Saturday, January 26, 2013

Meier v. Rose

If you incorporate a company through which you run your business, or hold investments, it is important to keep in mind that your assets consists of the shares you own in the company, but not the underlying assets of the company. In law, a company is a separate “person” from it shareholders. In the case of a small company with only one or two shareholders, it is sometimes easy to lose sight of the distinction, but in estate planning it is essential to keep it in mind.

If you have shares in a company, you may leave those shares to beneficiaries in your will, but because you do not own the company’s assets, you cannot leave those specific assets in your will.

A recent decision in Alberta, in which a lawyer was sued in negligence, highlights the problem. In Meier v Rose, 2012 ABQB 82 (CanLII), Mr. Gary Meier asked his lawyer to draft a will for him. Because he was going on vacation, he wanted his will ready for the next day. He instructed his lawyer that he wanted to leave certain farmlands at Seba Beach to his brother. The lawyer asked him to advise of the legal description of the land, which Gary Meier did by telephone later that day. The lawyer promptly drafted the will, and Mr. Meier signed.

The will included the following clause:

To give my farmlands briefly described as NE 9-52-6-W.5th; NW 10-52-6-W.5th; SE 16-52-6-W.5th & SW 16-52-6-W.5th in the Province of Alberta, to my brother, ROBERT MEIER, of Provost, Alberta, excepting thereout all mines and minerals.

Unknown to the lawyer, the farmlands were owned by a company, the shares of which were owned by Gary Meier. The land was not owned by Gary Meier.

Unfortunately, no one realized the error, until after Gary Meier’s death.

In a previous proceeding, Re Meier (Estate of), 2004 ABQB 352 (CanLII), the Alberta Court of Queen’s Bench held that the gift of land to Gary Meier’s brother failed, because Gary Meier did not own the land. In his reasons for judgment, Associate Chief Justice Sulatycky wrote:

[16]           Few principles of law are better established than the proposition that corporate assets belong to the corporation, not the shareholder. The claimant points to a pattern of behaviour on the part of the testator that suggests that he frequently treated corporate property as his own, but the testator’s cavalier approach to the distinction between corporate and personal assets is not sufficient to establish a trust. A sole shareholder has an interest in corporate assets, but that interest does not operate so as to vest beneficial ownership of those assets in him: Kosmopoulos v. Constitution Insurance Co. of Canada., 1987 CanLII 75 (SCC), [1987] 1 S.C.R. 2. As Hollinrake J.A. points out in British Columbia (Assessor of Area No. 25 - Northwest/Prince Rupert) v. N & V Johnson Services Ltd., [1990] B.C.J. No.1964 (C.A.): “A company does not hold its assets in trust for its shareholders or any one of them.”
Robert Meier then made a claim against the lawyer.

Madam Justice J.H. Goss found that the lawyer had acted for over twenty years for Gary Meier, knew that he employed companies to hold title to some of his property, and that Mr. Meier often did not distinguish between company-owned property and his own. Accordingly, the lawyer ought to have made inquiries such as reviewing the title to ensure that the land was owned by Gary Meier. She wrote that the lawyer,

…was negligent in failing to determine that Gary Meier was not the registered owner of the lands to be gifted, and to advise Mr. Meier that the gift as stated in the will pursuant to his instructions would fail. He thereby failed to advise his client in all matters relevant to his retainer, to protect his client from making devises of his estate other than those which he actually intended, and to carry out his client’s instructions by all proper means.

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