Citizens National Bank of Paris v. Kids Hope United, Inc. ( 2008 )

NO. 4-08-0162 Filed 11/21/08
IN THE APPELLATE COURT
OF ILLINOIS
FOURTH DISTRICT
THE CITIZENS NATIONAL BANK OF PARIS as ) Appeal from
Trustee of the La Fern L. Blackman ) Circuit Court of
Trust; as Trustee of the Ettoile Davis ) Edgar County
Trust; as Trustee of the Ruth Cook ) No. 06CH59
Memorial Fund; and as Trustee of the )
Gladys Stratton Trust; and THE EDGAR )
COUNTY BANK & TRUST COMPANY OF PARIS, )
ILLINOIS, as Trustee of the Samuel R. )
Smith Trust, )
Plaintiffs-Appellees, )
v. )
KIDS HOPE UNITED, INC., an Illinois Not- ) Honorable
for-Profit-Corporation, ) James R. Glenn,
Defendant-Appellant. ) Judge Presiding.
_________________________________________________________________
JUSTICE COOK delivered the opinion of the court:
In the 1960s, grantors La Fern L. Blackman and Ettoile
Davis each executed a trust that benefitted the Edgar County
Children's Home (the Home). The Blackman trust stated that the
Home would continue to receive income from the trust until the
Home "ceased to operate or exist." The Davis trust stated that
the Home would continue to receive income from the trust until
the Home ceased to function in its "present capacity." In 2003,
the Home merged with defendants, Hudelson Children's Home and
Family Services (Hudelson), now named Kids Hope United, Inc.
(Kids Hope). In 2006, plaintiffs and trustee, Citizens National
Bank of Paris (the Bank), filed a petition for instructions,
seeking a determination that the gifts to the Home lapsed because
the Home "ceased to exist" and ceased to function in its "present
capacity" following the merger. Kids Hope, as the continuing
entity following the merger, argued that the gifts should not
lapse and it should continue to receive income from the trust.
Both the Bank and Kids Hope filed for summary judgment. The
court granted summary judgment to the Bank, finding that, as set
forth in section 11.50(a)(2) of the Business Corporation Act of
1983 (Act) (805 ILCS 5/11.50(a)(2) (West 2006)), the restrictive
conditions that each respective testator placed on her gift came
to pass. We reverse and remand.
I. BACKGROUND
A. Relevant History of the Home and Kids Hope
The Home was incorporated in the State of Illinois in
1898. Pursuant to its original charter, it was established as an
institution for the education of the dependent children in Edgar
County, Illinois, to exercise the custody and maintenance of such
children and to provide permanent homes for them in approved
private families. In 1900, the Home erected a building for this
purpose on Eads Avenue in Paris, Illinois.
On August 15, 1980, an amendment to the Home's articles
of incorporation changed its object to providing
"services to children and youth in the
fields of health, welfare[,] and education in
the State of Illinois, including multi-treat-
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ment and educational programs for emotionally
handicapped boys and girls of all races in
residential treatment centers, day treatment
services, counseling services to family, and
such other related auxiliary services as are
necessary or desirable from time to time to
accomplish these purposes; and to own or
lease property, establish and maintain resi-
dential treatment centers, homes, schools[,]
and other facilities required."
This was for the purpose of allowing the Home to become a resi-
dential placement resource for children throughout the State and
to receive state funding. It is unclear whether the Home actu-
ally ceased operating as a traditional orphanage in 1980, or
whether it operated in a manner akin to the broader mission for
some time.
The Home created a not-for-profit corporation, known as
the Children226
Ill. 2d 395, 400, 875 N.E.2d 1096, 1099 (2007). Whether the
entry of summary judgment was appropriate is a matter reviewed de
novo on appeal. State Farm, 226 Ill. 2d at 400, 875 N.E.2d at
1099.
A. Blackman's Trust: Was Summary Judgment Proper on the Ground
That the Home "Ceased To Exist"?
1. General Rule: Merger Does Not Cause Gift To Lapse
In regard to whether Kids Hope should continue to
receive income from Blackman's trust, Kids Hope contends that the
trial court should have relied on the general rule, set forth
both in statute (805 ILCS 5/11.50(a)(4) (West 2006)) and in
common law (In re Estate of Fuller, 10 Ill. App. 3d 460, 464-65,
294 N.E.2d 313, 316 (1973)), that the merger of two charities
typically does not cause a bequest to either of the original
charities to lapse.
