Donoghue v. Johnson, 2012 ABQB 295

Court of Queen ’ s Bench of Alberta Citation: Donoghue v. Johnson, 2012 ABQB 295 Date: 20120508 Docket: 0601 07872 Registry: Calgary Between: Marilyn A. Donoghue and James Donoghue Plaintiffs - and - Elmer N. Johnson Defendant _______________________________________________________ Memorandum of Decision of the Honourable Mr. Justice Bryan E. Mahoney _______________________________________________________ I. Introduction and Facts [ 1 ] The Plaintiffs apply to amend their Statement of Claim and the Defendant applies for

summary judgment. [ 2 ] As the proceeding before me was a chambers application, not a trial, all of the evidence was provided in the form of affidavits. [ 3 ] The Defendant, Mr. Johnson was a long-time friend of Mr. Al Anthony, beginning in 1961. Mr. Anthony never married and had no children. The Plaintiffs, Marilyn A. Donoghue and James Donoghue, are Mr. Anthony’s sister and brother-in-law. [ 4 ] It is undisputed that, over the course of a friendship that lasted some forty-five years, Mr. Johnson provided various kinds of financial and emotional support to Mr. Anthony. Mr.

Anthony spent a great deal of time with Mr. Johnson’s family. He was with them at Christmas and other holidays and accompanied them on family vacations. Mr. Johnson’s evidence that he paid all of the expenses associated with Mr. Anthony’s presence was unchallenged.

[ 5 ] In 1979, while in Ontario, Mr. Anthony was diagnosed with multiple sclerosis (“MS”). Mr. Johnson’s evidence is that he flew to Ontario, purchased a vehicle there and drove Mr. Anthony back to Alberta. Mr. Johnson says that Mr. Anthony then moved in with Mr. Johnson’s family and remained there until 1995. [ 6 ] Mr. Johnson’s evidence is that, during this period, Mr. Anthony explored various possible treatments for his MS, many of which were not available in Canada. Mr. Johnson says that he paid the costs of those treatments. Again, that evidence was unchallenged. [ 7 ] In 1989, Mr.

Anthony’s mother died, leaving him an inheritance consisting of approximately $100,000 and a residential property in Calgary (the “Duplex”). Mr. Johnson’s affidavit testimony is that, in the two or three years following Mr. Anthony’s mother’s death, he provided little financial support to Mr. Anthony. [ 8 ] Mr. Johnson says that in 1995, he and Mr. Anthony had a discussion about how Mr. Anthony was running out of money. Mr. Johnson’s wife overhead this conversation and learned for the first time about Mr. Anthony’s inheritance. She was upset that Mr.

Anthony had received this inheritance and had not paid anything back to Mr. Johnson. She told Mr. Johnson that Mr. Anthony could no longer reside with them. The next day, Mr. Johnson helped Mr. Anthony move to the Duplex. On that same day, Mr. Anthony went to Arizona and stayed there with Mr. Johnson’s son for the next six weeks. [ 9 ] Mr. Johnson states that upon his return from Arizona, Mr. Anthony asked him for more money. Mr. Johnson replied that things were “getting out of hand”. He said that Mr. Anthony then made an agreement (the “Agreement”) with him whereby Mr.

Johnson would continue to provide financial support to Mr. Anthony and Mr. Anthony either would sell the Duplex and use the proceeds to repay Mr. Johnson or would transfer the Duplex to Mr. Johnson as payment. [ 10 ] Mr. Johnson’s evidence is that, between 1995 and 2005, he provided Mr. Anthony with approximately $125,000 in cash and a vehicle worth approximately $35,000. [ 11 ] On October 24, 2000, Mr. Johnson and his son, Darren, at Mr. Anthony’s request, met Mr. Anthony at the office of Kevin McClelland, a Calgary lawyer. Mr. Anthony had with him land transfer documents transferring the Duplex to Mr. Johnson.

He asked Mr. McClelland to commission those documents. Mr. McClelland’s evidence was that he asked Mr. Anthony why he was transferring the Duplex to Mr. Johnson. Mr. Anthony said that he wanted to repay Mr. Johnson for taking care of him and lending him money. Mr. McClelland asked Mr. Anthony if he was sure this was what he wanted and if he had any family who should receive the property instead. According to Mr. McClelland, Mr. Anthony became very emotional, saying that he hated his sister, had not talked to her in years and never wanted her to have the Duplex. Mr.

