Cox v. The Queen, 82 DTC 6287, [1982] CTC 322 (FCTD)

Walsh, J:—Plaintiff appeals against a notice of assessment adding $51,760 to his taxable income as wages from the late Jean Catherine Cairns estate. Plaintiff who is retired lives in Brantford, Ontario, with his wife Margaret Cox, sister of the late Jean Catherine Cairns who also resided in Brantford until her death on September 24, 1978. The statement of claim as amended at the opening of the hearing sets out that in or about the month of July 1961 at the time of her father’s death the said late Jean Catherine Cairns, a spinster, agreed with Osborn C. Cox, her brother-in-law, Margaret Cox, and her widowed mother that in return for Osborn Cox looking after her affairs as he had done for her father she would leave the residue of her estate to his wife, Margaret Cox. In May 1964 she made a will to this effect and Osborne Cox for his part carried out the agreement by looking after her affairs including the factory building known as 41 South Street, Brantford, which she had inherited from her father. However in August 1976, about 2 years before her death, and while in poor health as a result of which she was taking heavy medication it is alleged that her attending physician arranged for her to see a different solicitor and she made out a new will in which the physician himself was named as testamentary executor and failling his being able to act, his wife, and leaving everything to charities except for certain specific legacies. She died on September 24, 1978, and in October solicitors for plaintiff, Osborn C. Cox, caused a caveat to be filed in the Surrogate Court in the County of Brant alleging that the deceased was at the time of making the will without testamentary capacity. Action was commenced in the Supreme Court of Ontario against the executor by Osborn Cox and Margaret Cairns Cox in May 1979. The statement of claim sought a declaration that Margaret Cox was entitled to the residue of the estate, and in the alternative damages for breach of contract to make a will in the amount of $250,000 and that Osborn Cox was entitled to $51,760 being a reasonable bill for the maintenance of the building and the costs of two appraisals. The solicitor for the executor joined the charities named, as defendants.

According to the statement of claim after examination for discovery when the trial was imminent, all parties agreed that there should be a settlement whereby Margaret Cairns Cox was to take title to the building known as 41 South Street, Brantford, and the residue which consisted mainly of her resi- dence was divided among the charities. The building so obtained in settlement was later sold for $62,500 or a net of $52,500 after deducting disbursements and legal fees. It is contended by plaintiff Osborn C. Cox that the money was recovered by Margaret Cox by way of settlement of the proceedings in the Ontario action.

Defendant alleges that in the Ontario proceedings in which both Osborn C. Cox and Margaret Cairns Cox, his wife, were plaintiffs, the sum of $51,760 was claimed by plaintiff Osborn Cox for maintenance of the factory building from 1961 to 1970 and two appraisals made by him of it and to the residential building also owned by her. The settlement conveyed the property at 41 South Street, Brantford, jointly to the co-plaintiffs Osborn C. Cox and Margaret Cairns Cox.

In the new will dated September 8, 1976, Jean Catherine Cairns directed her executor to pay any reasonable bill that plaintiff Osborn C. Cox might present for the maintenance of the property and it was as a result of this that the bill in the amount of $51,760 was presented for his services. It is further pleaded in defence that plaintiff’s wife, Margaret Cox, was not entitled to anything under the will of Jean Catherine Cairns except for legacies specifically left to her. It is further contended that plaintiff was not entitled to anything under the said will except for the legacy of a camera and for the payment of his services for looking after the property as provided in the will. When the Ontario action was settled on the basis of transferring the factory property at 41 South Street, Brantford to him and his wife as joint tenants this was done pursuant to his direction.

It is coincidental that the net proceeds of the sale of the property were $52,500 of which only $51,760 was added to plaintiff’s income, the remaining small balance not being considered by defendant as compensation for services rendered by him.

The essence of this case is to decide what is the true nature of the payment made in settlement of the Ontario action. The Ontario proceedings had various alternative conclusions, apparently partly based on the contention that there was breach of the agreement by Jean Cairns to leave the residue of the estate to her sister Margaret Cairns Cox as she had allegedly promised to do in consideration of Osborn C. Cox looking after her affairs. As stated it seeks a declaration that Margaret Cairns Cox is entitled to the residue, and in the alternative a claim for damages for breach of contract to make a will to this effect, but was also based on the account of $51,760 being that of Osborn Cox for maintenance of the building for which the 1976 will invited him to render an account and for two building appraisals which as a building appraiser he contends Jean Cairns had asked him to perform.

