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In Re Estate of Lindberg

OPINION FILED MARCH 13, 1979.

IN RE ESTATE OF ROY W. LINDBERG, DECEASED. — (ALVAR G. LINDBERG ET AL., PETITIONERS-APPELLANTS,

v.

BEVERLY BANK, RESPONDENT-APPELLEE.)



APPEAL from the Circuit Court of Cook County; the Hon. ANTHONY J. KOGUT, Judge, presiding.

MR. PRESIDING JUSTICE STAMOS DELIVERED THE OPINION OF THE COURT:

This action was brought by certain of the beneficiaries (petitioners) under the will of Roy W. Lindberg, decedent, against the Beverly Bank (the Bank) as executor. The action sought removal of the Bank as executor and raised objections to the executor's first and final account. The objections focused chiefly on the Bank's delay in liquidating the principal asset of the estate, 2000 shares of stock in the Bank's parent holding company, the Beverly Bancorporation (Bancorp), which decedent had acquired during his lifetime while employed at the Bank. The stock, which was valued at $70 per share at the time of decedent's death and the Bank's appointment as executor, had fallen to a price of $27 per share by the time the Bank sold it.

The action was tried without a jury. At the close of petitioners' case-in-chief, and after the court had heard two defense witnesses and additional rebuttal testimony for petitioners, the court granted the Bank's motion for a directed finding, dismissing the petition and overruling the objections. On appeal, petitioners have raised issues relating to the standard of care and burden of proof applicable to the Bank as executor, as well as possible conflicts of interest and self-dealing, but in our view the chief issue presented is whether the trial court's finding that the Bank acted in a reasonably prudent manner in the disposition of decedent's stock is against the manifest weight of the evidence. The pertinent facts follow.

Roy W. Lindberg, decedent, was employed by the Bank from about 1926 until his death on July 24, 1973. His handwritten will, which was admitted to probate, nominated the Bank as executor, and the Bank was appointed executor on September 24, 1973. In his will, decedent left his real estate and all personal possessions on the premises to his brother, Alvar G. Lindberg, and Alvar's wife, Ellen. He then made three specific bequests of $5000 each, to St. Philip Lutheran Church of Blue Island, Illinois; the Rosicrucian Order (AMORC), San Jose, California; and the Beverly Club of the Beverly Bank, Chicago, Illinois. The residue of the estate was left to nine persons: Alvar G. Lindberg, Ellen Lindberg, Lea Lindberg, Francis Lindberg, Leann Lindberg Harmon, Lorraine Stam, Robert Stam, Betty Jane Klos, and Carol Stam White. Decedent's will gave no direction or power to the Bank regarding the retention or distribution of the assets of the residuary estate.

Included in decedent's residuary estate, and comprising the principal asset of his entire estate, were 2000 shares of stock in Bancorp. Bancorp is a one-bank holding company which owns all of the shares of the Bank except for the Bank's directors' qualifying shares. At the time, the Bank constituted over 95% of Bancorp's assets. The officers of the two are the same. There are approximately 375 shareholders of Bancorp and 172,924 shares of Bancorp stock outstanding. Bancorp stock is not listed on any exchange and is normally traded over the counter.

The Illinois inheritance tax return filed by the Bank as executor indicated that the value of decedent's stock in Bancorp was $70 per share as of decedent's date of death. The Federal Estate Tax return filed by the Bank valued the stock at $60 per share as of January 24, 1974, six months after decedent's date of death. The Bank made inheritance and estate tax payments based upon these valuations. In July of 1974, apparently also based upon these valuations, the Bank made a cash distribution to Francis Lindberg, one of the residuary legatees, in the amount of $8655. This was almost $5000 more than the Bank's final account showed was due him, and the Bank has not charged the estate for the amount of the overpayment.

On March 21, 1975, the Bank distributed 83 shares of decedent's Bancorp stock to the Rosicrucian Order. This distribution was made in kind, in partial satisfaction of a specific bequest, and the Rosicrucian Order agreed to accept the stock at its Federal Estate Tax valuation, or $60 per share. Similarly, the Beverly Club agreed to accept 83 shares of Bancorp stock (or 75 shares net after taxes) at $60 per share.

On February 2 and February 5, 1976, more than 30 months after decedent's death and more than 28 months after the Bank was appointed executor, the Bank sold the 1834 shares of Bancorp stock remaining in the estate. The three purchasers were: Victor Apa, who was at the time a vice president of both Bancorp and the Bank; James Mahoney, who was then only a shareholder in Bancorp but who later became a director of both Bancorp and the Bank; and Mrs. Evelyn Kyes, a close friend of the Bank's president.

