Moody Estate (Re), 2011 ABQB 222

Court of Queen ’ s Bench of Alberta Citation: Moody Estate (Re), 2011 ABQB 222 Date: 20110401 Docket: ES01 100128 Registry: Calgary Court File Number ES01 100128 Court Court of Queen’s Bench of Alberta (Surrogate Matter) Judicial District Calgary Estate Name Leona Mae Moody Applicant James Hector Moody, personal representative Respondent Charles Reginald Cecil Moody _______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice P.M.

Clark _______________________________________________________ Introduction and Facts [ 1 ] The deceased, Leona Mae Moody, died on December 3, 2005, leaving four adult children. Her husband had predeceased her. Pursuant to the deceased’s Will dated August 24, 2004, two of her children, the Applicant James Hector Moody and his sister Tyrell Lou Moody Boehme, were appointed executors of the deceased’s estate. The deceased’s four children are residuary beneficiaries in equal shares. [ 2 ] It is alleged that, during her lifetime, the deceased made loans to her son, the Respondent Charles Reginald Cecil Moody.

The loans are alleged to have been made between 1977 and 2005. Following the deceased’s death, the executors sought payment of the loans from the Respondent. The Respondent refused to pay and disputes that he owed any money to the deceased. It is important to note that the merits of the argument with respect to the alleged loans are not presently before me. Issues [ 3 ] Pursuant to a direction I gave at a case management meeting on December 9, 2009, the Applicant brought this motion to

determine two issues. First, are the alleged debts barred by the Limitations Act , R.S.A. 2000, c. L-12? Second, if the alleged debts are not statute-barred, is there a further limitation period within which the personal representatives must commence proceedings to enforce them? To this has been added a third issue, namely, if the alleged debts are statute-barred, can the personal representatives nevertheless take them into account in distributing the estate pursuant to the so-called rule in Cherry v. Boultbee , (1839), 4 My & Cr 442, as discussed below?

Analysis Are the Alleged Debts Statute-Barred? [ 4 ] The relevant provisions of the Limitations Act are as follows: Limitation periods 3(1) Subject to

section 11, if a claimant does not seek a remedial order within (a) 2 years after the date on which the claimant first knew, or in the circumstances ought to have known, (

i) that the injury for which the claimant seeks a remedial order had occurred, (ii) that the injury was attributable to conduct of the defendant, and (iii) that the injury, assuming liability on the part of the defendant, warrants bringing a proceeding or (b) 10 years after the claim arose, whichever period expires first, the defendant, on pleading this Act as a defence, is entitled to immunity from liability in respect of the claim.

(2) The limitation period provided by subsection (1)(

a) begins ... (

c) against a personal representative of a deceased person as a successor owner of a claim, at the earliest of the following times: (

i) when the deceased owner first acquired or ought to have acquired the knowledge prescribed in subsection (1)(a), if the deceased owner acquired the knowledge more than 2 years before the deceased owner’s death; (ii) when the representative was appointed, if the representative had the knowledge prescribed in subsection (1)(

a) at that time; (iii) when the representative first acquired or ought to have acquired the knowledge prescribed in subsection (1)(a), if the representative acquired the knowledge after being appointed. [ 5 ] Though there is a dispute as to the existence of the alleged loans, there is nothing to indicate that the deceased was not aware

of the loans if indeed they were made. Thus, apart from any loans alleged to have been made within the last two years prior to the deceased’s death, she would have acquired the knowledge contemplated by subsection 3(1) (

a) of the Limitations Act more than two years before her death. Therefore, pursuant to subsection 3(2)(c)(i), the limitation period with respect to any loans made prior to December 3, 2003 expired prior to the deceased’s death. Any loans alleged to have been made prior to December 3, 2003 are statute- barred. [ 6 ] The executors argue that these loans are statute-barred as against the deceased, but not as against them. This argument is without foundation.

