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Raymond Chabot inc. c. Fondation communautaire de Lachine

2011 QCCS 60

JF 0697














January 10, 2011






















[1]                      This case deals with six related questions arising from the closure and liquidation of the Lachine General Hospital (the "Hospital") pursuant to the Loi sur les services de santé et les services sociaux,[1] (the "L.S.S.S.S."):

(i) Could the Hospital, notwithstanding its prospective closing, legally give away its endowment fund to La Fondation Communautaire de Lachine, formerly known as the Lachine General Hospital Foundation (the “Foundation”), a foundation which had been incorporated for the sole purpose of benefitting it, without the prior authorization of the Minister of Health and Social Services (the "Minister") or the Régie régionale de la santé et des services sociaux de Montréal (the "Régie régionale")?

(ii) Without such authorization, could the Hospital legally return donations received from the Foundation that it spent on purchasing equipment it will not use in view of its closing?

(iii) Assuming that the transfers to the Foundation were absolutely null for lack of such authorization, is an action to annul them instituted by the Minister, the Hospital or the Hospital's liquidator prescribed because more than three years have elapsed since they occurred?

(iv) Is the Foundation legally entitled to claim the return of donations it made to the Hospital to assist it in rebuilding a wing, once it is known that the wing will never be rebuilt because of the Hospital's closing?

(v) Is such a claim prescribed because more than three years have passed after the knowledge was acquired, even though the Hospital went into liquidation during that period?

(vi) Is such a claim prescribed because more than three years have passed after the Foundation submitted a proof of claim to the liquidator for the recovery of the donations?

[2]                      Claiming that all such transfers were illegal, the Plaintiff Raymond Chabot Inc. (the “Liquidator”), the liquidator of the Hospital appointed by the Minister concurrently with the withdrawal of its permit on October 12, 1996, seeks to recover $3,480,955.58 from the Foundation.

[3]                      That amount is the aggregate of the sums of $2,727,683.48 (the “endowment fund”) and $65,426.10 (the “equipment donations”) that the Hospital transferred to the Foundation on June 29, 1995 and February 8, 1996 respectively, plus the revenues of $687,846 generated by the foregoing funds between June 29, 1995 and October 8, 1999, the date  the action was instituted.

[4]                      The Foundation had made the equipment donations in order to permit the Hospital to purchase a daylight developer for its nuclear medicine department and beds for its intensive care unit.  The proof did not establish what happened to the equipment after the Hospital closed.  There was no proof, for example, that it was returned for credit to the suppliers, thus rendering the donations redundant.

[5]                      The Foundation contests the Liquidator’s claim and cross-demands $1,077,888, the amount of a proof of claim (the “proof of claim”) it filed with the Liquidator on March 29, 1997.

[6]                      That sum consists of donations in the aggregate amount of $318,100 the Foundation received between 1980 and 1985 (the "Dawes Wing donations"), which it in turn gave to the Hospital, it claims, for reconstruction of the latter's Dawes Wing.  With accrued revenues, the Dawes Wing donations had reached the amount of the proof of claim by the date of its filing.

[7]                      The Liquidator rejected the proof of claim on February 28, 2008, almost 11 years later, and the Foundation made its cross-demand on April 18, 2008.



[8]                      In May 1995, the Minister informed the Hospital that it was targeted for closing.  Members of its staff and the local community tried to avert the decision in the months that followed, to no avail.

[9]                      On June 29, 1995, before knowing the Minister’s decision, the Hospital transferred its endowment fund to the Foundation.  Its executive director, Roland Saint-Arnaud, had the previous day sent an internal memo to its Director of Finance, Daniel Corbeil, instructing him for and in the name of its board of directors, to arrange the transfer. 

[10]                   No authorizing resolution of the board has, however, been found; although one was adopted on May 24, 1995 by the Foundation board, on which some of the Hospital directors also sat.

[11]                   The Foundation resolution (Def-31) authorized its acceptance of the endowment fund, subject to the condition that funds be used for any or all of the purposes set forth in section 272 L.S.S.S.S., namely:     


(1) the purchase, construction, renovation, improvement, enlargement or development of immovable property used or to be used by the institution;


(2) the purchase, installation, improvement or replacement of furnishings, equipment or machinery of the institution;


(3) the research activities of the institution;


(4) the improvement of the quality of life of the users of the institution; or


(5) the training and development of the human resources of the institution for specific needs.


[12]                   Funds not used for any of the foregoing purposes were to be invested in order to increase.

[13]                   Nothing was stated about the prospective closing of the Hospital and what was to be done with the funds in that eventuality. 

[14]                   On December 4, 1995, the Minister formally advised the Hospital that its permit would be withdrawn and asked it to cease operations, which it did on April 16, 1996.   

[15]                   On May 8, 1996, at an annual and special general meeting, the Foundation enacted a by-law to apply for supplementary letters patent to change its name and objects, so as to disassociate both from the Hospital.

[16]                   The supplementary letters patent, issued on July 18 1996, changed the name of the Foundation to La Fondation Communautaire de Lachine - The Lachine Community Foundation and its principal objects were stated as:


To receive and maintain general and/or special funds and apply from time to time all or part thereof and/or the income therefrom for health care, charitable or educational purposes within the Province of Quebec by making gifts, grants, contributions and donations to or for the benefit of any institutions or organizations carrying on health care, educational or charitable activities or related research activities, the said gifts, grants, contributions and donations to be made for such health care, charitable or educational purposes, including overhead expenses if applicable, and subject to such conditions as may from time to time seem expedient to the directors of the Corporation.  


[17]                   Pursuant to sections 451.6 and 451.7 L.S.S.S.S., the Minister published a notice in the Quebec Official Gazette on October 12, 1996 announcing the withdrawal of the Hospital's operating permit and that the liquidation of its property and affairs was entrusted to the Liquidator.