The Bank sold the shares at a price of $27 per share. While the book value of the stock was $55 per share, it is not disputed that $27 per share was, or was very close to, the fair market value of the stock in early 1976, as the stock had greatly declined in value from the time of decedent's death. Both facts are illustrated in the following table, constructed out of testimony based on Bancorp's stock ledger record, which reflects all transfers of Bancorp stock from the time of decedent's death on July 24, 1973, through the Bank's appointment as executor on September 24, 1973, and just beyond the sale of decedent's Bancorp stock in early February of 1976:

Number Price Date of Shares Per Share July 31, 1973 3,000 $70.00 September 10 15 70.00 December 7 12 70.00 February 22, 1974 1,500 60.00 February 22 116 54.50 May 1,100 57.50 June 12 14,500 57.50 June 22 8 57.50 June 25 10 [not known] September 11 196 40.00 December 31 159 27.50 February 24, 1975 22 27.50 April 118 28.00 June 118 27.50 June 23 26.00 July 12 30.00 September 20 26.00 November 843 27.50 November 100 27.50 November 240 27.50 November 27 25.00 December 474 27.00 December 70 27.00 December 800 27.00 December 16,768 20.00 December 4 27.50 January 14, 1976 1,000 20.00 January 19 16 27.00 February 3 500 27.00 February 6 221 27.00 February 6 50 27.00 February 6 650 27.00 February 6 684 27.00 March 15 500 27.00

The beneficiaries of the estate were not notified of the sale, nor was any current account filed during the administration of the estate. On February 13, 1976, after it had already sold all 1834 shares of Bancorp stock in the estate, the Bank then petitioned the court for permission to sell 750 shares of the stock at $27 per share, which was granted. The identities of the purchasers were not disclosed nor was notice of the petition given to the beneficiaries.

There were no audits of the estate's tax returns, nor were any contested claims filed or challenges to the will made. The executor's fee, all taxes, most attorney's fees, and all other administration expenses were paid by the end of 1974. According to James A. Boyd, the Bank's senior trust officer, it was only the need for liquidation of estate assets to make up for the overdraft caused by payment of these expenses that kept the estate open as long as it was. Boyd testified that he became aware of the overdraft upon becoming employed by the Bank in October of 1975. It was chiefly this awareness on the part of Boyd that prompted the sale of the stock, and it was through Boyd that buyers for the stock were found. Boyd made no other attempt to find a buyer, and he did not contact any brokers regarding either potential purchasers or possible sales prices. He did not ask the legatees before the sale whether they wanted distribution of the stock in kind, as he knew that they had rejected that in the past. Finally, as custodian of the estate's file, he testified that the file indicated no attempt to sell the stock by any of Boyd's predecessors.

Petitioners also called Robert F. Hanson, vice president and secretary of both Bancorp and the Bank, under section 60 of the Civil Practice Act (Ill. Rev. Stat. 1977, ch. 110, par. 60). As secretary of both corporations, Hanson maintained their records, including Bancorp's stock ledger record, from which he testified. Hanson testified about one transaction in particular, the sale in June of 1974 of 14,500 shares of Bancorp stock at $57.50 per share. The sale, for cash, was by the Northern Trust, the nominee of the University of Chicago in selling the stock. The sale was to an Illinois corporation named the Beverly Agency (the Agency). Hanson is also the secretary of the Agency, and the Agency's three directors are also directors of the Bank. The Agency has 55-60 shareholders, some of whom were also shareholders of Bancorp and of the Bank. While the Agency has a small insurance division, it obtained the cash to acquire the Bancorp stock from the proceeds of its sale of its controlling interest in another bank. While Hanson testified that the purchase did not give the Agency a controlling interest in Bancorp, he stated that the Agency became the majority shareholder of Bancorp stock and remained the principal owner until March of 1977. As secretary of the Agency, Hanson attended the meeting at which the purchase was authorized, but he could not say how the price of $57.50 was arrived at, although he knew there were negotiations before the sale. He could not testify whether the estate's Bancorp stock was ever offered to the Agency, and Boyd testified that to his knowledge, no one ever tried to sell the stock to the Agency.

As secretary of Bancorp, Hanson came into day-to-day contact with buyers and sellers of Bancorp stock, but he did not participate in actual sales, only in the mechanical transfer of stock. He stated that he was informed at least once that decedent's Bancorp stock was for sale, but he could not recall ever having discussed finding a buyer with Boyd or with Boyd's predecessor as senior trust officer, John Pollock, even though Hanson was in charge of the Bank's ...


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