Section 11.50 of the Act, subsections (a)(1) and
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(a)(4), provide in pertinent part:
"(1) The several corporations parties to
the plan of merger *** shall be a single
corporation, which[] *** is that corporation
designated in the plan of merger as the sur-
viving corporation***.
* * *
(4) Such surviving or new corporation
shall thereupon and thereafter possess all
the rights, privileges, immunities, and fran-
chises, *** of each of the merging *** corpo-
rations; and all property, real, personal,
and mixed, *** and all and every other inter-
est, of or belonging to or due to each of the
corporations so merged *** shall be taken and
deemed to be transferred to and vested in
such single corporation without further act
or deed[.]" (Emphases added.) 805 ILCS
5/11.50(a)(1), (a)(4) (West 2006).
The Fuller court held that a bequest to a not-for-
profit corporation running a hospital did not lapse when that
corporation merged into a similar corporation that continued to
operate that hospital together with another hospital. Fuller, 10
Ill. App. 3d at 465, 294 N.E.2d at 316; see also In re Estate of
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Trimmer, 29 Ill. App. 3d 209, 213, 330 N.E.2d 241, 243 (1975)
(not finding a failure of legacy where no resrictive language
appeared in the will). The Fuller court's rationale was that the
structural and managerial changes that occurred when the original
corporation merged with the new corporation were not important in
determining whether the new corporation would be able to carry
out the purposes of the bequest. Fuller, 10 Ill. App. 3d at 464,
294 N.E.2d at 316.
2. What Did Blackman Mean by "cease to operate or exist"?
The general rule regarding a merger's effect on a
bequest as set forth in section 11.50(a)(4) of the Act and in
Fuller does not control if the grantor places a restrictive
condition in the trust to otherwise cause the gift to lapse. See
Trimmer, 29 Ill. App. 3d at 212-13, 330 N.E.2d at 243-44 (gift to
original legatee church would have passed to merged church if
restrictive condition in trust prohibiting change of affiliation
had not come to pass). Kids Hope argues that the trial court
erred in finding that the restrictive condition in the Blackman
trust, "[i]n [the] event either or both of the aforesaid organi-
zations should cease to operate or exist, then said bank as
trustee is to distribute said portion *** to such charitable
organization[s] *** as it deems worthy," came to pass in 2003
when the Home merged with Hudelson, now named Kids Hope. (Empha-
sis added.) Again, section 11.50(a)(2) of the Act states:
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"(2) The separate existence of all cor-
porations parties to the plan of merger[,]
*** except the surviving or new corporation,
shall cease." (Emphasis added.) 805 ILCS
5/11.50(a)(2) (West 2004).
"The cardinal rule of construction is to ascertain the
intention of the testator from the will as a whole and to give
effect to it, unless the intention is contrary to law or public
policy." Fuller, 10 Ill. App. 3d at 464, 294 N.E.2d at 316. To
determine a testator85
Ill. 2d 507, 514, 426 N.E.2d 1198, 1201 (1981). If the testa-
tor's intent may be determined from the language of the trust
document alone, without reference to the rules of construction,
there is no need to use them. Campfire Girls, 85 Ill. 2d at 514,
426 N.E.2d at 1201. However, when dealing with a charitable
trust in particular, the language used is to be given a liberal
construction and one favorable to its purpose. In re Will of
Hagan, 234 Iowa 1001, 1007, 14 N.W.2d 638, 641-42 (1944) (Hagan's
Will); see also Fuller, 10 Ill. App. 3d at 463-64, 294 N.E.2d at
315-16 (endorsing Hagan's Will). The law looks with favor upon
charitable trusts, and liberal rules of construction will be
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applied to sustain them. First National Bank of Chicago v. King
Edward's Hospital Fund, 1 Ill. App. 2d 338, 351, 117 N.E.2d 656,
662 (1954). The court may also consider surrounding circum-
stances at the time the instrument was executed, to the extent
that they may aid in determining the testator's intention in
using certain language. Campfire Girls, 85 Ill. 2d at 514, 426
N.E.2d at 1201.