McClelland swore that he remembered the interaction because he had known Mr. Anthony previously and it was unusual for him to become angry. Mr. McClelland also swore that Mr. Anthony gave him no indication that the transfer of the Duplex to Mr. Johnson was subject to a trust or in any other way conditional. Mr. Anthony took the documents with him when he left Mr. McClelland’s office. [ 12 ] The transfer of the Duplex was registered on January 4, 2001, which was Mr. Johnson’s birthday. [ 13 ] Mr. Anthony died on January 29, 2006. [ 14 ] On March 6, 2006, Ms.

Donoghue filed a caveat against the Duplex, claiming to be the beneficial owner pursuant to Mr. Anthony’s will. Mr. Johnson applied for an Order discharging the caveat. That application was unsuccessful so he then gave the Plaintiffs Notice to Take Proceedings on the Caveat. [ 15 ] The Plaintiffs take the position that the Duplex was transferred to Mr. Johnson in trust. Mr. Johnson argues that he is a bona fide purchaser for value.

[ 16 ] The Plaintiffs now wish to amend their Statement of Claim to plead in the alternative that any consideration paid by Mr. Johnson to Mr. Anthony was “past consideration” so that any agreement between them as to the transfer of the Duplex is void ab initio . They also seek to amend their Statement of Claim to plead that Mr. Johnson has been unjustly enriched and holds the Duplex as constructive trustee for the Plaintiffs. [ 17 ] Mr. Johnson applies for

summary dismissal of the Plaintiffs’ claims. II. Issues [ 18 ] The issues are: (

a) Should the Plaintiffs’ proposed amendments to their Statement of Claim be allowed? (

b) Should the Plaintiffs’ claims be summarily dismissed? [ 19 ] At the hearing, the parties agreed that the application to amend the Statement of Claim should proceed first. This, in my view, is appropriate given the direction of the Court of Appeal in Elbow River Marketing v. Canada Clean Fuels , 2011 ABCA 258 , 513 AR 315. III. Proposed Amendments to Statement of Claim [ 20 ] The parties are substantially in agreement as to the law with respect to amendments to pleadings. The Rules of Court provide as follows: 3.62(1) A party may amend the party’s pleading, including an amendment to add, remove, substitute or correct the name of a party, as follows: (

a) before pleadings close, any number of times without the Court’s permission; (

b) after pleadings close, (

i) for the addition, removal, substitution or correction of the name of a party, with the Court’s prior permission in accordance with rule 3.74, or (ii) for any other amendment, with the Court’s prior permission in accordance with rule 3.65. (

c) despite clauses (

a) and (b), whether or not pleadings have closed, with the agreement of the parties filed with the Court. 3.65(1) Subject to subrule (5), before or after close of pleadings, the Court may give permission to amend a pleading.

(2) If the Court gives permission for a pleading to be amended, the Court must specify the time period within which the amended pleading must be filed and served.

(3) An order giving permission to amend a pleading under this rule ceases to have effect unless the amended pleading is filed and served within the time specified by the Court.

(4) If the Court directs or allows a pleading to be amended at trial,

(

a) the amendment must be recorded in writing by the court clerk, and (

b) no order need be filed.

(5) This rule does not apply to an amendment to a pleading to add, remove, substitute or correct the name of a party to which rule 3.74 applies. [ 21 ] The Courts have held that the legal test for amendment of pleadings under this Rule is the same as it was under the predecessor Rule 132. See, for example, Manson Insulation Products Ltd. v. Crossroads C&I Distributors , 2011 ABQB 51 at para. 44 .

Therefore, the case law dealing with amendments under the old rule is relevant to this application. [ 22 ] What both parties referred to as the “classic rule” with respect to amendments is set out in Balm v. 3512061 Canada Ltd. , 2003 ABCA 98 , 327 AR 149 at para. 43 : The classic rule is that an amendment should be allowed, no matter how careless or late, unless there is prejudice to the other side, and even that is no obstacle if it is repaired... [ 23 ] It is accepted that there are four exceptions to this rule, as enumerated by Wittmann CJ in Dow Chemical Canada Inc. v.

Nova Chemicals Corporation , 2010 ABQB 524 , 495 AR 338 at para. 21 : The classic rule is subject to four major exceptions ... [citations omitted]. Those exceptions are as follows: 1. The amendment would cause serious prejudice to the opposing party, not compensable in costs; 2.

