This
appeal
bears
upon
the
question
of
whether
these
shares
subsequently
vested
indefeasibly
in
a
spousal
trust
established
under
the
terms
of
Mr.
Greenwood's
will.
A
positive
response
to
the
question
has
the
effect
of
deferring
payment
of
taxes
on
a
substantial
portion
of
the
taxable
capital
gains
in
accordance
with
the
spousal
rollover
provisions
of
the
Income
Tax
Act,
R.S.C.
1952,
c.
148
(am.
S.C.
1970-71-72,
c.
63)
(the
"Act"),
subsection
70(6)
and
paragraph
40(1
)(a).
A
negative
response
dictates
that
the
full
amount
is
payable
for
the
taxation
year
in
question;
see
subsection
70(5)
and
paragraph
104(23)(a)
of
the
Act.
The
learned
trial
judge
arrived
at
the
latter
conclusion.
The
appellants,
in
their
representative
capacities
as
the
executors
and
trustees
of
Mr.
Greenwood's
estate,
seek
to
convince
us
that
she
erred
in
law.
1.
Background
Sidney
Greenwood
was
the
owner
of
all
of
the
issued
shares
of
Haney-
Greenwood
Ltd.
subject
to
an
obligation,
secured
by
a
hypothecation
of
the
shares,
to
repay
certain
moneys
to
one
Robert
Haney.
On
December
22,
1978,
Mr.
Greenwood
entered
into
an
agreement
("the
December
agreement")
to
sell
the
shares
to
his
three
sons
for
$800,000
and
the
assumption
of
liability
with
respect
to
the
obligation
to
Robert
Haney.
Pursuant
to
the
terms
of
that
agreement,
the
sale
was
not
to
be
completed
until
after
Mr.
Greenwood's
death;
specifically,
on
or
before
the
thirtieth
day
following
the
appointment
of
the
executors
of
his
estate.
The
purchase
price
was
to
be
secured
by
an
interest
bearing
promissory
note.
Interest
on
the
note
would
be
payable
to
the
estate
during
the
lifetime
of
Mr.
Greenwood's
spouse.
On
her
death,
the
principal
would
fall
due.
The
agreement
was
expressly
stated
to
be
binding
on
the
"successors
and
assigns”
of
the
respective
parties.
The
following
are
the
relevant
provisions
of
the
December
agreement:
1.
Purchase
and
Sale
of
Shares
Subject
to
the
terms
and
conditions
hereof,
upon
the
death
of
the
vendor
(the
"time
of
death"),
each
of
the
purchasers
shall
purchase
and
the
estate
of
the
vendor
shall
sell,
assign
and
transfer
to
the
purchasers
the
Shares
which
the
vendor
may
now
or
at
any
time
hereafter
beneficially
own
(the
"purchased
shares")
in
the
following
proportions:
to
James
Sidney
Greenwood,
1/3
of
the
purchased
shares;
to
Kenneth
Neil
Greenwood,
1/3
of
the
purchased
shares;
and
To
Douglas
Stephen
Greenwood,
1/3
of
the
purchased
shares.
2.
Purchase
Price
Subject
to
paragraph
3
the
purchase
price
of
the
purchased
shares
(the
“purchased
price")
shall
be
$800,000
payable
in
equal
proportions
by
each
of
the
purchasers.
The
purchasers
shall
be
jointly
and
severally
liable
for
the
payment
of
the
purchase
price.
5.
Closing
This
transaction
shall
be
completed
on
or
before
the
thirtieth
full
day
next
following
the
date
of
the
appointment
of
the
executors
of
the
last
will
and
testament
of
the
vendor
("date
of
closing").
.
.
.
9.(e)
Survival
of
Benefits
and
Obligations:
Subject
to
paragraph
9(d)
and
to
the
extent
necessary
to
carry
out
and
give
effect
to
the
provisions
herein
contained,
this
agreement
shall
extend
to,
and
enure
to
the
benefit
of
and
be
binding
upon
the
parties
hereto
and
their
respective
successors,
heirs,
assigns
and
legal
representatives.
On
the
same
day,
Mr.
Greenwood
executed
a
will
in
which
the
residue
of
his
estate
accrued
to
the
benefit
of
his
widow
by
way
of
a
spousal
trust.
The
relevant
provisions
read
as
follows:
2.
l
NOMINATE,
CONSTITUTE
and
APPOINT
my
wife,
THELMA
ARLENE
GREENWOOD
and
ELGIN
EVANS
COUTTS
to
be
executors
of
this
my
will
and
trustees
of
my
estate.
.
.
.
3.
