The law of wills continues to be hampered (bedevilled?) by rules of law that undoubtedly made good sense when they were developed, but no longer make much sense in our twenty-first century. The old English rule in Cherry v. Boultbee[1] is such a one.
The rule concerns the question whether statute-barred debts can be taken into account. It says that if a person has a right to share in a fund, but owes money to the fund, he will not be allowed to participate in the fund until he has paid the debt owed. The rule therefore does not apply solely to wills, but is one of general application.
In the context of wills the rule raises its ugly head when a beneficiary is entitled to a share of residue. And the question then is whether the executor can insist that debts once owed by the beneficiary to the testator, but now statute-barred, be deducted from her share. The rule answers that question in the affirmative.[2]
Does this rule continue to make sense, especially now that we have modern limitations legislation and view limitations in a different way than people did 180 years ago? Perhaps it is time that we got rid of the rule.
The question arose in a 2011 Alberta case, Re Moody Estate.[3] The testator left the residue of her estate equally to her children. She had lent money to a son and he had not repaid the loans. The loans were statute-barred. The executors brought a motion to determine whether they could take the loans into account in distributing the estate. The court reviewed the history of the rule in Cherry v. Boultbee in Canada and concluded that the rule has been an accepted part of Canadian law and it has been applied notwithstanding that the relevant limitation period had expired. However, the court concluded that it should no longer be followed. The rule developed when limitations were regarded as procedural matters, rather than substantive. Consequently, in former times, while an action to recover a debt might be barred by statute, the underlying right was not. Clark J. in Moody concluded that Canadian courts now regard limitations as substantive matters, so that the underlying right is also extinguished when the limitation period has expired. Consequently, the rule in Cherry v. Boultbee should no longer be applied to debts that have been barred. Clark J relied on Tolofson v. Jensen[4] in support of his conclusion. In that case the Supreme Court of Canada indicated that we now look at limitations differently and regard them as substantive rules, rather than procedural. Clark J. did consider Leeper Estate v. Leeper,[5] which held that the rule continues to apply in Canada. But he distinguished that case, because the Yukon Court of Appeal had reached its decision without considering the new, modern approach to limitations. Accordingly, Clark J. held that the son was entitled to his full share of the residue.
However, in a more recent British Columbia case, Re Johnston Estate,[6] Church J. disagreed. The testator lent money to Ronald, one of his two sons. The loans were still outstanding when the testator died in 2008, but Ronald had not paid anything on the loans since 2000 and relied on the Limitations Act,[7] claiming that the loans were statute-barred. The testator left his estate equally to his two sons. The other son, Richard, was the only executor, Ronald having been removed as executor by court order. Richard argued that the rule in Cherry v. Boultbee still applies in Canada, citing Canada Trust Co. v. Lloyd,[8] in which the Supreme Court of Canada applied the rule in a receivership case in which directors owed moneys to a corporation, although the debts were statute-barred. Their debts had to be taken into account in the distribution of the corporation’s assets. He also relied on the Ontario Court of Appeal decision in Olympia & York Developments Ltd. v. Royal Trust Co.,[9] in which the court noted that the rule had been accepted and applied in Canadian cases.
Ronald, however, relied on Tolofson v. Jensen,[10] mentioned above. Ronald also cited Re Moody Estate,[11] in which Clark J. followed that view and held that the rule in Cherry v. Boultbee is no longer part of Canadian law.
Church J. disagreed with the conclusion of Clark J. in Moody. Church J. took the view that the rule should not be regarded as one that allows an executor to recover debts that the testator could not have recovered. Rather, the rule “operates to ensure fairness in the distribution of an estate . . . to ensure that the beneficiaries are treated fairly and it embodies the principal [sic] that he who seeks equity must do equity.”[12] Accordingly, Clark J. relied on Leeper Estate[13] and held that Richard was entitled to set off the statute-barred debts against his share of the estate.
Which approach is the correct one? I suspect that we shall have to await the decision of an appellate court that directly addresses the issue of the changed approach to limitations. However, it seems to me that the Moody approach is to be preferred. If the modern approach is to consider limitations as substantive, then statute-barred debts no longer exist. And if that is so, there is nothing unfair in a legal or equitable sense (though there may be in a moral sense) when a beneficiary relies on limitations legislation. Indeed then, despite what Church J. said about equity, the equitable maxim, “he who seeks equity must do equity,” is no longer relevant, because the beneficiary is not seeking equity’s aid to recover the testamentary gift left to her. Moreover, equity never sets aside or disregards law, including statute law, although it sometimes finds ways to get round legal rules to mitigate their rigour.[14]
—
[1] (1839), 4 My. & C. 442 (Ch.).
[2] See, e.g., Re Akerman, [1891] 3 Ch. 212.
[3] 2011 ABQB 222, 68 E.T.R. (3d) 235.
[4] [1994] 3 S.C.R. 1022.
[5] [1996] Y.J. No. 6 (Y.T.C.A.).
[6] 2017 BCSC 272, 25 E.T.R. (4th) 56.
[7] R.S.B.C. 1996, c. 266.
[8] [1968] S.C.R. 300.
[9] (1993), 103 D.L.R. (4th) 129 (Ont. C.A.).
[10] Footnote 4, supra.
[11] Footnote 3, supra.
[12] Johnston footnote 6, supra, para. 36 (emphasis in the original).
[13] Footnote 5, supra
[14] As for example when it imposes a constructive trust to enforce an oral trust of land. See Oosterhoff on Trusts: Text, Commentary and Materials, 8th ed. by A.H. Oosterhoff, Robert Chambers, and Mitchell McInnes (Toronto: Thomson Reuters/Carswell, 2014), §12.3.2.
