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LERCH ESTATE. (03/22/60)

March 22, 1960

LERCH ESTATE.


Appeal, No. 12, Jan. T., 1959, from decree of Orphans' Court of Berks County, File No. 21311, in re estate of Joseph S.Lerch, deceased. Decree modified.

COUNSEL

John W. Dry, with him T. Ewing Montgomery, and DeLong, Dry and Binder, for appellant.

George B. Balmer, with him Raymond C. Schlegel, Robert Morgan Smith, and Snyder, Balmer & Kershner, for appellee.

Before Jones, C.j., Bell, Musmanno, Jones, Cohen, Bok and McBRIDE, JJ.

Author: Jones

[ 399 Pa. Page 61]

OPINION BY MR. JUSTICE BENJAMIN R. JONES.

This is an appeal from the refusal of the Orphans' Court of Berks County to surcharge Berks County Trust Company of Reading (herein called Trust Company) for alleged negligence in its administration of a trust estate created by the will of Joseph S. Lerch, deceased.

Joseph S. Lerch died on January 8, 1935. Under his will he created a trust of his residuary estate under which trust the net income was to be paid to Daisy B. Lerch, his widow, during her lifetime, and, upon her death, the balance of his estate was to be divided into four (4) equal parts; (a) to each of his two sons, Edward

[ 399 Pa. Page 62]

J. Lerch and Robert D. Lerch, if living, he gave one part; (b) to each of his two daughters, Mary E. Lerch and the appellant, Dorothy M. Brumbach, he gave one part to be held in trust to pay each daughter the net income therefrom and, upon the daughter's death, the principal of such one part was to be distributed to Lerch's "remaining children, share and share alike, absolutely". The Trust Company was named the sole trustee and authorized, inter alia: "to hold and retain any securities or investments owned by [Lerch] at the time of [his] decease, or to sell at public or private sale such securities or investments from time to time, at its discretion and to make reinvestment of the proceeds of any sale or sales thereof" in a prescribed manner.

The Trust Company, as trustee, received and retained 300 shares of the voting common stock (42.9% of the common stock) of the Laurel Hosiery Company, 122 1/2 shares of the voting first preferred stock (63.30% of the first preferred stock) of said company and 187 1/2 shares of the nonvoting second preferred stock (18.7% of the second preferred stock) of said company, which shares represented 47.3% of the voting control of said company.

John F. Cooney, the Trust Company's trust officer from 1935 to 1955, was a director of Laurel Hosiery Company and its secretary from 1945 to June 24, 1955. From 1950 until June 24, 1955, Cooney held a proxy for 7.9% of the voting stock of the Laurel Hosiery Company in addition to representing that portion - 47.3% - of the voting stock in said company held by the Trust Company. The 71 shares of preferred stock of said company for which Cooney held this proxy were not held by the Trust Company.

The Laurel Hosiery Company was indebted to the commercial department of the trustee in the amount of $222,000.

[ 399 Pa. Page 63]

Edward J. Lerch, one of the decedent's four children, in addition to being a large stockholder in Laurel Hosiery Company, had been for many years its President and General Manager. Under an agreement executed on July 27, 1948 and later revised the Laurel Hosiery Company paid Edward J. Lerch $33,839.29 for hosiery which was produced at the expense of Laurel Hosiery Company upon machines owned by Edward J. Lerch and one H. T. Walborn, a partner.

Between January and July of 1954 twenty-five 400 needle Scott and Williams knitting machines for which Edward J. Lerch had paid from his own funds approximately $26,000 were installed in the Laurel Hosiery Company plant. These twenty-five rebuilt seamless machines had been the subject of a corporate minute of the Laurel Hosiery Company dated December 22, 1953 in which Edward J. Lerch had granted to the Laurel Hosiery Company an option to repurchase these twenty-five machines within one year from the date of their installation at their original cost. The Laurel Hosiery Company had paid for the freight, hauling, maintenance and repair necessary to make these machines operative.

By June 24, 1955 the financial condition of the Laurel Hosiery Company was most serious and its line of credit was exhausted. On June 10, 1955 the directors and stockholders of the Laurel Hosiery Company met to consider either the sale of the entire stock of the said company or a piecemeal liquidation of the corporate assets. At that time various offers received by the corporation for the purchase of its machinery and equipment were considered. Said offers, including an offer of $125,000 for its seamless machine equipment, were rejected. After ...


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