Estate of Henderson , 17 Cal.

2d 853
[L. A. No. 17365. In Bank. April 28, 1941.]
Estate of ELLA M. HENDERSON, Deceased. BESSIE PECK, Executrix, etc.,
Respondent, v. EASTERN STAR HOMES OF CALIFORNIA (a Corporation),
Appellant; LEON McGARY et al., Heirs and Respondents.

OPINION
TRAYNOR, J.
On September 23, 1937, Ella M. Henderson died leaving a will executed on June
11, 1937, which provided for a specific legacy of $500 to Bessie M. Peck and
bequeathed the residue of the estate to the Eastern Star Homes of California "to
be used by the trustees in such manner as may be most beneficial to the Home
and its inmates". The will was admitted to probate and Bessie Peck was
appointed executrix of the estate which consists of personal property appraised
at $16,229.04. At the request of Leon McGary, a nephew and one of the heirs-atlaw of deceased, the executrix instituted this proceeding to determine which
persons were entitled to share in the distribution of the estate. The trial court
held that the Eastern Star Homes was a non-profit charitable organization under
sections 41 and 43 of the Probate Code. These sections provide that a devise or
bequest to a charitable corporation or to a person in trust for charitable uses
under a will executed less than six months prior to the death of the testator
cannot exceed one-third of the entire estate if there are surviving heirs who
would otherwise take the excess over one-third. The court concluded that Bessie
Peck should receive the sum of $500; the Eastern Star Homes should receive
only one-third of the residue of the estate; and the nephews, nieces, and other
relatives of the deceased should receive the other two-thirds of the residue.
Judgment was entered accordingly. The Eastern Star Homes has appealed.
The respondent executrix has taken the position that she is a neutral party and
not called upon to contest the appeal of the Eastern Star Homes. She
consequently has filed no brief nor made any appearance in opposition to the
appeal. Certain of the heirs of the deceased, however, to whom distribution of a
portion of the residue of the estate has been ordered, have been granted leave
to appear and have filed a brief in opposition to that of appellant.

The Order of the Eastern Star in the State of California is an unincorporated

fraternal organization consisting of approximately 96,000 members affiliated in
492 subordinate chapters located within the state. Membership in the Order is
limited to those persons elected by the Order from among Master Masons, their
wives, and certain other female relatives. In addition to an initiation fee, each
member pays annual dues and assessments levied by the Grand Chapter, the
governing body of the Order in this state, and by the local chapter with which the
member is affiliated. In 1930 the Grand Chapter organized the Eastern Star
Homes of California, a non- profit corporation and appellant herein, for the
following purpose: "To own, control, conduct and manage homes for the care,
maintenance and support of aged, indigent or infirm members of the Order of the
Eastern Star". Appellant maintains such a home in Los Angeles. The laws of the
Grand Chapter and the by-laws of the corporation provide that admission to the
Home shall be restricted to members of the Order selected by appellant's board
of trustees who: (1) have been nominated by their local chapter; (2) have been
members in good standing of the Order of the Eastern Star in the State of
California for not less than 10 years; (3) are 65 years of age; and (4) are in
reasonably good health. Upon admission to the Home each member is required
to assign all of his assets to the appellant.
The average yearly cost of operating the Home is $30,000, 80 per cent of which
is derived from annual assessments levied by the Grand Chapter upon members
of the Order and the remaining 20 per cent principally from income on
investments. Appellant's only other income is $500 a year from its endowment
fund.
If the bequest in question constitutes a gift to a charitable institution or a gift in
trust for charitable uses, it is invalid to the extent that it exceeds the one-third
limitation imposed by section 41 of the Probate Code, the will having been
executed within six months prior to the death of the testatrix. The present
bequest sets up a trust for the benefit of the inmates of the Home. It is made to
the Eastern Star Homes, Inc., "to be used by the trustees in such manner as may
be most beneficial to the Home and its inmates". Thus, the trustees, the
beneficiaries, and the trust purpose are all stated. Such bequests, even though
made directly to an association, are generally construed to constitute trusts for
the benefit of the inmates if the bequests are charitable in nature.
[1] A bequest is charitable if: (1) It is made for a charitable purpose; its aims and
accomplishments are of religious, educational, political or general social interest
to mankind.

