered the property listed for taxation in the name of Orlando Hall. The Welfare Federation asked for a rehearing, which was granted, and, after further consideration, the tax commission of Ohio found that the property belonged to the said Welfare Federation of Cleveland, and that it was being used for charitable purposes, and therefore exempted it from taxation. A copy of this finding was certified to the auditor, and it was ordered that said property be exempted from taxation for the year 1925 and thereafter so long as it continued to be used by the Welfare Federation of Cleveland. Whereupon Michael Gallagher, as a taxpayer of Cuyahoga county, made demand of the prosecuting attorney of that county to begin a suit requiring the auditor to place such property upon the tax duplicate for taxation, which the prosecuting attorney refused and failed to do. Whereupon said Michael Gallagher, as a taxpayer, on behalf of himself and all other taxpayers of Cuyahoga county, Ohio, brought this action against the auditor and the treasurer of Cuyahoga county, whereby he seeks to restrain them from removing the property in question from the tax duplicates of the county.
A demurrer was filed to the petition, which was sustained; an amended petition was filed, and a second demurrer was interposed, which demurrer was sustained, and, the plaintiff Gallagher not desiring to plead further, error was prosecuted to the Court of Appeals, which court reversed the judgment of the court of common pleas and remanded the cause to that court, with instructions to overrule the demurrer. To reverse this judgment, the plaintiff in error prosecutes error in this court.
Mr. Edward C. Stanton, prosecuting attorney, Mr. H.E. Parsons, Messrs. Garfield, Cross, MacGregor, Daoust Baldwin, and Messrs. Squire, Sanders Dempsey, for plaintiffs in error.
Mr. Ian M. Ross, and Mr. John A. Elden, for defendants in error.
The judgment of the Court of Appeals in this case must be reversed and that of the court of common pleas affirmed, by the concurrence of four judges. Inasmuch as the four judges concurring in such judgment do not agree upon the grounds upon which such judgment should be placed, no authoritative opinion is filed.
Judgment of the Court of Appeals reversed, and Judgment of the court of common pleas affirmed.
KINKADE, JONES, MATTHIAS, and DAY, JJ., concur.
MARSHALL, C.J., ROBINSON and ALLEN, JJ., dissent.
My reasons for concurring in this judgment are as follows: The paramount question in this case is whether the property in question comes within the purview of Section 5353, General Code, and Section 2, Article XII of the Constitution of Ohio, as property belonging to an institution, used exclusively for charitable purposes, and hence exempt from taxation.
Whether a particular piece of property is exempt from taxation depends altogether on the constitutional and statutory provisions in force at such time, for it may be regarded as a general rule that all property is liable to taxation except such as is exempted by constitutional or statutory enactment. We are not unmindful of the rule that statutes of exemption are to be strictly construed, and doubtful considerations are to be resolved against the exemption. "All laws exempting any of the property in the state from taxation, being in derogation of equal rights, should be construed strictly." Cincinnati College v. State, 19 Ohio, 110; Watterson v. Halliday, Auditor, et al., 77 Ohio St. 150, 82 N.E. 962, 11 Ann. Cas., 1096. However, they should not receive an interpretation so narrow and literal as to defeat the legislative intent to encourage, foster, and protect institutions used exclusively for charitable purposes. The proposition is fairly stated in Y. M. C. A. v. Lancaster County, 106 Neb. 105, 182 N.W. 593, 34 A. L. R., 1060: "The theory that the rule requiring strict construction of a tax exemption statute demands that the narrowest possible meaning should be given to words descriptive of the objects of it would establish too severe a standard. Rather ought it to be the rule that such words as 'charitable' should be given a fair and reasonable interpretation, neither too broad nor too narrow, in ascertaining the true intent as to the objects of exemption, and then that the statute should be strictly applied and enforced in order not unduly to extend its scope. The rule does not call for a strained construction, adverse to the real intention, but the judicial interpretation of such a statute should always be reasonable." See, also, Zollmann's American Law of Charities, Section 690, page 463, where it is said:
"Courts certainly are not at liberty to defeat the legislative intent by a strict construction merely because they consider that the law is improper, for if they did, its meaning would depend, not upon its words, but upon the varying opinion of the various courts concerning its propriety, thus losing sight of the judicial duty of discovering the purpose of the lawmakers as declared, and faithfully to apply it. Certainly, the language of the legislature, in exempting from taxation, is as much entitled to obedience as that imposing taxation. Nor need the attention be exclusively riveted on the language. 'The aphorism that exemptions are to be strictly construed is consistent with that reasonable construction that embraces incidents purely within the spirit, if not the terms, of the exception.' "
The demurrer filed herein concedes all facts well pleaded, and we may therefore assume the following facts to be true: (1) The record title is in the Welfare Federation; (2) the Welfare Federation is a charitable institution; (3) the property in question is being actually used exclusively for charitable purposes; and (4) no effort was made to reverse, vacate, or modify the findings of the tax commission, pursuant to Section 5611-2, General Code.