[18]                   On November 7, 1996, the president of the Foundation wrote to the Liquidator to ask for the return of the Dawes Wing donations, which with investment growth had reached $1,052,236.44 as at December 31, 1995.

[19]                   It is interesting to note that the letter made no mention that the money had been given for the reconstruction of the Dawes Wing.  It simply stated that the Foundation "made a series of gifts to the plant fund of Lachine General Hospital in order to allow it to realize a number of projects related to its immoveables to be used in the carrying out of its mission."

[20]                   The Liquidator sent a proof of claim to the Foundation's attorneys on November 26, 1996.  The Foundation filed it on March 29, 1997, claiming $1,077,888, represented as "Dons faits à l'Hôpital général de Lachine par la Fondation de l'Hôpital général de Lachine (Fondation Communautaire de Lachine) pour une fin non réalisée."  The "fin non réalisée" was not defined.

[21]                   The Liquidator rejected the proof of claim on February 28, 2008, giving the Foundation 30 days to contest the rejection in court or ask for additional delay to do so. 




Concerning the endowment fund and equipment donations


The Liquidator 


[22]                   The transfers of the endowment fund and the equipment donations were absolutely null and the money should be returned by the Foundation because:


(i)            they were not authorized by a resolution of the board of directors of the Hospital; and


(ii)          the Hospital did not obtain the prior authorization of the Minister under section 265 (4) L.S.S.S.S., which was required because the Hospital did not satisfy the requirements of section 262.1 L.S.S.S.S. in that:


a)    it had not been expressly designated as a legal person by the Minister under section 139 L.S.S.S. S. and never would be;


b)    the proposed use of the funds transferred did not satisfy section 272 L.S.S.S.S. because the Hospital closed and the Foundation could not therefore use the money for the Hospital purposes therein contemplated;


c)    the ownership of the endowment fund could not be transferred to the Foundation, just its administration, and even such a transfer required the prior authorization of the Minister and of the Régie régionale, neither of which the Hospital had obtained; and


d)    the Hospital did not establish that the endowment fund had been constituted by its members before June 23,1992 and traditionally been administered by those members, such proof as it offered constituting inadmissible hearsay in the absence of an external audit.


The Foundation


[23]                   The Liquidator's claim is prescribed, more than three years having elapsed since the transfers before the Liquidator instituted the present action. 

[24]                   Prescription did not begin anew for the Liquidator upon its appointment but completed the prescription begun against the Hospital and the Minister, both of whom were never prevented from acting before the appointment.  

[25]                   Even if the Liquidator's claim were not prescribed, the grounds of nullity it invokes are unfounded since:


(i)            the Hospital did not need an authorizing resolution because under the indoor management rule Mr. Saint-Arnaud was acting within his apparent authority;


(ii)          in any case the Hospital probably did adopt an authorizing resolution around the same time as the Foundation did, even though the Liquidator claims it cannot be found; 


(iii)         the Hospital did not require the designation of the Minister under section 139 L.S.S.S.S. in order to be able to transfer the endowment fund without ministerial authorization;


(iv)         the endowment fund had been constituted by the Hospital's members before June 23, 1992 and traditionally been administered by them and both internal reports and the Hospital's annual financial statements confirmed its existence and amount;


(v)           section 262.1 L.S.S.S.S. permitted the transfer of the ownership of such funds to a Quebec foundation attached to the Hospital pursuant to section 271 L.S.S.S.S.;


(vi)         at the time of the transfer of the endowment fund to the Foundation, it was not certain that the Hospital would close, so until that happened, both donor and donee could legitimately stipulate that the fund would be used for Hospital purposes, thereby complying with section 272 L.S.S.S.S.; while after the closing the Foundation could use it for the general health care, charitable and educational purposes contemplated in its amended objects;


(vii)        the Foundation was entitled to return of the equipment donations since they had been made on the condition that they be used by the Hospital, a condition now impossible because of the latter's closing; and


(viii)       an official of the Régie régionale had verbally authorized their return in any case. 


Concerning the Dawes Wing donations


The Liquidator

[26]                   The cross-demand should be dismissed because:  


(i)       the Foundation's claim is prescribed, more than three years having elapsed since the filing of the proof of claim with the Liquidator, and more than 30 days having passed before the Foundation filed its cross-demand, despite the Liquidator's warning to contest the rejection of the proof of claim within that delay;


(ii)      the Foundation could not claim that the donations were subject to return if a condition as to their use was not met because under the Civil Code of Lower Canada, which applied when it made the donations between 1980 and 1985, such a stipulation had to be written into each contract of donation and none was;


(iii)    even if such a written stipulation were not required, the Foundation still has not proved that the donations were made exclusively for the rebuilding of the Dawes Wing and were to be returned if that condition was not met;   


(iv)     the Foundation has not proved that the Dawes Wing donations have not already been spent by the Hospital, since they were co-mingled with the other cash in the Hospital’s Plant and Equipment Fund, out of which more money was taken than such donations in each of the years the Foundation made them; and


(v)      the Foundation could not make the Dawes Wing donations conditional without obtaining the prior authorization of the Régie régionale or the Minister under the financial administration regulation then in force;[2]

The Foundation


[27]                   The Foundation replies that:


(i)            the cross-demand is not prescribed since prescription was tacitly suspended by the Liquidator during the more than 10 years it was considering the proof of claim, and the Foundation sued within the three years following its rejection;


(ii)          it was not necessary to stipulate in writing that the Dawes Wing donations were to be returned if the Hospital failed to rebuild it, as there was enough contemporaneous evidence in the form of resolutions and correspondence to show that the donations had been made subject to such a condition;


(iii)         the expenditures from the Plant and Equipment Fund never encroached on the aggregate balance of the Dawes Wing donations, i.e. there was always enough money in the Fund from other sources to allow the expenditures to be made from that money rather than the donations; and


(iv)         prior authorization for the making of the Dawes Wing donations was not required because the very condition under which they were made (that the Dawes Wing be rebuilt) required it, and applying for it could be delayed until such time as the Hospital was about to begin the reconstruction.   




