Annan v. Wilmington Trust Co.

• Court: United States State Supreme Court of Delaware
• Citation: 559 A.2d 1289
• Parties: Phaedra ANNAN, Respondent Below, Appellant, v. WILMINGTON TRUST COMPANY Trustee u/a with William H. Donner dated
• Decision Date: 15 March 1932

Page 1289

559 A.2d 1289

Phaedra ANNAN, Respondent Below, Appellant, v. WILMINGTON TRUST COMPANY Trustee u/a with William H. Donner

dated March 15, 1932 Successor Trustee u/a between William

H. Donner and Montreal Trust Company dated August 6, 1940

and Trustee u/a with Dora Donner Ide dated October 28, 1940,

Petitioner Below, Appellee,

and

Stephanie Kay Watters Hanson, Michelle Dutra de Amorim and

the minor and unascertained issue of Donner

Hanson, Some of the Respondents Below, Appellees.

Supreme Court of Delaware.

Submitted: May 31, 1988.

Decided: May 2, 1989.

Rehearing Denied: May 26, 1989.

David A. Drexler (argued), and Leone L. Ciporin of Morris, Nichols, Arsht & Tunnell, Wilmington, for appellant.

Richard G. Bacon of Richards, Layton & Finger, Wilmington, for appellee Wilmington Trust Co. Roger A. Akin (argued) of Sawyer & Akin, P.A., Wilmington, Guardian ad litem for Michelle Dutra de Amorim and the unascertained issue of Donner Hanson.

Joseph H. Geoghegan, and Daniel F. Lindley of Potter, Anderson & Corroon, Wilmington; David G. Dundas of Simon, McKinsey, Miller, Zommick, Sandor & Dundas, Irvine, Cal., of counsel, for Bank of California, Guardian of the Estate of Appellee Stephanie Kay Watters Hanson.

Before CHRISTIE, C.J., MOORE and WALSH, J.

MOORE, Justice.

This appeal arises out of a Request for Instructions filed by Wilmington Trust Company in its capacity as trustee for three trusts created by the William H. Donner family. We are confronted with the question of whether the terms "issue" and "lineal descendants" were intended under the terms of the trusts to include illegitimate offspring. Wilmington Trust petitioned the Court of Chancery for a determination of whether the illegitimate children of Donner Hanson, a grandson of William Donner and a beneficiary of each of the trusts, should be treated as "issue" or "lineal descendants" under the trusts. Hanson's legitimate daughter, Phaedra Annan, filed a brief arguing that illegitimate children should be excluded. Stephanie Kay Watters Hanson, an acknowledged illegitimate child of Hanson, and Michelle Dutra de Amorim, an unacknowledged illegitimate child, each argued for their inclusion under the terms of the trust. On cross motions for summary judgment the Court of Chancery, relying on the rule of Haskell v. Wilmington Trust Co., Del.Supr., 304 A.2d 53 (1973), held that the terms "issue" and "lineal descendants" include illegitimates who can prove the paternity of Donner Hanson. We agree, and affirm.

I.

A. The Trusts

The objects of this dispute are three separate trusts, two created by William H. Donner and one created by Donner's daughter, Dora Donner Ide, at Donner's direction.

The first trust, created by Donner in 1932 (the "1932 trust") directs the trustee, Wilmington Trust Company, to pay the net cash income to Elizabeth Donner Norment, Donner's daughter, during her lifetime. Upon Norment's death three-quarters of the income is to be distributed to her "issue" per stirpes, until her last child dies or until twenty years and eleven months after the death of the last survivor of six named persons, whichever event occurs first. At that time, three-quarters of the principal is to be distributed to Norment's then living issue per stirpes. The remaining quarter is to be distributed pursuant to a special power of appointment granted to Norment, or, in the absence of the exercise of that power, it is to descend to her "lineal descendants" per stirpes.

The second trust was created in 1940 in Montreal (the "Montreal Trust"), and named Montreal Trust Company as trustee. Wilmington Trust is the successor trustee. The Montreal Trust provides that the income be paid to Norment during her lifetime and then upon her death, the trustee is directed to set aside the corpus in equal shares: a share for each then living child, and/or each deceased child with "issue". The issue of the predeceased children are to take from their single share in "equal shares par souches among such issue...." The beneficiaries are to receive income, at the trustee's discretion, until the age of 21, at which time the principal will be distributed to them.

The final trust (the "Ide Trust"), although naming Dora Donner Ide as settlor, was executed at the direction of William Donner in 1940. The Ide Trust directs the trustee, Wilmington Trust, to distribute income to the issue of William Donner, per stirpes, until the death of the last survivor of the settlor and fourteen other designated persons. At that time, the principal shall be distributed to the then living "issue" of William Donner, per stirpes.