The history of constitutional provision and statutory enactment relative to exemption of property devoted to charitable purposes is set forth in Myers, Treas., v. Benjamin Rose Institute, 92 Ohio St. 238, 110 N.E. 929, and Benjamin Rose Institute v. Myers, Treas., 92 Ohio St. 252, 110 N.E. 924, L.R.A., 1916D, 1170, and it is unnecessary to again trace their history or repeat the citation of cases of this court relative thereto. It will be sufficient to refer to Section 2, Article XII, of the Constitution, which provides: "Laws shall be passed, taxing by a uniform rule, * * * all real and personal property; * * * but * * * institutions used exclusively for charitable purposes * * * may, by general laws, be exempted from taxation."
In 1923 (110 Ohio Laws, 77) the Legislature amended Section 5353, General Code, to read, "And property belonging to institutions used exclusively for charitable purposes shall be exempt from taxation," whereas the language prior thereto (103 Ohio Laws, 548) was: "Lands, * * * used exclusively for the accommodation or support of the poor, * * * and property belonging to institutions of public charity only, shall be exempt from taxation."
The writer is of opinion that, by the provisions of the foregoing statute and of the Constitution, ownership and use for charitable purposes must coincide. However, it is argued that full ownership of the property by an institution of public charity is no longer necessary for exemption from taxation if the property is being used exclusively for charitable purposes. It is said, in the opinion in Jones, Treas., v. Conn et al., Trustees, 116 Ohio St. 1, at page 10, 155 N.E. 791, 793:
"This amendment no doubt did, as defendants in error contend, enable the Legislature to exempt from taxation the property of institutions of charity not purely public, * * * but it also emphasized the use of the property, and changed the emphasis from the ownership thereof to the manner of its use. * * * Hence it is the use of the property and not the ownership which decides the question, and the exemption must depend upon its actual and exclusive devotion to the work of the institution."
This language, however, should be construed in the light of the facts of that case which show that ownership was conceded, the use being the only question involved.
We are disposed to the conclusion that the expression of the statute, "property belonging to institutions," does not mean the absolute ownership thereof by the institution in the highest degree known to the law, but means that if there is legal title in the institution, and it has complete dominion, control and power over, and exclusive use thereof, for charitable purposes, such is a sufficient ownership to comply with the law.
Citation of authorities from other states is not particularly helpful, in view of the fact that the exemption must depend upon the words of the statutes and constitutional provisions of the respective states. There are many jurisdictions where the use is the measure of the right to exemption: City of Louisville v. Werne, 25 Ky. Law Rep., 2196, 80 S.W. 224; Scott v. Society of Russian Israelites, 59 Neb. 571, 81 N.W. 624; People, ex rel. Bracher, v. Salvation Army, 305 Ill. 545, 137 N.E. 430. These cases all hold that the charitable use requires the exemption. Many other citations might be given to the same effect, but they are not helpful for the reason above indicated, to wit, that in this state ownership and use must coincide. The crucial question then must be: What kind of ownership is included in the statute under consideration in the words "property belonging to institutions used exclusively for charitable purposes?" The words "belonging to" do not import so high a degree of title as the words "owned by," yet the term is often used in the sense of ownership. In this state it has been recognized that one may be the owner of property, within the provision of a statute, and yet not be possessed of the entire title; that there may be a qualified ownership, and one still be the owner within the meaning of the law. This was recognized and discussed in Iroquois Co. v. Meyer, 80 Ohio St. 676, 89 N.E. 90. Attention may be directed to the language of Spear, J., on pages 683, 684, 685 (89 N.E. 91).
