Re Viertel [1996] QSC 66 (26 April 1996)

In 1987 the testatrix was admitted to a home. On 19 April 1991 she appointed Mr and Mrs McCallum to be her attorneys pursuant to an enduring power of attorney. Pursuant to that power they sold the property for $141,500 to one Ferrier and the transfer was registered on 25 July 1994. They have invested the net proceeds of sale in the name of the deceased in debenture stock with Suncorp Finance, and the estate currently holds that stock. The only other asset in the estate is a fund with a current balance of about $18,000.

Prior to selling the property Mrs McCallum wrote to the Public Trustee seeking advice as to what should be done with the property. She was told that the public Trustee was not at liberty to disclose the contents of the will and that the McCallums would have to decide for themselves whether or not they sold the residence.

The evidence shows that Mr and Mrs McCallum cared for the testatrix after 1978, and that even after she was admitted to a home in 1987 she did not want her house to be sold. She suffered a stroke in June 1993, and by the time the sale was effected her mental capacity was such that she was plainly incapable of managing her affairs or making a will.

The sale of the house was therefore a bona fide action of the devisee-attorneys to realise and preserve the proceeds of an asset that was no longer required, and in ignorance of the devise to themselves or the adverse effect that a disposition of the asset might have upon that devise. It was certainly not a disposition of an asset by the testatrix or even a disposition of which she was aware, and it was probably one of which she would have disapproved.

The question then is whether or not an ademption is effected when a sale is lawfully made by an attorney who is ignorant of the terms of the will when the testatrix is likewise ignorant of the action of the attorney, and when the intention of the testatrix to benefit the devisee never alters.

The view that an ademption results even in such circumstances is supported by the general principle stated by Cozens-Hardy MR in Re Slater (1907) 1 Ch. 665, 671. On the question whether a gift had been adeemed Cozens-Hardy MR said

"Speaking for myself, although it may not be absolutely necessary for the decision of this case, I think it has been. There was a time when the courts held that ademption was dependent on the testator's intention, on a presumed intention on his part; and it was therefore held in old days that when a change was effected by public authority, or without the will of the testator, ademption did not follow. But for many years that has ceased to be the law, and I think it is now the law that where a change has occurred in the nature of the property, even though effected by virtue of an Act of Parliament, ademption will follow unless the case can be brought within what I may call the principle of Oakes v. Oakes . . ."

". . . You have to ask yourself where is the thing which is given? If you cannot find it at the testator's death, it is no use trying to trace it unless you can trace it in this sense, that you find something which has been changed in name and form only, but which is substantially the same thing."

It would seem, with respect, that the law has recognised a wider ambit of exception to ademption than that mentioned in Oakes v. Oakes [1852] EngR 350; 9 Hare 666.

One case which seems very close to the present one is Jenkins v. Jones (1866) LR 2 Eq 323. The testator was a farmer on yearly tenancy who bequeathed to his son all his farming stock "which shall be in my possession at my decease." He appointed his son and his wife as executors. Two years before his death he suffered a fit of "apoplexy" and was thereafter of unsound mind and unable to manage his affairs. In consequence of the testator's disability his wife gave up possession of the farm and she and the son sold the farming stock and deposited the proceeds in a bank account where it remained until after the death of the testator when it was paid to the separate account of the son. Some of the next of kin brought an administration summons seeking to charge the son with the amount received by him. Stuart VC stated the general principle of ademption, followed by an exception.

"If there be a specific legacy of a chattel or of anything else and if at the time of the testator's death the specific thing cannot be found, the subject matter of the bequest having been extinguished the gift cannot take effect . . . But quite another consideration arises, where, after the testator has given a specific thing, and without his knowledge, perhaps against his wishes, or tortiously, another person has sold it or has done enough to wholly alter its character."

With respect to that case the Vice Chancellor stated

"What is this case? The farming stock ceased to exist, but the money was placed in a bank and there remained, and it clearly represented the value of the subject matter of the bequest. The person who changed the character of the chattels was the legatee, to whom and for whose benefit they have been specifically bequeathed . . . I think that as it was by no act of the testator that the chattels were converted, for he never intended any conversion, but intended that the specific legatee should have his farming stock, I ought to refuse the motion."

His Lordship therefore accepted the validity of the legatee's claim to the proceeds.

It seems to me that when a testator's asset is altered by a third party, the question whether the testator had notice or knowledge of the facts is a relevant factor on the question of ademption. This was the view of Neuberger QC in Re Dorman deceased (1994) 1 WLR 282, 288, the reason mentioned by the learned Deputy Judge being "presumably because in the absence of such knowledge the testator would not have had an opportunity of altering his will."

