Daley's Estate, In re

• Citation: 433 P.2d 296,6 Ariz.App. 443
• Decision Date: 14 November 1967
• Docket Number: No. 1,CA-CIV,1
• Parties: In the Matter of the ESTATE of Jeanette E. DALEY, sometimes known as Jeanette Estella Daley, Deceased. PALMS CLINIC AND HOSPITAL, INC., an Arizona non-profit corporation, Appellant, v. ARIZONA SOCIETY FOR CRIPPLED CHILDREN AND ADULTS, INC., et al., affecting the Valley National Bank of Arizona and Union Title Insurance & Trust Company, Appellees. 378.
• Court: Court of Appeals of Arizona

Page 296

433 P.2d 296

6 Ariz.App. 443

In the Matter of the ESTATE of Jeanette E. DALEY, sometimes known as Jeanette Estella Daley, Deceased. PALMS CLINIC AND HOSPITAL, INC., an Arizona non-profit corporation, Appellant, v. ARIZONA SOCIETY FOR CRIPPLED CHILDREN AND ADULTS, INC., et al., affecting the Valley National Bank of Arizona and Union Title Insurance & Trust Company, Appellees.

No. 1 CA-CIV 378.

Court of Appeals of Arizona.

Nov. 14, 1967.

Rehearing Denied Dec. 19, 1967.

Review Denied Feb. 15, 1968.

Gorodezky, Stuart & Diamond and Allen L. Feinstein, Phoenix, for appellant.

George D. Locke, Phoenix, for appellee, Valley National Bank.

McKesson, Renaud, Cook & Miller, by Joseph B. Miller, Phoenix, for appellee, Samuel Gompers Memorial Rehabilitation Center, Inc.

Virginia, Hash and Jerome R. Kase, Phoenix, for appellee, Girls' Ranch of Arizona, Inc.

KRUCKER, Judge.

Jeanette E. Daley, the decedent, executed her will on March 10, 1959, died on November 5, 1960, and her will was admitted to probate on December 12, 1960.

The will created two trusts: one with a corpus of $30,000 with Union Title Insurance and Trust Company of San Diego as trustee; and the second, consisting of the residuary estate, with the Valley National Bank of Phoenix as trustee.

The San Diego Trust is for a term for the lives of named relatives of the decedent plus 21 years. The net portions of income are to be given in specific amounts to the relatives, with the balance, if any, to be divided among five named charitable organizations in the following amounts:

20% To Crippled Children Society of Phoenix, Arizona;

10% To the Masonic Home for Aged Persons of California, a California corporation;

25% To the Shrine Crippled Children's Hospital, San Francisco, California;

25% To Girls' Ranch, Inc. of Arizona; and

'Twenty percent (20%) to the Palms Clinic and Hospital, an Arizona corporation, having its principle place of business at 1104 East Culver Street, Phoenix, Arizona; said funds to be used solely for the payment of expenses incident to medical research, and none of said funds to be used for the payment of a salary or salaries to the Director or for the acquisition of real property. * * *'

Sub-paragraph (c) which follows immediately the above provision states:

'Should any of the above-mentioned charities cease to exist, then the amount which said charity would have received hereunder, except for its nonexistence, shall be paid to the remaining charities in the percentage hereinabove set forth.' (Emphasis supplied.)

The document further provides that, upon the expiration of the term of the San Diego Trust, the corpus is to be distributed to these same organizations in the same proportions as they received the excess income of the trust. There is repeated the same restriction on the use of funds by Palms Clinic, and the same clause in the event any of the mentioned charities should cease to exist.

The residuary trust creates in the trustee, Valley National Bank, the duty 'to make quarterly disbursements from net income and proceeds received from the liquidation of principle from the trust estate' to the same organizations, including Palms Clinic, which are beneficiaries of the remainder interest under the San Diego Trust, with the same specifications as to use of funds by Palms Clinic and the same clause should any of the charities cease to exist.

On November 26, 1962 the Superior Court of Maricopa County entered a Decree of Partial Distribution wherein the sum of $30,000 was distributed to the trustee of the San Diego Trust. This distribution was in accordance with the provisions of the will as to income beneficiaries, principle distributees, conditions on the use of funds, and distribution in the event that beneficiaries cease to exist.

On May 27, 1963 the court approved the decree of partial distribution which distributed 80 percent of the residuary estate to the Valley National Bank as trustee of the residuary trust, to be distributed among the named charitable beneficiaries in the will, with the exception that no determination was made as to the 20 percent of the residuary estate provided for in the will to Palms Clinic.

