General Trust of Canada, Executor of the Estate of Dame Marie Léonide (Landes) Séguin v. Her Majesty the Queen, [1974] CTC 808, 74 DTC 6628

Addy, J:—The plaintiff is appealing from a decision of the Tax Review Board dismissing its appeal to that Board. The dispute centres on the following facts: Marie Léonide Landes and Désiré Camille Séguin were married under the system of separation of property pursuant to a marriage contract, dated February 11, 1907, containing the following clause:

(Translation)

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 enjoy and to dispose of in full ownership as property owned by him, without being required to give surety therefore or have an inventory made thereof; but with the burden of preserving and transmitting on his death the residue of the said property to children born and to be born of our future marriage, among whom it shall be divided in equal shares; the survivor shall be entitled to sell, exchange or mortgage the said property, or engage in any other transaction he may deem fit.

In the event that there be no children of our future marriage, on the death of the last survivor, our said property shall revert to our respective families in equal shares. **

Two children were born of the marriage: a daughter who predeceased her parents leaving five children, and a son who died, childless, after his father but before his mother. Mr Séguin died in 1963 and his wife 7 years later, in 1970, leaving a will dated September 12, 1967 under which she appointed the plaintiff her executor and trustee, bequeathing it all her property in trust to dispose of same to various persons, with the residue going to her grandchidren, namely, the five children of her deceased daughter.

The dispute concerns property worth $55,862 which Mrs Séguin had in her possession at the time of her death and which property came from her deceased husband. The defendant maintained that this property should be included in Mrs Séguin’s estate for taxation purposes. The plaintiff, on the other hand, argued that the property was actually only a residue of property from the estate of her husband, which she was required to preserve and use only for her own needs, in order to transmit the residue to the grandchildren on her death, and that it therefore should not be included in the aggregate net value of Mrs Séguin’s estate.

It is necessary in the first place to determine whether this arrangement was a fiduciary disposition of the residue, or a fiduciary substitution under which Mrs Séguin had the power to alienate indefinitely in accordance with Article 952 of the Civil Code. That article states:

952. 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.

Should the conclusion be that this constituted a substitution rather than a mere fiduciary disposition of the residue, the question then arises as to the nature and extent of the power of alienation conferred on the institute in order to determine whether that power is wide enough to give rise to the tax imposed by the Estate Tax Act, SC 1958, c 29.

Paragraph 3(1 )(a) of the Estate Tax Act reads as follows:

3. (1) There shall be included in computing the aggregate net value of the property passing on the death of a person the value of all property, wherever situated, passing on the death of such person, including, without restricting the generality of the foregoing,

(a) all property of which the deceased was, immediately prior to his death, competent to dispose;

The text of paragraph 3(2)(a) of that Act 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;

Section 58 of the Act contains the following provisions:

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;

The parties are in agreement that the substitution or trust must of necessity result solely from the marriage contract. However, the defendant has requested that the Court examine and take into consideration Mr Séguin’s will in order to determine the intention of the parties as expressed in clause VI of the marriage contract.

A written contract and more particularly a formal contract or a contract such as a marriage contract, which legally cannot be altered even with the consent of the parties, may not as a general rule be construed with the aid of either prior or subsequent, oral or written statements made by any of the parties. Evidence must be limited to the actual wording of the contract itself.

It is true that when a genuine ambiguity exists, and a portion of the text is equally open to two conflicting interpretations, a subsequent verbal or written statement by one of the parties may sometimes be taken into account, where that statement is against the interest of the party making it, since it is not usual for one to construe a contract against one’s own interest unless the construction truly represents the original intention of the parties expressed by the contract.

I consider that in the present case, the statement contained in Mr Séguin’s will, in which he indicated how his property was to be disposed of after his death, could not be regarded as a statement against the interest of the person making it. The defendant suggests that the marriage contract be interpreted as meaning that the property in dispute would belong to the husband during his lifetime, since, when the will was signed, Mr Séguin, the testator himself, regarded this property as being his own as he bequeathed it to his wife as residuary legatee. This statement in the will, far from being a statement against the testator’s interest, was clearly a statement to his benefit, since he appeared to be treating the property as his own absolute property, rather than as property already alienated by the marriage contract. For that reason alone, the will is inadmissible as evidence to construe the marriage contract. Accordingly, it would be pointless to consider whether the marriage contract itself contains a clause of sufficient ambiguity to call for the introduction of secondary proof of intention. Furthermore, it would be strange to allow the introduction of a will signed in 1959 as a basis for construing the intention of the parties at the time of signature of a marriage contract over half a century before.

Contrary to modern French law, the principle of conditional substitution of the residue as found in the civil law of Quebec and as propounded originally by the learned writers Ricard and Thévenot d’Essaule, and especially Pothier in his Traité des substitutions, all three of whom were writing before codification of the law in France, has not only been affirmed by Articles 929, 952, 960 and 962 of the Civil Code of Quebec, but also approved and applied by the Supreme Court of Canada. (See MNR v Edmund Howard Smith et al, [1960] CTC 97; 60 DTC 1102, and Georges Burdet et al v Jean-Louis Decarie et al, [1963] SCR 35; see also Mignault, volume 5, page 92 and Trudel, volume 6, page 273.)