While subsections 3(2)(c)(ii) and (iii) provide for extensions of the limitation period in appropriate circumstances, it is clear from the wording of the statute that the period begins to run at the earliest of the three starting times. Actions which are statute- barred as against a person are not “revived” by that person’s death and the appointment of a personal representative. [ 7 ] With respect to any loans alleged to have been made between December 3, 2003 and the deceased’s date of death, December 3, 2005, the executors assert that they had no knowledge of any such loans at the time of their appointment.

Therefore, they argue that the applicable time for the start of the limitation period is that set out in subsection 3(2)(c)(iii). Further, they assert that they did not become aware of any of the alleged loans until November 5, 2007. As the executors filed their Notice of Motion on July 14, 2009, their position is they have sought payment in time. [ 8 ] The Respondent takes the position that the executors had sufficient knowledge of the deceased’s financial affairs that they had or ought to have had knowledge of any alleged loans as of the date of the deceased’s death.

Therefore, his position is that the limitation period in respect of any such later alleged loans began to run as at the date of the executors’ appointment, being April 25, 2006. [ 9 ] Regardless of whether the executors knew of the alleged loans prior to the deceased’s death, I am satisfied that they knew, or with the exercise of reasonable diligence ought to have known, about any such loans within a reasonable period following their appointment. The executors had charge of the deceased’s affairs for nearly two years before they say they discovered the alleged loans.

No explanation was given for this lengthy period and I do not find this assertion credible. Leaving aside the question of whether the alleged loans were in fact loans, rather than gifts or advances, I am satisfied that the deceased’s affairs were not so extensive or complex that the executors could not have found the necessary information to bring this claim earlier. [ 10 ] The Affidavit in support of the grant of probate in this estate was signed by the two executors in March 2006.

That Affidavit included an NC7: Inventory of Property and Debts which lists the deceased’s property as a house in Springbank, some land in Saskatchewan, three bank accounts, an amount receivable and household goods. Certainly there is nothing in this list to suggest that an inordinate amount of time would be required to investigate the deceased’s affairs. [ 11 ] Further, there are telling references in certain correspondence sent by the executors to the Respondent and attached to the Applicant’s Affidavit of June 26, 2009.

In a letter dated November 5, 2007, the executors state that the deceased “...retained her bank records and important papers in a very orderly fashion .” (Emphasis added.) In a letter dated February 20, 2009, the executors state as follows: In March of 2007, while attending to the duties of searching and discovering, the Personal Representatives uncovered a box of files and bank statements relating to the bank accounts of Leona Moody. This discovery uncovered Leona’s financial history from 1977 until her passing in 2005 and provided an insight into her finances and her lifestyle.

Upon review, our attention was drawn to the fact that there were a great number of transactions of significant amounts to one son, Charles Moody as a major recipient and also to the Stockade Motel, also as a recipient. [ 12 ] Thus, the executors were in possession of this information in March 2007, some fifteen months after the deceased’s death and less than a year following their appointment. [ 13 ] The executors, as noted above, filed their Notice of Motion on July 14, 2009.

Therefore, to find that they are within the limitation period, I would have to conclude that they could not, with reasonable diligence, have learned of the alleged loans prior to July 15, 2007, nearly fourteen months after their appointment and a year and a half after the deceased’s death. I am not satisfied that it is so. Section 3(2) (c)(ii) of the Limitations Act would give the executors until April 25, 2008, two years after their appointment and more than

a year after the discovery of the box of files, to bring the claim. Section 3(2)(c)(iii) of the Limitations Act extends the commencement of the limitation period until the personal representative acquires or ought to have acquired the requisite knowledge. Even applying this provision, the evidence shows that the executors had the necessary knowledge in March 2007. No explanation was given for the failure to bring the claim until some twenty-eight months later.

