Dec 30, 2019

What do you do when your deceased spouse gives the estate to someone else?

Trezzi v. Trezzi, 2019 ONCA 978 (CanLII)

In Trezzi v. Trezi [2019] O.J. No.6308, the deceased Peter, who owed a construction company, throw the cat among the pigeons in death, by deciding to give the land and assets of the construction company to his surviving brother (Albert) rather than to his wife(Gina) and children.

Not to worry, the Ontario Family Law Act s.5(1) has already cut off this testator freedom of action. Death is deemed to be separation and there is an equalization calculation. If Peter’s net assets are less than the surviving wife’s net assets, then the bequests to the brother is effective. If Peter’s net assets are more than the surviving wife’s net assets, then Peter’s net estate has to pay an equalization payment to the wife before the brother takes.

Not to be denied, the insulted wife doubled down and played the corporate card on dead Peter. The will was written in the following language described by the judge:

5 For present purposes, the relevant aspects of Peter's will are as follows:

* Gina and Albert were named as joint executors and trustees of Peter's will.

* Albert was gifted: (i) all of Peter's interest in ACC; (ii) real property located at 220 Regina Road, Woodbridge (which was owned by Trezzi Construction); and (iii) all the equipment and chattels owned by Trezzi Construction.

* Gina, Albert, Emily, and Bianca were each gifted equal shares of: (i) all other real property owned by Peter; (ii) all other assets owned by Trezzi Construction; and (iii) the residue of Peter's estate.

The corporate question was this:

The assets were owned by Trezzi Construction Ltd. not by Peter qua sole shareholder. What is Peter the shareholder doing purporting to distribute corporate assets? Is this bequest therefore void? Do all the assets thereby devolve to the general distribution provision of the Will?

The Court of Appeal sensibly dismissed this argument by pointing out that as sole shareholder, Peter had the power under the Ontario Business Corporations Act s.193 to wind up and distribute corporate assets and shareholders are entirely free to distribute as they wish (subject to creditor priority). (para 18)

As such Peter’s instruction in his Will was an instruction to his executor, to exercise his shares in the corporation so as carry out the asset distribution that Peter determined. The carrying out of the process was indirect. Peter qua shareholder did not have the power to distribute, rather he had the power to order the corporation to distribute. This answer seemed obvious from the start.

Do any of those boilerplate clauses ever do anything important?

The more nuanced point was whether the Will contained a power given to the executor to implement Peter’s wishes. The judge reproduced the Will clause which gave such power:

19 With respect to the executors' powers under the will, the application judge found that clause 3(a) of Peter's will also provides the executors with the necessary powers to implement Peter's wish to have Trezzi Construction wound up. Clause 3(a) states in relevant part:

  • I GIVE, DEVISE AND BEQUEATH all my property of every nature and kind wheresoever situate, including any property over which I may have a general power of appointment, to my said Trustees upon the following trusts, namely:
      • To use their discretion in the realization of my estate, with the power to my Trustees to sell, call in and convert into money any part of my estate not consisting of money at such time or times, in such manner and upon such terms, and either for cash or credit or for part cash and part credit as my said Trustees may in their uncontrolled discretion decide upon, ...

    Lest the reader pass an entire career never having seen one of those boilerplate clauses being triggered. Here is the example.

    This is an estate case – So what does this case say about contract law?

    There is an obiter in this case which strikes down yet another apparent foundation that we all learned in contract law in law school. (i.e.: that there is no parol evidence when interpreting a contract). The Court of Appeal said this in passing:

    15 These findings of the application judge interpreting Peter's will to determine his subjective intention in light of all the surrounding circumstances are findings of fact and of mixed fact and law that are entitled to appellate deference. Just as the interpretation of a contract in light of its surrounding circumstances is now subject to review (absent an extricable error of law) only for palpable and overriding error, in my view, the same is true for the interpretation of a will in light of its surrounding circumstances: see Hicklin Estate v. Hicklin, 2019 ABCA 136, 46 E.T.R. (4th) 1, at paras. 10, 94-95; Zindler v. The Salvation Army, 2015 MBCA 33, 6 E.T.R. (4th) 34, at para. 10; and Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at para. 50.

    Will interpretation has always been profoundly about the facts surrounding the making of the Will. Contract was always about abstracting from the facts surrounding the making of the contract. The words of the contract ruled. With Wills the words of the Will ruled unless a power-imbalance was shown at the formation of the Will.

    Canadian courts (starting with Cromwell’s decision in Bhasin) now interpret contracts using Will-interpretation rules. The underlined phrase in paragraph 15 (in light of the surrounding circumstances) would never have been as aspect of contract interpretation in an era when the parties were deemed to know what they were writing..

    Is anything important lost by this,none-too-subtle, contract law migration? (You know my answer to that).