Ryan v. Smith, [1972] SCR 332

Supreme Court of Canada

Ryan v. Smith, [1972] S.C.R. 332

Date: 1971-10-05

Kathleen Ryan Appellant and Respondent by Cross-Appeal;

and

Margaret Smith Respondent and Appellant by Cross-Appeal;

and

Kathleen Ryan and Duncan A. McIlraith, Executors and Trustees of the last Will and Testament of Sylvester Francis Ryan (Commonly known as Frank Ryan) Respondents;

and

Terrence Kielty Respondent;

and

Maureen Ryan and Gary Ryan, Infants under the age of twenty-one years represented by the Official Guardian Respondents and Appellants by Cross-Appeal.

1971: May 11; 1971: October 5.

Present: Martland, Judson, Ritchie, Spence and Pigeon JJ.

ON APPEAL FROM THE COURT OF APPEAL FOR ONTARIO.

Wills—Construction—Clauses of will giving rise to difficulties—Application for advice and direction—Interpretation of will.

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The testator was the founder and operator of a radio station, which at the date of the will and the date of his death was owned by CFRA Broadcasting Ltd. Five thousand one hundred voting preference shares and 4,900 common shares of this company were issued and outstanding. The 5,100 voting preference shares represented the control and they were owned by K Co., a personal corporation completely owned by the testator. The 4,900 common shares were owned by employees of the station subject to agreements existing at the date of the will and at the date of death which provided for the compulsory sale by each employee of his shares to the others upon death, retirement or dismissal, and gave to the others the right to purchase the shares of any shareholder whose employment ceased by voluntary termination.

Certain clauses of the testator’s will gave rise to difficulties and an application was made for the opinion, advice and direction of the Court. The judgment of the judge of first instance was varied by the Court of Appeal, from whose judgment the widow appealed to this Court.

Held: The appeal should be allowed.

The first question was whether the bequest of “any stocks and bonds registered in my name personally” in favour of the widow carried with it the shares of K Co.? If the words had stood alone, they would have carried the shares of K Co. but they did not stand alone. They were followed by a clause which gave the widow 15 per cent of the assets of K Co., excluding the preference shares of CFRA. They were also followed by a disposition in certain events of the assets of K Co. on the death of the widow. These subsequent dispositions were totally inconsistent with any bequest of the shares of this company in favour of the widow in the opening words of the will.

The second question was whether the disposition in favour of the widow of 15 per cent of the assets of K Co. was effective? The testator was in the position during his lifetime to wind up the company and to give effect to an inter vivos disposition of the assets. His executors were in the same position.

The third question was whether TK became entitled to a vested remainder interest in the preferred shares of CFRA under para. 4(a) on the death of the testator, or was his interest contingent upon his survival of the widow and being an employee of CFRA at that time? The interest was contingent,

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being subject to the double condition of survivorship of the widow and being an employee of CFRA at the time of the death of the widow. To qualify, TK had to satisfy these conditions at the date of the death of the widow. This was not a case where the postponement of transfer was for the sole purpose of letting in the widow’s life interest but for reasons personal to the legatee, namely, that he take part in the operation of the station during the widow’s lifetime and that at the time of her death, he be living and an employee of the company.

The next question was what effect should be given to the remainder of para. 4(a) dealing with the creation of a power of appointment in favour of the testator’s wife and what would happen on a failure to appoint? The power of appointment only arose if TK was “not living and not employed as aforesaid” at the date of the testator’s death. TK was so living and employed at that time. The contingency or condition went to the very existence of the power so that the power did not come into existence until the contingency occurred or the condition was satisfied. Since the power of appointment never came into existence, there could be no failure to appoint and the gift over following such failure was therefore ineffective.

As to para. 4(b), a direction to transfer the remaining assets of K Co. among the employees living at the date of death of the wife pro rata in proportion to the number of shares owned by them at the death of the wife, these conditions could not be satisfied. This gift did not vest on the death of the testator. It was required that they be shareholders at the date of the wife’s death and they had sold their shares. The wife had purchased all the outstanding common shares after the testator’s death. There was an intestacy as to the remaining assets of K Co. under para. 4(b).

APPEAL from a judgment of the Court of Appeal for Ontario[1], allowing an appeal from a judgment of Osler J., interpreting a will. Appeal allowed.

W.B. Williston, Q.C., and W.A. Kelly, for the appellant, Kathleen Ryan.

W.T. Green, for the respondent, Margaret Smith.

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W.F. Prachter and H.G. Mylks, for the Executors and Trustees.

