Cleveland Clinic Foundation v. Humphrys

• Decision Date: 02 July 1938
• Docket Number: No. 7694.,7694.
• Citation: 121 ALR 163,97 F.2d 849
• Parties: CLEVELAND CLINIC FOUNDATION et al. v. HUMPHRYS et al.
• Court: U.S. Court of Appeals — Sixth Circuit

121 ALR 163, 97 F.2d 849 (1938)

CLEVELAND CLINIC FOUNDATION et al. v. HUMPHRYS et al.

No. 7694.

Circuit Court of Appeals, Sixth Circuit.

July 2, 1938.

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John D. Fackler, Howard F. Burns, and John Adams, all of Cleveland, Ohio (Newton D. Baker, Howard F. Burns, Baker, Hostetler, Sidlo & Patterson, John D. Fackler, Trafton M. Dye, and Fackler & Dye, all of Cleveland, Ohio, on the brief), for appellants.

Thomas B. Gilchrist and Edward Abbe Niles, both of New York City (Day, Young & Veach, of Cleveland, Ohio, Cadwalader, Wickersham & Taft and Thomas B. Gilchrist, all of New York City, Luther Day, and George B. Young, both of Cleveland, Ohio, and Edward A. Niles and Arthur H. Barker, both of New York City, on the brief), for appellees.

Before HICKS, SIMONS, and HAMILTON, Circuit Judges.

HAMILTON, Circuit Judge.

Appellants and appellee, the Central National Bank of Cleveland, Trustee, were defendants below and appellee, Ethel Tod Humphrys, was plaintiff, and they will thus be referred to in this opinion.

This controversy relates to an equitable claim of the plaintiff against a trust created by her for the benefit of her daughter, Sarah Tod McBride and to the ownership and control of income arising from a trust created by the will of J. H. McBride, life-long resident of Cleveland, Ohio, who died August 2, 1913. He executed his will in 1910 and at that time had four living children. A son, Herbert McBride, had died in 1907, leaving the plaintiff, his widow, and two infant daughters, Sarah Tod McBride and Elizabeth McBride. The elder McBride, by his will, divided his residuary estate into five equal parts, giving to each of his four living children one part and leaving the other in trust to his grand-children, the daughters of Herbert.

The clause of his will establishing the trust is as follows:

"Item III: I hereby direct that the rest and residue of my estate, real, personal and mixed, be divided into five equal parts, and I give, devise and bequeath those equal parts to my beloved children as follows, to-wit:

"One of said equal parts to Grace E. Crile;

"One of said equal parts to Malcolm Lee McBride;

"One of said equal parts to Edith L. Sherman;

"One of said equal parts to Donald McBride, and their heirs, and the remaining equal part to Malcolm Lee McBride, Donald McBride and George W. Crile, for my beloved granddaughters, Sarah Tod McBride and Elizabeth McBride, the daughters of my deceased son, Herbert McBride, in trust, nevertheless, upon the following terms and conditions, to-wit:

"1st. Said share shall be held for the equal benefit of my said granddaughters until they shall respectively arrive at the age of twenty-five (25) years, and when the first of said granddaughters so arrives at the age of twenty-five years, the then existing trust estate shall be divided into two equal parts, and one part thereof, with all accumulations thereon, transferred to said granddaughter, and the remaining part held until said other granddaughter arrives at the age of twenty-five years, when said remaining part, with all accumulations thereon, shall be transferred to her. Until my said granddaughters shall so arrive at the age of twenty-five years, such portion or all of the net annual income derived from said trust estate as their mother, Ethel Tod McBride, desires, shall be paid to her to be expended by her according to her own judgment; and in the event of her decease prior to the termination of said trust estate, I hereby authorize and empower my said Trustees, and their successors, in their discretion, to expend for the maintenance and education of my said granddaughters, or either of them, any portion or all of said net annual income; and if, in any year, any portion of said net annual income be not paid to the said Ethel Tod McBride or expended by my said Trustees or their successors as hereinbefore provided, such portion thereof shall, each year, be added to and become part of the principal of said trust estate.

"2nd. In the event of the decease of either of said granddaughters without issue, the survivor thereof shall be entitled to all of said net annual income, and upon the arrival of said survivor at the age of twenty-five years, the then existing entire trust estate shall be transferred to said survivor.