In consequence, I find that the Notice of Motion was brought outside the limitation period and this claim is also statute-barred. [ 14 ] In addition, even if I am wrong in my conclusion that any loans made prior to December 3, 2003 were statute-barred prior to the deceased’s death, the evidence shows that the executors were aware of those loans in March 2007 as well. The letter of February 20, 2009 refers to the deceased’s financial affairs from 1977 to 2005. Therefore, even if there were loans made prior to December 3, 2003 and even if such loans are not statute-barred pursuant to s.3(2) (c)(

i) of the Limitations Act , I find that the executors brought the claim in respect of such loans outside the limitation period and that these loans are statute-barred in any event. [ 15 ] In light of this conclusion, I do not think it necessary to deal with the arguments respecting laches. The Rule in Cherry v. Boultbee [ 16 ] This brings me to the novel question of the rule in Cherry v. Boultbee . In Leeper Estate v. Leeper , [1996] Y.J. No. 6 (C.A.) , the Court set out the rule as follows at paras. 27-8: [The rule in Cherry v.

Boultbee ] was succinctly stated in Williams, Mortimer and Sunnucks on Executors, Administrators & Probate, 17 th ed. (London: Stevens & Sons, 1993) at 646: The principle of Cherry v. Boultbee has been stated as follows: “Where a person entitled to participate in a fund is also bound to make a contribution in aid of that fund, he cannot be allowed to participate unless and until he has fulfilled his duty to contribute.” In Re Akerman, Akerman v.

Akerman , [1891] 3 Ch. 212 Kekewich J. stated at 221 that the circumstance that a debt owing to a testator was statute barred at the date of death of the testator did not prevent the application of the rule in Cherry v. Boultbee ( supra ) from being applied. [ 17 ] Though the executors refer in their brief to “equitable set-off”, the courts have been careful to state that the rule in Cherry v. Boultbee is something other than set off. For example, the Court in Biton v. Philp [1943] O.J. No. 294 (H.C.J.) at para. 8 quoted as follows from Cherry v.

Boultbee : It must be observed, that the term “set-off” is very inaccurately used in cases of this kind. In its proper use, it is applicable only to mutual demands, debts and credits. The right of an executor of a creditor to retain a sufficient part of a legacy given by the creditor to the debtor, to pay a debt due from him to the creditor’s estate, is rather a right to pay out of the fund in hand, than a right of set-off. [ 18 ] It is interesting that counsel in Leeper conceded that the rule in Cherry v. Boultbee was sufficient to overcome an expired limitation period.

Nevertheless, the Court in Leeper went on at para. 29 to find that this was so: Pursuant to those authorities the fact that the monies repayable by the appellant to his father were statute barred under s. 2(1)(

f) of the Limitation of Actions Act did not preclude the administratrix of the estate of Mr. Leeper (represented in this litigation by the respondent) from applying the rule in Cherry v. Boultbee . [ 19 ] Leeper was referred to in this Court by Hughes J. in Hutchinson Estate v. Hutchinson , 2006 ABQB 418 . However, it is important to note that Hutchinson was an appeal from a Master’s order granting

summary judgment. Justice Hughes, while she referred to Leeper , held only that she was unable to find that it was plain and obvious that the action could not succeed. I do not take this to be a wholehearted endorsement of Cherry v. Boultbee .

[20] Nevertheless, in Nash Estate v. Lloyd Estate (SCC), [1968] S.C.R. 300, a case involving improperwithdrawals of funds from a company by its directors, the Supreme Court of Canada held that the rule in Cherry v. Boultbee could applyregardless of a limitation period. The Supreme Court held: The three directors in question took the moneys and enjoyed the full benefits thereof since 1921. Their situation is analogous to that of alegatee who must bring into account even a statute barred debt before he can claim the legacy left to him in the testator’s will.

Halsbury, 3rd ed., vol. 2 at pp. 484-5 puts the proposition as follows: ...but the principle applicable is that a person who owes money which would swell the mass of the deceased’s estate is bound to makehis contribution to the estate before taking a part share out of it... citing Cherry v. Boultbee [(1839), 4 My & Cr. 442.] and Courtnay v. Williams [(1846), 15 L.J. Ch. 204.]. [21] The rule in Cherry v. Boultbee has also been applied in other Canadian cases, extending beyond the estate realm. See Olympia& York Developments Ltd. v. Royal Trust Co. (1993), (ON CA), 14 O.R. (3d) 1 (C.A.); Kushner v.

