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First Nat. Bank of Chicago v. King Edward's Fund

OPINION FILED JANUARY 11, 1954.

THE FIRST NATIONAL BANK OF CHICAGO, NOT INDIVIDUALLY, BUT AS TRUSTEE UNDER THE LAST WILL AND TESTAMENT OF E. STANLEY HOLLAND, DECEASED, PLAINTIFF-APPELLEE,

v.

KING EDWARD'S HOSPITAL FUND FOR LONDON ET AL., DEFENDANTS-APPELLEES. ETHEL GWENDOLINE HOLLAND ET AL., DEFENDANTS-APPELLANTS.



Appeal by defendants from the Superior Court of Cook county; the Hon. SAMUEL B. EPSTEIN, Judge, presiding. Heard in the first division of this court for the first district at the April term, 1953. Decree affirmed. Opinion filed January 11, 1954. Released for publication March 8, 1954.

MR. JUSTICE BURKE DELIVERED THE OPINION OF THE COURT.

E. Stanley Holland was born in 1867 near Leominster, in Herefordshire, England. He came to the United States when he was 26 years old, became a citizen and maintained his residence in Chicago up to the time of his death. He engaged successfully in the contract construction business. He made and published his last will and testament at Chicago on April 4, 1936. He died on June 2, 1936, and left a substantial fortune. He was a member of a large family and left him surviving several brothers and sisters and nieces and nephews. He had never married. His sister, Ethel Gwendoline Holland, lived with him and had charge of and cared for his home for 23 years. Ethel was naturally the object of the first dispositive provisions of the will. The next 9 articles (7 through 15) contain gifts ranging from 500 pounds to 1,000 pounds each for his brothers and sisters and nephews and nieces. There are two small remembrances to friends (Articles 16 and 17). After these provisions are four specific charitable gifts to English charities, one of which was an immediate gift to the Cottage Hospital at Leominster, which is also a beneficiary under the residuary trust. Article 23 establishes a fund of 2,000 pounds to be known as the "E. Stanley Holland Easter Charity," a "Fund for the relief of 40 poor persons residing in the Borough of Leominster aforesaid." It sets forth detailed directions as to a board of trustees to administer the fund and for the trustees' conduct in distributing the income equally among 40 poor persons in the opinion of the trustees deserving and in need. The will then makes gifts of $1,000 each to 5 American charities and devises the residue of the estate under Article 30 to the First National Bank of Chicago as trustee.

The trust period is to be measured by the lives of 3 brothers and 4 sisters named as income beneficiaries under this article. During the trust period the income is to be distributed in stated proportions to those brothers and sisters and, in addition, to 6 nieces and nephews and 2 grandnieces. The share of income of any of these beneficiaries who may die is to be distributed to the charitable beneficiaries who are ultimately to receive the principal of Share B, hereinafter mentioned, in the same proportions as they are to receive that principal. On the death of the last brother and sister whose lives measure the trust period, the principal of the trust (after payment of one small contingent legacy) is to be divided into 2 equal parts designated Share A and Share B. Share A is thereupon distributable to the lawful descendants of a brother, 2 sisters and a nephew in various proportions, and with various gifts over, not here important, Share B at the same time is to be distributed among the following, to be held and used by them, subject to the following provisions: "One half (1/2) thereof to King Edward's Hospital Fund of London, England; One fourth (1/4) thereof to Hereford General Hospital at Hereford, England; One eighth (1/8) thereof to Leominster Cottage Hospital, at Leominster, Herefordshire, England; One Eighth (1/8) thereof to Hereford Eye and Ear Hospital, at Hereford, England. Said King Edward's Hospital Fund of London, England, said Hereford General Hospital, said Leominster Cottage Hospital, and said Hereford Eye and Ear Hospital shall each use its respective share of said Share B as an Endowment Fund and the income only thereof shall be used for the current expenditures of said respective beneficiary."

