The Illinois Supreme Court has struck down one of the most common ways that banks handle money in the estates for which they serve as guardian. The ruling, written in a way that allows Illinois banks to change their practices and avoid civil liability, is likely to prompt financial institutions in other states to reexamine their fiduciary responsibilities as well.

The investment under scrutiny in In re Estate of Swiecicki was perfectly safe and conventional: The money that belonged to the minor for whom the bank was serving as guardian was put into insured savings accounts and certificates of deposit at the bank. The bank then took that money and did what it does with all its depositors' funds: It lent it out to commercial borrowers at interest rates significantly above those it paid the depositor. As the state justices saw it, this meant the bank was keeping profits that it was earning from the minor's funds. And it is against the law for a guardian to use the assets of an estate to turn a profit for himself -- or itself.

The irony is that Illinois law specifically lists savings accounts and certificates of deposit as appropiate repositories in which a guardian can invest a ward's property. Had the bank opened the accounts at a competing institution, there would have been no controversy: Such a decision clearly would be the kind of prudent investment appropriate for a child's inheritance. The bank argued that it makes little sense to allow another institution to make a profit by loaning out money the first bank deposits while forbidding the guardian bank to treat the money the same way.

The state high court, however, based its ruling on a sharp distinction between the duties a bank owes its depositors and the duties any fiduciary owes its wards. If the bank takes the money to another institution -- as most Illinois banks in similar situations now probably will do -- that second bank has no special obligation to the child. But according to the April 19 ruling, the bank as guardian has an obligation of "loyalty" that includes a duty to turn over to the estate any gain made with the estate's assets.

In other cases, courts ruled that:

* Tax investigators may not be entitled to get from a lawyer records they cannot get from the target of their probe. The U.S. Court of Appeals in San Francisco turned back an effort by federal prosecutors to get documents that a grand jury thought might show criminal violations of the tax laws. The U.S. District Court judge had sided with the prosecutors, saying that since the documents belong to the taxpayer, the lawyer who has them in his office has no right to refuse a subpoena, even if the papers might be incriminating. But the higher court says that the trial judge has to look into why the lawyer has the material. If the taxpayer turned it over in order to get legal advice about the situation spelled out in the papers, then the subpoena cannot be enforced. The ruling applies only to personal papers; documents owned by a corporation under investigation would have to be turned over to the grand jury. (U.S. v. Robert Terry, May 8)

* A company cannot stop its sales personnel from working the same territory when they quit to join a competitor. The U.S. Court of Appeals in New Orleans refused to enforce a covenant a chemical company had made with former employes that barred them from selling similar products in the same territory, calling such a sweeping ban contrary to public policy. The decision suggests that had the ban been limited to solicitation of a few key accounts, the courts would have found it valid. (NCH Corp. v. Share Corp., April 22)

* Just hanging around an illegal business makes you a suspect. Generally, a search warrant must be quite specific about what the police can search. But the Minnesota Supreme Court recently okayed a warrant authorizing the search of "all persons present on the premises" of a business suspected of breaking the law, even though the justices agreed that usually such broad wording would invalidate the warrant. The reason for the exception: The "premises" housed an establishment where, police believed, the owners sold liquor after legal closing hours and ran gambling operations. Anyone in such a place may be assumed to be a fair suspect, the justices decided.(State v. Hinkel, April 12)

* It's not a deceptive practice for a company to employ "inept" representatives. A homeowner who had paid an exterminator to rid her home of termites sued under a South Carolina state Unfair Trade Practices Act claiming fraud when a company inspector some years later assured her the place was still termite-free, even though the representative of a competing company found termite tunnels. As part of the original contract, the exterminator had promised a second treatment free if the pests returned. The jury was sympathetic to the woman's claims, but the U.S. Court of Appeals in Richmond decided that nothing she alleged added up to fraud. All she showed was that the inspector was negligent, the judges ruled. (Clarkson v. Orkin Exterminating, May 13)