The Assistant Chairman:—The appellant is appealing against the assessment made by the respondent on June 15, 1972, after he had added the sum of $70,000 to the aggregate net value of the estate of Honoré Hawey under the provisions of paragraph 3(1 )(m) and 5(a) of the Estate Tax Act.
The pleading of counsel at the hearing was completed by the subsequent production of written notes.
The facts in this case are as follows: Honoré and René Hawey, two brothers (hereinafter called “Honoré” and “René”), each held an equal number of common shares of the stock of Cantin & Fils Limitée (“Cantin”) and of Immeubles RE-HO Inc (“Re-Ho”).
1. By notarized deed dated May 30, 1967 (exhibit A-1), Honoré undertook to sell for the account (upon his death) 40 per cent of his common shares of the Cantin stock and all his Re-Ho shares to his brother René who undertook to purchase them; by notarized deed dated May 30, 1967 (exhibit A-2), René also undertook to sell for the account (upon his death) 40 per cent of his common shares of the Cantin stock and all his Re-Ho shares to his brother Honoré who undertook to purchase them.
2. For the purpose of securing the money necessary for the eventual purchase of the shares, the two brothers had taken out life insurance policies, the following of which were effected on the life of Honoré by Rene who was the owner and beneficiary thereof:
| 29/05/61 | Dominion Life | #454373 | $50,000.00 | |
| 10/06/64 | National Life | #322831 | 50,000.00 | |
| 03/03/67 | Dominion Life | #454371 | 25,000.00 | |
| Total | $125,000.00 | |||
Honoré had taken out the following policies on the life of René and he was the owner and beneficiary thereof:
| 10/02/67 | Westmount Life | #7122 | $150,000.00 | |
| 13/04/64 | National Life | #322832 | 50,000.00 | |
| Total | $200,000.00 | |||
3. Honoré had also taken out on his own life the following insurance policies, valued at $70,000, of which he was the owner and his legal heirs the beneficiaries:
| 28/02/67 | Sun Life | #6222856 | $15,000.00 |
| 11/11/59 | Crown Life | #832350 | 10,000.00 |
| 20/04/60 | Crown Life | #849827 | 10,000.00 |
| 28/08/58 | Sun Life | #2851021 | 10,000.00 |
He was also the owner and René the beneficiary of the following policy:
| 21/02/67 | L’Industrielle | #11321723 | $25,000.00 | |
| Total | $70,000.00 | |||
The point at issue in this case is the $70,000 worth of insurance that Honoré had taken out on his own life. The appellant alleges that the said insurance policies did not belong to Honoré immediately prior to his death and that they should not be included in the calculation of the aggregate net value of his estate. The respondent, however, contends that immediately prior to his death Honoré possessed and held over the said policies all the powers listed in paragraph 3(5)(a) of the Estate Tax Act.
The Board takes note of the point raised by counsel for the respondent during his cross-examination to the effect that there was an error in the notarized deeds (exhibits A-1 and A-2) regarding the designation of the ownership of certain insurance policies which Me Jacques Taschereau, who drew up the deeds, had, moreover, admitted. However, since in his reply to the notice of appeal counsel for the respondent has admitted paragraphs 4, 5 and 6 of the notice of appeal regarding the precise designation of ownership of the said policies described above, the Board will accordingly take into account only the designation made in the notice of appeal.
It is obvious that the purpose of the notarized deeds was to enable René or Honoré to obtain, as agreed, the necessary capital to purchase the Cantin and Re-Ho shares upon the death of either one of them (paragraph 1 of exhibits A-1 and A-2).
These deeds by which the parties had taken the necessary provisions to achieve their intended goal constitute, in my opinion, a master agreement in the light of which the transactions pertaining to the said insurance policies must be studied. Even though we have to analyse their merits, we should not lose sight of the fact that they are part of an overall plan which clearly shows that the two brothers’ intent, the arrangements they made and their intended aim were very clear and precise.
Counsel for the respondent contends that the object of the notarized deeds, dated May 30, 1967, could not have been the absolute assignment of all the rights and interests in the said insurance policies to the Royal Trust Company in its capacity as trustee, since the said deeds do not contain any express provision to that effect. Paragraph 5 of exhibit A-1 states:
(Translation)
The Royal Trust Company, as trustee, is authorized to collect the proceeds of the following insurance policies on the life of Mr Honoré Hawey at the time of the latter’s death:
(there follows a list of insurance policies on the life of Honoré, including the policies worth $70,000 taken out by Honoré on his own life; the italics are mine.)
