dissenting:
I respectfully dissent.
The majority’s holding that a bank serving as guardian of a minor’s estate violates its duty of loyalty when it deposits the estate’s funds in its own savings accounts and certificates of deposit is, I believe, contrary to legislative intent regarding a bank’s investment of funds held in trust. Notwithstanding the general common law rule that a trustee shall not make any advantage to itself of a trust fund, the legislature of this State has specifically authorized the deposit of trust funds by a corporate trustee in its own banking department under certain conditions. Such a deposit of trust funds “awaiting investment or distribution” is proper under 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), provided the deposit is protected by securities set aside for that purpose or is guaranteed by the Federal Deposit Insurance Corporation. Since the facts of this case bring it squarely within the scope of that section, the result reached by the majority is erroneous.
In considering whether, under the general common law rule regarding a trustee’s duty of complete loyalty to its cestui que trust, a bank may deposit trust funds in its own banking department, courts of other jurisdictions have reached different conclusions. (See 2 Scott, Trusts sec. 170.18 (3d ed. 1967); Bogert, Trusts & Trustees sec. 543(K) (2d rev. ed. 1978), sec. 598 (2d rev. ed. 1980); Hunsicker, Conflicts of Interest Economic Distortions, & the Separation of Trust & Commercial Banking Functions, 50 So. Cal. L. Rev. 611, 619-26 (1977) (hereinafter Hunsicker, Conflicts of Interest); Annot., 88 A.L.R. 205, 212-18 (1934); see E. Herman, Conflicts of Interest: Commercial Bank Trust Departments 107-21 (1975) (hereinafter Herman, Commercial Bank Trust Departments).) Courts dealing with this question have noted the inherent conflict of interest that arises from a bank lending trust money to itself individually. Thus, it has been said, a corporate trustee may be tempted to leave large amounts of trust monies on deposit for an unnecessarily long time due to the convenience and profit derived from the use of such funds (Bogert, Trusts & Trustees sec. 543 (K), at 313 (2d rev. ed. 1978), sec. 598, at 488 (2d rev. ed. 1980)), and may be tempted to make and continue such deposits despite knowledge by the bank’s officers that the bank is in a precarious financial position. 2 Scott, Trusts sec. 170.18, at 1357 (3d ed. 1967).
The potential for self-dealing resulting from the temptation to consider the commercial activities of a bank in administering its trusts (see 2 Scott, Trusts sec. 170.23A, at 100 (Supp. 1983)) has led in some instances to a flat prohibition against a corporate trustee depositing trust funds in its own accounts. Indeed, the American Law Institute, after much deliberation (see 2 Scott, Trusts sec. 170.18, at 1357-58 (3d ed 1967)), adopted the position in its Restatement of Trusts that a bank or trust company that makes a general deposit of trust funds in its own banking department thereby commits a breach of trust, unless it is authorized to do so by the terms of the trust (Restatement of Trusts sec. 170, comment m (1935)). This rule was continued in the Restatement (Second) of Trusts sec. 170, comment m (1959). It is, however, common practice for banks and trust companies to deposit trust funds in their own institutions (see Herman, Commercial Bank Trust Departments 108-09), and, despite the view of some courts that such transactions involve disloyalty, this practice is sanctioned by the weight of authority at common law. Bogert, Trusts & Trustees sec. 598, at 488-89 (2d rev. ed. 1980); Hunsicker, Conflicts of Interest 620.
Notwithstanding the treatment of the issue at common law, in Illinois, as in many other States, the matter of deposits by a corporate trustee in its own banking department is controlled by statute. (See 2 Scott, Trusts sec. 170.18, at 1359-61 (3d ed. 1967); Bogert, Trusts & Trustees sec. 543(K), at 314-16 (2d rev. ed. 1978), sec. 598, at 492-94 (2d rev. ed. 1980).) The Illinois statute states, in pertinent part:
“All funds deposited with or held in trust by [a corporation authorized to accept or execute trusts] awaiting investment or distribution, whether intrusted to it for investment by [the] court, or otherwise, shall be carried in a separate account and shall not be commingled with its own funds or used by such corporation in the conduct of its business unless it shall first set aside in its trust department *** [proper securities] having an aggregate market value, at all times, of at least 100% of the amount of such trust funds, unless such trust funds are insured by the Federal Deposit Insurance Corporation or the Federal Savings and Loan Insurance Corporation; in that event the aggregate market value may be reduced by the amount of federal insurance.” (Ill. Rev. Stat. 1981, ch. 17, par. 1555, formerly ch. 32, par. 289.)