That case also has some circumstances in common with the present one, although it was possible to find in that case that when a balance was transferred to a new bank account it was "substantially the same thing" as the balance of the earlier different deposit account. Apart from that, it strongly resembles the present case, as the conversion of the property was effected by a person to whom the testator had granted an enduring power of attorney who was in ignorance of the terms of the will, for a purpose unconnected with the terms of the will, and the act was on the balance of probabilities unknown to the testator. It was held that no ademption had occurred, and that on the true construction of the will and in the events which had happened, the moneys in the subsequent account passed under a clause of the will to the beneficiary to which the original balance of deposit had been bequeathed.

In Re Larking (1887) 37 Ch.Div. 310 North J held that the effect of a committee paying off a debt on a policy did not have the same effect upon the entitlement of a beneficiary as it would if the testator had paid it off himself. The bequest was of an insurance policy on trust to pay two nominated debts.

" As far as the £200 was concerned, that was actually paid by the testator himself, before he became lunatic, and the debt ceased to exist, and cannot be paid out of the moneys received on the policy.

As to the £50 with interest, that stands in a different position. That sum the testator was liable to pay, and he intended it should be paid out of the policy moneys; and if nothing had been done at this death, it would have been necessary to pay that sum out of the moneys received on the policy. But what happened was that he became a lunatic, and the committee in his lifetime, not in consequence of any pressure, not in consequence of any action, but voluntarily, paid it out of what would have been part of the general personal estate. This act was done by the committee without any authority from the Lords Justices. In my opinion that act cannot in any way alter the rights of the parties. That sum must be recouped to the general estate out of the policy moneys; and, subject to the deduction of that sum, the Plaintiff will be entitled to the whole benefit of the policy."

The references to the Lords Justices is to the Lords Justices in Lunacy.

Moreover, a less than literal approach to the test in Jenkins v. Jones was taken by Roxburgh J in Re Heilbronner deceased Nathan v. Kenny (1953) 1 WLR 1254. The testator bequeathed his "bank deposit at the Midland Bank" to his nurse, and a few days before he died withdrew all moneys from that bank account. On the footing that the money was removed only on a temporary basis His Lordship concluded that the money which had been standing in the account shortly before the testator's death passed under the specific bequest.

It is true that acts done in the exercise of a power of attorney are authorised acts of the principal and are as effective as far as third parties are concerned as if the principal had done them herself. But I am concerned not so much with the validity of the sale and transfer as with the secondary consequences of that transfer namely whether an ademption is to be presumed to follow. There appears to be some uncertainty on the law on this question both in the United States and in Canada. The following statement appears in Corpus Juris Secundum Vol 96, para 1174

"Where the testator becomes insane after execution of the will and a guardian or committee is appointed for him who sells property forming the subject matter of specific devises the authorities are not in accord as to whether the bequest or devise is adeemed or whether the devisee, although unable to get the exact property destined for him, can follow the proceeds. Some of the cases apply strictly the rule that an ademption results . . . Other authorities, however, in view of the fact that the committee or guardian of an insane person is merely the curator and conservator of the ward's property . . . hold that legacies are not adeemed by such acts on the part of the guardian as would if done by the testator himself voluntarily and as a person sui juris had that effect . . ."

There also seems to be the same ambivalence as to whether the intention of the testator is a relevant matter in this area.

"There is a conflict of authority as to whether or not the guardian or conservator of an insane or incompetent testator may so deal with the subject matter of a specific devise or bequest as to work an ademption thereof. This conflict is largely due to the fact that some courts have applied the rule that the intention of the testator must control, so that ordinarily there would be no ademption, while others take the view that the ademption of a specific legacy does not depend on intention . . ."

A similar division in Canada may be seen by comparing on the one hand Re Dupont (1977) 79 DLR (3d) 754 and on the other Re Stevens (1946) 4 DLR 322, 330-331, Re Jeffery (1974) 53 DLR (3d) 650, 653, and Stenkamp v. Stenkamp 723P 2d 336, 80 Or. App 550.

Reference may be made however to Re Estate of Pearl Swoyer, Deceased 439 NW 2d 823 (SD 1989) because of its considerable similarity with the present case and because the reasoning demonstrates convincing practical reasons in favour of the submissions on behalf of Mr and Mrs McCallum. The Appeal Court in that decision held that where a testator becomes incompetent following execution of a will and a guardian sells property specifically devised by the will, proceeds from the property remaining at the testator's death are not adeemed. It was argued that the farm no longer existed as part of the estate and that the devise must fail. The vexed question was raised whether the "identity test" should prevail, which considers only whether the property is part of the testator's estate at the time of death, or whether some weight may be given to the apparent intention of the testator. The Court considered that the balance of authority favoured a different conclusion:

"The majority of jurisdictions consider the testator's intention as material and a testamentary gift is adeemed only where it appears that such was the testator's intent. The courts focusing on the testator's intent hold that there is no ademption where the testator becomes incompetent and the subject matter of a specific bequest or devise is sold by a guardian."

