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Pinzino v. Vogel





APPEAL from the Circuit Court of Tazewell County; the Hon. JAMES D. HEIPLE, Judge, presiding.


Plaintiffs appeal an order of the circuit court of Tazewell County which dismissed with prejudice their complaint for failure to state a cause of action. The question presented is whether those who take in default of the exercise of a general testamentary power of appointment are barred from redress for breaches of trust when the donee of the power has ratified any such breach. Counsel have advised us, and our own researches have fortified the proposition, that this is a question of first impression in this State. It is our opinion that such redress is available to these plaintiffs, and we reverse the trial court.

The factual situation is uncomplicated. Virgil W. Vogel died testate, leaving as his heirs his widow, Lela V. Vogel, defendant herein, and five children, Virgil J. Vogel and Paul W. Vogel, defendants herein, and Eileen J. Pinzino, Carol A. Moehle and Betty L. Hamann, plaintiffs herein. In his will the testator created a trust with two of his sons, Virgil and Paul, as trustees. Income for life from the trust was given to his widow, Lela, together with a power of appointment over the corpus. The power was exercisable only by her will and was unrestricted as to the person or persons, and as to the proportions, to whom and in which she might appoint. In default of the exercise of the power, the will directed that the trust corpus vest in the five children, equally per stirpes. The operative language in the will is as follows:

"Upon the death of my wife, Lela V. Vogel, this trust shall then and there terminate, and the trust assets remaining in said trust shall then and there vest in and be paid over, conveyed and distributed to such person or persons, or to the estate of my said wife, free of said trust, in such manner and in such proportion as my said wife may designate and appoint in and by her last will and testament referring to this power and purporting to exercise the same, said power of appointment hereby conferred on my said wife to be exercised by her exclusively and in all events. If my said wife shall fail to exercise that power of appointment, then, and in that event, said trust assets shall vest in and be paid over and distributed to my children, in equal shares per stirpes, free of the trust herein created. The trustees may rely upon an instrument admitted to probate in any jurisdiction as the last will and testament of my wife, and if they have no written notice of the existence of such a will within a period of three months after her death, the trustees may assume she died intestate."

The complaint alleges that Virgil J. Vogel controls a corporation known as Vogel's Inc., in which the trust owns 703 shares (which Virgil votes as trustee), Virgil in his own right owns 544 shares, and the plaintiffs own 141 shares each. Further allegations are that Virgil has committed breaches of trust by lending trust funds to the corporation and by extending the time for payment of those loans, all the while acting as trustee on the one hand and as chief executive officer, majority stockholder and director of the corporation on the other. Additional breaches were alleged in that Virgil operates the corporation for his personal gain, does not observe prudent business practices, does not call meetings of the board of directors and does not consult with the other directors.

Lela, the life beneficiary of the trust and the donee of the power of appointment, filed an affidavit in which she set forth that she had ratified all the actions taken by Virgil as trustee. Thereupon, the trial court dismissed the complaint with prejudice.

Defendants' principal reliance is upon a comment found in Restatement (Second) of Trusts § 216(1), comment h (1959), which interprets the law as follows:

"Consent by a beneficiary having a general power of appointment. Where a beneficiary has a general power of appointment, even though it is a power to appoint by will alone, his consent to a breach of trust precludes the persons to whom he makes an appointment from holding the trustee liable for the breach of trust. So also, even if the beneficiary who has a general power of appointment fails to exercise the power, the persons taking in default of appointment are precluded by his consent from holding the trustee liable."

In the absence of prior authority, defendants urge us to adopt this doctrine. We do so, but only in part.

Since the principle purports to apply only the general powers, it is necessary first to examine the power given in the instant case to determine its nature.

In addition to other classifications not pertinent here, powers are ordinarily categorized as either general or special. In 72 C.J.S. Powers § 6 (1951), it is said:

"[A] power is said to be general when it is exercisable in favor of any person whom the donee may select, and special, limited, or particular when it is exercisable only in favor of persons or a class of persons designated or described in the instrument creating the power."

In the past questions have arisen as to whether a power exercisable only by will is general or special. Obviously under such a power the donee would be unable to appoint to himself. Professor Simes has noted:

"On the question of whether or not a power to appoint by will only is necessarily special, the cases are not in harmony. Strictly speaking, of course, the donee cannot appoint to himself, even though he has a general power to appoint by will. But he may appoint to his estate or to his creditors. It is generally said that the mere fact that there is a condition precedent to the exercise of a power does not make it special, and that the restriction which makes a power special is one concerned with the persons who are to take under it, and not the ...

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