Dreyfus v. First National Bank of Chicago, 17474.

• Decision Date: 14 May 1970
• Docket Number: No. 17474.,17474.
• Citation: 424 F.2d 1171
• Parties: Phyllis S. DREYFUS and Diane E. Dreyfus, Plaintiffs-Appellants, v. The FIRST NATIONAL BANK OF CHICAGO, as Trustee of the Philip S. Dreyfus Trust created under the Will of Moise Dreyfus, Deceased, of August 1, 1935, and known as Trust No. 33705, The First National Bank of Chicago, as Trustee of the Philip S. Dreyfus Trust dated August 5, 1935 and known as Trust No. 33703, and The First National Bank of Chicago, as Trustee of the Carolyn S. Dreyfus Trust, dated December 29, 1937, and known as Trust No. 33704, and Michael Reese Hospital and Medical Center, a Not-for-Profit Corporation, Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

424 F.2d 1171 (1970)

Phyllis S. DREYFUS and Diane E. Dreyfus, Plaintiffs-Appellants, v. The FIRST NATIONAL BANK OF CHICAGO, as Trustee of the Philip S. Dreyfus Trust created under the Will of Moise Dreyfus, Deceased, of August 1, 1935, and known as Trust No. 33705, The First National Bank of Chicago, as Trustee of the Philip S. Dreyfus Trust dated August 5, 1935 and known as Trust No. 33703, and The First National Bank of Chicago, as Trustee of the Carolyn S. Dreyfus Trust, dated December 29, 1937, and known as Trust No. 33704, and Michael Reese Hospital and Medical Center, a Not-for-Profit Corporation, Defendants-Appellees.

No. 17474.

United States Court of Appeals, Seventh Circuit.

April 27, 1970.

As Corrected on Denial of Rehearing May 14, 1970.

Samuel M. Lanoff, John A. Cook, Chicago, Ill., for plaintiffs-appellants.

George V. Bobrinskoy, Jr., Burton E. Glazov, Chicago, Ill., for defendants-appellees; Mayer, Friedlich, Spiess, Tierney, Brown & Platt, Chicago, Ill., of counsel.

Before KNOCH, Senior Circuit Judge, and CUMMINGS and KERNER, Circuit Judges.

KNOCH, Senior Circuit Judge.

The plaintiffs-appellants, Phyllis S. Dreyfus and Diane E. Dreyfus, filed their Complaint in the United States District Court claiming the principal of the three trusts here involved, under the Will of their late father Philip Dreyfus who died January 19, 1961.

The defendant-appellee, The First National Bank of Chicago, was trustee under Trusts numbered 33703, 33704 and 33705. The principal has been distributed to the defendant-appellee Michael Reese Hospital and Medical Center.

Trust 33703 was created by the father of the plaintiffs, Philip Dreyfus, as donor, on August 5, 1935, as a trust for the benefit of himself and his descendants. On October 25, 1955, Philip and his wife Dorris Roberts Dreyfus were divorced. Plaintiffs allege in their Complaint that the proceedings were attended with bitterness between the parties. The plaintiffs were then twelve and nine years of age. On March 3, 1959, Philip Dreyfus, their father, amended Trust 33703 to provide for payment of $200 per month for the use and benefit of his daughters. These payments were made until his death on January 19, 1961.

Trust 33704 was also an irrevocable trust set up by Carolyn Dreyfus, Philip's mother, on December 29, 1937, for the benefit of Philip and his descendants.

Trust 33705 was a testamentary trust established under the Will, dated August 1, 1935, of Moise Dreyfus, father of Philip and grandfather of the plaintiffs.

Basically all three trust instruments provide that following the death of Philip the principal is to be distributed as he shall appoint by will and, in default of appointment, to his then living issue.

Philip's Will is dated November 10, 1958. The Divorce Decree and a subsequent Order were exhibits in other proceedings, portions of which were included in the Appendix to this appeal. These documents indicate that at the date of the Will the plaintiffs, then minor children of fifteen and twelve years were residing with their mother in California contrary to the provisions of the Divorce Decree which awarded custody to their father.

The pertinent portions of Philip's Will appear in the Complaint as follows:

First: I direct that all of my just debts and funeral expenses be paid as soon after my death as conveniently may be.

Second: I give and bequeath all of my clothes, jewelry, personal effects and automobiles and accessories which I may own at the date of my death, share and share alike to such of my nephew Martin Raymond Rosenthal, and my niece, Louise Dorothy Rosenthal, as shall survive me.

Third: Having in mind the children of my former marriage, and intending to limit my testamentary provision for them to that stated in this paragraph, I do give and bequeath the sum of One Thousand Dollars ($1,000.00) to my daughter, Phyllis S. Dreyfus, if she shall survive me, and I do give and bequeath the sum of One Thousand Dollars ($1,000.00) to my daughter, Diane E. Dreyfus, if she shall survive me.

Fourth: All the rest, residue and remainder of my estate remaining after carrying out the foregoing provisions of this, my Last Will and Testament, of every kind, nature and sort whatsoever, real and personal, legal and equitable, and wheresoever situated, which I may own, possess, hold, be seized of or entitled to at the date of my death, together with the rents, income, profits, interest and increment thereof and which may arise or accrue therefrom, and including lapsed bequests, and including, without limitation, all properties over which I may have a power of appointment (and I do expressly intend hereby to exercise all powers of appointment which I may have at the time of my death), after deducting therefrom claims, administration expenses (including Executor\'s and Attorneys\' fees) and all taxes whatever, I give, devise and bequeath unto Michael Reese Hospital of Chicago, an Illinois corporation not for profit, having its principal office in Chicago, Illinois, to be used by it for research purposes; and I do express my desire that Michael Reese Hospital of Chicago shall use my said bequest, to the maximum extent deemed proper by it, for the payment of salaries and other compensations to persons employed by it in the pursuit of medical research.

Count I of the Complaint is based on the theory that the wording in the Fourth article of the Will:

All the rest, residue and remainder of my estate remaining after carrying out the foregoing provisions of this, my Last Will and Testament. * * * (emphasis added)

provides a condition precedent to the exercise of the power of appointment. The Complaint asserts that the bequest of $1000 to each of the plaintiffs is one of those foregoing provisions and that it cannot be carried out because, apart from the corpus of the trusts, Philip's estate is now insolvent, a fact which plaintiffs did not learn until they received a letter to that effect, dated May 27, 1968, from The First National Bank.

Thus plaintiffs argue that the monetary legacies cannot be paid, the "foregoing provisions" cannot be carried out, and no property passes under the Fourth article of the Will; there is a default of appointment for each of the trusts and the principal passes to Philip's lawful surviving issue.

This result, as the District Judge held, would be contrary to the manifest intent of the testator set out in the Third article of his Will expressly limiting testamentary provision for plaintiffs to $2000.

To act on plaintiffs' theory would require the Court to accept plaintiffs' rather strained interpretation of the Executor's Inventory in the Probate Court proceedings, an exhibit in the District Court case, which shows Trust 33703 as an asset. Plaintiffs argue that the trusts cannot pay their bequests nor can the Probate Court authorize such payment because legacies are not claims, taxes or administrative expenses, and the trusts (and the claim scheduled in the inventory) refer only to an agreement to pay claims, taxes and administrative expenses. However, the record includes an affidavit of the Director of Michael Reese indicating that in accepting the principal of Trust 33703, Michael Reese agreed to pay claims, debts and expenses arising out of Philip's probate estate to the extent that the trust would have been obligated but specifically stating that:

In keeping with the foregoing Michael Reese

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