While the proceedings make reference to the fact that the late Jean Cairns became increasingly dependent upon her physician, one of the defendants in that action, Kenneth McAlpine who was named as her executor, her competency to make the will was not alleged in those proceedings as brought.

At the request of Margaret Cox an autopsy was performed on Jean Cairns which indicated that she died of a malignant cancer on the right cerebral hemisphere of the brain on September 24, 1978, having been in the hospital since August 30. She also suffered from bilateral lobular pneumonia and arteriosclerosis.

Margaret Cox testified that her father had been mentally ill from 1948 to his death in 1961, save for a period of improvement in 1951 when he was temporarily released from Holmwood Sanitarium and made his will. He had operated a textile factory in Brantford as well as being a gentleman farmer owning several farms. Osborn Cox went into business with him in 1941 to help run the farms, being at that time engaged to his daughter Margaret whom he married in 1942. The sister Jean was always retiring and timid and her father and mother had always handled her affairs. The father’s will made in 1951 gave one farm and the factory building to Jean. His widow had the use of the home farm and income, the residue of his estate being divided between his two daughters. His will is not in issue in the present case. In 1957, some four years before his death but while he was still in the institution his wife and Jean Cairns left the family farm to move closer to Margaret and Osborn Cox; neither drove a car so Margaret did all the driving for them. There was concern about what would happen to Jean when their mother died. She was totally incompetent of handling any affairs. After the father’s death in 1961 therefore the family agreed to look after Jean until after the mother’s death in return for Jean leaving the residue of her estate at her death to Margaret.

Much earlier while the father was still alive he had set up Margaret and Jean in a dress shop but Margaret did all the work, Jean only coming on occasion to see about the cash receipts. This business was eventually closed down.

Jean’s health had always been a cause for concern to her sister and mother during her lifetime. She had many complaints but became worse in the late 1960s. In 1970 she changed doctors, with Doctor McAlpine caring for her thereafter. Osborn Cox continued to run the textile business and Margaret helped her sister with her banking, shopping and so forth. Jean became more and more attached to Doctor McAlpine and sought commercial as well as medical advice from him. He had a key to her house. Margaret Cox and her daughter became very concerned at the extent of the medication being given. Jean became dull and careless in her appearance. Osborn Cox stopped going to see her alone in 1977 because she would come to the door half-dressed. They had no knowledge of her having changed her will until Margaret Cox found some notes respecting this when she went to the house to get some clothes for her sister while she was in the hospital. At about the time of her sister’s death Osborn Cox was found to have a rare form of cancer. He had taken appraisal courses and had appraised the residence at $46,000 and the factory at $130,000 but the latter was rapidly deteriorating as the business was closed down and the tenants were not always reliable and it was impossible to collect all the rent due.

Mrs. Cox testified that she often had to cook the meals both for her mother and sister, help clean the house and do many other things, much of which she considered she would have done in any event out of affection but not perhaps to the same extent. She was in effect on 24-hour call.

Plaintiff's daughter, Elizabeth Cox a student placement counsellor attended McMaster University from 1973 to 1977, returning home in 1979 until her marriage in 1981. She saw her aunt quite frequently during her lifetime. Her aunt was peculiar and would not go to the basement of the house she lived in for some reason or other. Frequently she neglected to change the bed-clothes. She spoke constantly of Doctor McAlpine who frequently took her to his home for dinner, brought home-grown vegetables to her and so forth. She had a framed picture of him in her living room and many other pictures, some of which she gave to friends. She was also very friendly with his wife and children, remembering their birthdays. During 1977 and 1978 she would consult him perhaps twice a week. The witness found prescriptions for such medication as demerol, valium and cortisone in the house after her death among 30 odd prescription bottles for prescriptions made by Doctor McAlpine. A large number of hypos and syringes were found in the refrigerator. Entries in her aunt’s diary which she read after her death gave her concern. It was decided to amend the statement of claim in the Ontario proceedings so as to attack the validity of the will on the grounds that her aunt was incompetent to make same at the time, but before the amendment was made the action was settled.