It is conceded that the legal title to this property is in the Welfare Federation, and that it is in actual possession thereof and using it for purely charitable purposes. The fact that such institution has placed in escrow with a trust company a deed to such property does not signify that the grantor in such deed has parted with the legal title thereto. Until such deed has been delivered to the grantee by the escrow agent, the legal title rests in the grantor and he is still the owner in contemplation of law. As stated by Justice Clifford in County of Calhoun v. American Emigrant Co., 93 U.S. 124, at page 127 ( 23 L.Ed., 826): "The rule is established by repeated decisions, that, where a deed is delivered as an escrow, nothing passes by the deed unless the condition is performed." See, also, 21 Corpus Juris, 882, Section 28; 10 Ruling Case Law, 627, Section 10.
If taxes may be legally assessed, they would be assessed against such owner of the legal title. In our opinion, such property "belongs" to the Welfare Federation until the delivery of the deed by the escrow agent. Of course, immediately upon delivery the title passes. In the case at bar, whenever the deed held by the Union Trust Company in escrow shall be delivered to Orlando Hall, or his heirs or assigns, or such property is no longer used exclusively for charitable purposes, in either event, the exemption ceases and the property is subject to taxation the same as any other property.
The writer and those concurring in this view are therefore of the opinion that the provision "property belonging to institutions" does not require the highest ownership known to the law, but that it is sufficient if the legal title to the property in question is in the institution; that such institution is in possession thereof and has control and dominion thereover; that the property is in the power of the institution which is using the same exclusively for charitable purposes; and that under such circumstances the property in question "belongs" to the institution. It therefore follows that the order of the tax commission ordering the exemption was right, and that the court of common pleas, in taking that view of the case, reached the right conclusion in sustaining the demurrer to the amended petition.
KINKADE and JONES, JJ., concur in the foregoing concurring opinion.
I concur in the judgment upon the sole ground that, the jurisdiction of the tax commission having been invoked under the provisions of Section 5610, General Code, the conclusion of the commission can be reversed, vacated, or modified only by proceeding in accordance with Section 5611-2 et seq., General Code.
JONES and DAY, JJ., concur in the foregoing concurring opinion.
I dissent from the judgment. The amended petition sets up the provisions of the so-called deed from Orlando Hall to the Cleveland Welfare Federation, and alleges that:
"Said so-called deed from Orlando Hall to the Welfare Federation of Cleveland is illegal and void in that no title, or interest in the title to the said property herein described passed to the Welfare Federation of Cleveland under the terms of this so-called deed.
"That said property is not exempt from taxation as it is not both owned and used by a Charitable Institution as required by law."
This allegation squarely raises the question whether a purported conveyance of the kind described transfers such title or interest as when united with the use for purely charitable purposes results in exemption from taxation. While the prayer of the petition limits the relief prayed for to the year 1924, the announcement of the court does not expressly limit the relief granted to the year 1924, and raises the inference that the exemption from taxation is allowed for every year subsequent to 1924 in which the charitable use continues.
Certainly such a conveyance as that described in this record, whereby the grantor, his heirs and assigns, retains the option to purchase for ten dollars the property conveyed by the deed, at any time after the end of the year 1924, which option is a first lien upon such property, and declared to be a covenant running with the land, and is further protected by the provision that the grantee, at the time of the delivery of the deed, must execute a deed to the grantor for such property and place the same in escrow, after the year 1924 has expired, is the mere shadow of a conveyance. Whatever title it transfers, after the initial year, can be immediately revoked by the grantor. From now on, there is not one moment of any succeeding year in which the Cleveland Welfare Federation can occupy this property secure in the knowledge that it holds the realty for a definite term, during which it cannot be dispossessed.
The ownership and use must coincide to justify exemption under these statutes. In the case of Conn et al., Trustees, v. Jones, Treas., 115 Ohio St. 186, 152 N.E. 897, the ownership was conceded; it was only the use which was questioned. In my judgment, however, the ownership which justifies exemption for taxation purposes must be a bona fide ownership, and not a mere shadow ownership revocable at any moment by the grantor.
MARSHALL, C.J., and ROBINSON, J., concur in the foregoing dissenting opinion.