The amendment requested is “hopeless” (an amendment that, if it were in the original pleadings, would have been struck); 3. unless permitted by statute, the amendment seeks to add a new party or a new cause of action after the expiry of a limitation period; and 4. there is an element of bad faith associated with the failure to plead the amendment in the first instance. [ 24 ] In this case, although the Plaintiffs put forward arguments with respect to all four exceptions, the only one that is really at issue is the question of whether the proposed amendments are hopeless. [ 25 ] As noted by Eidsvik J. in 869120 Alberta Ltd. v.

B & G Energy Ltd. , 2011 ABQB 209 at para. 24 , to avoid being considered hopeless, a proposed amendment must raise a triable issue and there must be a “modest degree of evidence” in support of it. A. The Proposed Amendment Claiming Past Consideration [ 26 ] I will deal first with the proposed past consideration amendment. As noted above, the Plaintiffs want to amend their Statement of Claim to allege that the consideration paid by Mr. Johnson to Mr. Anthony in exchange for the transfer of the Duplex was past consideration and, as such, cannot support a valid contract. Mr.

Johnson asserts that this proposed amendment is hopeless and should not be permitted.

[ 27 ] Both parties made submissions on the law with respect to past consideration. The Plaintiffs proffer the following excerpt from GHL Fridman, The Law of Contract in Canada , 6 th ed. (Toronto: Carswell, 2011) at pp. 108-109: The test would seem to be whether the act, which is the consideration, and the promise dependent upon such act are part and parcel of the same transaction.

Thus if A promises to pay B if and when B produces A’s lost dog, the consideration, namely, the production of the dog by B, is executed; but if B first produces the dog and then A promises to pay B in consideration of B’s having already produced the dog, the consideration is past. The point at issue here is that, if there is to be a valid, enforceable contract, the promises, or the promise and the act, must have been exchanged in return for each other. If something is done first and then there is a promise relating to such act or performance, the two are not tied together by the notion of agreement.

One thing has not necessarily been done in consideration of the other. In consequence, anything promised as a result of the past performance of the act in question is simply promised gratuitously not in a binding contractual way. There is no mutuality between the act of performance and the subsequent promise from the recipient of the benefit of the act of performance. The detriment suffered by the performer of the act was not suffered in return for anything, or the promise of anything, from the other party. There may have been a hope of something; even, possibly, the expectation of something.

But there was no promise of anything. In other words, there might be some new benefit given or promised by one party to the other. Without a new benefit a purported contract will not be binding. The importance of the distinction between past and executed consideration lies in the fact that past consideration is not regarded as sufficient to support a promise and create a valid contract. [ 28 ] For his part, Mr. Johnson makes the following four points:

(1) While past consideration alone is not valid consideration, if there is some new factor, or new consideration, moving from the promisee to the promisor, there will be sufficient consideration. [See Liberty Mortgage Services Ltd. v. 123 Street Investments Ltd. , 2011 ABQB 542 at para. 37 .]

(2) There is a distinction between (

i) a promise made for past services (which is unenforceable) and (ii) a promise of a future reward in exchange for present assistance (which is enforceable). The present assistance is consideration for the future reward. [See Leeson v. Brentz (1978), 3 ETR 161 (Ont. Surr. Ct.) at para. 13 .]

(3) Consideration can be the past actions by a party combined with the present consideration of agreeing to continue to act. [See Watson v. 332252 BC Ltd. , [1992] BCJ No 2045 (SC) at 25 .]

(4) What is vital for consideration is “that the promise sought to be enforced was made in exchange for some present or future act to be performed by the other party.” [See Fridman at p. 109.] [ 29 ] Thus, what is critical for the resolution of this issue is the timing of any agreement between Mr. Johnson and Mr. Anthony vis à vis the transfer of the Duplex. If no agreement was made until all of the consideration had been paid by Mr. Johnson, there would be no enforceable contract. By contrast, notwithstanding that it is clear that some amounts were paid by Mr.

Johnson before any agreement was made, if there was an intervening agreement between him and Mr. Anthony and further consideration flowed as a result, that would be sufficient consideration. [ 30 ] As noted above, Mr. Johnson asserts that the Agreement was made in 1995 and that he advanced further funds to Mr. Anthony after that point. If that is the case, then the consideration Mr. Johnson provided for the transfer of the Duplex would be valid. Mr.