[28]                   The case boils down to four main questions:

1.    Is the Liquidator's claim against the Foundation for the endowment fund and the equipment donations prescribed?

2.    If it is not prescribed, was the transfer of both by the Hospital an absolute nullity under the L.S.S.S.S. requiring their restitution to the Liquidator?

3.    Is the Foundation’s cross-demand against the Liquidator for the return of the Dawes Wing donations prescribed?

4.    If it is not prescribed, were they made subject to a resolutory condition that the Dawes Wing be rebuilt, failing which they would have to be returned?




The Liquidator's claim for return of the endowment fund and the equipment donations


[29]                   The transfers were absolutely null in the absence of the prior authorization required, both because the Hospital was not designated by the Minister under section 139 L.S.S.S.S. and because it closed its doors on April 16, 1996, thus precluding the Foundation's use of the funds for any Hospital purpose as contemplated in section 272 L.S.S.S.S.

[30]                   That said, the Liquidator's claim is prescribed since it sued only on October 8, 1999, more than three years after the transfers occurred and the Hospital closed. 

[31]                   The Liquidator cannot claim that it was impossible for the Hospital (of which it was the legal representative) or for the Minister to sue prior to its appointment.


The Foundation's cross-demand for the return of the Dawes Wing donations 


[32]                   The Foundation's cross-demand for the return of Dawes Wing donations was not prescribed, assuming they were made on the condition that they be used exclusively to rebuild the Dawes Wing, since prescription would have commenced on December 4, 1995 and would have been suspended by the liquidation, which began on October 12, 1996.

[33]                   That said, the cross-demand is unfounded because the Foundation has not proved either that they were in fact made subject to such a resolutory condition or that the Hospital had not already spent them by the time it closed. 

[34]                   However, once all debts and expenses of the liquidation have been paid, the Foundation may, by virtue of section 451.12 L.S.S.S.S., have an eventual right to receive residual property from the Liquidator, prior to the Government or any other legal person the latter may designate, if it can establish that it is a member of or the legal successor to members of the Hospital and that such property derived from its or their contributions. 



Principal demand: return of the endowment fund and the equipment donations

Is the Liquidator's claim for the return of the endowment fund and the equipment donations prescribed? 

[35]                   The Liquidator's claim was prescribed by June 29, 1998, the third anniversary of the transfer of the endowment fund and by February 8, 1999, the third anniversary of the reimbursement of the equipment gifts, even though the transfers were contrary to directive public order in each case. 

[36]                   The Liquidator did not benefit from a prescription different from that afforded by the Civil Code of Quebec.

[37]                   By virtue of section 451.11 L.S.S.S.S., "the liquidator is seised of the property of the institution and acts as an administrator of the property of others entrusted with full administration."

[38]                   There is nothing in the L.S.S.S.S. that gives a liquidator the benefit of an extinctive prescription that is particular to it. 

[39]                   That being the case, the general civil law of Quebec applies.

[40]                   Article 2877 C.C.Q. provides in that regard that "prescription takes effect in favour of or against all persons, including the State, subject to express provision of law."

[41]                   By virtue of the Codal provisions on the administration of the property of others, an administrator has the power to "sue and be sued in respect of anything connected with his administration" (article 1316 C.C.Q.) and the duty to "preserve the property and make it productive, increase the patrimony or appropriate it to a purpose, where the interest of the beneficiary or the pursuit of the purpose of the trust requires it." (article 1306 C.C.Q.)

[42]                   Surely, a right of action to recover $3,480,955.58 formed a part of the property of the Hospital entrusted to the Liquidator's administration that had to be preserved by interrupting prescription. 

[43]                   Rights of restitution of funds arising from the absolute nullity of a contract are prescribable under the provisions of the Code, notwithstanding the nullity.  All rights of action, without exception unless legislatively specified, are subject to prescription.  The default prescriptive period of ten years[3] does not apply in such a situation. 

[44]                   Instead, since the right enforced is personal, it is the three-year prescription of article 2925 C.C.Q. that applies.

[45]                   Invoking the case of C.K. c. D.K.,[4] the Liquidator’s attorneys contend that it was impossible to sue earlier than the date of its appointment, October 12, 1996, and that accordingly prescription was suspended until then. 

[46]                   However, CK v. DK involved the case of administrators to the property of an adult under curatorship, who was himself incapable of acting and who had no one to represent him prior to the appointment of the plaintiffs. 

[47]                   In that situation, it was impossible for the plaintiffs to sue until they were appointed but prescription had not meanwhile run against the protected adult because it was impossible for him to sue as well pending their appointment. 

[48]                   The situation is different here.  The Liquidator's rights of action are neither greater nor less than those of the Hospital, since it is exclusively the latter's property, inclusive of rights of action, that is entrusted and must be preserved.  The Hospital's patrimonial rights are not enhanced by the liquidation, nor does the Liquidator possess rights other than those that devolve to it from the Hospital. 

[49]                   Since it was not impossible for the Hospital to act before the Liquidator was appointed, prescription against the latter added to and continued the prescription against the former.

[50]                   It is also incorrect to apply article 2927 C.C.Q. as the Liquidator tries to do.  That provision suspends prescription of an action in nullity of contract until the person invoking the cause of nullity becomes aware of it, or in the case of violence or fear, from the day it ceases. 

[51]                   The Liquidator contends that the Hospital's officers and directors believed in good faith that the return of the endowment fund and the equipment donations was legal.  Otherwise, they would have been acting fraudulently, and fraud is never presumed.