T. Sheard, Q.C., and R.D. Sweet, Q.C., for the respondent, Terrence Kielty.

L.W. Perry, Q.C., for the Official Guardian.

The judgment of the Court was delivered by

JUDSON J.—This is an appeal by Kathleen Ryan, the widow of Sylvester Francis Ryan, from a judgment of the Court of Appeal of Ontario interpreting a will dated December 8, 1960. The testator died on March 2, 1965, leaving as his next-of-kin his widow, a sister, and children of brothers and sisters who had predeceased him. He named his widow and his solicitor as his executors and trustees.

The clauses of the will which give rise to the difficulties are the following:

“I GIVE AND BEQUEATH any stocks and bonds registered in my name personally and any bearer stocks and bonds which I may have and my current bank account to my said wife, Kathleen Ryan, for her own absolute use. ALL THE REST AND RESIDUE of my estate, both real and personal, of whatsoever kind and character and wheresoever situate I GIVE, DEVISE AND BEQUEATH to my Trustees upon the following trusts:—

(1) To pay out of the capital of my general estate devised and bequeathed to my Trustees as aforesaid as an ordinary debt thereof, all my just debts, funeral and testamentary expenses and all Succession Duty, Estate, Death and Inheritance taxes...

(2) To pay and transfer to my wife, KATHLEEN RYAN, for her own absolute use ten (fifteen) per centum (10%)(15%) of the shares of the capital stock (assets)of Kilreen Company Limited (originally CFRA Limited) owned by me at the time of my death (excluding the preference shares of (CFRA Broadcasting Limited.)

(3) To pay the annual net income from all the remainder of my estate to my wife, KATHLEEN RYAN, during the remainder of her

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natural life with full power and authority to my Trustees in their discretion to encroach upon the capital of the said remainder of my estate for my wife’s better support, maintenance and benefit and for the purpose of enabling her to maintain and live up to the standard of life to which she was accustomed to live during my lifetime.

(4) On the death of my wife, Kathleen Ryan—

(a) To transfer or effect the transfer to and an employee of CFRA Broadcasting Limited

TERRENCE KIELTY, if living, / ninety per centum (90%) of preference the / shares of CFRA Broadcasting / Limited owned by Kilreen Company Limited (the remaining 10% hereinbefore having been directed to be transferred to my wife, Kathleen Ryan) which lastly mentioned company is owned and controlled by me, for         and not employed as aforesaid his own absolute use, and, if not living / at the time of my death, to such person or persons as my said wife may by deed or will appoint and failing appointment pro rata among the owners of the common stock of CFRA Broadcasting Limited in proportion to the number of shares of the said CFRA Broadcasting Limited owned by them at the death of my wife as aforesaid.

divide

(b) To / transfer or effect the transfer of the remaining assets of Kilreen Company Limited equally among the employees of CFRA Broadcasting Limited living at the date of death of my wife pro rata in proportion to the number of shares of the said CFRA Broadcasting Limited owned by them at the death of my wife as aforesaid…”

The difficulties arise in connection with the bequest of “any stocks and bonds registered in my name personally” mentioned in the opening paragraph; the bequest to the widow of 15 per cent of the assets of Kilreen Company Limited; and the disposition of the shares of CFRA Broadcasting Limited and the remaining assets of Kilreen Company Limited made in paragraphs 4(a) and 4(b) above quoted.

The testator was the founder and operator of CFRA, an important radio broadcasting station

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in Ottawa. At the date of the will and the date of his death, the station was owned by CFRA Broadcasting Limited, the company mentioned in the will. Five thousand one hundred voting preference shares and 4,900 common shares of this company were issued and outstanding. The 5,100 voting preference shares represented the control and they were owned by Kilreen Company Limited. The 4,900 common shares were owned by employees of the station subject to agreements existing at the date of the will and at the date of death which provided for the compulsory sale by each employee of his shares to the others upon death, retirement or dismissal, and gave to the others the right to purchase the shares of any shareholder whose employment ceased by voluntary termination.

Kilreen Company Limited was a wholly owned personal corporation of which the testator owned all the shares, although there were two qualifying shares, one in the name of the testator’s wife and the other in that of Terrence Kielty. The beneficial ownership of these shares belonged to the testator.

At the date of the will the testator owned a number of securities of various kinds other than the shares of Kilreen Company Limited but these were all disposed of or transferred to Kilreen prior to his death. The shares of Kilreen were valued for succession duty at $1,933,581.28. The other assets of the estate totalled approximately $143,000.