Each of the three trusts included an exclusionary clause, which is integral to this case:

Wherever reference is made in this instrument directly or indirectly to any issue or descendants of Donor, William H. Donner, such reference shall not include any person or persons being or claiming to be a child of said Robert Donner born prior to January 8, 1924, or any such person's descendants, but such person or persons and his, her or their respective descendants, heirs, executors, administrators and assigns are hereby definitely excluded from having any right, title, interest, estate or benefit under this trust in and to the property at any time held subject thereto.

B. The Parties

Basically, the trusts are ultimately to be distributed, at least in part, to the "issue" and "lineal descendants" of William Donner, his daughter Mrs. Norment, and her then living children. Mrs. Norment died in 1980. Her one child, Donner Hanson, predeceased his mother in 1976. Donner had one child, Phaedra Annan Hanson ("Phaedra"), by his first wife. No dispute exists as to Phaedra's rights as a beneficiary under the trusts. However, there are others whose rights are not as clear.

Hanson fathered a second child by Rose Watters, to whom he was thereafter married. The child, Stephanie Kay Watters Hanson ("Stephanie"), was eventually legitimated by Hanson's stipulation to an order of a Colorado court, determining that Hanson was the father.

There is reason to suspect that Hanson may have sired other illegitimate children, but except for Stephanie he never acknowledged their paternity. Michelle Dutra de Amorim ("Michelle"), whose mother was romantically involved with Hanson nine months before her birth, also claims to be Hanson's child. See Dutra de Amorim v. Norment, Del.Supr., 460 A.2d 511 (1983). However, Hanson never married Michelle's mother, and Hanson's paternity of Michelle was never otherwise established.

C. The Dispute

On July 30, 1984 the trustee, Wilmington Trust, filed a petition for instructions, raising the question of which persons qualified as "issue" or "lineal descendants" of William Donner, Elizabeth Norment and Donner Hanson. Specifically, Wilmington Trust requested directions regarding the acknowledged and unacknowledged illegitimate children of Donner Hanson.

Three answers were filed to the petition: one by Phaedra, another by Bank of California, guardian of Stephanie's estate, and a third by a court-appointed guardian ad litem for Michelle and Hanson's other unascertained children.

Thereafter, Phaedra moved for summary judgment, alleging that she alone was entitled to take under the trusts. Stephanie moved for summary judgment, claiming that she was entitled to take as well. The guardian for Michelle and the other unascertained children also moved for summary judgment, arguing that illegitimate children should be included within the class entitled to share in the trusts.

On June 18, 1987 the Court of Chancery denied Phaedra's motion for summary judgment and granted the others. The court based its decision on the applicability of the rule of Haskell v. Wilmington Trust Co., Del.Supr., 304 A.2d 53 (1973), that absent a contrary intent expressed in the trust instrument, the laws of intestacy in effect at the time of ascertainment are controlling for purposes of defining "issue". The court held that Stephanie is "issue" entitled to share with Phaedra, and that Michelle and the others could also take as "issue" if they could legally establish Hanson's paternity.

Phaedra appeals, arguing 1) that Haskell has no application because its reasoning is flawed and it involved adopted children rather than illegitimates; and 2) that a retroactive application of Haskell unconstitutionally divests the class of legitimate issue of their property rights.

II.

In this case we review the Vice-Chancellor's decision to apply Haskell v. Wilmington Trust to this question of law. Thus, we review the record de novo. Nardo v. Nardo, Del.Supr., 209 A.2d 905 (1965).

We note first that the question of the unconstitutionality of a retroactive application of Haskell was not fairly presented to the court below. Accordingly, we decline consideration of that issue. Supreme Court Rule 8. Thus, we are left only with a determination of the meaning of "issue" or "lineal descendants" under the terms of the trusts.

III.

We begin our analysis with the seminal rule of construction in trust cases: that the settlor's intent controls the interpretation of the instrument. Dutra de Amorim v. Norment, Del.Supr., 460 A.2d 511, 514 (1983); Fiduciary Trust Company v. Fiduciary Trust Company, Del.Supr., 445 A.2d 927, 980 (1982). Such intent must be determined "by considering the language of the trust instrument, read as an entirety, in light of the circumstances surrounding its creation." Dutra De Amorim at 514. If this analysis fails to resolve the conflict, we resort to rules of construction.

Read in their entirety, the trust instruments do not indicate whether illegitimate children fall under the definition of "issue". ¹ The term is not defined in the documents. Compare Dutra de Amorim, 460 A.2d at 513. Furthermore, the circumstances surrounding the creation of the trusts do not tend to support one definition of "issue" over another.

Phaedra argues that the clause excluding the children of Robert Donner born...