A Federal statute (12 U.S.C. sec. 92a(d) (Supp. 1983)) makes similar provision for national banks operating in the State. See Comptroller of the Currency Regulation 9.10, 12 C.F.R. sec. 9.10 (1983).
These statutes, providing conditions under which the deposit of trust funds in a bank’s own accounts is proper, effectively qualify the general common law fiduciary rule against self-dealing in the case of a corporate trustee holding funds for investment or distribution. (Hunsicker, Conflicts of Interest 620; New England, Trust Co. v. Triggs (1956), 334 Mass. 324, 135 N.E.2d 541 (interpreting similar Massachusetts statute); cf. First National Bank v. Weaver (1932), 225 Ala. 160, 142 So. 420 (statute “inferentially authorized” deposit of funds held by executor bank so as to relieve bank from liability under rule against a self-dealing); Humane Society v. Austin National Bank (Tex. 1975), 531 S.W.2d 574, cert. denied (1976), 425 U.S. 976, 48 L. Ed. 2d 800, 96 S.C. 2177 (executor bank’s purchase of its own certificates of deposit authorized by statute and thus not per se violation of its fiduciary duty).) As such, they provide an exception to the general rule prohibiting a trustee from dealing with trust property on its own account (see Home Federal Savings & Loan Association v. Zarkin (1982), 89 Ill. 2d 232, 432 N.E.2d 841).
This exception can be justified on policy grounds as allowing “efficient temporary investment of funds held in trust by a bank pending their ultimate disposition, while providing maximum security for those funds.” (Humane Society v. Austin National Bank (Tex. 1975), 531 S.W.2d 574, 579.) The convenience for a corporate trustee of making such deposits in itself rather than in another institution is evident. (See Bogert, Trusts & Trustees sec. 543(K), at 317 (2d rev. ed. 1978); Commissioners’ Prefatory Note, Uniform Trusts Act, 9A Uniform Laws Annotated 335 (1968); New England Trust Co. v. Triggs.) Moreover, by reason of the security requirements of the statute,
“[t]he situation of the beneficiaries *** is superior to that which existed at common law in those states which prohibited the corporate trustee from depositing with itself and required it to make the deposit with another bank. Under that rule the deposit had no security behind it, and in case of failure of the bank of deposit there was no preference. Under the *** statutory rule there is great security for the trust deposits, first through the insurance provided by the F.D.I.C., and secondly through the fund which is set apart in the trust department of the bank as security for all trust deposits.” Bogert, Trusts & Trustees sec. 598, at 495 (2d rev. ed. 1980).
While it may be objected that, despite these considerations of convenience and security, there remains the potential for self-dealing inherent in a bank’s use of trust funds deposited in its own accounts, the statutes here referred to reflect a legislative recognition of the distinctive character of corporate trustees. (See In re Smith’s Estate (1931), 112 Cal. App. 680, 297 P. 927.) Banks serving as trustees are subject, not only to rules regarding investments applicable to trustees generally, but also to various requirements regarding capital, surplus, reserves, securities and inspection. (See Ill. Rev. Stat. 1981, ch. 17, pars. 1551-70.) Such trust companies operate in a regulated environment under the supervision of banking authorities and are required to be examined, separately from an affiliated banking department, regarding their investment of funds and their actions generally. (See Ill. Rev. Stat. 1981, ch. 17, par. 1564; but see Hunsicker, Conflicts of Interest 623-25, where the author argues that regulation affords only limited protection against abuse in the holding of cash by trust departments.) There is the additional factor of competition among corporate trustees for fiduciary accounts, which would arguable induce trust companies to invest trust funds profitably in order to secure these accounts. (Herzel & Colling, The Chinese Wall & Conflict of Interest in Banks, 34 Bus. Law. 73, 108-09 (1978); see New England Trust Co. v. Triggs; Hunsicker, Conflicts of Interest 625.) In any event, the legislature of this State, by enacting section 3 to allow the deposit of trust funds by a corporate trustee in its own banking department, has made a policy decision that the benefits to be afforded outweigh the potential for self-dealing inherent in such transactions. For this reason, the omission, referred to by the majority, of express statutory language permitting the representative of a ward’s estate to invest in its own accounts (see majority opinion) must be regarded as mere legislative oversight rather than as an expression of legislative intent.
