Estate of Wilfrid H Genest v. Minister of National Revenue, [1973] CTC 2236, 73 DTC 181

The Assistant Chairman:—The appeal by the Estate of Wilfred H Genest from an assessment dated February 16, 1970 regarding the aggregate net value of the property passing on the death of Wilfrid H Genest, imposing tax of $9,691.53 including interest, was heard t. Montreal on October 23, 1972.

The late Wilfrid H Genest operated an unincorporated business under the name of W H Genest Lumber Enrg. On January 2, 1951 an application was made to the Crown Life Insurance Company (hereinafter called “Crown Life”) for a $30,000 insurance policy on the life of Wilfrid H Genest (Exhibit A- 2). Insurance policy No 566034 was issued on February 2, 1951. On February 15,1951 Wilfrid H Genest encumbered the said policy ‘in favour of the Imperial Bank of Canada (hereinafter called “‘the bank”) as collateral for a loan for business purposes (Exhibit A-3). On May 1, 1957 Mr Genest sold his lumber business to W H Genest Lumber Ltd (Exhibit A-5). On June 15, 1967 Wilfrid H Genest died, and respondent added to the aggregate value of his estate the $30,000 from insurance policy No 566034.

In its notice of appeal and subsequently in its pleading, the Estate of Wilfrid H Genest contended that the insurance policy issued by Crown Life was not held by the de cujus in accordance with the requirements of paragraph 3(5)(a) of the Estate Tax Act, and consequently the sum of $30,000 should not have been included in the aggregate net value of the property passing on the death of Wilfrid H Genest.

Counsel for respondent, however, contended that the insurance policy had never left the property of the de cujus and that he alone, immediately before his death, had the right to do the things mentioned in paragraph 3(5)(a) of the Act, and concluded that the value of the insurance policy had rightly been included in the calculation of the aggregate net value of the property passing on the death of W H Genest.

There can be no doubt that, when insurance policy No 566034 was issued in. the name of W H Genest Lumber Enrg in 1951, it actually was Wilfrid H Genest who was both the insured and the owner, and his legal heirs who were the beneficiaries. Since W H Genest Lumber Enrg was not incorporated, it could not legally enjoy any..- right or assume any responsibility. No stated intention (Exhibit A-1, section 13) by W H Genest or ‘written document between Mr Genest and Crown Life could give W H Gen’est Lumber Enrg legal personality or confer on it the right to be beneficiary of W H Genest’s life insurance policy.

The said policy was therefore part of the property of the de cujus at the time it was issued. Even after encumbering the policy in favour of the bank s collateral for a loan for. business purposes on February 15, 1951, the-de cujus still retained title to it. At that time, it was the de cujus who was paying the premiums; he owned the insurance and retained his right—subject to certain conditions—to do the things stipulated in paragraph 3(5)(a) of the Act.

The question of determining whether the policy was assigned became more complicated the moment Mr Genest sold his business to W H Genest Lumber Ltd.

At the. time of the sale there is no doubt that the new company assumed, among other things, responsibility for Mr Genest’s debt to the bank, which according to the evidence amounted to. $45,000.

At that same time, was there a transfer or assignment of ownership of the insurance policy that stood as collateral for the loan made to Mr Genest, a loan which was assumed by W H Genest Lumber Ltd?

Counsel for respondent contended that the insurance policy had never been assigned to W H Genest Lumber Ltd, and' in support of his

argument he submitted that: (1) no clause in the agreement produced as Exhibit A-5 formally stipulated that policy No 566034 was part of the objects on sale and ownership of the policy had never been transferred to W H Genest Lumber Ltd; (2) Crown Life had never been served notice that the de cujus was assigning the said policy to W H Genest Lumber Ltd; (3) there was never any question between the bank and the de cujus that, on repayment of the loan, W H Genest Lumber Ltd would become beneficiary of the policy.

It is true that the agreement under which the business was sold to W H Genest Lumber Ltd did not specifically mention the assignment of the insurance policy to this company. It seems that no written notice was given to Crown Life that the policy had been assigned to W H Genest Lumber Ltd, and finally no written notice seems to have been given to the bank to the effect that W H Genest Lumber Ltd would become beneficiary of the policy once the loan was repaid to the bank.

Those are the facts that militate in favour of respondent’s submission that the insurance policy had not been assigned to W H Genest Lumber Ltd. On the other hand, it is impossible to ignore another series of facts that support the opposite view, namely that after May 1, 1957 it was W H Genest Lumber Ltd and not the de cujus that paid the premiums on the insurance policy. Furthermore, from 1957 to 1967 the cash surrender value of the said insurance policy was entered on the financial statements of W H Genest Lumber Ltd. Even though section 13 of Exhibit A-1 cannot be considered strictly legal, it nevertheless constitutes incipient written evidence that the intention of the de cujus and Crown Life was to make, not the insured or his heirs, but W H Genest Lumber Enrg beneficiary of the insurance policy.

