Cleveland Trust Co. v. Wilmington Trust Co.

• Decision Date: 10 September 1969
• Citation: 258 A.2d 58
• Parties: The CLEVELAND TRUST COMPANY, an Ohio Corporation, Successor Trustee of and Under Certain Trusts Created by George Gund, Plaintiff Below, Appellant, v. WILMINGTON TRUST COMPANY, a Delaware Corporation, Defendant Below, Appellee.
• Court: Supreme Court of Delaware

Page 58

258 A.2d 58

The CLEVELAND TRUST COMPANY, an Ohio Corporation, Successor

Trustee of and Under Certain Trusts Created by

George Gund, Plaintiff Below, Appellant, v. WILMINGTON TRUST COMPANY, a Delaware Corporation, Defendant

Below, Appellee.

Supreme Court of Delaware.

Sept. 10, 1969.

H. Albert Young and Bruce M. Stargatt, of Young, Conaway, Stargatt & Taylor, Wilmington, for plaintiff below, appellant.

Robert H. Richards, Jr., and E. Norman Veasey, of Richards, Layton & Finger, Wilmington, for defendant below, appellee.

CAREY and HERRMANN, JJ., and CHRISTIE, Judge, sitting.

HERRMANN, Justice.

This appeal requires us to decide whether, under the trust agreements here involved, the trustee is entitled to fees on principal upon transfer of the res to a successor trustee; and if so, the amount thereof.

I.

The trust provision in controversy provides that the trustee is entitled to: 'A fee upon principal of 1% Of the fair market value at the time distributed or transferred.'

The plaintiff The Cleveland Trust Company contends that the words 'distributed or transferred' relate to distributions or transfers to trust beneficiaries only; that, therefore, the defendant Wilmington Trust Company is not entitled under this provision to a fee on principal upon the transfer of the res to The Cleveland Trust Company as successor trustee. Wilmington Trust, on the other hand, contends that the provision entitles the trustee to the specified fee on principal when the res is either 'distributed' to beneficiaries or 'transferred' to a successor trustee.

We agree with the Chancery Court that the provision is reasonably susceptible to either meaning; and because of the ambiguity, parol evidence as to 'pertinent explanatory circumstances' may be considered to resolve the uncertainty and ascertain the intent of the parties. DuPont v. Wilmington Trust Co., 29 Del.Ch. 7, 45 A.2d 510 (1946).

Our scope of review in a case of this kind covers both facts and law. The determination of the Chancery Court as to the intent of the parties is reviewable to the extent of ascertaining whether that Court was clearly wrong in its finding, with due regard for its opportunity to adjudge the credibility of witnesses. Lank v. Steiner, Del., 224 A.2d 242 (1966). To this end, we are obliged to review certain of the facts at length.

II.

The dispositive facts are undisputed:

The Pre-Agreement Developments:

In 1929, George Gund, being a resident of Ohio and an officer of The Cleveland Trust Company, established a revocable trust with Wilmington Trust, the sole purpose of which was to transfer legal title of certain stock out of Ohio and into Delaware in order to avoid possible Ohio taxes. The function of Wilmington Trust was to provide safekeeping for the stock, hold title, and collect and transmit dividends as Gund directed. For these services, a trustee's fee was established on the basis of $1,000 per year 'for the period during which the trust has actually been in existence.' In 1935, the trust was revoked by Gund. At his insistence, the fee was computed and paid on a per diem basis for the part of the year 1935 during which the trust existed.

In the interim, during 1931, there had been an exchange of correspondence between Gund and Wilmington Trust as to trustee's fees in the event Gund made the trust irrevocable. Wilmington Trust informed Gund on that occasion that its usual fee for handling irrevocable trusts of over $100,000 was an annual charge of 3% Of income and 'a distribution fee upon the final termination of the trust' of 1% Of principal. In a later letter, responding to Gund's suggestion that the fee arrangement on an irrevocable trust be the same $1,000 per year arrangement as he had for the revocable trust, Wilmington Trust stated: 'Our regular rate is three percent of income and one percent of principal upon final distribution at the end of the trust'; but that these rates were 'subject to modification' and 'could be substantially reduced.' Nothing came of these negotiations and, as has been stated, Gund terminated the 1929 revocable trust in 1935.