Johnson takes the position that there is no evidence to contradict his assertion and, therefore, the Plaintiffs’ proposed amendment claiming past consideration is hopeless. [ 31 ] The Plaintiffs, however, argue that Mr. Johnson’s evidence is not uncontradicted. They have provided an affidavit from Ms.

Cheré Indergaard in which she avers that Mr. Anthony told her, first, that he had put the Duplex in Mr. Johnson’s name to put it out ofreach of any judgment in certain litigation and, subsequently, that the litigation was over and he was going to get the Duplex back. [32] In addition, the Plaintiffs assert that Mr. Johnson has undermined his evidence by contradicting himself. They argue that Mr.Johnson has given inconsistent evidence in respect of the litigation referred to above.

More to the point, the Plaintiffs state that Mr.Johnson lied about the Agreement, saying at one point that he never expected anything in return for the support he provided to Mr.Anthony but then relying upon the Agreement in support of the transfer of the Duplex. The Plaintiffs point out that Mr. Johnson admittedin his cross-examination on affidavit that he lied about his expectations. [33] It is clear from the evidence before me that Mr. Johnson provided financial support to Mr. Anthony between 1995, when theAgreement allegedly was made, and 2000, when the transfer of the Duplex was executed.

If I were to accept Mr. Johnson’s evidenceabout the Agreement, I would find that the proposed amendment claiming past consideration was hopeless and should not be permitted.However, given Mr. Johnson’s admission on cross-examination that he was not entirely forthright in his evidence, I am unable to accepthis evidence unreservedly. [34] As noted above, a proposed amendment will not be hopeless if it raises a triable issue and there is a modest degree ofevidence in support of it. In light of the frailties in Mr.

Johnson’s evidence to this point, I cannot find that the proposed amendment doesnot meet these criteria. It will be for the trial judge to make a full assessment of Mr. Johnson’s credibility and to find the facts on thewhole of the evidence. The amendment is permitted. B. The Proposed Amendment Claiming Unjust Enrichment [35] The Plaintiffs also seek to amend the Statement of Claim to include an allegation that Mr.

Johnson has been unjustly enriched.Though little argument was devoted to this point, there is no suggestion that the Plaintiffs have withdrawn this portion of theirapplication. [36] The three elements of unjust enrichment are well-known. There must be an enrichment, a corresponding deprivation and anabsence of any juristic reason therefor; see, for example, Pettkus v. Becker (SCC), [1980] 2 SCR 834. In this case, it isclear that there has been an enrichment of Mr. Johnson and a corresponding deprivation of Mr. Anthony. If the Agreement alleged byMr.

Johnson constitutes a valid contract, it would provide a juristic reason. However, given the deficiencies in the evidence presentlybefore me, I am unable to make a finding in this respect. Therefore, this proposed amendment also is not hopeless and is permitted. IV.

Summary Judgment [37] I turn, then, to the application for

summary judgment. As with the proposed amendments, the parties are in substantialagreement as to the test to be applied. Both referred to the decision of Marceau J. of this Court in Kwan v. Superfly Inc., 2011 ABQB 343in which he stated as follows at para. 23: I agree with the proposition that in general the test for

summary dismissal is that it must be “plain and obvious that the action cannotsucceed”, the action is “bound to fail” or the action has “no prospect of success” ... [38] Mr. Johnson argues that the Plaintiffs’ claim that he holds the Duplex in trust has no prospect of success. He points out thatthe Plaintiffs have provided no evidence in support of a trust. More specifically, he asserts that there is no evidence of an intention on thepart of Mr. Anthony to create a trust. [39] However, in taking this position, Mr. Johnson relies on the Agreement. For the reasons set out above, Mr.

Johnson’s evidencein respect of the Agreement does not permit me to conclude that the Plaintiffs’ claims are bound to fail. The evidence must be tested attrial.

[ 40 ] A great deal of argument was devoted to the issue of hearsay evidence and to the question of whether

summary judgment can be granted on the basis of such evidence. Given my conclusion on

summary judgment, I need not address those arguments. [ 41 ] The application for

summary judgment is dismissed. [ 42 ] Costs of these applications will be in the cause. Heard on the 15 th day of February, 2012. Dated at the City of Calgary, Alberta this 8 th day of May, 2012. Bryan E. Mahoney J.C.Q.B.A. Appearances: Darel G. Samuelson, Blake, Cassels & Graydon LLP for the Plaintiffs Lisa J. Gaunt, Field LLP for the Defendant