Rocky MountainSportswear Ltd. (Trustee of), 2001 ABQB 743, 301 A.R. 294 (Mstr.); Canada (Attorney General) v. Confederation Life Insurance Co.(2002), (ON SC), 32 B.L.R. (3d) 127 (Ont. S.C.J.); and Paragon Development Corp. v. Sonka Properties Inc.(2009), (ON SC), 96 O.R. (3d) 574 (S.C.J.), aff’d. 2011 ONCA 30, 103 O.R. (3d) 481. It is significant, however, thatwith the exception of Paragon, limitation periods were not at issue in these cases. [22] It appears, then, that Cherry v. Boultbee has been an accepted part of Canadian law.

It also seems to have been accepted thatthe rule applies notwithstanding the expiration of the applicable limitation period. I find this most curious, as it seems to me to beanathema to the purpose of limitation periods, namely to prevent claimants from sitting on their rights and to provide repose todefendants after a reasonable period. I also find it exceedingly strange that the rule permits an executor to recoup the amount owing, eventhough the deceased would have been unable to do so.

The reason for this anomaly, I believe, has to do with the distinction betweenrights and remedies. [23] The application of this dichotomy to limitation periods is explained in a most helpful passage from Graeme Mew, The Law ofLimitations, 2d ed. (Markham, Ontario: LexisNexis Butterworths, 2004) at p.65: The common law tradition considers statutes of limitation as procedural, as contrasted with the position in most civil law countries,where limitations are regarded as substantive.

As a result, limitation provisions found in Canadian statutes have, for the most part, been interpreted as extinguishing remedies ratherthan substantive legal rights. Thus, one commonly finds that an action must be commenced “within” or “within and not after” theprescribed period. As a result, although a party is barred from enforcing its remedies once that time period has expired, its legal right willsurvive. The rationale for this approach is explained as follows: Extinguishing rights is not an objective of a limitations system.

Rather, its objective is to force the timely litigation of disputes, if there isto be litigation. Nevertheless, if, pursuant to a limitations statute, a defendant gains immunity from liability to any remedy which the lawprovides for the enforcement of the right upon which the claim was based, the right, although not extinguished, will become sterile.[Footnotes omitted.] [24] Under this approach, while neither the deceased nor her executor can avail herself of the remedy of a lawsuit against a debtoronce the limitation period has expired, the underlying right remains unextinguished.

While this explains how the rule in Cherry v.Boultbee could operate beyond the expiration of a limitation period, nevertheless I must confess that I find it unsatisfying. Interestingly,Mew notes at p. 66 that the courts in more recent cases have begun to treat limitation periods as substantive rather than procedural: However, the traditional common law approach is changing. In 1994, the Supreme Court of Canada in Tolofson v. Jensen set aside the

old common law rule of

interpretation. Mr. Justice La Forest, for the majority, expressed the view that the civil law approach was morepersuasive, and that the reasons that formed the basis of the common law rule were out of place in the modern context. Mr. Justice LaForest cited other Canadian decisions where courts had begun to undermine the mystique that statutes of limitation are directed at theremedy and not the right, and held that the Saskatchewan limitations statute created an accrued right, specifically, a right in the defendantto plead a time bar and, as such, was substantive and not procedural.

One scholar in particular has interpreted this decision as meaningthat technical distinctions between right and remedy are now outdated. This same scholar sees the Supreme Court’s decision in Tolofsonas “a burst of judicial creativity” which stands for the propositions that statutes of limitation confer substantive rights, and that it is nolonger necessary to rely on the language used in the relevant limitations provision to determine if it extinguishes the right or bars theremedy. [Footnotes omitted.] [25] The change articulated in Tolofson v.