Sandra Harris, the attorney who prepared the will and represented Doctor McAlpine as executor in the proceedings in Ontario testified as a defence witness. Jean Cairns was referred to her by Doctor McAlpine or someone in his office, although in discovery in the Ontario proceedings Doctor McAlpine had denied this. Dr. McAlpine had been a client of her office in previous matters. She was told that Miss Cairns wished to make a will and asked if she would go to her home to take instructions which she did. When she interviewed her she had no reason to doubt her testamentary capacity and evidently she felt the same at the time the will was executed. When the Ontario proceedings were brought she felt that the plaintiffs would succeed to some extent on a quantum meruit basis if not as a result of the clause in the will inviting Osborn Cox to submit his account for services rendered. Osborn Cox wrote on December 14th, 1978, pointing out that the will was not clear as to whether he was to be compensated for services rendered from 1948 when he commenced looking after the property until 1978 or only for the period from 1961 until 1978. He details all the work he did which was extensive, but points out that he never submitted any accounts for the maintenance as he and his wife had every reason to expect that the entire estate would go to her in the event of Jean Cairns’ death. He suggested that he be allowed $50,000 which could be thought of as $2,500 a year for 20 years. This claim was rejected but Miss Harris wrote on February 13, 1979, that she had received instructions to offer the sum of $5,000 for the bequest in the will respresenting his bill for maintenance of the property. There was some question of a counterclaim for reimbursement due to the late Miss Cairns for payments under the “Hall mortgage for the years 1977 and 1978” but that does not enter into the present action. The letter invites Mr. Cox to pick up his “appraisal”. Later when the action was brought the pleadings denied that he had been instructed by Miss Cairns to make any appraisals.

The Ontario proceedings were originally instituted only against Dr. McAlpine as executor, but in an affidavit in support of an application to add the charities who were the residual legatees as Defendants’ Miss Harris states that since one of the claims in the declaration is that Margaret Cairns Cox is entitled to the residue of the estate she believes that the action is in effect an action to contest the will and therefore the residuary beneficiaries should be named as party defendants. This was done.

In due course Doctor McAlpine was examined for discovery. Following this on June 28, 1979 plaintiff’s then attorneys wrote a letter to Miss Harris stating that the executor had allowed the buildings to deteriorate and in particular the value of the factory building at 41 South Street appeared to have dropped by some $10,000. An affidavit of production was requested to cover all documents belonging to Jean Cairns taken out of the house, all of Dr. McAlpine’s books and records as they may have related to Jean Cairns, all the pill bottles, prescription records and syringes picked up from the house by the executor or his representative, as well as his OHIP billings. The letter requests his consent to examine the hospital records including the nurses’ notes. On July 17, 1979, Miss Harris wrote another letter to residuary legatees after she had examined Mr. and Mrs. Cox on discovery. She states that she has the impression that it would be unlikely in view of the current state of the law and the fact that there was no written acknowledgment of a contract that a contract would be found to exist, but what is left is a claim under the will on the basis of the value of the work done if a valid claim could be made by Mr. Cox for the maintenance services at 41 South Street from 1961 to 1978. She points out that the Coxes had some shares in the Dominion Dress Company which was the tenant so that part of the care had been for his own benefit and that there is also an admission that he received approximately $8,900 in management fees from the receipts of rentals. She also admits that the Coxes had been led to believe by Miss Cairns that they were going to be compensated in her will. She states that she would suspect at trial that plaintiffs would succeed on a quantum meruit basis in proving a claim of $20,000 to $40,000. She recommends that the building at 41 South Street be transferred to them in full satisfaction of any and all claims and costs. She expresses her concern about the costs of continuing the lawsuit and considers the property at 41 South Street as a “white elephant”. She also states that Doctor McAlpine was reluctant to divulge medical records even though obliged to do so, and has taken the position that he wishes to resign as Executor if the lawsuit proceeds. She states that the settlement she proposes would leave the house at 827 Colborne Street with a market value of $51,000 to $55,000 and some cash and securities of approximately $32,000 less costs available for distribution to the residual legatee.

Miss Harris received instructions from the residual legatees to settle on this basis and the deed conveying the property was made out to Osborn and Margaret Cox, co-plaintiffs in the action as joint owners.

In a letter dated October 10, 1978, by Miss Harris to plaintiff’s then solicitor, before the Ontario proceedings were commenced, she explains the circumstances under which the will was drawn, Miss Cairns having used her rather than the family’s regular solicitor because she wished to keep the will confidential without the contents being disclosed to Margaret Cox. She states that Dr. McAlpine was not informed by her or Miss Cairns during Miss Cairns’ lifetime that he was the executor or a beneficiary under the will.