The words “. . . to enjoy and to dispose of in full ownership as property owned by him, without being required to give surety therefore or have an inventory made thereof . . .” followed by the words “but with the burden of preserving and transmitting on his death the residue . . Cannot constitute a gift in absolute ownership; the words “without being required to give surety therefore or have an inventory made thereof . . .” would be entirely meaningless if it were an outright gift, since no one is ever required, except for taxation purposes, to furnish security for his own property or to have an inventory made of it.

In my view, it is clear that this is a case of a conditional substitution according to the principles approved and applied by the Supreme Court of Canada in the two above-mentioned cases. It is also clear that by this clause the contracting parties each conferred on the survivor the right to use both the capital and the income of the property transferred. The word “enjoy” does not confer the right to alienate the thing transmitted, but the words “. . . dispose of in full ownership as property owned by him . . .” definitely confers a right to dispose of the property itself.

Both parties are agreed that during her lifetime Mrs Séguin had the right to use this property as she saw fit, and so to dispose of it for her own needs. The plaintiff, on the one hand, maintains that this was the extent of the power of alienation conferred on the survivor, except that she could alienate it for valuable consideration, the consideration received for the sale then being substituted for the alienated property. It maintains that the surviving wife could not dispose of the property gratuitously to third parties, either in her lifetime or by will. The defendant, on the other hand, maintains that, if a substitution resulted, Mrs Séguin enjoyed an absolute power to alienate gratuitously during her lifetime as she saw fit, despite the fact that she had no right to alienate by will.

Having in mind the definition of a “general power” given in the above-quoted paragraph 58(1)(i) of the Estate Tax Act, in spite of the fact that Mrs Séguin had no power to alienate her husband’s property by will, if she had a general power to dispose of it during her lifetime, not only for her own needs but gratuitously to third parties, it is clear she would be regarded as being competent to dispose of it immediately prior to her death, and the undistributed residue of such property as it existed at the time of her death must accordingly, under the provisions of the above-mentioned paragraph 3(1)(a) of the Act, be included in the net value of her estate, even though such residue could not be regarded as forming part of her estate for other purposes.

In its ordinary meaning the word “dispose” encompasses the right to dispose of gratuitously or for valuable consideration, inter vivos or by will. However, the accepted rules of interpretation require that the word be examined in its context. It is clear that because of the words “. . . but with the burden of preserving and transmitting on his death the residue of the said property to children . . .” Mrs Séguin did not have the power to dispose of this property by will.

Moreover, the plaintiff seeks to base its argument on certain principles propounded by the learned authors Pothier, Thévenot d’Essaule and Ricard (see Pothier, Traité des substitutions, volume 8, Articles 140-143, Thévenot d’Essaule (Mathieu), Traité des substitutions, Articles 419 et seq and also 788 et seq as well as Ricard, Traité des donations, Tome Il, Traité III des substitutions directes & fidéicommissaires, chapter XII, page 479). It firmly maintains that, in the case at bar, by reason of the words “. . . but with the burden of preserving and transmitting on his death the residue of the said property . . .” the right of the institute to alienate for purposes other than her own needs would derogate from the terms of the marriage contract since the institute might by a simple gift inter vivos to third parties defeat the substitution and act contrary to the basic intention of the contract, which was to benefit children to be born of the future marriage of the parties to the contract.

Apart from the power of disposition by will, the meaning of the word “dispose” is not limited in the contract; on the contrary, the word is followed immediately by the expression “. . . in full ownership as property owned by him . . .”. In my view, this expression merely adds further emphasis to the general power of disposition which the contracting parties desired to confer on the survivor. Consideration must also be given to the words “. . . without being required to give surety therefore or have an inventory made thereof . . .”. I agree with Challies, J who held in Brais v Dame Fortier et al, [1955] SC 222 at 228, that these words add emphasis to the general power of onerous or gratuitous disposition.

The words . . but with the burden of preserving and transmitting on his death the residue of the said property . . .” impose an obliga- tion as to the residue only, and it is clear from the words which precede this expression that the residue was to consist only of the residue of original or substituted property, existing and not alienated at the time of the death of the survivor of the two parties.

For these reasons, I concur with the view of the Tax Review Board in this case, namely, that the intention of the parties, expressed in the marriage contract, was to transmit to the survivor all the property to dispose of in his lifetime as he saw fit, as if he were absolute owner thereof, but that, if any of this property remained on his death, the residue would necessarily go to the children in equal shares. Since the law on substitutions and the provisions of the Code permit such an intention to be carried out, it is clear that Mrs Séguin was ‘‘competent to dispose” of the property transmitted to her by her husband, in keeping with the provisions of paragraph 3(2)(a), and, accordingly, this property should, under the provisions of paragraph 3(1)(a), be included in the net value of her estate.

The appeal is therefore dismissed with costs.