Roland St-Onge:—In this appeal the question is whether property forming part of the estate of Mr Séguin should be included in the property belonging to the estate of his wife, Mrs Léonide (Landes) Séguin.
In his reply to the notice of appeal respondent admits all the allegations of fact in the notice of appeal, which read as follows:
1. The said Marie Léonide Landes and Désiré Camille Séguin were married under the system of separation of property under a contract of marriage concluded on February 11, 1907 before Me Cléophas Domingue, notary, in Montreal, registered June 12, 1951 as No 898992 and containing the following clause:
VI. In the event of death the future spouses mutually bequeath to the Survivor of either of them, who accepts, all the movable and immovable property of the first decedent, for the survivor to use and dispose of in full ownership as property owned by him, without being required to give Surety or have an inventory made thereof: but on condition of preserving and transmitting on his death the residue of the said property to children born or to be born of our future marriage, among whom it shall be divided in equal shares; and the survivor shall be entitled to sell, exchange or mortgage the said property, or perform any other transaction he thinks fit.
In the event that there are no children of our future marriage, our Said property shall revert to our respective families on the death of the last survivor.
2. Two children were born of the marriage of the said Marie Léonide Landes and the said Désiré Camille Séguin, namely:
(a) Marie Paule Séguin, wife of Gérard St Germain, who predeceased her father and mother, leaving her children Monique, René, Jean-Paul. André and Marcel St Germain;
(b) Roméo Séguin, who died after his father but before his mother.
3. Mr Désiré Camille Séguin died on October 2, 1963.
4. Marie Léonide Landes Séguin died on January 10, 1970, leaving a last will and testament made on September 12, 1967 before Me Guy Chatelain and witnesses, in which she appointed appellant her sole executor and trustee, and bequeathed it all her property in trust to make dispositions thereof to certain persons and convey the residue to her aforementioned grandchildren, namely: Monique, René, Jean-Paul, André and Marcel St Germain.
5. Appellant’s powers were extended beyond a year and a day to the entire execution of the said will, and appellant was further instructed to pay the estate duties and taxes resulting from the death of the testatrix.
6. Appellant accepted the said duties of executor and trustee in the estate of Marie Léonide Landes Séguin.
7. On February 1, 1971 the Minister set the revised aggregate net value of the said estate at the sum of $171,288.09, including in it the amount of $78,872.62 as representing property from the estate of Désiré Camille Séguin, over which he alleged that Marie Léonide Landes Séguin had a general power of alienation.
8. The notice of assessment of March 4, 1971 accordingly set the tax assessment at the sum of $17,817.92.
9. On March 12, 1971 appellant filed Notice of Objection under the statute because the assets from the estate of Désiré Camille Séguin, were not part of the estate of Marie Léonide Séguin, and should not have been included in the calculation of the aggregate net value of the latter estate; and independently of the foregoing the sum of $23,000.00 should in any case be deducted from the assets from the estate of Désiré Camille Séguin.
10. On November 8, 1971 a notice of re-assessment was sent to appellant, reducing the tax assessed to $14,158.22, after deduction of the sum of $23,000.00 from the assets from the estate of Désiré Camille Séguin, and rejecting appellant’s Notice of Objection as to the remainder.
This appeal turns on the question of whether, under the marriage contract of February 11, 1907, Mrs Marie Léonide Séguin was competent, immediately before her death, to dispose of her husband’s property. Counsel for the appellant maintains that the phrase “use and dispose of in full ownership” is only a stylistic usage, and that the donor bound the donee, as a condition of making the gift “but on condition of preserving and transmitting the residue of the said property to the children”, and that even though the donor gave the donee the right to sell, exchange or mortgage the property, or perform any other transaction she thought fit, this did not authorize her to execute instruments for valuable consideration, and excluded any right to make a gratuitous disposition inter vivos, mortis causa or by will.
He argued that a substitution was imposed on Mrs Séguin and the legatees took directly from the donor, their father, and not from their mother, the institute; while in contrast to their mother’s rights, the children could dispose of their right to the substituted property gratuitously or for consideration, by instruments inter vivos or by will, or even by intestate succession, within their mother’s lifetime; the mother was not given outright control of the property, and could only alienate it for consideration to provide for her needs; and the proceeds of such instruments of disposition of the substituted property, if not consumed by the institute done-e for her needs, would have to be preserved and transmitted to the legatees when the substitution was terminated in their favour. He denied that the institute donee could keep the proceeds of alienation of the property for herself, or dispose of it by instruments inter vivos or mortis causa.
Accordingly, the assets from the father’s estate under the substitution created by the donatio mortis causa contained in the contract of marriage should not be included in calculating the aggregate net value of the property transmitted on the death of the institute donee.
Counsel for the respondent, on the other hand, categorically denied that the phrase “use and dispose of in full ownership” in clause V of the said contract of marriage was only a stylistic usage; on the contrary, he argued, it was a clear expression of the intention of the spouses, and the phrase “preserving and transmitting on his death the residue” only precluded the mother from disposing of the residue, if any, by will, but during her lifetime she was quite competent to dispose of the said property by instruments inter vivos, gratuitously or for consideration. He concluded that under paragraph 3(2)(a) of the Estate Tax Act Mrs Séguin was competent to dispose of the said property immediately before her death, because under that section she possessed a general power which, since she was sui juris, made her competent to dispose of it within the meaning of paragraph 3(2)(a) of the said Act, which reads as follows:
3. (2) For the purposes of this section,
(a) a person shall be deemed to have been competent to dispose of any property if he had such an estate or interest therein or such general power as would, if he were sui juris, have enabled him to dispose of that property;
He maintained that the mother had this general power to dispose of the property when she thought fit, and was able to exercise this power by instruments inter vivos gratiutously and for consideration, within the meaning of paragraph 58(1 )(i), which reads as follows:
58. (1) In this Act,
(i) “general power” includes any power or authority enabling the donee or other holder thereof to appoint, appropriate or dispose of property as he sees fit, whether exercisable by instrument inter vivos or by will, or both, but does not include any power exercisable in a fiduciary capacity under a disposition not made by him, or exercisable as a mortgagee;
Attempting to arrive at the real intention of the parties to the marriage contract, counsel for the appellant comments on clause VI as follows:
(1) “As property owned by him” means “as if the property belonged to him”. It follows that the property was not owned outright by the survivor.
(2) The exemption from giving surety and making an inventory further indicates that the survivor is not an outright owner, because the surety and inventory are requirements imposed by law on those who are not outright owners (Arts 292, 463, 464, 489, 919, 946, 947 and 955 CC), and the exemption granted would accordingly be wholly redundant in the case of a real owner.
(3) and (4) Preserving and transmitting are two of the fundamental requirements of substitution (Art 925 CC), because preservation is a necessary prerequisite to transmission. The parties have not relied merely on the law, but have taken care to refer expressly in the gift to the obligation to preserve and transmit. This reference leaves no doubt as to their intention.
The obligation to transmit is always mentioned in some way in the fiduciary disposition of the residue, but with very rare exceptions the obligation to preserve is never referred to. Such reference here is extremely significant and unequivocally limits the rights and powers of the institute Survivor over the property.
The obligation to preserve and transmit is an express prohibition on gratuitous disposition, whether by instruments inter vivos or by will, not only of the actual property itself but also of the proceeds of alienations the Survivor may make for consideration during his lifetime, or of property in which such proceeds are invested. As we shall see below the survivor may indeed use for his own needs, namely for his support, funds left by the first decedent or the proceeds of alienation-s, so far as his needs require it, but he may not treat such funds or proceeds as his personal property and so, at the expense of the legatees, avoid his obligation to preserve and transmit, which is expressly imposed by the gift: the survivor is accordingly prohibited from enriching himself, or enriching other persons, at the expense of the legatees.
Income from property included in the gift belongs outright to the survivor, and only when such income is insufficient for his needs may he draw on the capital to make up the difference.
(5) The residue is what must be preserved and transmitted to the legatees. This includes everything that has not been consumed for the needs of the survivor, and may consist of cash in hand or in the bank, investments in securities or real estate, or property in kind left by the first decedent, as well as the proceeds of alienations and property in which these are invested; all of this as it stands “immediately before the death” of the survivor, that is to say at the last instant of his life. At the death of the first decedent, however, the residue is all property included in the gift.
(6) The right to sell, mortgage and exchange property necessarily presupposes contracts for valuable consideration. “Perform any transaction he thinks fit” refers to transactions eiusdem generis, in other words for consideration. A gift is not a transaction.
The powers referred to in this clause are wholly in keeping with the obligation to preserve and transmit the residue, but in addition have the effect of enabling the survivor to pass on a good title to those with whom he contracts, and relieve the latter of the obligation to see that the proceeds are invested.
These powers are the same as those generally conferred on an executor, and are designed to leave no doubt as to his power and capacity to pass on a good marketable title.
In the case at bar the title transferred by the survivor is a good title and not liable to be extinguished by termination of the substitution in favour of the legatees.
The obligation of the survivor towards the legatees is not thereby modified: the selling price or proceeds from a loan are part of the residue, which must be preserved and transmitted to the legatees, subject to tne right of the survivor to draw from it during his lifetime whatever is necessary for his support.
(7) The reversion of the residue to the families of the future spouses, in the event that there are no children at the death of the survivor, is a further indication that the residue is not a part of the latter’s estate, whether he dies intestate or makes a will.
Counsel for the appellant added:
The foregoing demonstrates, without the shadow of a doubt, that Marie Léonide Landes did not have the capacity, in respect of the property included in the gift, to do the last thing that any living person can do, namely bequeath it by will, nor, immediately before her death, sign a deed of sale, without the proceeds of the sale becoming part of the residue to be transmitted to the legatees.
Care should be taken not to apply the “general power to dispose of” referred to in the Estate Tax Act blindly to all cases of residuary substitution.
In some cases the mere fact of alienating a thing has the effect of finally removing it from the substitution as against all claimants, and the rights of legatees are then to that extent wholly extinguished.
In other cases, the thing itself is removed from the substitution, but is replaced by the proceeds of the alienation, and these proceeds must be preserved and transmitted to the legatees because they are part of the residue.
In the latter case, needless to say, only what the institute has not used for his needs is excluded from the residue, because so far as the institute or the legatees are concerned, what has been used no longer exists.
To this counsel for the respondent replied that this was not a fiduciary disposition of the residue, but rather a fiduciary substitution with a power to alienate indefinitely, consistent with Article 952 of the Civil Code, which reads as follows:
The grantor may indefinitely allow the alienation of the property of the Substitution, which takes place, in such case, only when the alienation is not made.
He argued that the clauses “to use and dispose of in full ownership as property owned by him, without being required to give surety or have an inventory made thereof” and “the survivor shall be entitled to sell, exchange or mortgage the said property, or perform any other transaction he thinks fit” are sufficient proof that the said Mrs Séguin was entirely competent to dispose of the said property by instruments inter vivos immediately before her death, in accordance with paragraph 3(2)(a) of the Estate Tax Act, whatever the length of time for which this power had existed before her death. In the view of counsel for the respondent, the spouses wished above all to provide for the needs of the survivor, because of the clause “on condition of preserving and transmitting on his death the residue of the said property without being required to give surety or have an inventory made thereof”.
He referred the Board to certain cases, including Brais v Dame Fortier, [1955] SC 222, in which Challies, J saw the phrase “without being required to give surety or have an inventory made thereof” as emphasizing the meaning of “use and dispose of in full ownership”.
He interpreted clause VI of the marriage contract as imposing only one limitation on the power of alienation, that of devising the said residuary property.
Clause V of the marriage contract contains sufficient provisions in favour of the last survivor to make Mrs Séguin competent to dispose of the property transmitted by her husband. There is nothing in the contract to indicate that she was obliged to use the property transmitted only for her support. On the contrary, she enjoyed all the powers of an owner, which made her competent to dispose of it under paragraph 3(2)(a) of the Act.
It is true that if there was anything remaining of the property transmitted by her husband, she could not have disposed of this by will, but apart from that provision she had before her death all the other powers of an owner.
In my opinion, the intention of the parties to the contract was to leave the survivor all the property, to use and dispose of the same as property owned by her, but if any remained on her death, she could not bequeath this by will.
Accordingly it is clear that during her lifetime she was competent to dispose of the property transmitted by her husband. Moreover, paragraph 3(2)(a) defines as competent to dispose of property any person who had an estate or interest therein. Mrs Séguin had a sufficient interest in the property to be competent to dispose of it, even though she could not do so by will. The appeal is accordingly dismissed.
Appeal dismissed.