[52]                   According to the argument, the Hospital acting through these agents was therefore unaware of the cause of nullity of the transfers, namely that any gratuitous disposition of property required the consent of the Régie régionale by virtue of subparagraph 4 of the first paragraph and the second paragraph of section 265 L.S.S.S.S., as well as the first three paragraphs of section 264 L.S.S.S.S., which read:

265. No public institution may


(4) dispose gratuitously of property, except in the case of property of small value or, with the prior authorization of the agency, where the property is disposed of in the interest of the institution or its mission, in favour of another institution or for humanitarian purposes;


An action for nullity of a decision, by-law, resolution or contract made or adopted by an institution contrary to the first paragraph may be instituted by the Minister, the agency or any other interested person.

264. A contract made by an institution without the prior authorization of the Conseil du trésor, the Minister or the agency is absolutely null in all cases where such authorization is required by this Act.


Furthermore, every contract must, on pain of nullity, be made in accordance with the standards, terms and procedure prescribed by regulation of the Minister or, as applicable, in accordance with the Act respecting contracting by public bodies (chapter C-65.1).


An action for nullity of a contract made by an institution contrary to this section may be instituted by the Minister, the agency or any interested person.

[53]                   However, in the view of the Court, article 2927 C.C.Q. applies to factual rather than legal causes of nullity.  That is apparent from its reference to fear, fraud and violence which are factual grounds of vitiation of consent, itself a mixed matter of fact and law.  The same may be said of self-induced error as to the object of the contract or a material consideration for entering it. 

[54]                   These grounds relate to the state of mind of a party concerning matters of fact.  A mistake in law, however, is not a ground to suspend extinctive prescription. 

[55]                   Such a conclusion may be reached by considering article 2634 C.C.Q. which provides that error of law is not a cause for annulling a transaction, and more importantly, in view of its general application, section 39 of the Interpretation Act:[5] which reads:

39. Every statute shall be public unless declared to be private.


Everyone is bound to take cognizance of public statutes, but private statutes must be pleaded.

[56]                   The Hospital's ignorance of a ground of absolute nullity deriving from a public statute, the L.S.S.S.S., cannot therefore be invoked to suspend prescription until the moment its agents understood or were aware of how that law applied. 

[57]                   If ignorance of the law could suspend prescription, it would be far too easy for litigants to plead it whenever rights of action were otherwise prescribed.  That possibility would put at risk indefinitely any fully performed contract that was subject to annulment on a ground of directive public order, thereby defeating the purpose of prescription.

[58]                   The possibility is considered by Baudouin and Jobin, who opine[6] that such a contract once executed cannot be set aside after three years:

Il apparaît de prime abord peu juridique d'affirmer qu'un contrat nul de nullité absolue puisse créer un lien d'obligation devenant valable par le seul écoulement d'un laps de temps. On conçoit mal, en effet, que le simple passage du temps puisse suppléer aux déficiences et aux carences fondamentales d'un contrat. C'est pourquoi certains auteurs estiment que la nullité absolue ne se prescrit jamais. Il s'agit là, à notre avis, d'une vision aujourd'hui abandonnée. Si le contrat entaché d'une telle nullité n'a pas été exécuté en tout ou en partie, en réalité l'écoulement de la période de prescription n'a pas pour effet de le rendre valide et de permettre une demande en exécution puisque, quel que puisse être le laps de temps entre la conclusion du contrat et la demande d'exécution du contrat, le contractant peut toujours opposer la nullité par voie d'exception. Si, par contre, ce même contrat a été exécuté en tout ou en partie, le contractant qui a fourni cette exécution n'est pas admis après trois ans à invoquer la nullité pour répéter les sommes payées ou revendiquer les objets livrés par lui. L'intérêt public cède devant l'intérêt privé. Le but et l'effet de la prescription ne sont donc pas de rendre valide un contrat qui ne l'est pas, mais seulement d'empêcher les actions pouvant surgir à son propos après un certain temps. Il est vrai toutefois que la prescription aura parfois, dans les faits, l'effet secondaire de rendre inattaquable un contrat nul en principe.

[59]                   It is also hard to imagine that the Minister responsible for the application of the L.S.S.S.S. would have been ignorant of a ground of absolute nullity under his own statute.  Nothing prevented him or the Hospital from suing to annul the transfers, which were hiding in plain sight: from the Hospital as a party to them, and from the Minister, who was provided with its annual financial statements for the year ended March 31, 1996 reporting that both the endowment fund and the equipment gifts had been transferred to the Foundation during that year.   

[60]                   Prescription ran independently against the Minister and continued to run against her after the liquidation commenced.  The prescription against the Hospital commenced at the time of each transfer and continued to run against the Liquidator as the administrator of its property.   

[61]                   That situation is not the same as that of an unrepresented incapable person prior to the appointment of his representative.  Until then, it is impossible in fact for either to act and prescription is accordingly suspended for that time, to resume[7] or begin[8] from the date of the appointment, as the case may be. 

[62]                   Prescription runs against anyone with a right of action who is either capable or represented and the period elapsed counts against any assignee of or legal successor to the right of action.[9]

If the principal action were not prescribed would the transfers of the endowment fund and the equipment donations be absolutely null?

[63]                   This question is moot considering the disposition of the prescription argument, so the Court will not go into it in any great depth. 

[64]                   Suffice it to say that the Liquidator is correct in practically all of its arguments in this regard.  The transfers were against directive public order and the Court would have annulled them in the absence of prescription. 

[65]                   They were invalid because the prior authorization of the Régie régionale was not obtained as required by section 265 (4) L.S.S.S.S. cited above and they are thus absolutely null by virtue of section 264 L.S.S.S.S., also cited above.

