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08/09/88 Michael E. Fryzel, v. Chicago Title & Trust

August 9, 1988





MICHAEL E. FRYZEL, Director of the Department of Financial

527 N.E.2d 1025, 173 Ill. App. 3d 788, 123 Ill. Dec. 387 1988.IL.1242

Appeal from the Circuit Court of Cook County; the Hon. Thomas J. O'Brien, Judge, presiding.


PRESIDING JUSTICE HARTMAN delivered the opinion of the court. SCARIANO and EGAN, JJ., concur.


The Director of the Illinois Department of Financial Institutions appeals the circuit court's denial of his request for declaratory and other relief to establish his right to examine defendant Chicago Title & Trust Co.'s (CT&T's) records, pursuant to section 23 of the Uniform Disposition of Unclaimed Property Act (Act) (Ill. Rev. Stat. 1983, ch. 141, par. 123). The issues raised for our review include whether: (1) the case is moot because defendant presently is willing to let the Director examine the records at issue; and (2) the Director may inspect records of any person he has reason to believe failed to report property under the Act even when the holder characterizes such property as an active express trust and claims exemption from the Act's reporting requirements. Ill. Rev. Stat. 1983, ch. 141, par. 107a.

CT&T is a trust company doing business in Illinois. In 1980 and 1981, examiners for the Commissioner of Banks & Trusts inspected CT&T's records and reported that its handling of some accounts might be subject to the Act because, among other reasons, a service charge or holding fee was being charged against the unclaimed dividend and abeyant accounts dating back more than seven years. This information was transmitted by the Commissioner's office to the Director in August 1981. On October 14, 1981, the Director notified CT&T that its records, including trust accounts and dividends, would be examined starting November 9, 1981. That letter defined unclaimed property as all CT&T accounts that did not reveal an indication of interest by their owner in the seven previous years.

The Director's examination began on November 9, 1981, but ended on November 12, 1981, when CT&T refused to allow the Director's agents to complete their work. CT&T insists that it fully cooperated with the examination, except in refusing to produce records of confidential trust accounts because they were exempt under the Act and beyond the Director's authority.

Section 23 of the Act provides:

"The Director may at reasonable times and upon reasonable notice examine the records of any person if the Director has reason to believe that such person has failed to report property that should have been reported pursuant to this Act." (Ill. Rev. Stat. 1983, ch. 141, par. 123.)

A "person" under the Act includes any business association or trust. (Ill. Rev. Stat. 1983, ch. 141, par. 101(g).) Business associations must report all property unclaimed in seven years, including stocks, bonds and the interest and dividends accumulated. (Ill. Rev. Stat. 1983, ch. 141, par. 102a.) When a property owner takes no action concerning it for seven years it is presumed abandoned (Ill. Rev. Stat. 1983, ch. 141, pars. 102, 102a, 107, 109) and must be delivered to the Director (Ill. Rev. Stat. 1983, ch. 141, par. 113). Section 7a of the Act, however, states: "The provisions of this Act shall not apply to an active express trust." (Ill. Rev. Stat. 1983, ch. 141, par. 7a.) An active express trust, a term undefined in the Act, is explicated by case law as a trust created expressly by written instrument, or by the direct and positive action of the parties, as shown by writing or by oral communication, or both, in which the trustee has active duties to carry out the trust's purpose. Price v. State (1979), 79 Ill. App. 3d 143, 147-48, 398 N.E.2d 365; see Matthern v. Rankin (1907), 228 Ill. 318, 323-24, 81 N.E.2d 1024.

A meeting of officials from DFI and CT&T on June 18, 1982, failed to reach agreement concerning the unclaimed property examination. Remarks of the Commissioner's examiner, after an inspection on August 31, 1982, indicated that unclaimed dividend accounts over two years old had been transferred out of the trust department to a reserve account. The examiner expressed concern that the Act might be involved and suggested that written opinions should be obtained from DFI and outside counsel, also noting that management had consulted general and outside counsel and believed itself to be in compliance with the Act. CT&T asserts that subsequent reports in 1984, 1985 and 1986 contained no references to the Act; these reports, however, are not included in the record.

After the Director renewed his request for an examination on October 21, 1982, CT&T's outside counsel provided a written opinion on October 29, 1982, indicating their understanding that the unclaimed dividend account had been transferred to a "reserve for trust division" account, in which unallocated funds provided for payments to third parties or reimbursements to the trusts involved or to CT&T. When CT&T received trust income, any receipts in excess of posted credits were deposited in an "unallocated dividends and interest account," holding funds to be distributed to brokers, paying agents, trusts and CT&T itself. Problems were caused by security sales shortly before dividend dates, accounting errors, and incorrect paying agent or transfer agent records. After such claims were resolved, any funds remaining were placed in the trust division reserve account. Counsel ...

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