This section contains the nature of the case and procedural background.

P is a nonprofit corporation, first incorporated in 1927. The Franciscan Sisters -- Motherhouse -- is a religious order, based in Illinois, composed of women of the Roman Catholic faith. P was established in 1927. In 1932, P added a 10-floor wing to its main building. A clinic moved into the new wing. In 1948, the Sisters took over the operation of the clinic, which remained a separate corporation until 1958. The treatment of clinic patients was supervised by physicians from P's medical staff. The overall operation of the hospital included instructing nurses and medical students, operating the clinic, and performing general charitable work. In April 1971 P's board of directors approved a lease to be effective May 1, 1971, between P as lessor and W.D.C. Services, Inc., hospital entrepreneurs, as lessee. P leased the hospital, excepting the outpatient clinic and a convent house, to W.D.C. for 25 years with 2 options for 10 additional years each. The minimum annual rental guaranteed P was $ 800,000 for the first two years and $1 million a year thereafter. P intends to establish and operate additional medical clinics in east and south central Los Angeles, where the clinics will dispense free medical care, aid, and advice to the poor and needy. These outpatient clinics are not functionally equivalent to a hospital. In June 1971, the Sisters submitted a claim for $ 16 million for the value of their past services to P's board of directors. The board unanimously acknowledged the validity of the claim. In July 1971, an agreement was executed between P and the Sisters, effective May 1971, settling and compromising the claim for the sisters' past services. P would pay the sisters $ 200 per month for each sister in the order over the age of 70 years, plus $ 200 a month for each lay employee who had worked for the congregation for over 20 years, not to exceed 10 lay employees at any one time. The pensions are payable to all elderly sisters in the order, of whether or not the particular Sister performed services at P. The initial annual cost of the agreement would be $309,600 -- in July 1971, there were 129 sisters over the age of 70 -- and up to $24,000 additional to lay employees. D, the Attorney General claims that under P's articles of incorporation, P held its assets in trust primarily for the purpose of operating a hospital, and the use of those assets exclusively for outpatient clinics would constitute an abandonment of its primary charitable purpose and a diversion of charitable trust assets. Ps filed a declaratory judgment action to determine the issues. The court held the lease agreement was valid and the retirement agreement was not. All parties appealed.

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