[66]                   The authorization of the Régie régionale was required because the Hospital did not fully meet the criteria of section 262.1 L.S.S.S.S., the relevant portions of which in force at the time of the transfers, read as follows:    

262.1. Any institution which is a corporation referred to in section 139 may, with no other formality than those prescribed in sections 180 and 260, alienate any immovable surplus to requirements where the acquisition or construction or the work carried out on the immovable has been financed with funds other than funds provided, in whole or in part, by government subsidy and other than funds provided entirely by public subscription, provided that such investment has not been the subject of a reimbursement or compensation.


The proceeds from the alienation of the immovable and the income arising from the proceeds may be transferred, notwithstanding subparagraph 4 of the first paragraph of section 265, to a foundation of the institution referred to in section 271 to be used for any of the purposes mentioned in section 272, in accordance with that section, or, if the authorization obtained under section 260 so provides, to another non-profit legal person whose activities relate to the field of health and social services.


They may also be paid into a special fund of which the administration is entrusted to the members of the legal person, to be used for any of the purposes mentioned in section 272, in accordance with that section.


The rules set out in the second and third paragraphs also apply to funds constituted by the members of a corporation before 23 June 1992 and which have traditionally been administered by those members.

(underlining added)

[67]                   To begin with, the Hospital was not a corporation referred to in section 139 L.S.S.S.S., the French version of which at the time of the transfers read thus:


139. Le Ministre désigne, parmi les corporations visées au paragraphe 1o de l’article 98 et qui sont propriétaires de tout ou partie des immeubles qui servent aux activités de l’établissement, celles dont les membres de la corporation peuvent, le cas échéant, participer à la nomination des personnes visées au paragraphe 4o de l’article 129 ou 130, au paragraphe 3.1o de l’article 131 ou au paragraphe 4o de l’article 132, selon le cas.


Le Ministre doit procéder à la désignation d’une telle corporation si celle-ci lui démontre que l’acquisition, la construction ou les travaux exécutés sur les immeubles de la corporation ont été financés par des fonds autres que des fonds provenant, en tout ou en partie, de subventions du gouvernement ou autres que des fonds provenant entièrement de souscriptions publiques et que ces investissements n’ont pas fait l’objet de remboursement ou de désintéressement.[10]


[68]                   Section 98 (1) refers to "an institution constituted as a non-profit corporation before 1 June 1972, irrespective of the Act under which its constituting instrument was granted."

[69]                   The Hospital is clearly such a corporation, having been incorporated in 1909. 

[70]                   In March 1998, with the liquidation already under way, it presented a Motion to this Court for a declaratory judgment and an order of mandamus against the then Minister of Health to compel her to designate the Hospital as a corporation under section 139 L.S.S.S.S. after she had earlier refused such a request.

[71]                   Mr. Justice Allan Hilton dismissed the motion on June 16, 1999[11] on the grounds that the Hospital had not exercised its right of appeal against the Minister's decision to the Court of Quebec, had not applied for the mandamus in a reasonable time and finally, that it was inconceivable that the Hospital could expect such a designation when its administration was in the hands of the Liquidator, who had the seisin of all its assets, and when it was irreversibly destined to extinction.

[72]                   The appeal from his judgment was dismissed on motion on February 28, 2000.[12]

[73]                   The Foundation now argues that the Ministerial designation was not required anyway, since the fourth paragraph of section 262.1 states that "a corporation" may transfer funds constituted by its members before June 23, 1992 and which have been traditionally been administered by those members to a foundation of the institution to be used for any of the purposes mentioned in section 272, thus arguably permitting any hospital whose members had constituted and administered a fund prior to that date to do so.

[74]                   However, the Court believes that it is the French text of section 262.1 that faithfully reflects the intent of the L.S.S.S.S. by referring to "la corporation," i.e. the only corporation previously mentioned in the section, and thus necessarily the specific corporation mentioned in the first paragraph as being referred to in section 139, i.e. designated by the Minister.          

[75]                   Such an interpretation is also consistent with the overall objective of the L.S.S.S.S., which is to subject the property and the finances of health establishments to rigorous governmental control in the collective interest.

[76]                   While the time and manner of the constitution and administration of the endowment fund is therefore moot, the Court is satisfied on the evidence that it was the members of the Hospital that did both prior to June 1992 through the board of directors. 

[77]                   An endowment fund comprised of private donations certainly existed early in the Hospital’s history and was consistently referred to in its financial statements and internal reports.  The Hospital was incorporated in 1909 and it is unreasonable for the Liquidator to insist on a scientific standard of proof on this question.  Before the reform of the 1960’s, Quebec hospitals were private institutions funded by members of the community as the proof submitted by the Hospital illustrated.

[78]                   Moreover, it did not have to be the members per se who administered the fund rather than duly elected directors, to whom the affairs of the corporation were entrusted by law.  In this respect, the Hospital was no different from any other non-profit corporation in Quebec.  It is unrealistic to expect that the members would have handled finances in town hall type meetings or in self-constituted committees when as corporations their affairs were to be run by the directors.      

[79]                   Another point on which the Court disagrees with the Liquidator is the latter’s contention that under section 262.1 L.S.S.S.S. a hospital could transfer only the administration of an endowment fund to its foundation, and then only with the Minister’s approval. 

[80]                   A transfer of the ownership of the fund could be made without such approval,[13] but as only a hospital designated by the Minister pursuant to section139 could do so, the disagreement is moot as well.

[81]                   Apart from the fact that its omission and subsequent failure to obtain such designation invalidated the transfer of the endowment fund, the requirement that the Foundation use the money exclusively for Hospital purposes was disingenuous in the circumstances, as the Hospital’s days were numbered.  It is telling that the Foundation did not give it a penny of the fund in the 15 months before it closed.

[82]                   The transfer was a transparent attempt to prevent the fund from falling into the liquidation by acting as if the latter would never happen, although the dark prospect that it would drove the transaction.  Even if the withdrawal of the Hospital’s permit was not absolutely assured during the consultation period, it was likely. 

