Appeal from the Appellate Court for the Fifth District; heard
in that court on appeal from the Circuit Court of Madison County,
the Hon. Lola P. Maddox, Judge, presiding.
CHIEF JUSTICE CLARK DELIVERED THE OPINION OF THE COURT:
Chester Swiecicki, the successor guardian of the estate of Daniel Swiecicki, filed objections in the circuit court of Madison County to the final report and account of the Farmers and Merchants Bank of Highland, the prior guardian to Daniel's estate. The circuit court overruled the objections. The appellate court, in a divided opinion, reversed the circuit court. (121 Ill. App.3d 705.) The bank petitioned this court for leave to appeal, and its petition was granted. We affirm the appellate court.
Daniel Swiecicki was born in 1969. His parents died June 18, 1977. The bank was appointed the guardian of Daniel's estate on June 9, 1978, and submitted its resignation as the guardian of his estate on January 30, 1981. While acting as the guardian of Daniel's estate, the bank held over $60,000 of Daniel's money in its own savings accounts from December 1979 until February 1980, and again from August 1980 until December 1980. These accounts paid 5 1/4% interest. During the time Daniel's money was not invested in these savings accounts, his money was placed in two certificates of deposit in the bank. One certificate was for $30,000 and was held from February 23, 1980, until August 1, 1980. The second certificate was for $4,000 and was held from February 23, 1980, until August 25, 1980. In addition, a certificate of deposit in the First National Bank of Nashville for $30,000 was held from February 19, 1980, until August 7, 1980. These three certificates of deposit paid interest of between 11% and 13%. After these certificates of deposit were redeemed, the bank invested the money, including the interest, in its own savings account, which paid 5 1/4% interest. On December 11, 1980, the bank invested $70,000 of Daniel's money in a certificate of deposit which paid interest of 14.8%. The balance of Daniel's money remained invested in a savings account. On April 8, 1981, the successor guardian received the $70,000 certificate of deposit from the bank as well as a check totaling $8,260.20. This sum represented the balance and interest from the savings account.
The bank profited from Daniel's money while it acted as guardian of his estate by making commercial loans with his money at interest rates higher than the interest rates the bank paid to Daniel. The bank's profits occurred while Daniel's money was held in the savings accounts, as well as in the certificates of deposit. In addition, the bank has received $743.31 as compensation for serving as the guardian of Daniel's estate.
In his objections to the final report and account of the bank, the successor guardian sought, among other things, a judgment against the bank for its profits from investing Daniel's money in its own accounts while acting as Daniel's guardian. The circuit court overruled the objections and approved the report. On review, the appellate court found that the bank breached its duty to serve its ward's interests with complete loyalty. Therefore, the court held that Daniel's estate was "entitled to the profit which the Bank made through the use of the estate's money." 121 Ill. App.3d 705, 707.
Having set forth the facts pertinent to this appeal, we now turn to the issue presented in this case, namely, whether a bank acting as the guardian of a minor's estate must account to the estate for profits it realizes from investing the corpus of the estate's funds in its own savings accounts and certificates of deposit.
Illinois law is clear that: (1) a fiduciary relationship exists between a guardian and a ward as a matter of law (Apple v. Apple (1950), 407 Ill. 464, 469) and (2) the relationship between a guardian and a ward is equivalent to the relationship between a trustee and a beneficiary (Parsons v. Estate of Wambaugh (1982), 110 Ill. App.3d 374). Therefore, the fiduciary duties owed a beneficiary by a trustee and a ward by a guardian are similar. One such duty is the duty of loyalty. This duty prohibits a guardian from dealing with a ward's property for the guardian's own benefit. See Home Federal Savings & Loan Association v. Zarkin (1982), 89 Ill.2d 232, 239.
In Zarkin, this court discussed a breach of a trustee's duty of loyalty and stated:
"The reason for the prohibition on trustee's purchases of trust property is that a trustee in this position would find it in his own best interest to violate his duty to his beneficiary: as purchaser, the trustee is naturally interested in acquiring the property at the lowest possible price, while loyalty to the beneficiary dictates that he seek to obtain the highest possible price." 89 Ill.2d 232, 240.
These principles are applicable to the case at bar. The bank, as guardian of the minor's estate, would find it in its own best interest to violate its duty to its ward. As a bank, the bank was naturally interested in paying the lowest interest rate possible, while as a guardian, the bank's duty of loyalty to its ward dictated that it obtain the highest possible interest rate available for the ward's funds.
An officer of the bank testified at the hearing on the final report that "[t]he function of any Bank is to make money * * * to make a profit * * *."
We agree with the appellate court when it stated:
"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." (Emphasis added.) 121 Ill. App.3d 705, 708.
This court, as well as other courts, has stated that when a fiduciary obtains profits from the use of a beneficiary's funds, "[h]e has no claims to such profits, and cannot appropriate them to his individual use." (Wingate v. Pool (1860), 25 Ill. 102, 104; see Childs v. National Bank (7th Cir. 1981), 658 F.2d 487, 490; Whitney v. Peddicord (1872), 63 Ill. 249; Rowan v. Kirkpatrick (1852), 14 Ill. 1; In re Estate of Hardaway (1960), 26 Ill. App.2d 493, 497; Winger v. Chicago City Bank & Trust Co. (1945), 325 Ill. App. 459, 472, rev'd on other grounds (1947), 394 Ill. 94; Kelley v. Kelley (1973), 129 Ga. App. 257, 199 S.E.2d 399.) When profits are made by a guardian, they must be distributed as any other funds of the estate. See Wingate v. Pool (1860), 25 Ill. 102, 104.
With respect to the profits, it is true that had the bank invested Daniel's money in a bank other than itself, Daniel would not be entitled to the profits made by that bank. (In this case, Daniel is not entitled to profits made by the First National Bank of Nashville.) However, it must be remembered that the other bank would not have owed the duty of loyalty to Daniel as did the guardian bank in this case. A guardian of a minor is a trustee of the minor's property for the minor's benefit and is chargeable as such; the guardian must be held to have dealt with the minor's property for the benefit of the minor. In re Estate of Hardaway (1960), 26 Ill. App.2d 493, 497; In re Estate of Toman (1903), 110 Ill. App. 135, 138.
For the reasons stated, we believe that the bank had conflicting interests and, hence, divided loyalties. Therefore, we hold that Daniel's estate is entitled to the profits which the bank made through the use of the estate's money.
Before we conclude, we will briefly address the remaining arguments presented by the bank. The bank first argued that section 21-1.03 of the Probate Act of 1975 (the Act) (Ill. Rev. Stat. 1981, ch. 110 1/2, par. 21-1.03), implicitly permits a bank acting as guardian of a ward's estate to invest in its own savings accounts or certificates of deposit. Section 21-1.03 expressly permits such a practice for the representative of a decedent's estate.
However, section 21-2 of the Act (Ill. Rev. Stat. 1981, ch. 110 1/2, par. 21-2) provides for the investments of a ward's estate. Although section 21-2.06 of the Act (Ill. Rev. Stat. 1981, ch. 110 1/2, par. 21-2.06) allows a guardian of a ward's estate to invest in savings accounts or certificates of deposit in a State or national bank, this section does not expressly allow a guardian bank to invest in itself.
This court's function is to interpret the law as enacted by the legislature. (Belfield v. Coop (1956), 8 Ill.2d 293, 307.) Our function is "not to annex new provisions or substitute different ones, or read into a statute exceptions, limitations, or conditions which depart from its plain meaning." (8 Ill.2d 293, 307.) Like the appellate court, we "will not presume in this case that the legislature intended to significantly alter the common law fiduciary ...