Appeal from the Circuit Court of Madison County; the Hon. Lola
P. Maddox, Judge, presiding.
PRESIDING JUSTICE HARRISON DELIVERED THE OPINION OF THE COURT:
Chester Swiecicki, the successor guardian of the estate of Daniel Swiecicki, appeals from a judgment of the circuit court of Madison County which overruled his objections to the final report and account of the Farmers and Merchants Bank of Highland, the prior guardian of Daniel's estate. For the reasons which follow, we reverse and remand.
The facts relevant to this appeal are not in dispute. Daniel Swiecicki was born in 1969. Both of his parents died on June 18, 1977. The Farmers and Merchants Bank of Highland (Bank) was appointed as guardian of Daniel's estate on June 9, 1978, and held this position until submitting its resignation on January 30, 1981. During its tenure as guardian, the Bank invested Daniel's money in two six-month certificates of deposit in itself, and one similar certificate of deposit in the First National Bank of Nashville. These certificates paid interest of between 11% and 13%. During the times that Daniel's money was not invested in these certificates, it was placed in a passbook savings account at the Bank. This account paid 5 1/4% interest. By making commercial loans at an interest rate higher than that which it paid on its own certificates of deposit and savings accounts, the Bank made a profit on the estate's funds during its term as guardian. In objecting to the final report and account of the Bank, the successor guardian, Chester J. Swiecicki, sought, inter alia, judgment against the Bank for the amount of the profits it derived from investing the minor's money in itself. The circuit court overruled this objection, and in a subsequent order approved the Bank's final report and account, with the exception of certain insurance payments not relevant to this appeal.
The sole question presented by this appeal is whether a bank, acting as guardian of the estate of a minor, which invests the estate's funds in its own savings accounts and certificates of deposit and makes a profit through use of the invested funds, must account to the estate for that profit. It should initially be noted that this case involves no claim that the Bank failed to keep the minor's money invested, commingled any funds or acted wrongfully in investing the funds without prior approval of the court. Rather, it is the claim of the successor guardian that the Bank, having made money by the manner in which it invested and then used the estate's funds, is required by its fiduciary responsibilities to turn its profit over to the estate. The search for the answer to this narrow question necessarily begins with an examination of what duties the Bank, as guardian of the estate, owed to the minor.
• 1, 2 Illinois has long recognized the principle that a trustee shall not make any advantage to himself out of the trust fund, and that all profits thus made belong to the cestui que trust. (Rowan v. Kirkpatrick (1852), 14 Ill. 1, 10.) The purchase by a trustee for his own account of property of his trust is a breach of his duty to serve the interests of the beneficiary with complete loyalty. (Home Federal Savings & Loan Association v. Zarkin (1982), 89 Ill.2d 232, 239, 432 N.E.2d 841.) There is an inherent conflict of interest in such purchases since the trustee, as purchaser, is interested in acquiring the property at the lowest possible price, while his required loyalty to the beneficiary dictates that he seek to obtain the highest possible price for the trust property. 89 Ill.2d 232, 239-40.
• 3 Applying these principles to the instant case, we are compelled to conclude that the estate is entitled to the profit which the Bank made through the use of the estate's money. As the vice-president and trust officer of the Bank candidly testified at the hearing on the final report and objections thereto, "the function of any bank is to make money * * * and to reinvest these funds into a community by loans and things of this order, to make a community prosper." In seeking to maximize this profit, a bank has an undeniable interest in acquiring at the least possible cost the monies which it will later use to make commercial loans. Thus, in the instant case, the Bank's financial motives and fiduciary responsibilities were incompatible. As "buyer" of Daniel's money for its own use, the Bank had an interest in acquiring the money at the lowest possible rate, in order to insure the profitability of that acquisition. As "seller" of that same money for the purpose of earning interest income for the estate, the Bank as guardian was faced with the conflicting responsibility of considering only the interests of the estate in determining how to invest the estate funds. While it is not claimed, and there is no evidence to suggest, that the Bank acted with anything less than good faith in carrying out its responsibilities as guardian, this fact does not preclude application of the rule prohibiting the trustee from dealing with the trust property on his own account. "It avails nothing to show that the intentions of the trustee were honest * * *. [T]he only safe rule is one which absolutely forbids a trustee to occupy two positions inconsistent with each other." Joliet Trust & Savings Bank v. Ingalls (1934), 276 Ill. App. 445, 451.
