Watson v. Conant

THE OFFICIAL GUARDIAN representing Kenneth J. Conant III, Anne Marie Conant, Margaret Mary Conant and Jean Frances Conant, the infant children of Kenneth J. Conant;

AND

CROWN TRUST COMPANY and OSWALD NOEL EDWARDS, Executors and Trustees of the Estate of the late LEONA ANNETTE SCHNEIDER WATSON. ON APPEAL FROM THE COURT OF APPEAL FOR ONTARIO

JUDSON J.:-The appellant John Hewitt Watson is the husband of the testatrix, Leona Watson, who died in 1959. He was left an annuity of $12,000 and the question in this appeal is what is to happen to surplus income in the residue. Both the judgments of McRuer C.J.H.C. and the Court of Appeal' have held that there was no intestacy as to the surplus income and that it should be added to the residue. The appellant husband contends that there is an intestacy and that he is entitled to his share over and above the annual sum that is given to him by the will.

The residuary clauses with which we are concerned are: (f) To keep invested the residue of my Estate and to pay my husband during his life or until his remarriage a sum which with the salary he may then be receiving from the Canada Law Book Company Limited, if any, will aggregate S1,000 per month, and if the income shall be at any time insufficient to provide the amount so as to make up the said aggregate sum, then the deficiency shall be made up from the capital of my estate and so often as such shall be necessary. Provided always if the above provision which I have made to my husband should in any year or years be impossible to comply with due to the lack of capital funds available therefor, or occasion any difficulties in the administration of my estate, all as may be determined by my Executors in their sole and unfettered discretion and judgment, then to the extent of the moneys above directed to be paid out of the capital of my estate, shall abate by such amount as my Executors in their sole discretion and judgment may determine and so often as same may happen. (g) Upon the death of the survivor of me and my said husband or his remarriage after my death, to hold the residue of my estate then remaining in trust to pay and transfer the same to my nephew Kenneth John Conant of Green Bay, Wisconsin, U.S.A., provided 1 [1963] 1 OR. 416, 37 D.L.R. (2d) 370.

S.C.R.

[19641 The testatrix was the owner of the majority of the shares of the Canada Law Book Company and as a result of the sale of these shares and a parcel of real estate held in connection with the business of the company, the residue is currently producing an income of more than $16,000 per annum or approximately $4,000 more than the amount of the annuity to the husband.

Both the Chief Justice and the Court of Appeal have held that the surplus income should continue to be accumulated until the death or remarriage of the husband of the testatrix or until the expiration of twenty-one years from the death of the testatrix. The husband's annuity is being paid out of income. He is not receiving any salary from the Canada Law Book Company and, as far as the material shows, never received any such salary since the death of the testatrix.

The judgment of McRuer C.J.H.C. found on the part of the testatrix a clear expression of intention that the husband was to have nothing from the estate except enough to make up $12,000 per year if the salary from Canada Law Book Company fell short of that sum and that income not required for this purpose became part of the "residue of my estate then remaining" under clause (g) of the will above quoted and was to go to Kenneth Conant or his family. The appellant submits that clause (f) first directs the executors to keep invested "the residue of my estate", and that this phrase means the whole of the assets as they existed at the time of the death less legacies, debts and succession duties, and that the annuity of the husband is charged on the capital and income of this residue. So far I agree. He then goes on to say that "the residue of my estate then remaining" in clause (g) cannot include surplus income because residue must be given the same meaning in clauses (f) and (g). According to him, then, "residue of my estate then remaining" means capital as it stood at the date of the death less the above-mentioned deductions and less encroachments on capital which may have been made to make up the annuity but does not include surplus income. CoAT This mathematical interpretation of the will ignores the force of the inference drawn by McRuer C.J.H.C. that the intention of the testatrix was to augment from the estate an outside source of income up to a maximum of $12,000 per year from both sources and no more. I would affirm the judgment in favour of the residuary interests and their right to the surplus income on the construction put upon the will by McRuer C.J.H.C.

The Court of Appeal found in this will an implied power and trust to accumulate surplus income. I have some hesitation about a disposition of the case on this ground. The annuitant has no right to compel the accumulation of surplus income to meet possible future deficiencies. His right is to have his annuity fully secured (Re Coller's Deed Trusts, Coller v. Coller'). Further, a corresponding conclusion that the remainder interests had a right to have surplus income accumulated to safeguard them against a possible need to resort to capital assumes in their favour the very question in dispute-whether they have any interest in surplus income. I prefer to rest my decision on the ground of interpretation and the second ground stated by the Court of Appeal, namely, that the case is governed by Re Hammond'.

Re Hammond decided that surplus income in the one half of the residuary estate which was under consideration had accumulated for a period of 21 years for the benefit of those who had vested defeasible interests in the residue. In spite of the absence of a direction to accumulate, the Court made this finding as a clear implication to be gathered from the entire will and, in addition, approved of the judgment of Middleton J.A. in the Court of Appeal' that the accumulated surplusincome should be held to follow the principal as an accessory. Middleton J.A. had founded his judgment on Wharton v. Masterman and the dictum of Westbury L.C. in Countess of Bective v. Hodgson. To me the present case is governed by Re Hammond and I agree with the Court of Appeal in so finding.

Counsel for the annuitant urged us to accept the principle that only a contingent residuary bequest can carry the intermediate income and cited in support of his argument Berry v. Geen'; Re Oliver, Watkins v. Fitton ; Re Gillett's j. Will Trusts, Barclays Bank Ld. et al. v. Gillett'; Re Wragg, Hollingsworth et al. v. Wragg et al. This seems to have been the opinion expressed in all editions of Theobald on Wills from the 8th ed. (1927) to the present date. On the other hand, Jarman on Wills, 6th ed. (1910) p. 1046, held the opinion that the principle applied both to deferred and contingent residuary bequests. This was repeated in the 7th ed. (1930) p. 1006, and was abandoned in the 8th ed. (1951) p. 1021, doubtless as a result of the cases then recently decided. I am not sure that I understand even now the logical basis for the distinction between contingent residuary bequests and future vested interests whether indefeasible or defeasible when surplus intermediate income is involved but I am certain that in 1935 the matter was settled as far as this Court is concerned in Re Hammond. The appeal is dismissed with costs of all parties payable out of the estate, those of the executor as between solicitor and client.