The First National Bank of Chicago, as trustee, entered upon the performance of the trust when the estate was closed in March 1938. The individual beneficiaries who were to receive certain percentage proportions of life income under the trust were, at the date of the testator's death, residents of England. One of these died in August 1936, another in November 1944, and a third in November 1946. In consequence, the trustee remitted to the 4 charitable institutions, including the 3 hospitals, shares of net income in accordance with the terms of the will. In 1946 Parliament passed the National Health Service Act, effective July 5, 1948. The Act's announced purpose was to promote the establishment in England and Wales of a comprehensive health service designed to secure improvement in the physical and mental health of the people of England and Wales and the prevention, diagnosis and treatment of illness, and for that purpose, to provide or secure the effective provision of services in accordance with the Act. The National Health Service Act did not affect the property or management of King Edward's Hospital Fund for London, hereinafter called the Fund, and none of its funds or properties, endowment or otherwise, was taken over under the Act. This corporation, following the passage of the Act, retained all its original charter powers and purposes and continued to act as a charitable corporation. Pursuant to Section 6 of the Act, the physical premises of the hospitals were transferred to the Minister of Health.

In November 1949, the trustee filed its complaint in chancery, seeking instructions whether certain charitable interests established under Article 30 of the will for the 3 hospitals and the Fund failed by reason of the nationalization of those hospitals and of medical care in general under the National Health Service Act. Following a hearing before the chancellor, he entered a decree sustaining the claims of representatives of the British Government to succeed to the gifts originally intended for the 3 hospitals which were taken over by the Government, and finding that the gift to the Fund had not failed. The decree conditioned the payment of the gifts to the British Government upon the making of an undertaking by the appropriate agencies of that Government to apply the money exclusively for the benefit of the particular hospitals named in the will in the manner directed by the will. The 3 hospitals were made defendants but entered no appearance and were defaulted. The Minister of Health, the Attorney General of England, the Birmingham Regional Hospital Board (hereinafter called the "Regional Board") and the Herefordshire Hospital Management Committee (hereinafter called the "Management Committee") were also made defendants. They entered their appearances and are represented by counsel. The Regional Board and the Management Committee are administrative bodies of the British Government, appointed under the Act to administer the hospital properties once belonging severally to, and operated independently by, the 3 hospital institutions designated in the will. The Fund, a charitable corporation formed by Act of Parliament in 1907 (after a ten-year existence as an unincorporated association) is the fourth beneficiary named in the will. It was made a party defendant, has entered its appearance and is represented by counsel. The individual defendants, who appeal, are now the living heirs-at-law of the testator, including the widow and daughter of a deceased nephew who was an heir-at-law. The heirs ask that the decree be reversed and that we find that the property which is the subject of the charitable trusts made by Article 30 of the will, be paid to them as the testator's heirs-at-law. The Attorney General of Illinois now disclaims any interest in the case.

The individual defendants' theory of the case is that since the gifts under the will were to specific institutions, for a particular purpose and cannot literally be carried out, they failed and revert to the testator's heirs, because: (a) as to the gifts to the 3 voluntary hospitals, those institutions have ceased to exist and for that and other reasons it is impossible to carry out the particular intention the donor had in mind; (b) as to the gift to the Fund, the nationalization of the voluntary hospitals under the National Health Service Act of 1946 creates a situation in which it is impossible to carry out the particular intention the donor had in mind, although the Fund, as such, continues its corporate existence. Further, that since these were specific gifts it is improper to apply any theory of cy pres or "broad construction"; that the doctrine of judicial cy pres will be applied only where it is possible to carry out the testator's assumed general purpose, and where it is possible for the court applying the doctrine to have certainty that the trusts established will be fully executed; that the assumption by the British Government of all costs of all medical service for all persons renders it completely impossible to carry out the testator's intention; and that any plan which the court might work out could not be enforced by the court, but would be subject to the future whim of the British Parliament, which has already destroyed one gift in trust made under the will.

[1-3] The ultimate issue in the case is whether as a consequence of the nationalization of the hospitals and the socialization of medicine, the gifts fail and the property reverts to the testator's heirs-at-law, the appellants herein. The law looks with favor upon charitable trusts and the courts apply liberal rules of construction to sustain them. They are liberal in adjudging a purpose charitable if there is any reasonable amount of social benefit accruing from the trust. In construing such gifts, if there are two possible methods of construction, one of which will render the gift valid and the other invalid, the courts will adopt the construction which will sustain it. Stubblefield v. Peoples Bank of Bloomington, 406 Ill. 374, 384; Village of Hinsdale v. Chicago City Missionary Society, 375 Ill. 220, 231; Webb v. Webb, 340 Ill. 407, 420; Skinner v. Northern Trust Co., 288 Ill. 229, 232. The intention must be ascertained from the words of the will itself, the purpose being to arrive at the intention as expressed by its language and not an intention which may have existed in the testator's mind apart from such language but which he failed to express. Turek v. Mahoney, 407 Ill. 476, 482; Appleton v. Rea, 389 Ill. 222, 226; Cahill v. Michael, 381 Ill. 395, 400. Upon the completion of extensive hearings the chancellor wrote a thorough opinion, based upon which a detailed decree was entered. A careful study of the record, the briefs and authorities cited satisfies us that the findings and decree of the chancellor are right.

