In re Erie Tr. Co. - 326 Pa. 198, 191 A. 613 (1937)

Rule:

Not only can a cestui que trust trace a cash asset of the trust into a fund in which it has become commingled with moneys of the trustee, but, where the latter has made withdrawals from the mixed account, the presumption is that the money thus withdrawn was his own, and the cestui que trust can claim that the balance represents the trust property. The beneficiary is entitled to the lowest balance to which the commingled fund at any time becomes depleted, such minimal residue being considered sufficiently identified as constituting the trust fund.

Facts:

In the Estate of W. W. Gingrich, deceased, the Orphans' Court of Erie County filed an adjudication surcharging Erie Trust Company, the executor, in the sum of $29,540, representing trust funds expended by the company for the purchase of its own stock, and in the additional sum of $25,819.80, representing cash taken from the estate by the company as commissions, to which, as the court held, it was not entitled. Erie Trust Company having become insolvent, and the Secretary of Banking having taken possession as receiver, the beneficiaries of the Gingrich Estate sought priority in distribution for the amount of this surcharge. The Court of Common Pleas denied their right to a preference over general creditors. On the present appeal from that decision they have abandoned their claim concerning the $29,540, and it is only their contention in regard to the $25,819.80 item that is presented to this court for consideration.

Issue:

Was the denial for a right of preference proper?

Answer:

No.

Conclusion:

On review of the denial for a right of preference, the court reversed. The court found that claims for trust property must be recognized above all others if the trust res could be identified. The court held that the deposits of appellee trustee company in other banks were to be considered, together with the cash on hand and the cash items, as constituting a single fund, sufficiently differentiated from the company's general assets to meet the requirements of the law in regard to the tracing of trust property. The court determined, therefore, that even though the beneficiaries failed to trace the money from the estate into any particular fund or bank deposit, they were entitled to the lowest level of the cash and cash items, and funds of the company on deposit in other banks, reached between the time when the conversion occurred and when the secretary of banking took possession of the assets of the company. The court also determined that investments made by the company, after the time of the conversion, from funds on deposit in other banks, were also subject to the claim of the beneficiaries.