Jensen (SCC), [1994] 3 S.C.R. 1022 was signalled in earlier SupremeCourt of Canada cases. In Heuman (Next Friend of) v. Andrews, 2005 ABQB 832, 389 A.R. 182, Rowbotham J. (as she then was)reviewed in detail the development of the law in this regard. Justice Rowbotham made these comments at paras. 29 and 32: In Angus v. Sun Alliance Insurance Co., (SCC), [1988] 2 S.C.R. 256, the court criticized as “artificial” and“insupportable” the distinction between right and remedy, a distinction underpinning the traditional common law approach to statutorylimitation provisions.

In that case, La Forest J. held that a statutory provision that provided a complete defence to an action wassubstantive and could not be applied retroactively. In so holding, La Forest J. noted “the poverty of the attempted distinction between aliability and its enforcement” ... Justice La Forest noted [in Tolofson] that Canadian courts had begun to shatter the notion that statutes of limitation are directed at theremedy and not the right.

The Supreme Court had earlier decided the right of the defendant to be free from stale claims. (Martin v.Perrie, (SCC), [1986] 1 S.C.R. 41) [26] It is true that many of the cases since Tolofson in which statutes of limitation have been characterized have involved conflictsof laws, as was the case in Tolofson itself.

Justice Rowbotham noted this in Heuman when she stated at para. 33 that “Since Tolofson, theAlberta Court of Appeal has consistently characterized statutes of limitation as substantive law in conflict of laws cases.” [27] However, Justice Rowbotham was satisfied that the characterization of limitation provisions as substantive law was notlimited to the conflicts realm. She reached these conclusions at paras. 27, 34 and 36: As a result of the Supreme Court of Canada decision in [Tolofson] and cases decided in the past 10 years, it is my conclusion that alimitation provision is substantive, not procedural.

The better view is that a limitation provision extinguishes not only the remedy but alsothe substantive right. This is so even where the issue is not one of the conflict of laws. ... Ryan Heuman’s case does not involve the conflict of laws. However, in post-Tolofson non-conflict of laws cases, the Alberta Court ofAppeal has evinced an inclination to characterize statutory limitation provisions, other than those directed at the filing and serving ofdocuments, as substantive. ... In my view where, as here, we are dealing with a limitation period in a limitations statute, the provision is substantive.

This ought to beso whether or not the case involves the conflict of laws. I agree with the observation of Huband J.A. in [Michalski v. Olson (1997), (MB CA), 123 Man. R. (2d) 101 (C.A.)] that the notion that a limitation period bars the remedy rather than extinguishing aright “is an exercise of semantic gymnastics.” [28] I agree both with Justice Rowbotham’s reasoning and with her conclusions.

While there have been some more recent cases inwhich a limitation period has been treated as procedural, those cases have concerned time limits for matters that can be properlycharacterized as procedural, such as the filing of documents. For example, in Cook v.

College of Physical Therapists of Alberta, 1998ABCA 213, 212 A.R. 16, Conrad J.A. noted at para. 13 that “...there may be a distinction between limitation periods which relate tocommencing an action, and limitation period which relate to the filing and serving of documents to initiate an appeal.” In arriving at thisconclusion, Conrad J.A. referred to the following statement of La Forest J. in Tolofson: Limitation periods included in the various rules of court, such as those for the filing of pleadings, are also undoubtedly matters ofprocedure.

[ 29 ] However, in this case, as in Heuman , we are concerned with a statutory limitation period, which limits not merely the time for filing documents, but the time for commencing an action. I am satisfied that the better, more modern view is that such a limitation is substantive, not procedural. [ 30 ] As noted by Justice Rowbotham in Heuman , the effect of the expiration of a substantive statutory limitation period is to extinguish not just the remedy, but the underlying right. It follows, in my view, that the application of the rule in Cherry v.

Boultbee beyond the expiration of a limitation period no longer has a place in Canadian law. Once the limitation period in respect of a debt owed to a deceased person has expired, the right to collect the debt is extinguished. If such be the case, then what Cherry v. Boultbee refers to as “the right to pay out of the fund in hand” is also extinguished. The debt is no longer collectible and cannot be taken into account in making a distribution to the debtor beneficiary. [ 31 ] While the rule in Cherry v.