Although the statutes here noted authorize the use of trust funds in the conduct of a trustee bank’s business, these statutes do not relieve the bank of its fiduciary duty as trustee. (Humane Society v. Austin National Bank (Tex. 1975), 531 S.W.2d 574.) Rather, it has been said, “[a] trustee bank which exercises its statutory right to hold trust funds in its commercial department accepts *** the increased responsibilities which the circumstances impose” (New England Trust Co. v. Triggs (1956), 334 Mass. 324, 334, 135 N.E.2d 541, 548) and “must act in scrupulous good faith, casting aside completely its personal interest and opportunities for gain resulting from the fiduciary relationship.” (Humane Society v. Austin National Bank (Tex 1975), 531 S.W.2d 574, 580; see Hunsicker, Conflicts of Interest, at 625; In re Estate of Jones (1960), 400 Pa. 545, 162 A.2d 408.) Thus, while not improper per se, the deposit of trust funds in a trustee bank’s own accounts may be improper where held for an unreasonably long time (cf. New England Trust Co. v. Triggs ($100,000 left uninvested for over two years); In re Jones’ Estate (cash proceeds of decedent’s estate not invested for at least five years); In re Estate of Lare (1969), 436 Pa. 1, 257 A.2d 556 (substantial sums of cash allowed to lie idle over 20-year period)) or where deposited at a time when the officers of the bank knew that it was in a precarious financial condition (see 2 Scott, Trusts sec. 170.18, at 1361 (3d ed. 1967)). The deposit of trust funds in itself by a corporate trustee, then, must be consonant with principles of good faith and reasonableness in order to come within the cloak of immunity afforded by the statutes authorizing such deposits.
In the instant case, as the majority notes, there is no claim that the trustee bank acted wrongfully in failing to keep the minor’s money invested or exhibited anything less than good faith in carrying out its responsibilities as guardian. Rather, the appellant seeks, and the majority imposes, a per se rule that the bank’s use of trust funds in the conduct of its business constitutes a violation of its fiduciary duty and renders the bank liable for profits derived from such funds. As the above analysis reveals, this result is inconsistent with the plain meaning of the statute authorizing the deposit of trust funds in the accounts of a trustee bank.
It appears from an examination of the record that the facts of the instant case bring it squarely within the scope of section 3. The bank’s trust officer testified, and it was not disputed, that the minor’s funds deposited in the bank’s savings accounts and certificates of deposit were fully insured by the F.D.I.C. so as to meet the security requirement of the statute. As to the temporary nature of the deposits, it was also undisputed that the decision to make such deposits was based on the “uncertainty of when this guardianship would be leaving [the bank].” The trust officer testified that he had been informed that the minor’s relatives wished to change guardians from his bank to another bank. He stated that
“this did give me an amount of uncertainty as to what to invest in, because I did not know what the successor guardian would want the monies in, and also the timing [sic]. My information was we would be losing this as soon as the estate of Daniel Swiecicki’s mother was settled, and so I was uncertain of the timing of when this could be done [sic].”
Therefore, he stated, the minor’s funds “[were] left in a savings position, a ready liquid position to be disbursed to the successor guardian.” From this testimony it can be seen that the minor’s funds were “awaiting investment or distribution” so as to come within the provision of the statute. See Humane Society v. Austin National Bank (Tex. 1975), 531 S.W.2d 574.
Finally, it should be noted that the funds of the minor here were invested at all times in accounts paying interest at the market rate. There is no contention that the funds were placed in non-interest-paying checking accounts or that the interest rate was less than that paid by the bank on other deposits of a similar nature. The Illinois statute provides that a trustee bank “shall pay” interest on trust funds deposited in its own accounts
“***at such rate as may be agreed upon at the time of its acceptance of [an] appointment, or as shall be provided by the order of the court.” (Ill. Rev. Stat. 1981, ch. 17, par. 1556.)
While there is no indication here of an express agreement regarding the interest rate to be paid, it is consistent with the bank’s acceptance of the appointment and its fiduciary duty to the minor to imply an agreement to pay the same rate of interest as the bank paid on similar deposits. (See Hayward v. Plant (1923), 98 Conn. 374, 119 A. 341; see also Annot., 88 A.L.R. 205, 214-17 (1934); Bogert, Trusts & Trustees sec. 598, at 496 (2d rev. ed. 1980).) In the absence of a basis for holding the bank liable for profits from the use of the minor’s funds, the bank’s payment of interest at the market rate leads to the same result as if the bank had taken the funds to any other institution and deposited them in similar accounts. (See In re Moore’s Estate (1905), 211 Pa. 348, 60 A. 991; In re Smith’s Estate.) Thus, the bank’s actions here were proper, and the decision of the trial court approving the bank’s final report and account should be affirmed.