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1942 Supreme(SC) 17
Privy Council At Canada
Macmillan, Russell of Killowen, Lords Thankerton, Justice Viscount Maugham, JJ.
Jeannette Robinson Belyea and another -Appellant
Versus
Samuel A. McBride and others -Resopndent
Privy Council Appeal No. 35 of 1941
Decided On : 13-07-1942
Charles Russell and Co., greenwell and Co., Rose, Norton, Valentine Holmes, Charles Romer, Frank Gahan
The reservation of dividends in a testamentary disposition can create a contingent gift that violates the rule against perpetuities if the fulfillment of the contingency may not occur within the perpetuity period.
Headnote:Construction - Testamentary Dispositions - Companies Act, Bye-law No. 54 - Trust Indenture - Dividends - Vested Gifts - Perpetuity Period Summary: The appeal in this case concerns the construction and effect of the testamentary dispositions of a testatrix in relation to her shares in a company called Ganong Brothers Limited. The testatrix owned both common and preferred shares in the company, and her will and codicil made specific bequests of these shares to various beneficiaries. The main issue in the case was the interpretation of a clause in the second codicil, which reserved certain dividends on the preferred shares for the benefit of the testatrix's estate. The lower courts in Canada had differing views on the interpretation of this clause, with some holding that the shares vested immediately in the legatees and others holding that the shares should be retained until the specified dividends were paid. The Supreme Court of Canada ultimately held that the shares vested in the legatees, subject to the reservation of the dividends for the benefit of the estate. The Privy Council, however, disagreed with this interpretation and held that the reservation of the dividends created a contingent gift that violated the rule against perpetuities. Therefore, the direction to retain the shares was deemed inoperative, and the shares were to be transferred to the legatees. The appeal was dismissed.
Lord Russell of Killowen.:-
This appeal raises a question of very considerable difficulty as to the true construction and effect of the testamentary dispositions of a testatrix (one Maria Famicha Ganong) in relation to certain shares of $100 each owned by her in the common and preferred stock of a company called Ganong Brothers Limited. The relevant facts are as follows : The company was formed in the year 1916 under the laws of the Dominion, and purchased as a going concern, a business which was being carried on by a company incorporated under the laws of the Province of New Brunswick. The testatrix made her will on 25th September 1924. At that time she owned 1100 preferred shares and 436 common shares in the capital stock of the company. In addition she had by a trust indenture of 15th March 1918, assigned to trustees 3790 preferred shares and 3600 common shares (which had been bequeathed to her by her deceased husband) upon certain trusts for her own benefit during her life and after her death for the benefit of certain named relatives of her husband.
This trust indenture was in certain events revocable, and it was in fact revoked by the testatrix with the result that at her death her estate included 4890 preferred shares and 4036 common shares. The rights of the preferred shares are declared by bye-law No. 54 of the company. They "shall have a fixed cumulative preferential dividend of seven per cent. per annum payable as may be convenient half yearly." On a winding-up the holders "shall be entitled to payment of their stock in full at par (together with any dividends in arrear) and no more ..... in preference and priority to any payments to holders of the common stock." The bye-law continues thus:
The said fixed dividend of seven per cent. shall be payable only out of the net profits of the company, but they shall be cumulative dividends, that is to say, if not earned fully and paid in each year, the amount of such dividend or any portion thereof remaining unpaid from time to time shall be paid out of the first net profits of the company accumulated or earned thereafter; and no dividends shall be declared or paid on the common stock of the company until after payment in full of all such dividends at the rate of seven per cent. per annum then payable on the preference stock, but in case any dividend on such preference stock or any part thereof is not paid when due and payable as aforesaid, owing to lack of profits sufficient therefor, the amount so payable and not paid shall bear no interest.
The said dividends shall begin to run from the 1st day of July 1916.
The certificates of the preferred shares state their rights in the following terms:
CONDITIONS OF PREFERENCE SHARES.
1. The holders of preference shares shall be entitled out of the net profits whenever ascertained, to a fixed cumulative preference dividend at the rate of seven per cent, per annum on the amount paid up thereon in priority to any payment of dividend upon the common stock, such dividend to be paid at such times as the Directors may determine but to be payable only out of the profits, and the holders shall not be entitled to participate in further dividends or profits.
2. The holders of preference shares, in case the company shall be wound-up or its assets otherwise distributed shall have the right to have the surplus assets, applicable for distribution among the shareholders, applied first in payment of the capital paid up on the said preference shares with all cumulative dividends thereon before any proportion of such surplus assets is distributed among holders of shares not entitled to such preference, but the holders of the said preference shares shall not be entitled to participate in any surplus remaining after the whole amount of capital paid up on such preference shares has, with cumulative dividends, been returned to the holders thereof.
The testatrix by her will appointed her brother and sister (the appellants) and one Samuel McBride to be executors and
