Court Opinion

ID: 3143041
Source: CourtListenerOpinion
Date Created: 2015-10-22 17:57:49.932772+00
Date Added: 2024-06-11T15:05:50.543207
License: Public Domain

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-

                               - 2 -
          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

                                 - 9 -
(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

                              - 10 -
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:

                              - 11 -
                "(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

                                - 12 -
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,

                               - 13 -
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

                              - 14 -
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

                              - 15 -
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.

                               - 16 -
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-

                              - 17 -
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

                               - 18 -
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

                               - 19 -
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

                                - 20 -
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.

                             - 21 -
          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

                             - 22 -
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.

                              - 23 -