"3rd. The issue of a deceased granddaughter shall be entitled to the share of said decedent, which said share shall be transferred to the legal representatives of said issue at the time said decedent would have been entitled to the same; and while said share is so held in trust, the income therefrom may be paid, in the discretion of my said Trustees and their successors, for the maintenance and education of said issue, as provided by the terms hereof for said decedent.

"4th. In the event of the death of both of said granddaughters without issue and before arriving at the age of twenty-five years, I hereby direct that said trust estate shall be terminated and distributed, share and share alike, to my children, Grace E. Crile, Malcolm Lee McBride, Edith L. Sherman and Donald McBride, and their heirs."

The trustees named in the will qualified and served until the death of Donald McBride, who was succeeded by appellee, Central National Bank of Cleveland.

Elizabeth McBride died at the age of fifteen, and when Sarah Tod McBride reached her twenty-fifth birthday the corpus of the McBride trust was conveyed to her and that trust terminated.

At the time the testator made his will, he knew the plaintiff had an annual income sufficient to maintain herself and her children luxuriously and her income continued throughout the period of the trust. Shortly after his death, plaintiff established a comfortable home for herself and daughters in New York and thereafter maintained and educated them in the manner and according to the standards to which they had been accustomed, using her own income.

On February 15, 1916, the contingent remaindermen, under the trust, transferred all of their present or future interest in its accumulated income to the plaintiff and in April, 1916, she made formal demand upon the trustees for payment to her of its annual income. On May 5, 1916, the trustees appointed the Superior Savings Bank & Trust Company, hereafter called the Bank, predecessor of the defendant, the Central Union National Bank, their agent for safekeeping and administration of the trust. It was directed by the trustees to pay to the plaintiff all the income until otherwise notified in writing by them. On May 9, 1916, the Bank advised the plaintiff of the agency agreement and that it had transferred all the income accruing to the estate from October 25, 1915, to May 1, 1916, to an account separate from the estate and called it "The Ethel Tod McBride Trust" and on May 24, 1916, this agreement was ratified and approved by the plaintiff but was modified by her in December, 1916 and March, 1918.

On June 30, 1920, plaintiff converted the agency agreement into a formal trust and in its preamble referred to the following facts:

1. The death of her daughter, Elizabeth, April 2, 1920.

2. That she (plaintiff) was authorized to expend all or any part of the net annual income derived from the McBride trust as she chose.

3. That instead of expending the income as authorized under the McBride trust, she had expended her own funds for the education and support of her daughters and had caused the income arising from the trust to accumulate in a separate account known as the "Ethel Tod McBride Trust."

4. That she proposed to continue the expenditure of her funds for the education and support of her daughter, Sarah, and to permit the income from the J. H. McBride trust to accumulate as it had theretofore.

In the sixth paragraph she named the beneficiaries and stated the life and termination of the trust, which reads as follows:

"The said Ethel Tod McBride Trust shall continue as long as both First Party and the said Sarah Tod McBride shall live. Upon the death of First Party, Second Party shall transfer, convey and deliver to the said Sarah Tod McBride all of the securities and uninvested funds and other assets then in its hands as part of the said Trust, provided the said Sarah Tod McBride shall at that time have reached the age of thirty years, otherwise the Trust shall continue and Second Party shall transfer, convey and deliver as aforesaid to the said Sarah Tod McBride upon her arriving at the age of thirty years. If said Sarah Tod McBride should die before arriving at the age of thirty years, and leave a will disposing of the property embraced in said Trust, Second Party shall thereupon transfer, convey and deliver as aforesaid to her executor or administrator, for distribution in accordance with such will; but if said Sarah Tod McBride should die before arriving at the age of thirty years intestate as to the property embraced in said Trust, or as to some part thereof, Second Party shall thereupon transfer, convey and deliver the property embraced in said Trust, or such part thereof as to which she may die intestate, to her issue, if she leave issue surviving, and if she leave no issue, then to the legal representatives of the First Party hereto. Upon the death of the said Sarah Tod McBride leaving First Party surviving, Second Party shall transfer, convey and deliver to First Party all of the securities and uninvested funds and other assets then in its hands as part of the said Trust; and in either case this agreement and the Trust hereby created, shall thereupon cease and determine."

Early in 1924, Sarah, who was afflicted with an incurable and aggressive disease, went to Cleveland and became a patient in the hospital of the defendant, The Cleveland Foundation, which was managed by George W. Crile, one of the trustees of the McBride trust, and a son-in-law of J.H. McBride. Sarah remained in Cleveland, or its vicinity, until her death, except for a few brief...