[83]                   Therefore it was foreseeable that very soon the possibility of using the money for the purposes contemplated in section 272 L.S.S.S.S. would disappear.  The Hospital directors were undoubtedly aware of this, which of course explains their haste. 

[84]                   Such awareness would invalidate the transfer because the condition for its validity had to be more than a mere incantation of the provisions of section 272.  The expectation of compliance with that provision had to be realistic in the circumstances and it was not. 

[85]                   The Court believes that for the transfer of the endowment fund to have been made in good faith a resolutory condition would have had to be read into it, such that the transfer would be considered void if the Hospital closed. 

[86]                   Incidentally, while an authorizing resolution of the Hospital’s board of directors could not be found, the Court believes that there probably was one and that it was the counterpart of the Foundation’s resolution of May 24, 1994.  The attorneys of the Foundation prepared the resolution and probably did likewise for the Hospital at the same time.

[87]                   Three other elements of proof make the adoption of a resolution by the Hospital board probable. 

[88]                   One is the minutes of the latter’s executive committee of April 3, 1996 (Def-36) which make reference to the transfer of the endowment fund to the Foundation in the previous year and note that certain persons suggested that the Hospital board of directors authorize the same operation for the Plant and Equipment Fund

[89]                   The others are the Hospital’s Financial Statements for the year ended March 31, 1996 and those of the Foundation for the year ended December 31, 1995.  It is unlikely that the auditors would have approved either unless they had seen an authorizing directors’ resolution of each of the parties to the transfer.

[90]                   As for the Liquidator’s contention that the endowment fund formed part of the Hospital’s own property and thus could not be transferred without ministerial consent, the Court notes that by virtue of section 269 L.S.S.S.S. special purpose gifts and capital gifts are not considered part of the institution's own property, as opposed to other private donations:

269. Every amount received as a gift, legacy, subsidy or other form of contribution, except an amount granted by the Gouvernement du Québec or a department or agency referred to in section 268, shall be entered directly in the institution's own property and is subject to the rules governing the use of such property prescribed by section 269.1.


Special fund.


However, the amount of a contribution made for special purposes shall be paid into a special fund created by the institution. It shall be deposited or invested in accordance with the provisions of the Civil Code respecting investments presumed sound, until it is used for the special purposes for which the contribution was made.


Endowment fund.


Where sums have been granted for the specific purpose of furnishing the institution with capital that must be preserved and of which only the income may be used, the amount thereof shall be paid into an endowment fund created by the institution and administered in the manner set out in the second paragraph.

(underlining added)

[91]                   Furthermore, the funds referred to in the fourth paragraph of section 262.1 L.S.S.S.S. are not the same as those referred to in section 271, of which the administration but not the ownership may be transferred to a related foundation. 

[92]                   The latter funds are those that may be constituted under section 269, i.e. the endowment fund or special funds:

271. Any institution may, with the prior authorization of the agency, transfer the administration of all or part of any fund referred to in section 269 to a foundation of the institution within the meaning of section 132.2, provided that the foundation is established in accordance with the statutes of Québec and that nothing in its constituting act prevents it from administering such a fund. (underlining added)

[93]                   Section 262.1 refers rather to funds that were constituted by members of the corporation prior to June 23, 1992 and which were traditionally administered by them.  Their ownership may be transferred to a foundation, just as can be the proceeds arising from the sale of excess immoveables. 


Return of the equipment gifts

[94]                   Were it not for the fact that the Liquidator’s claim is prescribed, the Foundation would have to return the money.

[95]                    The donations were used for their intended purpose, even if the Hospital subsequently closed. 

[96]                   Moreover, Robert Demers, the official of the Régie who allegedly authorized the return of the donations verbally had no authority to do so and the Court believes his affirmation that he did not do so in this case.


Cross-demand: return of the Dawes Wing donations


[97]                   The Court disagrees that the Foundation's right of action and thus extinctive prescription began on the date the Liquidator rejected its proof of claim.

[98]                   If the Foundation had a right to the return of the Dawes Wing donations, it originated on December 4, 1995, the date the Minister announced the Hospital would have to close and asked the latter to cease operations. 

[99]                   It was clear on that date that the Dawes Wing would never be built and that accordingly the alleged resolutory condition operated to annul the donations made between 1980 and 1985.

[100]                Prescription would therefore have run by December 4, 1998, but was suspended by the commencement of the liquidation on October 12, 1996, by virtue of section 451.10 L.S.S.S.S.:

Suspension of actions.


451.10. From the date of publication of the notice referred to in section 451.6, any action or proceeding concerning the property of the institution, in particular, by seizure by garnishment, seizure before judgment or seizure in execution, shall be suspended.




The costs incurred by a creditor after learning of the liquidation personally or through his attorney may not be collocated on the proceeds of the property of the institution that are distributed owing to the liquidation.




A judge of the Superior Court of the district where the head office of the institution is situated may nonetheless, on the conditions he considers appropriate, authorize the institution or continuation of any action or proceeding.

[101]                Only ten months of prescription had therefore run by October 12, 1996. 

[102]                Assuming the Liquidator's rejection of the Foundation's proof of claim had caused prescription to resume on February 28, 2008, the latter would still have had another two years and two months to interrupt it and would have done so by its cross-demand on April 18, 2008. 

[103]                That was 49 days after the proof of claim was rejected.  If it had been a bankruptcy proof of claim, it would have been too late, given the absence of prior authorization of the Court.  However, the effect of the liquidation was to suspend prescription because no proceedings could be taken without the latter’s permission.

[104]                 In any event, the Liquidator's requirement that the Foundation submit a proof of claim and then taking almost 11 years to decide it would have had the effect of suspending prescription if the liquidation itself had not done so. 