Paragraph 7 of the same exhibit reads:
(Translation)
The trustee shall, at the time of death of the Party of the First Part, apply the insurance sum to the purchase price of the shares and other assets that they have undertaken to purchase under the present agreement;
And paragraph 8:
(Translation)
In the event of the death of the Party of the First Part, the trustee is authorized to withdraw and collect from any insurance company that has issued policies for the purposes of this agreement, the proceeds of the said insurance policies, to give release and to dispose thereof in accordance with the terms of this agreement for the purchase of the shares of the Party of the First Part, which shall be sold by his estate;
Even though this deed (exhibit A-1) does not contain any express provision for the assignment of the rights and interests in the said insurance policies to the Royal Trust Company, the fact nonetheless remains that according to the intent of the parties, this company, according to the clauses of the deed, was more than an ordinary beneficiary since it had not only the right but the obligation to collect the proceeds of the policies, to apply them to the purchase price of the shares in question and to hand the shares over to the surviving brother.
According to counsel for the respondent, it may be that the Royal Trust Company could be recognized as the new beneficiary, but I am not of the opinion that the intent of the parties was other than to designate a new beneficiary.
The type of business conducted by the Royal Trust Company and the obligations described in the deed, which the parties had imposed on the company, clearly indicate that the contract was a reciprocal conditional promise to purchase shares, and a mutual assignment of insurance policies which would ensure payment of the price of the shares through the Royal Trust Company as trustee.
The deed (exhibit A-1) or the intent of the parties does not differentiate between the $70,000 worth of insurance taken out by Honoré on his own life and the $125,000 worth of insurance taken out by René on Honoré’s life. The total $195,000 worth of insurance taken out on Honoré’s life was exchanged for the total $200,000 worth of insurance taken out on René’s life.
As of the date of signature of the deeds, May 30, 1967, René was to pay Honoré’s life insurance premiums and the respondent acknowledged that René had paid them up to Honoré’s death.
Paragraph 11 of the deed (exhibit A-1) states that should the agreement expire for any one of the reasons set out in paragraph 10 of the deed, Honoré had the right to surrender all or part of the insurance policies taken out on his life by paying the cash surrender value thereof to René.
Counsel for the respondent believes that it is illogical and unreasonable to recognize in the clauses of the deed the authority to transfer all of Honoré’s rights in the policies that he had personally taken out on his own life.
In the light of the parties’ intended aim and the means they had taken to achieve it; the powers that the deed granted to and the obligations it imposed on the Royal Trust Company; René’s payment of all of Honoré’s life insurance premiums; Honoré’s obligation upon cancellation of the agreement to surrender his life insurance policies by paying the cash surrender value thereof to René, a right of which René availed himself on the death of Honoré by paying $8,400 to Honoré’s estate, the amount it has inherited and which was included in the aggregate net value of the said estate, is it really so illogical to think that there may have been a transfer of Honoré’s rights in the insurance policies that he had personally taken out on his own life and that were part of the set of policies exchanged with those of René in order to achieve the intended goal? I do not think so.
In my opinion, on the signing of the deeds (exhibits A-1 and A-2) which clearly reflect the parties’ intent, the rights in the insurance policies on the lives of Honoré and René were transferred reciprocally, so that Honoré did not own the said insurance policies immediately prior to his death and did not hold the powers listed in paragraphs 3(1 )(m) and (5)(a) of the Estate Tax Act.
Have the rights Honoré held in the insurance policies, which are at issue in this case, been assigned to René against payment?
In this transaction, an exchange is involved. René had taken out insurance on Honoré’s life and Honoré had taken some out on his own life, and the rights therein had been assigned to René who paid the premiums. On the other hand, Honoré had taken out insurance on René’s life and paid the premiums thereon. If René had died, the proceeds of those insurance policies would have been used by the Royal Trust Company to redeem René’s shares in Cantin and Re-Ho on Honoré’s behalf.
The fact that Honoré had included in the exchange transaction insurance policies that he had himself taken out on his own life in order to arrive at an amount of insurance comparable to that which he had taken out on René’s life is immaterial. Although it can be deduced that Honoré’s outlay was perhaps larger than René’s, the fact nonetheless remains that the value Honoré had received in the transfer of all the insurance policies, including the one at issue here, is constituted by the aggregate of the rights which gave rise to the possibility of achieving the goal that the two brothers had set for themselves in the agreement they had signed on May 30, 1967. Furthermore, in view of the fact that, after the date of signature of the agreement, it was Rene who paid the premiums on the insurance policies taken out by Honoré on his life, it is difficult to conclude that the said insurance policies were exchanged against any payment, and in my opinion, there can be no question of a gift as contended by the respondent, and consequently, the provisions of articles 804 and 806 of the Civil Code do not apply.
