NO. 3298 Philadelphia, 1981, No. 30 Philadelphia, 1982, Appeal from the Order of the Common Pleas Court of Northampton County, Orphans', No. 1968-800.
M. Paul Smith, Norristown and Raymond J. DeRaymond, Easton, for Bloomsburg Bank, appellant (at No. 3298) and participating party (at No. 30).
John M. Bray, Washington, for Weiss, Leonhardt and Filipis, appellants (at No. 30) and participating parties (at No. 3298).
Arthur L. Piccone, Wilkes-Barre, for Lychos, participating party.
Wieand, McEwen and Montgomery, JJ.
[ 323 Pa. Super. Page 78]
Presently before this Court are cross appeals from the final decree of the Orphans' Court Division of the Court of Common Pleas of Northampton County which granted in part and denied in part a claim for surcharge asserted by Artemis L. Weiss, Xeria L. Filipos and Nadia Leonhardt [hereinafter appellants], against the Bloomsburg Bank -- Columbia Trust Company [hereinafter Bloomsburg Bank]. Surcharges totaling $49,299.88 were imposed against the corporate co-trustee, Bloomsburg Bank, as a result of its administration of a testamentary trust established under the will of Anastassios A. Lychos. Appellants seek to increase the amount of the $49,299.88 surcharge imposed upon Bloomsburg Bank, while the Bank argues that the
[ 323 Pa. Super. Page 79]
Orphans' Court applied an incorrect standard of care and, therefore, improperly imposed the surcharges against it. The individual co-trustee, John O. Lychos, a sibling of the appellants, was not surcharged and requests this Court to affirm the final decree of the Orphans' Court.
Anastassios A. Lychos died testate on July 4, 1968. Letters Testamentary were granted to the Bloomsburg Bank -- Columbia Trust Company and to John O. Lychos, the son of the decedent. The first and final account of the executors was confirmed on February 22, 1971 and the entire residuary estate was awarded back to the same fiduciaries as trustees of a testamentary trust. The trust created a life estate for the wife of the testator with remainder over to the four Lychos children. Income from the trust was the only income available to Mrs. Lychos other than social security.
The primary asset of the trust was a three-story commercial building situated on Main Street in Bloomsburg, Pennsylvania almost directly across the street from the Bloomsburg Bank. The property was valued in 1969 for estate purposes at $51,000.00. A subsequent appraisal conducted in 1972 for purposes of obtaining a mortgage on the property resulted in a valuation of $75,000.00.
The following facts relevant to the administration of the Lychos trust were found by the auditing judge:
At [the time of the decedent's death] the entire building was leased to one tenant at a rental of $400.00 per month. This lease was to expire in July, 1971, and the trustees immediately began negotiations for a new lease. After negotiations with the current tenant failed, the trustees, principally by the individual co-trustee, John Lychos, negotiated a lease with a podiatrist, Dr. Marvin Hughes. This lease, executed on November 15, 1971, provided for a term of ten years at a monthly rental of $1,000.00 with an option for a ten-year renewal. The lease further required the lessors to make certain repairs to the building and to install an elevator. The trustees had not obtained a firm price for the elevator when the lease was executed.
[ 323 Pa. Super. Page 80]
To finance the repairs required by the lease, the trustees placed a mortgage on the building in March, 1972. The amount of the mortgage was $50,000.00 with interest at the rate of 7 1/2% per annum which resulted in monthly payments of $629.09, including an escrow for taxes and fire insurance. At this time the property was valued at $75,000.00 including building and land.
By June, 1972, most of the repairs to the building had been completed at a cost of approximately $22,000.00 and it had become apparent to the trustees that they didn't have sufficient remaining funds to install the elevator. This letdown was due to the fact that the bank used approximately $13,000.00 of the proceeds to satisfy the cash deficit carried over from the estate accounting and from the first year of the trust administration. Throughout this period and for the entire duration of the trust, the life tenant was paid $150.00 per month plus her household expenses, utility bills and taxes.*fn1
Inexplicably, the bank held the $15,000.00 balance of mortgage proceeds in a non-interest-bearing account in its own institution from July of 1972 to July, 1973, when the balance of funds then remaining were invested in certificates of deposit. There was no evidence that the individual trustee participated in this decision. For two months in the summer of 1971 and from December, 1972, until the lease was terminated, the tenant unilaterally reduced the rent payment to $650.00 allegedly because the trustees had not installed the elevator. Although the trustees objected and demanded payment of the full rental, suit was not filed to enforce the lease until four years later, in September, 1976. An undetermined portion of this delay was occasioned by the discovery of a conflict of interest on the part of counsel retained to represent the trust who also represented the tenant. This litigation
[ 323 Pa. Super. Page 81]
finally was successful and the trustees recovered the additional rent due to September, 1976 together with interest. An ejectment action resulted in a final decree in February, 1978. Again for reasons that are not clear, the trustees were required to file an additional law suit for the rental due between September, 1976 and the date of ejectment, and despite the prior court decisions, a jury verdict was for the tenant. No appeal was taken. Finally, on May 18, 1978, after the trustees' first account had been filed, the building was completely destroyed by fire. At that time the building was insured for ...