The provisions of the Act having reference to the gifts involved in this case are sections 59 and 60. By section 59 a hospital management committee shall have power to accept, hold and administer any property upon trust for purposes relating to hospital service. Section 60 of the Act provides: "(1) Where property, other than property transferred to the Minister or to the Board of Governors of a teaching hospital, or to a Hospital Management Committee under section 6 or section 7 of this Act, is held on trust immediately before the appointed day, and the terms of the trust instrument authorize or require the trustees, whether immediately or in the future, to apply any part of the capital or income of the trust property for the purposes of any hospital to which section 6 of this Act applies, the trust instrument shall be construed as authorizing or, as the case may be, requiring the trustees to apply the trust property to the like extent and at the like times, for the purpose of making payments, whether of capital or income — (a) in the case of a hospital designated as a teaching hospital or included in a group of hospitals so designated, to the Board of Governors of that teaching hospital; (b) in the case of any other hospital, to the Regional Hospital Board for the area in which the hospital is situated or to the Hospital Management Committee for the hospital or for the group of hospitals in which it is comprised. (2) Any sums paid as aforesaid to any such Board or Committee shall, so far as practicable, be applied by them for the purposes specified in the trust instrument."

The Herefordshire Hospital functions as a hospital on the same premises as before the Act, with the same facilities and the same wards. In the large wards there is no payment and in the smaller wards some are pay beds and some amenity beds. If the patient wishes to have use of the smaller wards other than for medical reasons, there is payment. The wards bear the same plaques as they always bore. The other accommodations that were maintained prior to the Act are still maintained for substantially the same purpose. The hospital has medical officers, house surgeons and house physicians. The management of the hospital is now carried on by the Herefordshire Hospital Management Committee. The Hospital Association itself has never been dissolved due to the fact that there are certain funds not transferred to the Minister of Health which the Association has been arranging to dispose of. The physical premises have been transferred to the Ministry of Health, but there have been no changes other than a change in management. The Leominster and District Hospitals function as a hospital on the same premises as before the Act. There have been no substantial changes in the premises, with the wards remaining the same and patients in the large wards being treated free, and a private ward and amenity beds, for which a charge is made. The operating room and other accommodations are there as before the passage of the Act. The hospital is now managed by the Management Committee. The hospital has a medical and surgical staff, a consultant-surgeon and an anesthetist. The Victoria Eye Hospital still operates on the same premises under the same name, with the elimination of the word "Incorporated." There have been no changes in the premises. There is little or no payment by any patient in the large wards and in the smaller wards. The private patients pay if they can afford to do so. The same ophthalmic surgeon is at the hospital as was there immediately before the Act. The Management Committee conducts the hospital since the effective date of the Act. Many of the members of the hospital management committees were formerly members of the governing boards of the hospitals when they were private institutions. Seven of the present members of the Management Committee were members of boards of the three hospitals prior to the passage of the Act.

Each of the three hospitals was what was known in England as a voluntary hospital. They were private charitable enterprises and each was run by its own governing body which controlled the administration of the property and the functions of the hospital, including the selection and appointment of the medical staff and all other employees. Each of them had endowment funds of substantial amounts. Their income came from these endowments, from annual gifts, from payments by patients who could afford to pay and from contributory "schemes," which were a kind of voluntary insurance system somewhat similar to Blue Cross and other systems in this country. The specialists and consultants at the hospital gave their services free and any patient who could not afford to pay received his hospital care free. The voluntary hospitals had been for some 200 years the "heart of medicine" in England for the treatment of the acute sick. The Act dissolved the old governing bodies except as they might have other functions, not related to the hospitals, which they could carry on. None of the three governing boards has any powers with respect to the hospitals now being run on the premises which they formerly owned and operated, and none has attempted to exercise such power. The hospital properties are now owned by the Minister of Health and operated by the Management Committee as agent for the Regional Board in Birmingham.