There is no doubt about the fact that René’s and Honoré’s insurance policies were handed over to the notary on behalf of the Royal Trust Company in its capacity as beneficiary and trustee. Was notice of the assignment of the policies and the change in ownership served on the insurance companies? According to its letter dated November 10, 1970, addressed to the Minister of National Revenue with the appellant’s consent, and attached to the respondent’s written notes, the Crown Life Insurance Company was not certain that the deed (exhibit A-1) transferred ownership from Honoré to René. In order to Clear itself of any responsibility in the matter, the said company required that the executors of the estate of Honoré Hawey submit an affidavit, which reads as follows:
(Translation)
ESTATE OF HONORE HAWEY
We the undersigned, Dame Gisèle Hawey and Lucien Poitras, Royal Trust Company, Co-executors and trustees of the estate of Honoré Hawey, who died on April 11, 1970, declare that:
i—Under a business insurance contract drawn up before Me Jacques Taschereau, Notary, dated May 30, 1967, under No. 6896, under the terms of which the Royal Trust Company was appointed trustee of the said insurance contract;
2— In the said business insurance contract, Honoré Hawey had taken out on his life insurance policies in which he had designated as beneficiary by the said contract his brother, René Hawey;
3— Consequently, in order to observe the clauses of the said contract, we authorize the Crown Life Insurance Company to pay the Royal Trust Company, as trustee of the insurance contract between Honoré Hawey and René Hawey, dated May 30, 1967, the proceeds of insurance policies Nos. 832350 and 849827.
(Signatures) (Mme Gisèle Hawey) (R. Massicotte) Mme Gisèle Hawey R. Massicotte (Lucien Poitras) (R. Massicotte) Lucien Poitras R. Massicotte SWORN BEFORE ME, at Quebec City this 18th day of August 1970. (I. McCartney) Isabel McCartney
Three. points emerge from this affidavit:
1. Notice of the designation of René as beneficiary of the insurance policies in Honoré’s name was served on Crown Life. Should that lead to the conclusion that the deed (exhibit A-1) only named a new beneficiary and did not assign and transfer the ownership rights from Honoré to René?
I do not believe that such a conclusion is called for since the purpose of the affidavit was merely to designate to whom the insurance company was to pay the proceeds of the insurance. Where tax is concerned, we must go further in order to determine whether the deed (exhibit A-1) transferred the ownership rights. To do so the agreement as a whole and the main intent of the parties to the signing of the deed must be studied.
2. The third paragraph of the affidavit authorized the Crown Life Insurance Company to pay the Royal Trust Company as trustee the proceeds of the insurance policies in observance of the clauses of the said agreement between the two brothers. It seems that the affidavit does confirm Honoré’s and René’s intent to constitute a contract for the reciprocal conditional promise to purchase shares and for the mutual assignment of the insurance policies, which would ensure payment of the price of the Cantin and Re-Ho shares.
3. Notice of the change in the insurance policies was served on Crown Life in the form of a copy of the deed (exhibit A-1). It should therefore be concluded that in order to be able to pay the party concerned the proceeds of the said policies of which Rene, in my opinion, was the owner, notice of such change had to be served on the other insurance companies involved.
It is true that such notice was served on the insurance companies in question only after Honoré’s death. However, the evidence shows
—and this was not refuted—that insurance companies accept such notices of change after the death of the insured. Also according to the evidence, the insurance companies concerned recognize that this change was made on the date of the notarized instrument or through other acceptable documents. Moreover, no insurance policy stipulates that notice of any change in beneficiary or owner must be served before the death of the insured. Notice of the assignment of ownership rights in the insurance policies taken out by Honoré on his life, as well as those taken out by René on Honoré’s life, was duly served on the insurance companies concerned.
The respondent raises a right of incontestability and bases his contentions on the following points:
(a) The insurance policies taken out by Honoré were assigned free of charge and the assignment was not registered in accordance with articles 804 and 806 of the Civil Code;
(b) Notice of the assignment, even if it is considered an assignment for valuable consideration, was never served on the insurers and was never registered at the head office of the insurance companies before the death of Honoré Hawey.
Undoubtedly there are disputes in which the respondent can be recognized as a third party and others where he cannot because of cir- cumstances. In general, however, the respondent cannot have either more or fewer rights than any other third party.
From the context which describes the transaction in the deed (exhibit A-1), the evidence on file and the facts of this case, I conclude that the insurance taken out by Honoré on his life had been assigned to René against payment on the signing of the agreement (between the two brothers) and that notice of the change in assignment of Honoré’s rights in the said insurance policies, even though served after Honoré’s death, is valid and opposable to third parties, including the respondent.
For these reasons I hold that Honoré Hawey did not, immediately prior to his death, own the insurance policies taken out by him on his life within the meaning of paragraph 3(1 )(m) of the Estate Tax Act, and he did not have a general power which would have enabled him to do one or more of the things mentioned in paragraph 3(5)(a). The proceeds of the said insurance policies in the amount of $70,000 should not have been included in the aggregate net value of the estate of the late Honoré Hawey.
The appeal is therefore allowed and the matter referred back to the respondent for reassessment accordingly.
Appeal allowed.