The insurance company accepted and cashed the premium payments made by W H Genest Lumber Ltd from May 1, 1957 until the death of Wilfrid H Genest on June 15, 1967 without raising any objection.

The bank, which had served notice to Crown Life on February 15, 1951 that Mr Genest’s life insurance policy had been assigned to it as collateral for a loan made to W H Genest Lumber Enrg [sic] (Exhibit A-4), accepted the transfer from W H Genest Lumber Enrg [sic] to W H Genest Lumber Ltd of the debt for which insurance policy No 566034 had been given as collateral. For a period of ten years the bank had never worried about or objected to having as collateral an insurance policy whose beneficiary was W H Genest Lumber Enrg, whereas it was W H Genest Lumber Ltd that was responsible for the debt after May 1, 1957. Finally, after Mr Genest’s death, a cheque in the amount of $34,511.13 covering the principal and dividends of the said life insurance policy of the de cujus was made out by Crown Life in the names of G H Genest Lumber Ltd and the bank without either of the said parties immediately concerned raising any objection.

It can therefore be deduced that the insurance company, which is free to apply its regulations as it sees fit, having accepted the premiums on the insurance policy from W H Genest Lumber Ltd since 1957, was satisfied that the joint beneficiaries were W H Genest Lumber Ltd and the bank. There is no evidence to indicate that the legal heirs of the de cujus considered themselves the beneficiaries of insurance policy No 566034 or that they objected to the cheque for $34,511.13 being made out jointly to W H Genest Lumber Ltd and the bank.

In my opinion these facts indicate that the intention of the de cujus to assign ownership of the insurance policy to W H Genest Lumber Ltd was recognized and accepted by all parties concerned, namely the insurance company, the bank, W H Genest Lumber Ltd and the legal heirs of the de cujus.

The intention of the de cujus and the tacit acceptance by the parties immediately concerned, as well as their conduct for several years in the administration of their respective affairs Imply, in my opinion, that there was a de facto assignment of insurance policy No 566034 to W H Genest Lumber Ltd.

Although it has been noted that there was no clause specifying that the insurance policy was one of the assets assigned by the de cujus to W H Genest Lumber Ltd, and although the evidence does not include any written notice to the insurance company or to the bank concerning the assignment of the insurance policy, the fact nonetheless remains that no evidence has been adduced to negate the existence or validity of the agreement between the parties concerned regarding the assignment of the policy, which was followed to the letter by them for a period of ten years.

Although formal written documents confirming that the insurance policy was assigned to W H Genest Lumber Ltd are lacking, the facts do indicate that the intention was certainly there and that there was a de facto assignment of the said policy which was recognized and accepted by all the parties concerned, and everyone acted for a number of years as though the insurance policy had been assigned to W H Genest Lumber Ltd without any objection being raised.

I believe that the facts in the case before us are quite different from those in Perras v Chadwick and Company Ltd. and London Life insurance Co, [1954] BR 526, in which Bissonnette, J says at page 529:

(Translation)

... The insurance policy was res inter alios acta between the insured and the insurer, so that no valid and legal assignment could be made to Chadwick and Company Limited without a formal notice to the mise en cause and without the latter’s acceptance of such an assignment.

In the case now before us, it seems clear to me that all the facts and the actions of Crown Life confirm that the latter recognized and accepted the assignment of the insurance policy to W H Genest Lumber Ltd.

A matter discussed by Bissonnette, J in the Perras case (supra) which does not apply here is the question of whom the insurance policy should be returned to once the bank had been fully repaid. In the Perras case the defendant could not avail itself of any assignment of rights. But in the case that concerns us, not only do the facts show that the policy was assigned to W H Genest Lumber Ltd, but since that company had paid Mr Genest’s life insurance premiums since 1957, it could in my opinion have raised a legal objection if the insurance benefits on the death of Mr Genest had been paid to. his legal heirs.

I therefore conclude that the de cujus was not in possession of insurance policy No 566034 immediately before his death, that he did not have the right to do the things mentioned in paragraph 3(5)(a) of the Act, and that the $30,000 benefit payable under the terms of Wilfrid H Genest’s life insurance policy should not have been included in the calculation of the aggregate net value of his estate.

For these reasons, the appeal is allowed.

Appeal allowed.