Boultbee has been applied in cases post- Tolofson , this has been done without detailed analysis of the current state of the law with respect to limitation periods. In Leeper , the Court accepted the rule without consideration of the change to the law set forth in Tolofson . Interestingly, the Ontario Court of Appeal recently referred to Cherry v. Boultbee in holding that a limitation period did not apply: Paragon Development Corp. v. Sonka Properties Inc. , 2011 ONCA 30 , 103 O.R. (3d) 481. However, the reference is very brief and the rule was not the sole basis for the Court’s finding.

The Court held at para. 10: Further, no limitation period would apply. This action was, in essence, an oppression action based on breach of fiduciary duty. The trial judge’s order to withhold distribution to Sonka was based on the equitable rule in Cherry v.

Boultbee (1839), 41 E.R. 171 , or, alternatively, in the court’s broad discretion to make an order under s. 284(3) of the Ontario Business Corporations Act , as amended. [ 32 ] It is significant, in my view, that there appears to be no consideration of the rule by the Supreme Court of Canada subsequent to its judgment in Nash Estate , which was rendered many years before Tolofson . I am satisfied that the application of Cherry v. Boultbee to statute-barred debts is anomalous, given the changed approach to limitation periods.

In my view, abandoning such application is sensible, in keeping with the policy rationale underlying limitation periods and consonant with the current jurisprudence. An apt statement of the need for such changes is found in Scurry-Rainbow Oil (Sask.) Ltd. v. Taylor , 2001 SKCA 85 , 207 Sask. R. 266 at para. 97 : The genius of the common law lies in its adaptiveness to changing times. Its basic principles were not meant to become rigid formulae, inflexible and resistant to new developments or changing concepts in the commercial world.

Since common law rules are judge-made rules, the Court can make exceptions to such rules when changing conditions so mandate. Common law rules may be tweaked to do justice between the parties when a rigid and mechanistic application of a rule would run counter to the object and purpose of the rule. [ 33 ] Perhaps no discussion of the evolving nature of the common law would be complete without reference to the always colourful Lord Denning, who in Packer v. Packer [1954] P. 15 at 22 said: If we never do anything which has not been done before, we shall never get anywhere.

The law will stand still whilst the rest of the world goes on; and that will be bad for both. Conclusion [ 34 ] As noted above, the merits of the alleged loans to the Respondent are not before me. This is an application for

summary judgment on the grounds that the alleged loans, regardless of their merits, are statute-barred and cannot be taken into account in making distributions from the deceased’s estate to the Respondent. [ 35 ] I have already found that the alleged loans, even if made and even if still outstanding, are statute-barred. Further, I conclude that the expiration of the limitation period with respect to any such loans extinguishes any right to collect them. As discussed above, it follows from this conclusion that the rule in Cherry v.

Boultbee does not operate to permit the personal representatives of the deceased’s estate to take into account any such alleged loans in making distributions to the Respondent. The application for

summary judgment is

granted and the Respondent is to receive his full share as a residuary beneficiary. Costs [ 36 ] It is well-known that, in recent years, the courts have become increasingly reluctant to award costs for all disputants out of the estate. Parties who engage in estate litigation without reasonable justification run the risk of adverse costs awards. Had the limitation period with respect to the alleged loans been the only issue, I would have had some concern about allowing the Applicant his costs out of the estate, as that issue does not seem to me to have been so in doubt as to merit adjudication.

However, in light of the novel issue respecting Cherry v. Boultbee , I am of the view that it was proper to bring the matter before the Court. Therefore, both parties shall have their costs on a party-and-party basis out of the estate. Heard on the 28 th day of October, 2010. Dated at the City of Calgary, Alberta this 31 st day of March, 2011 . P.M. Clark J.C.Q.B.A. Appearances: Jeffrey N. Thom, Q.C. Miller Thomson LLP for the Applicant, James Hector Moody Dennis J. Pelkie, Q.C. Borden Ladner Gervais LLP for the Respondent, Charles Reginald Cecil Moody