GIVE,
DEVISE,
BEQUEATH
and
APPOINT
all
my
property,
of
every
nature
and
kind,
and
wheresoever
situate,
including
any
property
over
which
I
may
have
a
general
power
of
appointment,
to
my
trustees,
upon
the
following
trusts,
namely:
(e)
To
keep
invested
the
residue
of
my
estate
and
to
pay
the
annual
net
income
derived
therefrom
to
or
for
my
wife
during
her
lifetime,
in
such
monthly
or
other
frequent
periodic
payments
as
my
trustees,
in
their
absolute
discretion,
may
deem
advisable
....
(f)
Without
any
intention
of
imposing
a
trust
on
her
with
respect
thereto,
it
is
my
wish
that
my
wife
should
be
mindful
of
the
opportunity
that
our
three
sons,
James
Sidney
Greenwood,
Kenneth
Neil
Greenwood,
and
Douglas
Stephen
Greenwood,
have
received
from
me
in
connection
with
their
right
to
acquire
my
common
shares
of
Haney-Greenwood
Ltd.
pursuant
to
the
terms
of
an
agreement
into
which
I
have
entered
or
intend
to
enter
with
them
.
.
.
.
Sidney
Greenwood
died
on
July
8,
1979.
He
was
survived
by
his
wife,
a
coexecutor
and
trustee
under
the
will
and
an
appellant
in
her
representative
capacity,
and
his
three
sons.
The
will
was
probated
on
September
22,
1979.
On
October
24,
1979,
the
appellants,
as
the
executors
and
trustees
of
the
estate,
sold
the
shares
to
the
three
sons
pursuant
to
the
December
agreement.
2.
Decision
below
The
trial
judge
framed
the
principal
issue
before
her
in
the
following
terms
at
page
47
(D.T.C.
6691):
The
issue
in
this
case
is
very
narrow:
were
the
shares
of
Haney-Greenwood
Ltd.
transferred,
on
Mr.
Greenwood's
death,
to
a
spousal
trust
for
his
wife’s
benefit
and
indefeasibly
vested
therein.
If
the
answer
is
yes,
subsection
70(6)
of
the
Income
Tax
Act
.
.
.
applies
and
there
is
a
deemed
rollover
of
the
shares
at
their
adjusted
cost
base.
If
the
answer
is
no,
subsection
70(5)
applies
and
the
shares
will
be
deemed
to
have
been
disposed
of
by
the
taxpayer,
Mr.
Greenwood,
on
his
death,
at
their
fair
market
value.
In
deciding
the
issue,
the
Trial
judge
held
that
although
shares
did
vest,
they
did
not
vest
indefeasibly.
At
page
49
(D.T.C.
6691)
she
concluded:
I
have
little
doubt
that
this
agreement
["the
December
agreement"]
prevents
there
being
an
indefeasible
vesting
of
the
shares.
Indefeasible
vesting
requires
that
the
person
in
whom
the
property
is
vested
has
the
right
to
determine
whether
or
not
the
property
will
be
retained
by
him
or
her
or
disposed
of
to
another.
There
was
no
such
discretion
or
control
in
the
trustees
with
respect
to
the
shares
in
question.
Mr.
Greenwood's
representatives,
the
executors
under
the
will,
were
compelled,
on
his
death,
by
operation
of
paragraphs
1
and
9(e)
of
the
purchase
and
sale
agreement
of
December
22,
1978,
to
sell
the
shares
to
the
sons.
3.
Issues
—
argument
The
sole
issue
in
this
appeal
is
whether
the
shares
vested
indefeasibly
in
the
spousal
trust
created
under
the
will.
The
appellants
contend
not
only
that
the
shares
vested
in
the
spousal
trust
but
that
they
vested
indefeasibly.
First,
it
is
argued
that
what
was
transferred
to
the
spousal
trust
were
not
merely
the
shares
but
the
shares
as
they
were
affected
by
the
rights
and
obligations
set
out
in
the
December
agreement.
The
appellants
rely
on
the
"bundle
of
rights"
theory
as
abstracted
from
a
decision
of
the
Supreme
Court.
The
substance
of
their
argument
is
as
follows
(appellants’
memorandum
of
fact
and
law
at
page
13):
44.
Since
the
“bundle
of
rights"
associated
with
the
shares
included
the
obligation
to
sell
them
to
the
late
Sidney
Greenwood's
sons,
the
shares
were
not
property
in
which
the
estate
or
trust
had
an
absolute,
unfettered
or
unlimited
interest,
but
rather
property
in
which
the
estate
had
"something
less
than
an
unlimited
interest".
It
is
respectfully
submitted
that
it
was
this
property
interest
which
comprised
the
"property"
which
was
transferred
to
the
trust,
within
the
meaning
of
subsection
70(6)
of
tne
Act.
Second,
it
is
argued
that
the
shares
vested
indefeasibly
in
the
spousal
trust
created
by
this
will
as
there
was
no
condition
subsequent
specified
in
the
original
grant
(the
will)
which
could
operate
to
defeat
or
revoke
the
interest
granted.
The
argument
is
summarized
in
the
appellants’
memorandum
of
fact
and
law
(at
pages
14-15):
50.