The first question is whether the bequest of “any stocks and bonds registered in my name personally” in favour of the widow carries with it the shares of Kilreen Company Limited? Both the judge of first instance, Osler J., and a unanimous Court of Appeal have held that they did not. I agree with this conclusion. If the words stood alone, they would carry the shares of Kilreen but they do not stand alone. They are followed by a clause which gives the widow 15 per cent of the assets of Kilreen, excluding the preference shares of CFRA Broadcasting Limited. They are also followed by a disposition in certain events of the assets of Kilreen Company Limited on the death of the widow. These subsequent dispositions

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are totally inconsistent with any bequest of the shares of this company in favour of the widow in the opening words of the will.

The second question is whether the disposition in favour of the widow of 15 per cent of the assets of Kilreen Company Limited is effective? Immediately before the execution of the will, this disposition was substituted for one which gave the widow 10 per cent of the shares. Again, both Osler J. and the Court of Appeal agreed and held that this clause is effective. Kilreen Company Limited was a personal corporation completely owned by the testator. He looked upon Kilreen’s assets as his assets. He was in the position during his lifetime to wind up the company and to give effect to an inter vivos disposition of the assets. His executors were in the same position.

The third question is whether Terrence Kielty became entitled to a vested remainder interest in the preferred shares of CFRA under para. 4(a), above quoted, on the death of the testator, or was his interest contingent upon his survival of the widow and being an employee of CFRA Broadcasting Limited at that time?

There was a difference of opinion on this question. Osler J. held that the interest was contingent, being subject to the double condition of survivorship of the widow and being an employee of CFRA Broadcasting Limited at the time of the death of the widow. The Court of Appeal held that Kielty had obtained a vested interest in the preference shares on the testator’s death and that the case was one of a future interest vesting at the testator’s death with possession postponed merely to let in the widow’s life interest.

My opinion is that the construction put upon this clause by Osler J. is correct and that to qualify, Kielty must satisfy these conditions at the date of the death of the widow. This is not a case where the postponement of transfer is for the sole purpose of letting in the widow’s life interest but for reasons personal to the legatee,

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namely, that he take part in the operation of the station during the widow’s lifetime and that at the time of her death, he be living and an employee of the company.

In my opinion, and I adopt his expression, Osler J. correctly judged the testator’s intention when he said:

One can thus deduce from the will taken as a whole that the testator intended to provide for his wife a sum of capital which would be hers absolutely and to give her the outright use of all income from the remainder of his estate during her lifetime together with the power to have the trustees encroach upon capital if such should be necessary to maintain her in an appropriate style. The value of such life income, however, would fluctuate to a degree proportionate to the fortunes of the broadcasting enterprise in which the testator had been engaged, through the agency of CFRA Broadcasting Limited. For the twofold purpose of encouraging the employees engaged in that enterprise at the time of his death to conduct the business efficiently for the benefit of his widow and for the purpose of rewarding those employees who did so, he then provided that all employees who continued to be shareholders would share in the remainder of his estate and that one of them, Terrence Kielty, would not only share substantially but would exercice control upon the death of the life tenant.

The next question is what effect should be given to the remainder of clause 4(a) dealing with the creation of a power of appointment and what could happen on a failure to appoint? This problem did not face the Court of Appeal because they found a vested interest in Kielty on the testator’s death. However, Osler J., having found that the gift to Kielty was contingent, had to face this problem. He noted that the power of appointment only arises if Kielty is “not living and not employed as aforesaid” at the date of the testator’s death. Kielty was so living and employed at that time. In my opinion, the contingency or condition mentioned in clause 4(a) goes to the very existence of the power so that the power does not come into existence until the contingency occurs or the condition is satisfied. It is not a matter of mere qualification of the exercise of the power. In spite of his conclusion that the power of appointment never came into existence, Osler J. held

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that the distribution would be governed as on a failure to appoint. The words of the will are:

…and failing appointment pro rata among the owners of the common stock of CFRA Broadcasting Limited in proportion to the number of shares of the said CFRA Broadcasting Limited owned by them at the death of my wife as aforesaid.

The decision of Osler J. on this point is in the following paragraph:

The power of appointment is only to be created if Kielty does not survive the testator. As he did so survive, the occasion for the exercise of the power did not arise and hence, distribution is governed by the words following the phrase “failing appointment”.

Here, with respect, I think there was error. Since the power of appointment never came into existence, there could be no failure to appoint and the gift over following such failure is therefore ineffective.