The will does make substantial specific bequests of jewellery and furniture to Margaret Cox but leaves only a camera to Osborn Cox. Substantial specific legacies are left to Doctor McAlpine and his wife including all pictures and paintings in the house and all the crystal not specifically bequeathed to Margaret Cox, antique Wedgwood plates and patterns, a corner china cabinet, Royal Doulton figurines, a silver three-tiered dish, scrap books and phonograph records. Other specific legacies of jewellery and other items are made to various friends, some of whom had been named in the earlier will.

Although plaintiff’s witnesses emphasized alleged undue influence by Doctor McAlpine and even suggest malpractice in his administration of drugs to the deceased Jean Cairns, and plaintiff’s counsel argues that it was following examination for discovery of Doctor McAlpine and the demands made on him for the production of medical records that a more generous settlement was offered than the original offer of $5,000, and that it was the intention to amend the Ontario proceedings so as to allege mental incompetence of Jean Cairns at the time she made the will and set same aside, in which event Margaret Cox would have received the entire residue, the fact remains that no such amendment was made and there is nothing before me in the present proceedings to indicate undue influence or improper conduct by Doctor McAlpine, nor is that an issue which the Court is called on to decide. There is no doubt that the late Jean Cairns was very seriously ill, most probably for some years prior to her death. She had always been extremely neurotic and incapable of managing personal or business affairs, but not incompetent to make a will. The only direct evidence we have of this is that of Miss Harris, the attorney who took instructions from her and prepared the will, who considered her mentally competent to make it, and it would take strong medical evidence to set aside this testimony, none of which is available, nor would have been available in the Ontario proceedings.

With respect to Doctor McAlpine, the nature of Jean Cairns’ illness as disclosed by the autopsy might probably justify the extensive medication being administered, and it is certainly not for this court to decide whether he made her overly dependent on drugs on the basis that a great variety of prescription bottles and syringes were found in her home after her death. The will was made some two years previously and evidence indicated that she had already become extremely friendly with Doctor McAlpine and his wife at that time and for some time before. There is certainly nothing wrong with a patient becoming a personal friend of his or her doctor and this is in fact a desirable situation. It may well be that she was a typical neurotic and may have been somewhat of a nuisance to him, calling him two or three times a week. In any event there is not the slightest suggestion of any impropriety in his relations with her. She was apparently equally friendly with his wife. The evidence of her background indicated that she had always been terrified of men. Doctor McAlpine was by no means a principal beneficiary of the will, receiving only a number of items which might conceivably have had substantial value, such as the paintings and the Doulton figurines but there is no evidence respecting this, and Miss Harris who visited the house for the making of the will, indicates that from what she saw there were not too many figurines nor did she see anything of apparent great value. Even plaintiff’s witnesses do not suggest this. There was also some indication that, although probably without any justification, she had become somewhat antagonistic to Osborn Cox and possibly even to her sister for a period of time, and blamed him for not obtaining sufficient revenue from the factory building.

It is by no means uncommon for a testator who has promised to leave her estate to relatives who have taken care of her and assisted her during her lifetime, to then change her mind and leave them out of the will, but this in itself does not indicate incapacity to make a will. The decision to leave the residue to charity rather than to her sister as promised, while at the same time specifically referring to compensating Osborn Cox for services rendered in the maintenance of the factory building does not result in an unusual will or one which by its terms is any indication of incompetency. In short I am forced to conclude that even had the amendment been made in the proceedings in Ontario the likelihood of the will being set aside was slight. Plaintiffs could only have succeeded either on the basis of the verbal agreement to leave the residue of the estate to Margaret Cox, or alternatively on the claim of Osborn Cox on the quantum meruit basis for services rendered. The services rendered by Margaret Cox and her daughter while undoubtedly very extensive and probably beyond what one would expect as a result of the family relationship would be difficult to evaluate on any quantum meruit basis.

In defence in the Ontario proceedings defendant had pleaded not only the Statute of Frauds but also the Statute of Limitation which might have had the effect of limiting the claim of Osborn Cox to six years.

With respect to the Statute of Frauds the verbal agreement made relates to the entire residue of the estate and not specifically to land even though the ultimate settlement involved the conveyance of real estate. Reference was made to Butterworths Ontario Digest, Vol. Il, No. 389, which reads in part:

. .. Where the courts below found that personal services were rendered to the deceased by the pltf in performance of an oral contract between them, whereby the deceased agreed to will certain lands to the pltf in consideration of the services, and that these services were part performance referable to some contract between the pltf and the deceased, it was held in the Supreme Court of Canada, reversing the courts below, that there was no part performance referable inequivo- cally to a contract concerning the land in question and that, accordingly, the contract was unenforceable upon the death of the deceased intestate.