It
is
respectfully
submitted
that
since
the
shares,
as
they
were
affected
by
the
December
agreement,
were
transferred
to
the
trust
and
since
the
Will
contained
no
condition
subsequent
which
could
have
defeated
or
revoked
the
trust's
interest
in
this
property
(and,
thereby,
Mrs.
Greenwood's
right
to
benefit
from
the
income
earned
on
the
proceeds
received
for
the
shares
during
her
lifetime),
the
shares
"vested
indefeasibly”
in
the
trust
within
the
meaning
of
subsection
70(6)
of
the
Act.
The
respondent
maintains
that
the
shares
did
not
vest,
much
less
indefeasibly,
in
the
spousal
trust.
What
did
vest,
She
argues,
is
the
promissory
note
received
in
consideration
for
the
sale
of
the
shares
to
the
three
sons.
4,
Analysis
I
accept,
as
the
appellants
contend,
on
the
authority
of
Beament
Estate
v.
M.N.R.,
[1970]
S.C.R.
680,
[1970]
C.T.C.
193,
70
D.T.C.
6130,
that
the
property
which
passed
on
the
death
of
the
deceased
was
a
bundle
of
rights,
that
is
to
say,
the
shares
subject
to
the
contractual
obligations
described
in
the
December
agreement.
Those
obligations
were
mandatory
and
binding
both
upon
the
legal
personal
representatives
of
the
deceased,
as
vendor,
and
upon
the
three
sons
of
the
deceased
as
purchasers.
They
allowed
for
no
discretion
on
the
part
of
any
of
them.
According
to
that
agreement,
the
legal
personal
representatives
of
the
deceased
had
to
sell
the
shares
to
his
three
sons
who
had
to
pay
the
consideration
provided
for
in
the
agreement
by
making
a
promissory
note
for
the
purchase
price
payable
to
the
estate
of
the
deceased.
Upon
the
death
of
the
deceased,
all
his
real
and
personal
property
passed
to
his
legal
personal
representatives
in
accordance
with
the
terms
of
the
will
and
by
virtue
of
the
Devolution
of
Estates
Act,
R.S.O.
1970,
c.
129,
subsection
2(1).
With
respect
to
the
shares,
which
constituted
the
principal
asset
in
the
estate,
the
legal
personal
representatives
were
under
an
obligation,
without
discretion,
to
sell
and
did
sell
them
to
the
three
sons
of
the
deceased
for
the
consideration
agreed
upon
in
the
December
agreement.
It
follows
that
the
property
that
passed
to
the
legal
personal
representatives
of
the
deceased
at
his
death
was,
as
I
have
already
said,
not
the
shares
in
specie,
but
the
shares
subject
to
the
obligation
in
the
December
agreement
which
required
that
they
be
sold
to
the
three
sons
of
the
deceased.
Under
the
terms
of
the
will,
this
property
passed
in
the
first
instance
not
to
the
spousal
trust
but
to
the
legal
personal
representatives
to
be
disposed
of
in
accordance
with
the
terms
of
the
will.
Paragraph
3(e)
of
Sidney
Greenwood's
will
created
a
spousal
trust
only
with
respect
to
the
residue
of
his
estate.
By
necessary
implication,
the
shares
which
were
subject
to
the
December
agreement
and
which
were
sold
accordingly,
never
formed
part
of
the
residuary
estate
and,
therefore,
of
the
spousal
trust.
The
fallacy
in
the
appellants’
argument
lies
in
their
belief
that
the
shares
were
transferred
to
the
spousal
trust
with
no
condition
subsequent
which
could
have
defeated
or
revoked
the
trust's
interest
in
this
property.
However,
the
possibility
of
the
shares
vesting
in
the
spousal
trust
vanished
once
the
estate
completed
the
sale
to
the
testator's
three
sons.
In
my
opinion,
there
is
confusion
in
the
appellants’
argument
as
to
what
property
passed
to
the
estate
of
the
deceased
and
what
property
vested
in
the
spousal
trust
created
with
the
residue
of
the
estate.
A
plain
and
simple
reading
of
the
December
agreement
and
the
will
leads
to
an
inescapable
conclusion:
the
shares
did
not
and
could
not
form
part
of
the
residue
and
therefore
of
the
spousal
trust
created
by
paragraph
3(e)
of
the
will
and
what
vested
in
it
was
the
purchase
price
secured
by
an
interest
bearing
promissory
note.
In
light
of
this
conclusion,
I
am
of
the
opinion
that
the
learned
trial
judge
was
right
in
concluding
that
the
shares
did
not
vest
indefeasibly
in
the
spousal
trust
created
by
the
will.
The
appeal
will
therefore
be
dismissed
with
costs.
I
am
indebted
to
both
counsel
for
their
helpful
submissions.
Appeal
dismissed.
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