(2) The ultimate recipients constitute either the community as a whole or an

unascertainable and indefinite portion thereof. The charitable nature of an
institution is determined on the same basis.
[2-4] The bequest in the present case was clearly made for a charitable purpose.
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. (See
cases cited in 5 Cal.Jur. 24.) Relief of poverty is not a condition of charitable
assistance. If the benefit conferred has a sufficiently widespread social value, a
charitable purpose exists.
Thus, gifts or trusts for educational institutions (Rest., Trusts, sec. 370; People v.
Cogswell, supra), the promotion of woman's, and even for the relief of dumb
animals, have been held charitable. It is a matter of common knowledge that
aged people require care and attention apart from financial assistance, and the
supply of this care and attention is as much a charitable and benevolent purpose
as the relief of their financial wants. Every civilized community must provide
facilities, either public or private, for the care of old people regardless of financial
condition, and a bequest to such an institution to further its purposes is of
enough social value to be designated as charitable
The articles of incorporation of appellant Home indicate that it was created for
the purpose of rendering assistance to the deserving aged. A bequest to it may
therefore be charitable even though indigence is not a requirement for
admission.
[5] Appellant points out that upon admission an inmate must assign his assets to
the Home. The value of such an assignment is not necessarily commensurate
with the benefits derived by him from the Home. But even if each inmate were
required to pay in full for his care, a bequest to the institution may still be
charitable. A gift or trust to support an institution beneficial to the community is
charitable even though the inmates must pay fees or contribute to the expense
of maintaining the institution so long as the income thus derived is used only to
maintain the institution or for some other charitable purpose. Thus students at a
private school may be required to pay tuition fees to cover the cost of their
instruction; yet a gift to such a school for the purpose of assisting in the
education of its students is clearly charitable. Appellant cites a number of
decisions denying a charitable status to fraternal orders, lodges, and kindred
organizations. These cases have no bearing on the present one. The gift here is
not to the Order of the Eastern Star but to the Eastern Star Homes, Inc., a
corporation devoted exclusively to caring for the aged, and it is not a general

fraternal contribution but was made expressly for the charitable purpose of
aiding the aged.
[6] The support of the Home by annual assessments on members of the Order of
the Eastern Star likewise does not destroy the charitable nature of the bequest.
Appellant cites Estate of Dol, 182 Cal. 159 [187 P. 428], Brown v. La Societe
Francaise, etc., 138 Cal. 475 [71 P. 516], and Gorman v. Russell, 14 Cal. 531, for
the proposition that a mutual benefit society, each member of which pays fixed
periodic sums into a common fund which is used to render medical or other
assistance to any member in need thereof, does not constitute a charitable
organization. Appellant contends that [17 Cal.2d 859] it is just such a noncharitable mutual benefit society organized for the protection of the members of
the Order of the Eastern Star and that a bequest to it is therefore not charitable.
Appellant, however, overlooks the fact that the nature of the bequest is not
necessarily determined by the status of the organization to which it is made. A
charitable gift may be made to a non-charitable institution so long as the
purpose of the gift remains charitable. The cases of Gorman v. Russell and Brown
v. La Societe Francaise, etc., were concerned solely with the charitable or noncharitable status of certain organizations and not with the question of whether a
gift to such organizations by an outsider might be a charitable one. In the
Gorman case a group of longshoremen formed a society, each member of which
contributed to a common fund which was used to assist members who became
sick or disabled. Certain individuals who were expelled from the organization
brought suit for dissolution and distribution of the funds, claiming the
organization was no more than a private partnership. The defendants contended
the society was a charitable one and that therefore the funds belonged not to the
individual members but to the ultimate beneficiaries. The court held the
organization to be non- charitable. In the Brown case a patient who was
negligently treated in a hospital maintained by a mutual benefit society for the
assistance of its members brought suit against the hospital. The hospital
contended that it was a charitable institution and therefore not liable under the
rule of respondeat superior for the negligent acts of its servants. The court held it
to be non-charitable. In Estate of Dol the question was squarely presented
whether a bequest to a mutual benefit society organized to render medical aid to
its members was charitable. The court, however, held on the basis of the Brown
and Gorman cases that the bequest was not charitable because the organization
itself was not a charitable one. It failed to consider in any way whether the gift
was charitable in nature despite the status of the organization, overlooking the
fact that the Brown and Gorman cases on which it relied were not at all
concerned with the charitable nature of gifts.

If a group of individuals agree to contribute equal amounts into a fund to be used

for the benefit of all, such a group may well be said to be non-charitable in
nature because each individual is providing only for his own welfare and does not
intend to make a free contribution toward the assistance of others. If an outsider,
however, receiving no benefits from the organization, makes a gift to it, that gift
may well be a charitable one if the members of the organization are sufficiently
numerous and it is organized for a purpose beneficial to society such as
providing for medical assistance to its members. Such a donor has the charitable
purpose of assisting those members of a large group who become sick, without
any benefit to himself, and the gift thus may be a charitable one.
In the present case, therefore, even if the Home itself be considered in the
nature of a mutual benefit society and hence non-charitable, the bequest to the
Home, being for the purpose of aiding the aged, may remain charitable.
[7] A true mutual benefit association, however, is based upon reciprocal
contracts and requires that a member receive benefits as a matter of
right. Members of the Order of the Eastern Star who pay their required
assessments acquire no right, contractual or otherwise, to be admitted
to the Home, even after fulfilling the entrance requirements. A member
must be nominated by his local chapter and selected by the trustees of
the Home before he can gain admittance, and only one member out of
every 500 in a local chapter can acquire residence in the Home at the
same time. A member is admitted to the Home because his case is
deserving and not because his previous contributions have given him a
contractual right to admission. Thus, there is a clear distinction
between this type of organization which has a charitable purpose and a
mutual benefit society. Many decisions sustain the charitable nature of
institutions established to render aid to the members thereof who need
assistance even though the institutions are supported by contributions
from the members. The bequest to appellant was therefore made for a
charitable purpose and to an institution with a charitable purpose.
[8] There remains the question whether the aged members of the Order for
whose welfare the Home was established constitute a class of beneficiaries
indefinite enough to render the bequest or the institution to which it was made
charitable. It is not essential that every member of the community be a direct
beneficiary of a charitable gift. A charity may be validly restricted to an indefinite
class within the community so long as the class is large enough to make the
enforcement of the gift beneficial to the community. (Rest., Trusts, sec. 375.) In
the case of bequests for the relief of poverty, or the advancement of education,