(Deglman v Guaranty Trust Co. of Canada, [1954] SCR 725).

On the question of quantum meruit in the same text under No. 3237 we find the following:

During her lifetime, the deceased had always promised to leave her entire estate to her sister. The deceased having become old and of deteriorated mentality, the sister took her in to her own home and looked after her. Upon the death of the deceased, it was found that the sister had been left nothing. There were no facts from which a contract could be implied, there had been no request for the services performed and no claim could be maintained against the estate.

(Re Reid, [1964] 2 OR 477).

That decision can be distinguished of course since in the present case there was an apparent request by Jean Cairns and her mother that she be looked after which Osborn and Margaret Cox agreed to:

Reference might also be made to No. 3249 which reads as follows:

Where the pltf performed personal services for the deceased pursuant to an oral contract between them whereby the deceased agreed to will to the pltf certain lands in consideration for the services, and upon the deceased dying intestate, the contract was unenforceable for want of a memorandum to satisfy the Statute of Frauds, it was held that the pltf was entitled to recover quantum meruit for the services on the ground, not of an implied promise to pay, but of an implied obligation to pay, arising from the need to remedy unjust enrichment. The obligation arose at the date of death, and the Limitation Act did not commence to run until that date.

(Deglman v Guaranty Trust Co. of Canada [1954] SCR 725).

The claim in the Ontario proceedings would seem to have been stronger on the quantum meruit basis which would not have had the effect of setting aside the will and making Margaret Cox residual legatee. At 735 of the Deglman judgment Cartwright, J stated:

In my opinion when the Statute of Frauds was pleaded the express contract was thereby rendered unenforceable, but, the deceased having received the benefits of the full performance of the contract by the respondent, the law imposed upon her, and so on her estate, the obligation to pay the fair value of the services rendered to her.

The effect of the Statute of Limitations is dealt with on the following page:

If this is, as I think, the right view of the nature of the obligation upon which the respondent’s claim rests it follows that the Statute of Limitations can have no application. There are a number of cases in which on facts somewhat similar to those in the case at bar, the option has been expressed that while a party in the position of the respondent in the present case can recover the value of services rendered by him under an unenforceable contract his right to recover is limited to the value of the services rendered in the six years preceding the commencement of the action. Examples of such cases are, Cross v Cleary, (1898) 29 O.R. 542, Re Meston, Meston v Gray (supra) and Walker v Boughner, (1889) 18 O.R. 448. These cases seem to have proceeded on the view that the liability of the defendant was under “an implied promise to pay a reasonable sum per annum” (see Cross v Cleary (supra) at page 545). I have already indicated my reasons for holding that, in the case at bar, no such promise can be implied. In my opinion the obligation which the law imposes upon the respondent administrator did not arise until the deceased died intestate. It may well be that throughout her life it was her intention to make a will in fulfilment of the existing although unenforceable contract and until her death the respondent had no reason to doubt that she would do so. The statutory period of limitation does not commence to run until the plaintiff's cause of action has accrued; and on the facts of the case at bar the cause of action upon which the respondent is entitled to succeed did not accrue until the death of the deceased intestate.

These were all facts which had to be taken into account in the settlement of the proceedings in Ontario and it must be noted that in those proceedings, as amended, no reference was made to any of the services rendered for Jean Cairns by her sister Margaret Cox, the only reference being for services rendered by Osborn Cox as maintenance services on the property. I am of the opinion that the views expressed by Miss Harris in her letter of July 17, 1978, explaining to the residual legatee the position and outlining the settlement which she proposed, represent a fair and reasonable appraisal of the situation, and that the settlement in that action to the extent of $51,760 must be considered as payment to Osborn C. Cox for his services for the maintenance of the building and the cost of the two appraisals, on a quantum meruit basis, with any excess realization from the sale of the property made as a result of the settlement being for other reasons and certainly not taxable for income tax.

The fact that the property was conveyed to Osborn Cox and Margaret Cox jointly, being the co-plaintiffs in the action, in the settlement does not affect the taxability of same for income tax purposes. This is covered by subsection 56(2) of the Income Tax Act which reads as follows:

A payment or transfer of property made pursuant to the direction of, or with the concurrence of, a taxpayer to some other person for the benefit of the taxpayer or as a benefit that the taxpayer desired to have conferred on the other person shall be concluded in computing the taxpayer’s income to the extent that it would be if the payment or transfer had been made to him.

For all of the above reasons the appeal must be dismissed with costs.