Blackman executed the trust instrument in 1961, wherein
she stated that the Home was to receive income from the trust
unless it should "cease to operate or exist." In 1973, the
Fuller court endorsed two earlier cases, one from 1954 and one
from 1944, which held that a charity did not "cease to exist" for
the purposes of receiving a bequest unless the new corporation
with which the original charitable organization had merged was no
longer suited to carry out the purposes of the bequest. Fuller,
10 Ill. App. 3d at 463-64, 294 N.E.2d at 315-16, citing King
Edward's Hospital, 1 Ill. App. 2d 352, 117 N.E.2d at 662, and
Hagan's Will, 234 Iowa at 1007-08, 14 N.W.2d at 642. The instant
case bears some similarity to both Hagan's Will and King Edward's
Hospital.
In Hagan's Will, the testator executed a trust in 1930,
the income of which was to be divided equally between two col-
leges, Drake University and Penn College, for the purpose of
providing annual scholarships. Hagan's Will, 234 Iowa at 1002,
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14 N.W.2d at 639. The trust contained a clause that stated:
"'Should either Drake University or Penn College cease to exist,
the income from said trust fund shall be turned over to the
surviving institution.'" (Emphasis in original and omitted.)
Hagan's Will, 234 Iowa at 1002, 14 N.W.2d at 639. In 1933, due
to the economic pressures of the Great Depression, Penn College
sought to organize as a new corporation, William Penn College.
Hagan's Will, 234 Iowa at 1004, 14 N.W.2d at 640. In 1934,
trustees of a mortgage owed by Penn College foreclosed on the
mortgage, and William Penn College subsequently obtained deeds to
the mortgaged property following a foreclosure sale. William
Penn College paid the mortgage debt. Hagan's Will, 234 Iowa at
1005-06, 14 N.W.2d at 641. The court found that the phrase
"cease to exist" meant "cease to exist as an educational institu-
tion." Hagan's Will, 234 Iowa at 1007, 14 N.W.2d at 642. The
court noted that Penn College did not "cease to exist" as an
educational institution merely because a different corporation
took over the legal title and business management of the college.
Hagan's Will, 234 Iowa at 1008, 14 N.W.2d at 642.
In King Edward's Hospital, the testator was born in
Britain but moved to the United States as a young man. The
testator executed a trust, the income of which was to be distrib-
uted to several charities, including several hospitals in Brit-
ain. King Edward's Hospital, 1 Ill. App. 2d at 342-44, 117
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N.E.2d at 658. Ten years after the testator's death, the British
parliament passed the National Health Service Act, which trans-
ferred control over the physical premises of Britain's hospitals
to the Minister of Health. King Edward's Hospital, 1 Ill. App.
2d at 344-45, 117 N.E.2d at 658-59. In 1949, First National Bank
of Chicago filed a complaint as trustee, seeking instructions as
to whether the nationalization of Britain's hospitals and the
socialization of Britain's medical care in general caused the
named hospital's charitable interests to lapse. King Edward's
Hospital, 1 Ill. App. 2d at 345, 117 N.E.2d at 659. The testa-
tor's heirs at law joined in the case and argued the named
hospital ceased to exist and the testator's intent of defraying
the individual hospitals' expenditures could no longer be carried
out because the British government assumed the costs of health
care. King Edward's Hospital, 1 Ill. App. 2d at 346-47, 117
N.E.2d at 659-60. The court disagreed, stating that "[i]n no
substantial sense [could] it be said that the hospitals [had]
ceased to exist," as they still functioned as hospitals. King
Edward's Hospital, 1 Ill. App. 2d at 352, 117 N.E.2d at 662. The
court reasoned that, since the testator made the gifts in perpe-
tuity, he assumed that the management or administration of the
hospitals might change. King Edward's Hospital, 1 Ill. App. 2d
at 352, 117 N.E.2d at 662. The court also stated: "'The general
intention of the testator in favor of charity will be allowed to
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prevail, even though his particular intention as to the manner of
managing the gift falls to the ground.'" King Edward's Hospital,
1 Ill. App. 2d at 351, 117 N.E.2d at 661, quoting Ingraham v.
Ingraham, 169 Ill. 432, 451, 48 N.E. 561, 566 (1897).