On June 10, 1963 Samuel Gompers Memorial Rehabilitation Center (which had successfully intervened as a successor to the Maricopa County Society for Crippled Children and Adults, etc. as beneficiary under the will) and the Girls' Ranch of Arizona petitioned for distribution of the residue of the estate after final settlement. Claiming that the Palms Clinic had ceased to exist, they sought to modify the November 26, 1962 Decree of Partial Distribution to eliminate Palms Clinic as a legatee of the will and as a beneficiary in interest in the San Diego Trust and the residuary trust.

A hearing on the petition to eliminate the Palms Clinic as a beneficiary was held on June 24 and 25, 1964. At that hearing the evidence showed Palms Clinic had been since 1950, and was still classified as a charitable organization by the Internal Revenue Department. The Articles of Incorporation were filed with the Arizona Corporation Commission and a Certificate of Incorporation was issued on June 16, 1949. The objectives of Palms Clinic as stated in the Articles of Incorporation were to operate a clinic, furnish medical care, and conduct research. The corporate minute book of Palms Clinic showed that the decedent was elected a trustee of the corporation on September 8, 1949. The minutes of the annual meeting of June 5, 1950 show that decedent was elected vice-president of the corporation and a trustee. The minute book disclosed that the decedent attended the annual meetings of the corporation from 1950 through 1956 and from 1958 through 1960.

The testimony of Dr. Reed D. Shupe, President of Palms Clinic, disclosed that Palms Clinic was organized in 1949 at the suggestion of attorney George Locke, who was decedent's attorney and is involved in this proceeding as attorney for Valley National Bank, which is executor of the will and trustee of the residuary trust. Dr. Shupe's testimony further showed that the decedent was not an incorporator but became a member of the Board of Trustees and attended every annual meeting of the corporation until her death. Since 1957, Palms Clinic has had no employees, has not been listed in the City Directory since 1953, and has ceased being listed in the telephone directory; but has had a bank account, receives rent, and pays taxes and insurance on the property owned by it at 1104 East Culver Street in Phoenix. Dr. Shupe testified that Palms Clinic operates his private medical practice and receives the income from it, and that he received a salary from Palms Clinic. He further testified that as president of Palms Clinic he has been conducting a medical research program as part of the activities of Palms Clinic, generally on the subject of gamma globulin for asthma and upper respiratory illnesses of children.

Testimony of the Director of the Incorporating Division of the Arizona Corporation Commission showed that at that time Palms Clinic was 'not in good standing' because it was delinquent in paying fees required of non-profit corporations by a law enacted in 1962. (A.R.S. § 10--211, subsec. B as amended) This testimony further showed that Palms Clinic was still a corporation because a corporation is 'still in existence' until after certain things occur; i.e., a specific period of delinquency passes, the corporation upon notice does not show cause for its delinquency, and the Arizona Corporation Commission enters an order terminating the corporation. The Articles of Incorporation of Palms Clinic have not been revoked. (On August 16, 1965 the court entered a nunc pro tunc order permitting Palms Clinic to amend the findings of fact to show that the registration and report fees, and penalty for the years 1963 and 1964, were paid on September 2, 1964.)

On December 1, 1965 the court entered final amendments to the findings of fact and conclusions of law against Palms Clinic. Insofar as relevant, the findings of fact hold: that Palms Clinic was incorporated as a non-profit corporation on June 16, 1949; that Palms Clinic was not in good standing with the Arizona Corporation Commission as of the date of hearing of the petition for distribution of the residue; that as of the date of death of the decedent and as of the date of the hearing of the petition Palms Clinic was not actively engaged in any charitable pursuits; that as of the date of death of the decedent the president of Palms Clinic was practicing his profession as a private physician and Palms Clinic was performing no function whatsoever as a charitable organization; that Palms Clinic had ceased to exist as a charity before the date of death of the decedent; that Palms Clinic was not a charity as of the date of death of the decedent; and that as of the date of the hearing of the petition for distribution of the residue, Palms Clinic did not exist as a charity. Palms Clinic filed objections to the form of the judgment, which were denied, and judgment was entered on December 29, 1965 based on the court's finding of fact and conclusions of law. Palms Clinic brings an appeal from the entry of this judgment. The account of the executor filed on June 9, 1965 shows that the 20 percent of the residuary estate held originally for the account of Palms Clinic amounted, in principal and accumulated interest, to $258,277.81.

The basis for the appellant Palms Clinic's appeal is the contention that Palms Clinic is an existing corporation and that it has continued to exist and operate to the same extent and in the same manner with which decedent was personally and fully familiar at the time she executed her will designating Palms Clinic as a beneficiary. We agree with this contention. The rule is clear that the Appeals Court is not bound by the conclusions of law of the trial court. Miller v. Boeger, 1 Ariz.App. 554, 405 P.2d 573 (1965); Ali v....