In 1940, Gund again evidenced interest in creating irrevocable trusts with Wilmington Trust. These plans also had tax purposes: tax laws required that trust assets be removed completely from the ownership and control of the settlor in order to exclude the income from the settlor's income taxes and the principal from his gross estate upon death. Moreover, Gund was interested in Delaware trusts because he considered beneficial the apposite rule against perpetuities and the Delaware rule pertaining to retention by the settlor of voting control of stock made part of the res.

A letter of June 20, 1940 from Gund to Wilmington Trust was the first of a series of important communications. It outlined the kind of irrevocable trust Gund was considering and concluded: 'Please also state your basis of charges on irrevocable trusts.' In its response dated June 22, 1940, Wilmington Trust stated:

'As to our basis of compensation, it is our practice these days to have written into our trusts a general fee clause, reading somewhat as follows:

'Trustee shall be entitled to receive, as compensation for its services hereunder, an annual commission upon the gross income of the trust fund and a fee upon distribution of a part or all of the trust fund at the usual rates charged for trusts of a similar character; and in case of any extraordinary services performed by it hereunder Trustee shall be entitled to receive a reasonable compensation therefor.

'The above clause, as you surmise, gives the Trustee the opportunity to keep fees in line with those being charged on new business, which is a reasonable protection to both Trustee and the beneficiaries. Particularly would such a clause be in order in a long-term trust such as you are contemplating. In this connection I am enclosing herewith a schedule now in force in this community covering fees for 'living trusts', which would be the basis for our compensation until such time as the local schedule might be changed.'

The printed schedule of fees thus forwarded to Gund contained a preamble stating that the trust institutions of Wilmington had agreed upon that schedule of fees 'as a guide in fixing their compensation as trustee under living trusts and life insurance trusts'; that the rates specified were intended 'to be minimum rates contemplating normal services only, and intended to be applied impartially and uniformly to all customers alike.' The schedule for 'Living Trusts' first set forth the rates of 'Annual Commission on Income Received', ranging on a graduated scale from 2% To 5%. It then set forth the graduated rates of 'Commission on Principal', culminating in the rate pertinent here of '1% On all over $1,000,000.' Immediately under that specification was the following statement:

'Commission on principal is to be taken on the fair value of all trust principal when withdrawn or distributed or transferred to a successor trustee * * *.'

The following appeared immediately thereafter: ¹

'Exception 1. SHORT TERM TRUSTEESHIP. If withdrawal or distribution or transfer of trust principal to a successor trustee takes place within three years, the commission on the principal involved shall be three tenths of the commission at the scheduled rates, and thereafter one tenth additional for each year up to the tenth year, after which the scheduled rates shall be charged.'

Apparently, there was no further communication after June 22 until Gund's letter of December 19, 1940 to Wilmington Trust stating that he was thinking of an irrevocable trust of certain stock for his four children. Gund stated that there would be only one income check of over $650,000. each year; and as to trustee's compensation he asked for 'a favorable basis say 1 1/2% And 1% For final distribution.' This inquiry was answered in a telephone conversation on December 21, in which Gund was informed by Walter J. Laird, vice president and trust officer, ² that as to the trustee's fee on income, Wilmington Trust would accept a minimum of 1 1/2% For one trust or 1 3/4% For each of four trusts. There apparently was no reference in this reply to Gund's request for a fee arrangement of '1% For final distribution', and up to this stage of the discussions, there was no suggestion of any special provision for removal of the trustee and transfer of the trust property to a successor trustee.

On December 26, Wilmington Trust received Gund's letter of December 23, enclosing a draft of trust agreement prepared by his attorney and stating that he had just about decided on four separate trusts for each of his children. No copy of the draft was preserved; but it appears that this draft presented for the first time the idea of expressly providing for the possible removal of the trustee and transfer of the trust assets to The Cleveland Trust Company as successor trustee, at the option of the children and grandchildren of Gund.

By letter dated December 27, Wilmington Trust confirmed a telephone conversation between Laird and Gund of that date stating that, while it had a series of specified suggestions for improvement of the draft agreement, it was in general accord with the draft 'except for the compensation clause'; that a tentative understanding had been reached in the telephone conversation regarding 'a fee clause showing a top commission on income of 2 1/2% And a minimum commission on income of 1 3/4%;' that a suggested compensation clause was enclosed with the letter. The first subsection of the clause thus transmitted provided a schedule of fees on gross income, ranging from 1 3/4% To 2 1/2% Based upon the fair market value of the principal of the fund on the anniversary date of the trust when the commission is charged; and in the second subsection of the proposed clause, the following appeared:

'(b) A fee upon principal of 1% Of the fair market value at the time distributed or transferred.'

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