(My quotations will omit references in the judgment to other decisions.)

The case concerned a 104 year old testatrix who is referred to in the report as "Pearl". The Court stated:

"The intent of a testator should be given effect, through the expressions in the will and with the aid of surrounding circumstances. Pearl's intent was to bequeath the estate to her four grandchildren she helped raise. The guardian's sale of this property should not be permitted to frustrate this intent where Pearl lacked testamentary capacity to conform her will to the guardian's actions. A contrary holding would lead to inequitable results.

The Court agreed with the practical comments made in Page on Wills to the following effect:

"The results of the rule that sale, collection, and the like by guardian of an incompetent person operates as an ademption have been very unsatisfactory. A guardian who is hostile to one of the beneficiaries may adeem the gift to him by a sale of the property, or by collection of a debt. If he is friendly to one to whom a general gift is made or to whom a general residuary gift is given, he may increase the amount of such gift by converting the property into the form which is given to such beneficiary."

The Court's final opinion is expressed in the following passages:

"Where the testator is competent and disposes of the subject of the gift, the gift is adeemed; where the testator is incompetent and the subject of the gift is sold by a guardian with court approval, the gift is only adeemed to the extent the proceeds are used for care and maintenance of the ward. The only question of intention involved is the opportunity of the testator to change the will. This opportunity is denied the incompetent testator.

"[8] We hold that where the testator becomes incompetent following the execution of a will and a guardian sells property specifically devised by the will, the proceeds from the property remaining at the testator's death are not adeemed."

The consequences of an inadvertent ademption by an official such as the Public Trustee have been softened by legislation, but not in the case of acts of persons under power of attorney. In Queensland for example, s.89 of the Public Trustee Act 1978 together with clause 15 of the Fifth Schedule to the Mental Health Act 1974 permits discretionary relief to be afforded to an injured party. A similar effect follows from the provisions of the Administration of Justice Act 1969 (UK) (cf. Re D (1982) 1 Ch. 237) and under the Protected Estates Act 1983 (NSW) s.48. In Christensen v. McKnight (NSW Supreme Court Equity Division 9 February 1995 2843/1994) Hodgson J gave relief on the basis that an ademption had occurred. However there is no similar legislation covering inadvertent ademption from the exercise of a power of attorney on behalf of a testator who has become incompetent. The existence of legislation of this kind may however have reduced the occasion for the courts to develop the historical exception to ademption by reason of conversion of a testator's property by a third party.

It would be preferable that a point of this importance be determined by a court of greater authority. That seems unlikely in the present case, as no adverse party is opposing the relief which Mr and Mrs McCallum seek. With some hesitation I express the view that the rule recognised by Stuart VC in Jenkins v. Jones above is an historical exception to the consequence of ademption and that the present circumstances fall within that exception. That case was not referred to in Re Slater, where a very wide statement of the law concerning ademption was formulated. Although much of that formulation was obiter, it seems to have been adopted as a statement of the law by text-book writers since that time. However I can see no reason why Jenkins v. Jones should be regarded as having been overruled, and in principle I regard it as expressing a reasonable exception which ought to be followed. The validity of the factors that may contribute to the existence of such an exception has also been recognised in the cases mentioned above including Re Larking and Re Dorman. Re Larking reinforces the notion that a testator's intention is not defeated by acts done by a committee of his estate of which the testator was not aware. The U.S. decision of Swoyer, Deceased also provides good reasons in favour of maintaining this class of exception.

In these circumstances I consider that Mr and Mrs McCallum's entitlement under the will was not lost. The result should be no different than if a stranger had converted or misapplied an asset in circumstances where the proceeds of the asset can be traced. In that event apart from any claim that could be made against the convertor, the devisee would have a proprietary equitable claim against the recipient of the proceeds. (Re Diplock [1948] Ch 465; Ministry of Health v. Simpson [1951] AC 251). In the present case the proceeds are still within the control of the administrator of the estate, and the McCallums were themselves the innocent convertors of the asset. On this basis it is appropriate to answer question one (Has the devise in para. 3 of the will been adeemed?) - "No" and to declare that on the true construction of the will and in the events which have happened the Suncorp Finance Ltd debenture stock described in Certificate No. 1082642 is held on behalf of and for the benefit of Beres Elva McCallum and Henry McCallum.