[105]                Furthermore, the Liquidator could not, having rejected the claim, unilaterally foreshorten prescription by imposing a 30-day delay to contest the rejection in court or to apply to the latter for an extension of that period.  Section 135 (4) of the Bankruptcy and Insolvency Act does not apply to liquidation under section 451.7 L.S.S.S.S. 

[106]                The rejection of the proof of claim on April 18, 2008 did not therefore entail a resumption of prescription since the suspension of all proceedings and the proscription against taking new ones without court authorization continued nonetheless.

[107]                The demand for the return of the Dawes Wing donations itself had to be authorized by the Court by virtue of section 451.10 L.S.S.S.S. but never was. 

[108]                At this stage of the proceedings, however, it would be a waste of resources to dismiss the cross-demand for that reason alone, so the Court will assume that the making of the cross-demand was an implicit request to authorize it, and the Court does so now.  This enables the Court to dispose of it on the merits.

[109]                In the result, the Foundation has not established that the $318,100 of donations it made to the Hospital between 1980 and 1985 were made for any special purpose. 

[110]                Not one of its resolutions from that period or even afterwards shows that the funds were to be used solely to rebuild the Dawes Wing, much less that they were to be returned if that condition were not met.

[111]                Had that been the case, the Hospital would have had to place the money in a special fund by virtue of the second paragraph of section 269 L.S.S.S.S. so that it would not be co-mingled with its own property (avoir propre) comprised of both the Operating Fund and the Plant and Equipment Fund, the money having been placed in the latter.

[112]                It is therefore as likely as not that the Dawes Wing donations were spent, seeing that expenditures from the Plant and Equipment Fund for other purposes exceeded their aggregate amount, inclusive of income growth, in each of the years they were received from the Foundation.

[113]                The Hospital board seems to have had belated regrets about not segregating the funds, since in the minutes of the meeting of its Executive Committee of April 3, 1996 (Def-36) referred to above it is observed that the Dawes Wing donations should have been placed in the endowment fund and returned to the Foundation as part of the latter.

[114]                It is, moreover, questionable whether testimonial proof of conditional gifts would have been permitted in the absence of written proof, in particular board resolutions of both the Foundation and the Hospital stipulating that they were to be used for the Dawes Wing or else returned.

[115]                It is not the passage of time as such that has made such written proof unavailable.  The Foundation has existed continuously and had continuous control of its records.  There is also no reason to presume that the Liquidator would have destroyed board records of the Hospital.  The written proof is just as likely unavailable because it never existed to begin with.

[116]                The Dawes Wing donations were subject to the requirements of the Civil Code of Lower Canada as to their creation and their effects when they were made.[14] 

[117]                Under article 816 C.C.L.C., a revocation of a gift for non-fulfillment of obligations undertaken by the donee could not be made unless the revocation was stipulated in the deed:

816. Gifts cannot be revoked by reason of the non-fulfilment of obligations entered into by the donee, as charges or otherwise, unless the revocation is stipulated in the deed; and such revocation is subject in all respects to the same rules as the dissolution of sale in default of payment of the price; without the necessity of any preliminary condemnation obliging the donee to the fulfilment of his obligations.


The stipulation of all other resolutive conditions when legally made has the same effect in gifts as in other contracts.

[118]                No deeds of gift between the Foundation and the Hospital were entered in evidence, much less any containing the express stipulation of revocation if the gifts were not used to rebuild the Dawes Wing.

[119]                The Court considers it more likely that simple bank transfers were made between the two without more formality except perhaps for resolutions, of the Foundation in particular.

[120]                But even at this secondary level there is a dearth of evidence.  None of the minutes of the Foundation’s board of directors produced for the years 1981, 1982 and 1983 state that the donations to the Hospital thereby authorized are specifically for the reconstruction of the Dawes Wing. 

[121]                The same may be said of the Hospital's annual financial reports concerning the Plant and Equipment Fund.  None mentions that any of the transfers received are earmarked for that purpose either.   

[122]                Minutes of directors’ meetings of the Foundation held in 1975 and 1976, five and six years before its donations allegedly destined for the Dawes Wing were made, refer on December 2, 1975 to $418,000 being held until an unspecified special project has been approved by the Foundation.

[123]                In 1976 (Def-8) there is mention that $250,000 had been spent in the previous ten years to renovate the Dawes Wing and the west basement, but there is no indication that subsequent funds were to be held specifically for the reconstruction of the Dawes Wing, much less that they were to be returned if that project failed to materialize.

[124]                In December 1984 (Def-20) the only indications concerning the $170,000 transferred from the Foundation to the Hospital were that $35,000 was to be transferred to the latter's endowment fund and $135,000 to its Plant and Equipment fund.

[125]                The first indication that an amount transferred to the Plant and Equipment Fund was to be used for the reconstruction of the Dawes Wing comes in a memo dated December 19, 1984 from the Hospital's executive director, Roland Saint-Arnaud to its director of finance stating "that it will be added to the other donations received from the Foundation since 1980" for that purpose - a very fine thread on which to hang a claim for their return.

[126]                The minutes of the Hospital board of directors from 1990, 1992 and 1995 certainly indicate that the latter was planning to rebuild the Dawes Wing, but none of these minutes makes any mention of the donations received from the Foundation; and besides being subsequent to the period during which the funds were received, none indicates that they are to be returned if the project does not go ahead.

[127]                While the Liquidator claims to be unable to find the minutes of the Hospital's board of directors between 1980 and 1985, the available minutes of the Foundation barely mention the project and do not indicate that the donations are subject to return if the project does not materialize

[128]                Although the proof established that after 1985 the Foundation wanted to accumulate funds to finance a major renovation project, by then it had already transferred $318,100 to the Hospital's Plant and Equipment Fund.

[129]                All this proof does is show that the Hospital and the Foundation were serious about rebuilding the Dawes Wing and had taken steps to do so.  It does not establish that the Dawes Wing donations were exclusively for that project and to be revoked if it had to be abandoned.