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Written by: Albert Oosterhoff
Posted on: May 31, 2017
Categories: Commentary
The law of wills continues to be hampered (bedevilled?) by rules of law that undoubtedly made good sense when they were developed, but no longer make much sense in our twenty-first century. The old English rule in Cherry v. Boultbee[1] is such a one.
The rule concerns the question whether statute-barred debts can be taken into account. It says that if a person has a right to share in a fund, but owes money to the fund, he will not be allowed to participate in the fund until he has paid the debt owed. The rule therefore does not apply solely to wills, but is one of general application.
In the context of wills the rule raises its ugly head when a beneficiary is entitled to a share of residue. And the question then is whether the executor can insist that debts once owed by the beneficiary to the testator, but now statute-barred, be deducted from her share. The rule answers that question in the affirmative.[2]
Does this rule continue to make sense, especially now that we have modern limitations legislation and view limitations in a different way than people did 180 years ago? Perhaps it is time that we got rid of the rule.
The question arose in a 2011 Alberta case, Re Moody Estate.[3] The testator left the residue of her estate equally to her children. She had lent money to a son and he had not repaid the loans. The loans were statute-barred. The executors brought a motion to determine whether they could take the loans into account in distributing the estate. The court reviewed the history of the rule in Cherry v. Boultbee in Canada and concluded that the rule has been an accepted part of Canadian law and it has been applied notwithstanding that the relevant limitation period had expired. However, the court concluded that it should no longer be followed. The rule developed when limitations were regarded as procedural matters, rather than substantive. Consequently, in former times, while an action to recover a debt might be barred by statute, the underlying right was not. Clark J. in Moody concluded that Canadian courts now regard limitations as substantive matters, so that the underlying right is also extinguished when the limitation period has expired. Consequently, the rule in Cherry v. Boultbee should no longer be applied to debts that have been barred. Clark J relied on Tolofson v. Jensen[4] in support of his conclusion. In that case the Supreme Court of Canada indicated that we now look at limitations differently and regard them as substantive rules, rather than procedural. Clark J. did consider Leeper Estate v. Leeper,[5] which held that the rule continues to apply in Canada. But he distinguished that case, because the Yukon Court of Appeal had reached its decision without considering the new, modern approach to limitations. Accordingly, Clark J. held that the son was entitled to his full share of the residue.
However, in a more recent British Columbia case, Re Johnston Estate,[6] Church J. disagreed. The testator lent money to Ronald, one of his two sons. The loans were still outstanding when the testator died in 2008, but Ronald had not paid anything on the loans since 2000 and relied on the Limitations Act,[7] claiming that the loans were statute-barred. The testator left his estate equally to his two sons. The other son, Richard, was the only executor, Ronald having been removed as executor by court order. Richard argued that the rule in Cherry v. Boultbee still applies in Canada, citing Canada Trust Co. v. Lloyd,[8] in which the Supreme Court of Canada applied the rule in a receivership case in which directors owed moneys to a corporation, although the debts were statute-barred. Their debts had to be taken into account in the distribution of the corporation’s assets. He also relied on the Ontario Court of Appeal decision in Olympia & York Developments Ltd. v. Royal Trust Co.,[9] in which the court noted that the rule had been accepted and applied in Canadian cases.
Ronald, however, relied on Tolofson v. Jensen,[10] mentioned above. Ronald also cited Re Moody Estate,[11] in which Clark J. followed that view and held that the rule in Cherry v. Boultbee is no longer part of Canadian law.
Church J. disagreed with the conclusion of Clark J. in Moody. Church J. took the view that the rule should not be regarded as one that allows an executor to recover debts that the testator could not have recovered. Rather, the rule “operates to ensure fairness in the distribution of an estate . . . to ensure that the beneficiaries are treated fairly and it embodies the principal [sic] that he who seeks equity must do equity.”[12] Accordingly, Clark J. relied on Leeper Estate[13] and held that Richard was entitled to set off the statute-barred debts against his share of the estate.
Which approach is the correct one? I suspect that we shall have to await the decision of an appellate court that directly addresses the issue of the changed approach to limitations. However, it seems to me that the Moody approach is to be preferred. If the modern approach is to consider limitations as substantive, then statute-barred debts no longer exist. And if that is so, there is nothing unfair in a legal or equitable sense (though there may be in a moral sense) when a beneficiary relies on limitations legislation. Indeed then, despite what Church J. said about equity, the equitable maxim, “he who seeks equity must do equity,” is no longer relevant, because the beneficiary is not seeking equity’s aid to recover the testamentary gift left to her. Moreover, equity never sets aside or disregards law, including statute law, although it sometimes finds ways to get round legal rules to mitigate their rigour.[14]
—
[1] (1839), 4 My. & C. 442 (Ch.).
[2] See, e.g., Re Akerman, [1891] 3 Ch. 212.
[3] 2011 ABQB 222, 68 E.T.R. (3d) 235.
[4] [1994] 3 S.C.R. 1022.
[5] [1996] Y.J. No. 6 (Y.T.C.A.).
[6] 2017 BCSC 272, 25 E.T.R. (4th) 56.
[7] R.S.B.C. 1996, c. 266.
[8] [1968] S.C.R. 300.
[9] (1993), 103 D.L.R. (4th) 129 (Ont. C.A.).
[10] Footnote 4, supra.
[11] Footnote 3, supra.
[12] Johnston footnote 6, supra, para. 36 (emphasis in the original).
[13] Footnote 5, supra
[14] As for example when it imposes a constructive trust to enforce an oral trust of land. See Oosterhoff on Trusts: Text, Commentary and Materials, 8th ed. by A.H. Oosterhoff, Robert Chambers, and Mitchell McInnes (Toronto: Thomson Reuters/Carswell, 2014), §12.3.2.
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