• 4 In making the determination which we reach here, we are cognizant of the fact that courts> in other jurisdictions have found no conflict of interest on facts similar to those presented in this case. These cases essentially treat the institutional trustee as two separate entities, one which acts as trustee and the other which acts as custodian of the estate. From this premise it is reasoned that the trustee is not actually buying trust property on its own account (see, e.g., Breedlove v. Freudenstein (5th Cir. 1937), 89 F.2d 324, 325), or that money made by the institution through its handling of the trust fund constitutes a reasonable profit for the institution in its capacity as custodian, provided that the trust is paid at least the prevailing rate of interest on the fund. (Hayward v. Plant (1923), 98 Conn. 374, 119 A. 341.) We find these cases unpersuasive, because we reject the premise underlying them. There is nothing to suggest that, in reality, the Bank here is anything other than one business entity, controlled by one board of directors and owned by a single set of stockholders. That acquisition of money at a low rate and subsequent loaning of money at a higher rate inures to the benefit of the Bank as a whole is a fact undoubtedly within the understanding of both the trust and commercial departments of the Bank, and we think it unrealistic to rigidly compartmentalize the Bank's business functions for purposes of analyzing its adherence to its fiduciary obligations. Moreover, it does no injustice to the Bank to hold that it is not entitled to profit from its role as custodian of the deposit, since sections 1-2.15 and 27-1 of the Probate Act of 1975 (Ill. Rev. Stat. 1981, ch. 110 1/2, pars. 1-2.15, 27-1) allow the Bank reasonable compensation for its services as guardian.
• 5, 6 In an additional argument in support of affirmance, the Bank relies on that section of the Probate Act of 1975 which provides that a representative of a ward's estate may, "* * * without approval of the court, invest in United States obligations and obligations of which both the principal and interest are guaranteed unconditionally by the United States." (Ill. Rev. Stat. 1981, ch. 110 1/2, par. 21-2(b).) We do not believe, however, that this statute operates to alter the common law duties of the Bank in the situation presented here. That the legislature chose to allow a guardian to invest in obligations guaranteed by the United States provides no indication that it also intended to permit the guardian to profit from those investments. "When a statute is enacted which covers an area formerly covered by common law, such statute should be construed as adopting the common law unless there is clear and specific language showing that a change in the common law was intended by the legislature." (Proud v. W.S. Bills & Sons, Inc. (1970), 119 Ill. App.2d 33, 45, 255 N.E.2d 64.) Nothing in the statute permitting a guardian to invest in obligations guaranteed by the United States indicates a legislative intent to override the common law duty owed by the guardian, and we will not infer the existence of such an intention.
• 7-9 Finally, we believe that the remaining statutes discussed by the parties lend additional support to the result reached here. Section 21-1.03 of the Probate Act of 1975 (Ill. Rev. Stat. 1981, ch. 110 1/2, par. 21-1.03) expressly permits the representative of a decedent's estate to invest in savings accounts or certificates of deposit in a State or national bank "* * * even though the bank of deposit is the representative of the estate * * *." That section of the Act allowing the representative of a ward's estate to make similar investments, however, contains no provision permitting the representative to invest in itself. (Ill. Rev. Stat. 1981, ch. 110 1/2, par. 21-2.06.) It is not within the province of this court to enlarge the meaning of a statute by adding language aimed at correcting any supposed omission or defect (Belfield v. Coop (1956), 8 Ill.2d 293, 307, 134 N.E.2d 249), and we will not presume in this case that the legislature intended to significantly alter the common law fiduciary rules pertaining to guardians without saying so. Nor do we believe that section 3 of "An Act to provide for and regulate the administration of trusts by trust companies" (Ill. Rev. Stat. 1981, ch. 17, par. 1555), discussed in the dissenting opinion, affects the result here. The funds in question were not "awaiting investment or distribution" as contemplated by section 3; rather, the bank actually invested these funds in its own savings accounts and certificates of deposit during the 2 1/2 years it served as guardian of the minor's estate.
For the foregoing reasons, the judgment of the circuit court of Madison County is reversed, and this cause is remanded to the circuit court for further proceedings consistent with this opinion.
JUSTICE JONES, dissenting: