FOURNIER, J.:—This is an appeal by the executors of the estate of George Arthur Drummond, late of the city of Montreal, in the Province of Quebec, from an assessment dated April 15, 1952, made under the Dominion Succession Duty Act, Statutes of Canada, 1940-41, c. 14 and amendments.
Mr. Drummond died on or about December 19, 1948, leaving an estate of a gross value of $1,443,205.81. In their return to the Dominion Succession Duties Department the executors claimed as a deduction from the gross estate the sum of $344,000, being the capitalized value of monthly annuities payable to Mrs. Zdenka Drummond and to Georgette Patricia Marie Drummond under an agreement between the deceased and Mrs. Zdenka Drummond. The Department, in its assessment, disallowed that item as a deduction. An appeal was taken and, so far as that item was concerned, it was disallowed and the assessment affirmed by the Minister on the ground that the assessment had been made in accordance with the provisions of the Act and in particular that the amount not being a debt created for full consideration in money or money’s worth had been properly disallowed as a deduction under the provisions of paragraph (a) of subsection
(2) of Section 8 of the Act. The appellant having given notice of dissatisfaction, the matter came before this Court.
The facts, based on documents filed at the trial by the appellant and admitted by the respondent, may be summarized as follows:
George Drummond was married in 1935 to Yvonne Zdenka. A child, Georgette Drummond, only issue of their marriage, was born on December 31, 1936. The wife obtained a divorce from her husband by an Act of Parliament on June 3, 1939. Subsequently to the divorce, to wit on July 20, 1939, George Drummond entered into an agreement with his former wife by the terms of which he provided monthly allowances for his ex-wife and for his daughter.
The agreement was signed and executed in the city of London, England. The parties agreed and declared that all the covenants and provisions should be deemed to have been made and executed at the domicile of George Drummond, in the city of Montreal, and interpreted for all purposes by the laws of the province of Quebec.
The Preamble of the agreement at the outset states that by a contract of marriage dated May 28, 1935, George Drummond had agreed to pay to his future wife a sum of $60,000, which sum was paid as Mrs. Drummond admits having received. A further sum of $10,000 was also received by Mrs. Drummond from her husband. It is declared that their marriage had been legally dissolved and
“WHEREAS it is the intention and wish of Mr. Drummond notwithstanding the said divorce and the said Marriage Contract (now at an end) to respect and satisfy a natural obligation towards Mrs. Drummond and to provide for her maintenance in manner following and subject to the terms and conditions hereinafter provided in full discharge of all and every liability howsoever imposed on Mr. Drummond for maintenance and/or alimony as Mrs. Drummond hereby accepts and admits by her signature to this agreement.
AND WHEREAS MR. Drummond and Mrs. Drummond have one child only issue of their marriage namely Georgette Patricia Marie Drummond born on the Thirty first day of December One thousand nine hundred and thirty six . . . and Mr. Drummond has agreed to pay such annuity and/or allowance to and for the benefit maintenance and education of the child in manner hereinafter provided in full discharge of all and every liability howsoever imposed on Mr. Drummond for maintenance of the child during her minority as Mrs. Drummond by her signature hereby admits.
NOW THIS DEED WITNESSETH as follows:
1. IN pursuance of the said agreement and for good and valuable consideration which Mr. Drummond acknowledges to have received to his entire satisfaction and in consideration of the premises Mr. Drummond hereby irrevocably covenants with Mrs. Drummond with warranty and guarantee that the annuities or sums of money hereinafter mentioned will be duly paid to her as follows : . . . ”
Then the deed provides that Mr. Drummond will during the whole period of the life of his former wife pay to her every month a certain sum for her sole and separate use and benefit and for the maintenance and support of herself. It also provides that he will pay to her for their child during the child’s lifetime a certain sum every month for her sole and separate use and benefit and for the support and maintenance of herself— the amounts to be paid to the mother until such time as the child shall attain the age of 21 or marry under that age. These allowances are to be expended by her for the sole use and benefit and for the maintenance and education of the child. By the deed Mrs. Drummond becomes entitled to the sole custody, control, maintenance and guardianship of the child while a minor under the age of 21 and unmarried, Mr. Drummond agreeing not to interfere in the management, education or bringing up of the child.
There remains clause 2 of the agreement which was urged by counsel for the appellant as a consideration.
“2. That Mrs. Drummond will out of Mrs. Drummond’s annuity or Mrs. Drummond’s increased annuity as the case may be at all future times support and maintain herself and so long as the child’s annuity and child’s increased annuity as the case may be shall be paid to her under the provisions of this Deed shall support maintain bring-up and educate in a manner suitable to her position in life the child and pay for all such board lodging clothes tuition and other matters ordinary and extraordinary as Mrs. Drummond or the child may require regardless of whether the child’s annuity or the child’s increased annuity as the case may be be sufficient of itself to pay for the said requirements.”
As to the verbal evidence, it established that the terms of the agreement were implemented, during the lifetime of the deceased, and on his instructions, by the Royal Trust Company, out of his personal management account, and after his death, out of his estate, and the sums specified still continue to be paid. The payments are charged to the income of the estate and the surplus dealt with in accordance with the terms of the will.
A statement of the capitalized value of the monthly annuities specified in the agreement of July 20, 1939, was filed as Exhibit A-6. It shows the value as at December 19, 1948, of the annuities to Yvonne Zdenka Drummond and to her daughter. The capital value of Mrs. Drummond’s annuities is $230,300 and that of the child’s $114,500.
By his last will the deceased named and appointed the appellant sole executor and trustee and disposes of his estate in part to his daughter and in part to his former wife, with considerable details and complications should one or the other live.
Clause 3 of the will provides as follows:
“I direct my Executor to pay all my just debts, funeral and testamentary expenses as soon as possible after my death and I further direct that all succession or legacy duties, seizin tax or estate or inheritance taxes on my property or Estate or any part thereof, and all other taxes on my Estate, shall be paid out of the capital of my Estate.”
No particular mention is made of the annuity agreement, nor is it cancelled or interfered with in any way.
Counsel for the appellant contends that the capitalized value of the annuities created by agreement between Mr. Drummond and his former wife constitutes a debt which by the provisions of Section 8(1) (a) of the Act is deductible as an allowance from the gross estate. On the other hand, counsel for the respondent argues that the liability of the deceased, or his estate, purported to be created by the agreement does not constitute a debt created bona fide for full consideration in money or money’s worth wholly for the deceased’s own use and benefit and to be paid by his estate ; it is barred as a deduction by the provisions of Section 8(2) (a). The relevant parts of this section read as follows:
‘ 8. (1) In determining the aggregate net value and dutiable value respectively, an allowance shall be made for debts and encumbrances . . .
(a) any debt or encumbrance charged upon or payable out of property passing to a successor shall be deducted from the value of that property ;
(2) Notwithstanding anything contained in the last preceding subsection allowance shall not be made,
(a) for any debt incurred by the deceased or encumbrance created by a disposition made by him unless such debt or encumbrance was created bona fide for full consideration in money or money’s worth wholly for the deceased’s own use and benefit and to be paid out of his estate ;’’
To succeed with the claim of deductibility, the appellant must show that it comes within the ambit of the provisions of the above section and subsections of the Act. It must be established that the terms of the agreement indicate in fact and in law that a debt was incurred or an encumbrance created; that it was incurred or created, as the case may be, for full consideration; that the consideration be in money or money’s worth; that it was wholly for the deceased’s own use and benefit; that it was to be paid out of his estate.
As to it being a debt, the deed states that Mr. Drummond irrevocably covenants with his former wife with warranty and guarantee that the annuities or sums of money mentioned will be duly paid to her by him during his lifetime and that the covenants and provisions of the deed shall inure to the benefit of and be binding upon the respective parties and their heirs, executors, administrators, successors and assigns and shall be deemed to have been made and executed at Montreal, in the province of Quebec, and interpreted for all purposes by the laws of the province of Quebec.
The general provisions of obligations are dealt with in articles 982 and 983 of the Civil Code.
“982. It is essential to an obligation that it should have a cause from which it arises, persons between whom it exists, and an object.
983. Obligations arise from contracts, quasi-contracts, . . . and from the operation of the law solely.”
The requisites to the validity of contracts are :
“984. There are four requisites to the validity of a contract:
Parties legally capable of contracting;
Their consent legally given;
Something which forms the object of the contract;
A lawful cause or consideration.”
The document under review was signed and executed by parties legally capable of contracting. Their consent seems to have been legally given. The payment of monthly allowances to his former wife and their child was the object. Was there a legal consideration which met the terms of or fell within the meaning of the following words of Section 8(2) (a) of the Act: ‘for full consideration in money or money’s worth wholly for the deceased’s own use and benefit to be paid out of his estate’’?
A perusal and analysis of the agreement should give the answer to the question of whether or not the value of certain annuities as at December, 1948, is deductible for succession duty purposes under the Act.
The agreement declares in its preamble that a marriage contract had existed between the parties; that its obligations had been fulfilled plus an additional amount of $10,000 paid by Mr. Drummond to his former wife. The marriage contract had come to an end. Counsel for the appellant mentioned that there was no longer any claim under the marriage contract. The marriage had been dissolved by divorce. The parties, therefore, were no longer man and wife ; they were strangers to each other.
Under those circumstances, Mr. Drummond, in a signed document, sets out his intention and wish to satisfy a natural obligation towards his former wife and provide for her maintenance in full discharge of all and every liability imposed on Mr. Drummond for maintenance and/or alimony as Mrs. Drummond accepts and admits by her signature of the agreement. So the obligation to pay for maintenance and/or alimony has the satisfying of a natural obligation and the discharge of some liability as its cause or consideration. What natural obligation and what liability?
I find nowhere in the Civil Code any legal obligation to pay for the maintenance of/or alimony to strangers. As to natural obligations, they are recognized by the civil law, but with limitation. Article 1140 of the Code reads:
‘1140. Every payment presupposes a debt; what has been paid where there is no debt may be recovered.
There can be no recovery of what has been paid in voluntary discharge of a natural obligation.”
It follows that a natural obligation is not enforceable in law. By indulging in one’s wish to satisfy a natural obligation one satisfies an obligation which cannot constitute a consideration in money or money’s worth wholly for the benefit and use of that person. Also the payment of monthly allowances to obtain discharge of non-established or non-existent liabilities cannot be said to be for full consideration in money or money’s worth.
Counsel for the appellant urged that the agreement was not a gift but a bilateral undertaking with mutual consideration; I cannot agree with this contention. But even if it were, it does not of necessity follow that the consideration was appreciable in money or money’s worth.
Billette—Traité de Droit Civil Canadien—Donations et Testaments—Vol. 1, p. 227, No. 305, describing the essential elements of a gratuity, says:
“305. Ce qui caractérise à proprement parler une libéralité ou gratuité, c’est l’absence de contrepartie à la prestation ou à l’obligation. . . . Il n’y a que la prestation, appréciable en argent, actuelle ou future, qui puisse servir de contrepartie à une obligation ou prestation dans un contrat onéreux. Il suit que seront aussi considérées des libéralités ou gratuités, les obligations ou prestations qui auront pour contrepartie, une obligation ou prestation non appréciable en argent.”
It is contended that the terms of clause 2 of the deed is paramount to a contract of hire of the services of Mrs. Drummond by Mr. Drummond to take care of their child. Let us read the clause.
“2. . . . That Mrs. Drummond will out of Mrs. Drummond’s annuity or Mrs. Drummond’s increased annuity as the case may be at all future time support and maintain herself .. .”?
This is the first obligation—she will maintain herself out of her annuity.
And elause 2 continues as follows :
“. . . and so long as the child’s annuity and child’s increased annuity as the case may be shall be paid to her under the provisions of this Deed shall support maintain bring-up and educate in a manner suitable to her position in life the child and pay for all such board lodging clothes tuition and other matters ordinary and extraordinary as Mrs. Drummond or the child may require regardless of whether the child’s annuity or the child’s increased annuity as the case may be be sufficient of itself to pay for the said requirements.”
All that this agreement pledges Mrs. Drummond to do is to satisfy her own legal obligation to maintain and bring up the child with her means. The divorce had dissolved the marriage, but it had not affected the relationship of father and mother to the child nor the obligation resulting from that relationship. Both the father and the mother were obliged to see to the maintenance of their child. This is a legal obligation clearly expressed in the following articles of the Civil Code.
“165. Husband and wife contract, by the mere fact of marriage, the obligation to maintain and bring up their children.
168. The obligations which result from these provisions are reciprocal.
169. Maintenance is only granted in proportion to the wants of the party claiming it and the fortune of the party by whom it is due.”
The obligations of the parties towards their child were fixed by law and an agreement between the father and the mother could not release one or the other of their obligation to maintain and bring up their child. The mother had means. She had received $70,000, as acknowledged by her in the agreement, and she was receiving a considerable monthly allowance. By agreeing to supplement the child’s allowance if she or the child, not the father, thought it was necessary, she was only doing her duty by her child and fulfilling her obligation as provided by law. She was not doing something for the benefit or use of the deceased, nor something which could be a consideration or constituting a debt due by the father.
The second purpose of the agreement is set out in the preamble and reads:
‘AND WHEREAS Mr. Drummond and Mrs. Drummond have one child only issue of their marriage namely Georgette Patricia Marie Drummond . . . Mr. Drummond has agreed to pay such annuity and/or allowance to and for the benefit maintenance and education of the child in manner hereinafter provided in full discharge of all and every liability howsoever imposed on Mr. Drummond for the maintenance of the child during her minority . . .”?
But the agreement goes further, it provides the child with an allowance for her lifetime. To that undertaking he was not obligated by law. He was only partly responsible for the maintenance and the bringing up of his child during his lifetime. He agreed to pay the allowances in proportion to his income. The whole scheme was based on his income. They varied with his in- come, increased or decreased with the variations in the amount of his income. I believe this to be the correct interpretation of the terms of the deed. This being so, his personal income ceased on his demise and his instructions and directions to his executor to continue paying the allowances were not based on any legal obligation or debt incurred for full consideration in money or money’s worth for his benefit or use.
In the deed it is declared that its covenants and provisions will inure to the benefit of and be binding on the parties and their heirs, executors, administrators, successors and assigns. How could they be binding on the heirs, executors, administrators of Mrs. Drummond? Would they continue receiving the annuities and take care of the child? I can more easily see how they could be binding on Mr. Drummond’s executors who would attend to the management of his property.
The deed was implemented before his death out of his personal management account and after his death out of his estate. The allowances were not paid out of his capital but of his income. After his death, the payments were made out of his estate and entered into a separate account. There was no transfer of property to guarantee the payments and no part of the deceased’s estate was ever set apart, neither in the deed nor in the will, for the implementation of the undertaking. It seems to have been assumed that the annuities were debts payable on a variable scale in proportion to the income. So the amounts of the deceased’s income or the revenues of his estate were undetermined. This being the case, it would be impossible to determine the capitalized value of such conditional annuities or allowances and to divert from his succession any part of his estate for the payment of same. An obligation was undertaken but without legal cause or consideration.
I have read all the references made to me but could find no case cited in which the facts had any similarity with those established herein or could have led me to think that the decisions would have any bearing in the present litigation.
I am of the opinion that at the time of Mr. Drummond’s death, the capitalized value of the monthly annuities or allowances he instructed and directed his executor to pay after the event to his former wife and to his child was not exempt from the taxing provisions of the Dominion Succession Duty Act.
The undertaking to provide and the payment of the annuities were based on a natural obligation in one case and a non-existent obligation in the other. In neither case was there the legal obliga- tion to incur or create a debt or encumbrance within the meaning of the provisions of Section 8(2) (a) of the Act.
Therefore, I find that the capitalized value of the annuities provided by the deed and payable after the deceased’s demise was not debts or encumbrances created bona fide for full consideration in money or money’s worth, wholly for the deceased’s own use and benefit, and to be paid out of his estate, and is not deductible for succession duty purposes.
For the above reasons, the Court confirms the Minister’s assessment and dismisses the appeal with costs.
Judgment accordingly.