We interpret Blackman's use of the phrase "cease to
operate or exist" to mean that the charity is no longer suited to
carry out the general purposes of the bequest. Common law around
the time the trust was executed favored this interpretation.
When the original corporation, the Home, merged with Hudleson,
now named Kids Hope, in 2003, the new corporation guaranteed in
the merger agreement that "[the Home's] mission of working with
children in Edgar and the surrounding counties will be contin-
ued." (Emphases added.) Hence, the merger did not hinder the
surviving corporation's ability to carry out the purposes of
Blackman's original bequest. The merger cannot be said to have
caused the Home to "cease to operate or exist" as Blackman meant
those words.
In contrast, the language in Blackman's trust fails to
indicate that she meant for the phrase "cease to operate or
exist" to mean "cease to exist" as a "separate" corporate entity.
Blackman did not use the phrase "cease to operate or exist" to
denote the Home's corporate status. As such, the trial court
erred in finding that the Home "ceased to operate or exist" as a
result of the 2003 merger.
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B. Davis's Trust: Was Summary Judgment Proper on the Ground That
the Home "cease[d] to function in its present capacity"?
As noted above, Davis placed a restriction on her gift
to the Home in that the Home would no longer receive income from
the trust if it "cease[d] to function in its present capacity."
The trial court acknowledged in its written findings that "the
agreed statement of facts does not indicate exactly how [the
Home] functioned at the time the trust was executed or at the
time of the testator's death." Nevertheless, the court found
that the Home ceased to "function in its present capacity" when
the Home (1) merged with Kids Hope in 2003 and (2) subsequently
closed the building on Eads Avenue that served as the original
orphanage. Kids Hope contends the court erred in granting
summary judgment because a genuine issue of material fact still
remained as to whether Kids Hope, as the surviving corporation,
still functioned in the same capacity as the Home functioned at
the time of the trust's execution in 1968.
Summary judgment in favor of the Bank is not proper
based on the theory that the Home ceased to function in its
"present capacity" when it entered the 2003 merger. Nothing set
forth in the agreed statement of facts demonstrates that the
functioning of the charity changed at the time of the merger in
terms of the charity's mission, the type of children served, or
the manner in which the Home served these children. To the
contrary, the merger agreement stated that the new entity "guar-
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anteed that [the Home's] mission of working with children in
Edgar and the surrounding counties [would] continue[]." The
Bank's argument that the Home ceased to function in its present
capacity because it "ceased to exist" following the merger also
fails, as discussed in the first section of our analysis.
Likewise, we are not convinced that the 2006 closure of
the flagship building on Eads Avenue in and of itself means that
the Home ceased to function in its "present capacity." The
information contained in the agreed statement of facts is insuf-
ficient to secure summary judgment on this ground. At what date
did the building on Eads Avenue stop serving as a traditional
orphanage? Surely, it was not as recent as 2006 when the build-
ing closed. The agreed statement of facts indicates that the
Home stopped functioning as a traditional orphanage long before
the charitable corporations merged or the house on Eads Avenue
closed, and perhaps the transition began during Davis's lifetime.
Regardless, we cannot say as a matter of law that the closure of
the Eads building would mean that the Home ceased to function in
its "present capacity." The phrase "present capacity" is ambigu-
ous in that it is not clear how literally Davis intended the
phrase to be taken. If the new charitable corporation continued
to provide placement and educational services for the dependent
children of Edgar County and the surrounding counties, yet was
based in a different structure, would the charity still operate
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in the same capacity? The building on Eads Avenue was over 100
years old, and it seems improper to condition Davis's bequest on
the maintenance of a particular building rather than the mission
of charity that building once housed. See Trimmer, 29 Ill. App.
3d at 211-12, 330 N.E.2d at 242-43 (where bequest to original
church passed to merged church of the same affiliation, even
though the merged church had a new name and met in a new loca-
tion).