or religion, or the promotion of health, inclusive of the care of the aged, the
number of beneficiaries need not be so large as when the gift is simply for the
general benefit of a class without indication of the particular purpose for which it
is to be used. (Rest., Trusts, sec. 375 (a).) Thus gifts and trusts to eleemosynary
institutions whose benefits are restricted to members in a particular organization
have been held charitable
Appellant points out that admission to the Home is restricted to members of the
Eastern Star who have been affiliated with the California Order for 10 years and
have reached the age of 65 years and contends therefore that the number of
beneficiaries is definitely fixed since their identity can be ascertained by an
examination of the Order rolls. This argument assumes that the Home exists
solely for the benefit of members who are at present able to fulfill the
requirements for admission. The Order of the Eastern Star, however, is a
constantly changing group. The Home exists not only for the benefit of members
now eligible for admission but also for the benefit of members who at present
lack the entrance qualifications and persons who will join the Order in the future.
An inspection of the records therefore will not disclose all of the class to be
benefited. In addition, appellant's articles of incorporation limit each local
chapter to one resident in the Home for each 500 members in the Chapter. This
restriction operates to exclude from the Home many members possessing the
required qualifications for admission and renders the beneficiaries even more
indefinite.
[9] Section 41 of the Probate Code restricts the amount of a charitable bequest
to one-third of the testator's estate. The trial court in the present case restricted
the amount of the bequest to appellant to one-third of the residue of the
testator's estate. The judgment is reversed and the cause is remanded to the
trial court with instructions to modify its decree by awarding to appellant an
amount equal to one-third of the testator's estate, neither party to recover costs
on appeal.
Shenk, J., Edmonds, J., and Gibson, C.J., concurred.
CURTIS, J.,

White Gold Marine Services Inc. vs Pioneer Insurance and Surety

Corporation

Facts: Petitioner White Gold bought a protection and indemnity coverage for its
ships from Steamship Mutual through Respondent Pioneer. Certificates and
receipts thus were given. However, Petitioner failed to fulfill its payments thus
Steamship refused to renew its coverage. Steamship then filed for collection
against Petitioner for recovery of unpaid balance. Thereafter, Petitioner also filed
a complaint against Steamship and Respondent before the Insurance
Commission for violations (186,187 for Steamship and 299,300,301 in relation to
302 and 303 for Respondent) of the Insurance Code-license requirements as an
Insurance company for the former and as insurance agent for the latter. Said
commission dismissed the complaint which decision was affirmed by the CA.
Issue: Whether or not Steamship Mutual is a Protection and Indemnity Club
engaged in the insurance business in the Philippines
Held: Steamship Mutual as a P & I Club is a mutual insurance company engaged
in the marine insurance business.
An insurance contract is a contract of indemnity. This means that one party
undertakes for a consideration to indemnify another party against loss, damage,
or liability arising from an unknown or contingent event. While to determine if a
contract is an insurance contract we can look at the nature of the promise, the
act to be performed, exact nature of the agreement in view of the entire
occurrence, contingency or circumstance where the performance is mandated.
The label is not controlling. While under Section 2(2) of the Insurance Code the
phrase doing an insurance business constitutes the following: 1) making or
proposing to make, as insurer, any insurance contract; 2) making or proposing to
make, as surety, any contract of suretyship as a vocation and not as merely
incidental to any other legitimate business or activity of the surety; 3) doing any
kind of business, including a reinsurance business, specifically recognized as
constituting the doing of an insurance business within the meaning of this code;
4) doing or proposing to do any business in substance to any of the foregoing in
a manner designed to evade the provision of this code.
Taking all of these in to consideration, Steamship Mutual engaged in marine
insurance business undertook to indemnify Petitioner White Gold against marine
losses as enumerated under sec. 99 of the Insurance Code. It is immaterial
whether profit is derived from making insurance contract and that no separate or
direct consideration is received since these does not preclude the existence of an
insurance business.
NOTES:
*Mutual Insurance company- cooperative enterprise where the members are
both the insurer and insured.

*Protection and Indemnity Club- a form of insurance against third party liability
where the third party is anyone other than the P & I Club and its members.