The position, in my opinion, is this: Kielty did not take a vested interest in the CFRA Broadcasting Limited preference shares on the death of the testator. He cannot satisfy the condition of being an employee on the death of the wife. The power of appointment never came into existence. There was and could be no failure to appoint. In any event, those who owned common shares at the date of the testator’s death cannot now qualify as owners at the date of the widow’s death. They have sold their shares. For all these reasons there is an intestacy as to the preference shares of CFRA Broadcasting Limited.

As to para. 4(b), the direction to transfer the remaining assets of Kilreen Company Limited among the employees living at the date of death of the wife pro rata in proportion to the number of shares owned by them at the death of the wife, these conditions cannot be satisfied. This gift did not vest on the death of the testator. They must be shareholders at the date of the wife’s death and they have sold their shares.

At the testator’s death, 14 persons were both employees and shareholders of CFRA Broad-

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casting, including his widow and Kielty. By 1969, only Mrs. Ryan satisfied these two conditions as a result of the sale of the company in 1966. There was before this Court evidence relating to the sale which was not drawn to the attention of the Courts below. In early 1966, an offer to purchase all the assets of CFRA Broadcasting Limited was made, the conditions of which included the transfer of all assets to a new company, Radio Station CFRA Limited, the written consent of all the shareholders of CFRA Broadcasting Limited and Kielty—the latter both as shareholder and as a beneficiary under the will—and the appointment of Kielty as general manager of the station for a five-year period with a fixed minimum remuneration. In May 1966, Mrs. Ryan purchased all the outstanding common shares in CFRA Broadcasting from the employee-shareholders, including Kielty, for $325 per share. All of the shareholders signed minutes of a meeting held later in the year in which it was resolved to sell the assets of CFRA Broadcasting to Radio Station CFRA Limited.

My conclusion is that there is an intestacy as to the remaining assets of Kilreen Company Limited under clause 4(b).

I next set out the questions as they were put before Osler J. and the answers I would give:

1. Is the sixth paragraph on page 1 of the Will effective to bequeath to the widow of the testator the shares of Kilreen Company Limited which were registered in the name of the Testator at the date of his death?

Answer: No.

2(a) If the answer to question “1” is in the negative, is paragraph “2” on page 2 of the Will effective to bequeath to the said widow 15 per cent of the assets of Kilreen Company Limited, excluding the preferred shares of CFRA Broadcasting Limited?

Answer: Yes.

2(b) Did Terrence Kielty, pursuant to paragraph 4(a) on page 2 of the Will, obtain an interest in the said preferred shares on the death of the Testator?

Answer: No.

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2(c) If the answer to subparagraph (b) hereof is in the affirmative, does the widow of the Testator become entitled to the income from the said preferred shares for the remainder of her natural life?

Answer: Whether the answer to question 2(b) is yes or no, the widow is to entitled.

3. If the answer to question 2(b) is in the negative, will Terrence Kielty become entitled to the said preferred shares on the death of the widow regardless of whether he is alive and an employee of CFRA Broadcasting Limited at the time of death of the widow?

Answer: No.

4. If the answer to question “3” is in the negative, do the said preferred shares pass as on an intestacy?

Answer: Yes.

5. Is paragraph 4(b) on page 3 of the Will effective to dispose of the remaining assets of Kilreen Company Limited, other than the said preferred shares?

Answer: No.

6. If the answer to question “5” is in the affirmative, do only those persons take who were both, alive at the time of death of the Testator, employees and shareholders of CFRA Broadcasting Limited, and who are also alive, employees and shareholders of CFRA Broadcasting Limited at the time of death of the widow?

Answer: Does not arise.

7. If the answer to question “6” is in the negative, do the remaining assets of Kilreen Company Limited, other than the said preferred shares, pass as on an intestacy?

Answer: Intestacy.

I would allow the appeal and direct that judgment be entered in accordance with the above answers. In the circumstances, I would direct that the costs of all parties represented on the appeal be taxed and paid out of the estate with one set of costs to the Official Guardian on behalf of Margaret Ann Smith and the two infants who were in the same interest as the appellant Kathleen Ryan.

Appeal allowed.

Solicitors for the appellant, Kathleen Ryan: Clark, Macdonald, Connolly, Affleck, Brocklesby, Gorman & McLaughlin, Ottawa.

Solicitors for the respondent, Margaret Smith: Green & Poulin, Ottawa.

Solicitors for the Executors and Trustees: McIlraith & McIlraith, Ottawa.

Solicitors for the respondent, Terrence Kielty: Kennedy, Sweet & Ritchie, Ottawa.

E.M. Henry, Q.C., Official Guardian of the Province of Ontario, for the respondents, Maureen and Gary Ryan.