[4-7] Appellants maintain that the testator's gifts under Article 30 of the will were to particular institutions and were to be used for particular purposes. The income was to be used for defraying current expenditures. Clearly, the gifts to the three hospitals are charitable gifts. Under Illinois law there can be no failure of such gifts so long as the charitable purpose embodied therein may be fulfilled. The particular mode or method of application of the gifts is not treated as controlling in the eyes of equity. Heuser v. Harris, 42 Ill. 425; Crerar v. Williams, 145 Ill. 625; Jansen v. Godair, 292 Ill. 364; Burke v. Burke, 259 Ill. 262; Webb v. Webb, 340 Ill. 407. "The general intention of the testator in favor of charity will be allowed to prevail, even though his particular intention as to the manner of managing the gift falls to the ground." Ingraham v. Ingraham, 169 Ill. 432. The efforts of the courts of this State have always been to sustain a gift for charity if it can be done, and while our courts do not assume to exercise the prerogative powers which the courts of England have at times exercised, if a trust for charity is sufficiently certain to enable the courts, in the exercise of their ordinary chancery powers, to carry out the donor's charitable intent, they will not allow the trust to fail. Heuser v. Harris, 42 Ill. 425; Kemmerer v. Kemmerer, 233 Ill. 327.

[8-11] In this State the test of failure of the charitable gift involves the question of whether the charitable purpose embodied in the gift can be fulfilled. We agree with the chancellor that the testator's charitable purpose embodied in his gift to the three hospitals can be fulfilled. As the cases indicate, the rule with respect to charitable gifts is somewhat different than with respect to noncharitable gifts. The courts will make every effort to sustain a charitable gift, and changes in the mode of administration or management of the gift are not treated as controlling. Appellants call attention to the fact that during the lifetime of the testator the hospitals were administered and managed by a private board of managers and today they are administered and managed by the Herefordshire Management Committee under the Act. The important question is not who manages the hospitals but are they still functioning as hospitals, serving substantially the same people and furnishing the same hospital service and whether the funds will be applied for the benefit of the hospitals as desired by the testator. Under Illinois law doubts will be resolved in favor of upholding the gifts.

We find that the testator's charitable purpose embodied in his gifts to the three hospitals can be fulfilled. The three hospitals continue to function as hospitals in the same premises, with the same facilities and serving the same people as they did prior to the effective date of the Act. In no substantial sense can it be said that the hospitals have ceased to exist. They continue to exist and function as hospitals as they always did. It is only the method of administration or management that has been altered or changed. Mr. Holland did not make the gifts to the board of managers of the hospitals or to any particular entity or administration, nor with any limitation that their use was conditioned upon any particular form of administration. The gifts were absolute and not upon any condition precedent or subsequent and without any gift over under any circumstances. The only qualification imposed by law would be that the income be used for the purposes of the hospital with respect to the principal of the trust fund. He specified only that the hospitals should use their respective shares as an endowment fund and that the income be used for the current expenditures of the respective beneficiaries. He left entirely unconditioned the matter of who was to apply the income or in what manner, other than it be expended on a current basis. Since he made these gifts in perpetuity, he must have assumed that the management or administration might change. He did not designate them as voluntary hospitals, or hospitals run by any particular board of managers, or in any particular fashion. He made the gifts to the hospitals by the names by which they were known in the area in which they were located. Section 60 of the Act provides, in substance, that property of a type herein involved shall be applied by the board or committee, so far as practicable, for the purposes specified in the trust instrument. The record shows that the gifts will be applied for the benefit of the three hospitals as desired by the testator.

The regulations promulgated under the Act establish that funds coming to the Management Committees under section 60 are to be accounted for and handled separately, and there are frequent admonitions in those regulations that they are trust funds and are to be applied in accordance with the terms of the trust instrument. The Act itself provides that any sums paid under section 60 to a board or committee shall, so far as practicable, be applied for the purposes specified in the trust instrument. It appears that the words "so far as practicable" were inserted in section 60 with the thought that being a statute of very wide application there might be gifts made attaching conditions to the use of property that it might not be possible to fulfill. In the instant case there are no such conditions. The testimony and the exhibits establish that the gifts will be applied to the benefit of the three hospitals in the manner desired by the testator. The Herefordshire Hospital Management Committee has filed an undertaking which is attached to the decree, stating unequivocally that monies received by the Committee will be applied for the benefit of the three hospitals in the manner specified in the will and the decree, and further providing that the principal of the Fund, when the same is distributed, will be maintained and the income only applied, as specified in the will and the decree. The fact that under the decree the ...


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