In re Estate of Beck, 272 Ill. App. 3d 31, 649 N.E.2d
1011 (1995), the case upon which the Bank relies, is distin-
guishable. Beck involved an unusual set of circumstances where
the original legatee never existed as named in the trust, and the
charity that the trial court determined to be the intended
legatee was an orphanage that closed eight years before the
testator executed the trust. Beck, 272 Ill. App. 3d at 36, 649
N.E.2d at 1015. The new corporation seeking to benefit from the
trust, a general children's charity, never merged with the
intended legatee; rather, the new corporation merely acquired the
assets of the intended legatee. Beck, 272 Ill. App. 3d at 38,
649 N.E.2d at 1016; see also Gray v. Mundelein College, 296 Ill.
App. 3d 795, 808, 695 N.E.2d 1379, 1388 (1998) (corporation that
merges with another typically takes on the original corporation's
rights and liabilities, whereas a corporation that merely pur-
chases the assets of another does not). The new charity provided
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services such as foster care, adoption, counseling for families,
and medical care for at-risk infants. Beck, 272 Ill. App. 3d at
37, 649 N.E.2d at 1015. The court stated that the new charity
did not have a "similar *** purpose and function" to that of the
original orphanage, as required in the will. Beck, 272 Ill. App.
3d at 37, 649 N.E.2d at 1015. However, the finding in Beck does
not mandate summary judgment in the instant case. Aside from the
fact that we are not bound by the Fifth District's determination
of what constitutes a "similar function," the circumstances of
Beck are different in that they involve a clear demarcation from
one organization to another and from one mode of functioning to
another, whereas the instant case involves a continuing charita-
ble entity and a gradual evolution of the charitable services
provided.
Finally, we address the intimations made by the Bank
that the parties' submission of an agreed statement of facts, and
the fact that both parties filed for summary judgment, should
somehow entitle at least one of the parties to summary judgment.
First, we note that a genuine issue of material fact exists not
only where the facts are disputed but also where reasonable minds
could draw different inferences from undisputed facts. See,
e.g., In re Estate of Ciesiolkiewicz, 243 Ill. App. 3d 506, 510,
611 N.E.2d 1278, 1282 (1993). Second, we note the possibility
that the agreed statement of facts simply does not set forth
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sufficient grounds to entitle either side to judgment as a matter
of law.
III. CONCLUSION
For the aforementioned reasons, we reverse and remand
the trial court's grant of summary judgment.
Reversed and remanded
STEIGMANN, J., concurs.
KNECHT, J., dissents.
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JUSTICE KNECHT, dissenting:
I would affirm the trial court. Hudelson was the
surviving corporation after the merger and not the Home. The
Home ceased to exist after the merger. Hudelson, as the surviv-
ing corporation, may have acquired certain rights and responsi-
bilities of the Home after the merger, but this cannot trump
Blackman's will, which stated in the event the Home should cease
to operate or exist, then the Bank as trustee was to distribute
the trust's income to other worthy charitable organizations.
Under the provisions of section 11.50(a)(2) of the Act
(805 ILCS 5/11.50(a)(2) (West 2006)), the Home ceased to exist.
It is not a question of ownership of assets or rights and prop-
erty of the Home but of the existence of the Home. It is also
apparent the Home ceased to operate. Because the Home no longer
exists or operates, the alternate distribution should apply, as
Blackman intended.
As to the Davis will, the trial court found the Home
ceased to function in its present capacity when it ceased to
exist upon its dissolution and merger and when the building
housing Edgar County children since 1900 was closed and sold.
The Davis will provided for an alternate distribution in the
event the Home ceased to function in its present capacity.
Hudelson could not function in the "present capacity"
of a nonexistent entity nor could it do so by closing and selling
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the building where the Home previously functioned as a home for
Edgar County children.
Both the Bank and Kids Hope filed for summary judgment.
Both submitted an agreed statement of facts. Both had opportu-
nity for input and approval of those facts. Both asserted to the
trial court there were no material questions of fact at issue.
Once the Bank prevailed, Kids Hope changed course. It now claims
there are more facts to present.
No additional facts are necessary. On this record, the
trial court concluded correctly both Blackwell and Davis made
their intent clear, and their intent should be honored.
The Home no longer functioned as it did when Davis made
her gift, and it no longer operated or existed as it did when
Blackwell made her gift. While reasonable minds may sometimes
draw different inferences from undisputed facts, we should not
permit our reasonable minds to alter the testators' intent.
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