## Facts

- Erie Trust Company, acting as executor of the Estate of W. W. Gingrich, was surcharged in Orphans’ Court for (1) using $29,540 of estate funds to buy its own stock and (2) taking $25,819.80 from the estate as “commissions” to which it was not entitled.
- Erie Trust Company later became insolvent; the Pennsylvania Secretary of Banking took possession as receiver, and the receiver’s account was audited in the Court of Common Pleas.
- The Gingrich heirs/beneficiaries filed exceptions seeking a preferential distribution in the receivership for the surcharge amounts.
- In the appellate proceedings, the heirs abandoned any request for priority as to the $29,540 stock-purchase item and pursued preference only for the $25,819.80 commissions item.
- The $25,819.80 had been placed into the trust company’s general cash funds, and portions were used to acquire securities, including bonds and a mortgage.
- Financial evidence addressed commingling and tracing, including the trust company’s lowest cash balance in its general account ($2,865.40), other cash items ($1,937.63), and lowest balances of deposits in other banks ($6,373.23).
- The Court of Common Pleas denied any preference and treated the beneficiaries’ claim as a general claim; the beneficiaries appealed.

## Issues

1. Whether the beneficiaries’ claim for $25,819.80 wrongfully taken from an estate is entitled to priority in liquidation under § 1011A of the Pennsylvania Department of Banking Code (1933), governing distribution priorities in receiverships.
2. Whether, independent of the statute, beneficiaries may obtain priority by tracing misappropriated trust funds into remaining assets (cash or purchased securities) and imposing an equitable lien or constructive trust superior to general creditors.

## Decision

- The Supreme Court of Pennsylvania reversed the decree denying a preference and remanded with directions to enter a decree consistent with its opinion.
- The Court held the beneficiaries were entitled to preferential treatment in distribution for the $25,819.80 commissions item.
- Costs were ordered paid out of the general assets in the receiver’s hands.

## Legal Principles

- In liquidation of a trust company acting in a fiduciary capacity, statutory distribution provisions recognizing “any other claim which is given a preference” can include claims to restore misappropriated fiduciary funds.
- Misappropriated trust funds do not become part of the trustee’s free assets merely because the trustee becomes insolvent; beneficiaries may retain priority to the extent the trust property or its proceeds remain identifiable.
- When fiduciary funds are commingled with the trustee’s funds, priority may depend on identification or tracing into remaining cash or substituted assets, including application of commingling/tracing methods reflected in account-balance evidence.

## Conclusion

The court held that beneficiaries of an estate whose executor trust company wrongfully took estate funds as “commissions” were entitled to preferential distribution in the trust company’s receivership, based on the banking-code preference scheme as informed by equitable principles protecting traceable trust funds from dilution among general creditors.


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