[130]                There was nothing that prohibited the funds from being used for another purpose as part of the general funds of the Hospital, inclusive of paying its debts.  The Plant and Equipment Fund was not frozen in whole or in part for any particular project; nor could it be, as special purpose funds had to be segregated by virtue of section 269 L.S.S.S.S. 

[131]                The fact that in early 1998 the tax authorities no longer permitted the Foundation to accumulate funds after the Hospital closed does not answer the main question of whether those it had collected had to be returned to the Foundation.

[132]                It is not clear that the donations made between 1980 and 1985 had to be used to reconstruct the Dawes Wing.  It is only more or less clear that the Foundation was to accumulate funds for that purpose after 1985, but after that year it apparently made no further transfers. 

[133]                The Liquidator contends that by virtue of section 295 of the Règlement d’application de la Loi sur les services de santé et des services sociaux, (c. S-5, r.1) in force between 1980 and 1985 the Dawes Wing donations could not have been conditionally accepted by the Hospital because no application for authorization was made either to the Minister or the Régie régionale:

295. Un don assorti d’une condition quant à son emploi ne peut être accepté par un établissement public que sous réserve d’une autorisation écrite du ministre quant à son utilisation dans tous les cas où cette condition entraîne une dépense ou un engagement pour lequel aucune autorisation n’est requise.

[134]                The Foundation contends that no such authorization was required in any case since the condition entailed a projected use - the reconstruction of the Dawes Wing - for which authorizations would be required by virtue of section 260 (2) L.S.S.S.S.:

260. No public institution may, without having obtained the advice of the agency concerned and prior authorization from the Minister and from the Conseil du trésor,


(1) acquire, alienate, charge with a servitude or hypothecate an immovable;


(2) build, enlarge, develop, convert, demolish, rebuild or make major repairs to its immovables, except in the cases provided for in paragraph 3 of section 263.

[135]                It adds that the Hospital in fact applied to the Régie régionale for permission to begin the reconstruction in 1992 (Def-17).  This last mentioned exhibit is an extract from minutes of either a board of directors meeting or an Executive Committee meeting of unknown date, in which at paragraph Mr. Saint-Arnaud is authorized to apply to the Régie régionale for such purpose.

[136]                However, there is no proof that the Hospital ever formally did so or that the project was authorized by the Régie regionale. 

[137]                On the contrary, the proof shows that on March 30, 1993, the Régie régionale's co-ordinator of renovation and construction projects, Émile Gosselin, architect, asked the Hospital to first prepare a functional program and technical summary for approval, which would serve as directives for the architects who would prepare the plans (D-7).

[138]                 By 1995, two undated extracts of meetings of the Hospital's board or executive committee (Def-18 and Def-19) show that a functional plan had not yet been prepared. Mr. Saint-Arnaud was authorized to negotiate with Morris Greenbaum, architect, to prepare one for a fee not to exceed $6,000.

[139]                It is noted (Def-19, par. 7.12) that preliminary work had already been done a few years before, but that everything had to be redone in view of new pre-requisites and the expansion of the project.  All that can be gleaned is a mention that the Régie regionale's aforementioned architect, Émile Gosselin, had given his approval in principle.    

[140]                Besides being hearsay, it is not clear if this alleged approval in principle was of the entire project (for which there was not yet even a functional plan) or whether the alleged approval was of the proposed mandate to an architect to create one.

[141]                At most, it can be said that the Hospital was slowly taking the steps required prior to making a formal application for the Régie regionale's authorization of the reconstruction of the Dawes Wing in accordance with pre-approved plans.

[142]                Even then, assuming such authorization had been obtained, in the absence of a proven linkage of the so-called Dawes Wing donations with the realization of the project, the question is moot. 

[143]                It is the question of linkage that is paramount; for if the authorization of the Régie régionale were required and had not been obtained and never would be, that too would amount to a failure of the condition. The donations would then be absolutely null by virtue of article 1499 C.C.Q. (and article 1080 C.C.L.C. before it) and the Foundation could ask for their return.

[144]                The Foundation’s claim on that ground, moreover, would not be prescribed because prescription, originally 30 years by virtue of the Civil Code of Lower Canada, but reduced to three years by article 2925 C.C.Q. by virtue of article 6 of the transitional legislation[15] - therefore normally expiring on January 1, 1997 - would have been suspended by the liquidation pursuant to section 451.10 L.S.S.S.S. 

[145]                However, whether the condition fails because the Dawes Wing will not be rebuilt or because the Régie régionale's authorization of its rebuilding has not been and will not be obtained, the Court is not persuaded that the Dawes Wing donations were made for that purpose to begin with.

[146]                It believes that the alleged condition attached to them resulted from a revisionist history devised by the Foundation to justify its demand for the return of the money once it knew the Hospital would close. 

[147]                There is far from enough contemporaneous evidence to support the claim, including most notably the absence of segregation of the funds by the Hospital. 


Claim for residual property of the Hospital

[148]                The Foundation claims it is a member of the Hospital and that because the latter’s property derives in part from its contributions, it is to such extent entitled to receive such property after the Liquidator has paid all of the Hospital's debts. 

[149]                This is a new argument, raised only after trial.  The original basis of the Foundation’s claim was that the condition of the gifts would never be realized so they should be returned.  It therefore contended that it was a creditor of the Hospital and filed the proof of claim.

[150]                The basis for the new claim is section 451.12 L.S.S.S.S.:

451.12. The liquidator shall first pay the debts of the institution and the costs and expenses of the liquidation.


The liquidator shall then, if the assets include property deriving from contributions made by a member of a legal person referred to in paragraph 1 of section 98, remit the property to the member at the member's request.  If the assets are insufficient to do so, the liquidator shall partition the assets in proportion to the respective rights of the members concerned.

[151]                Of course, the Hospital is a legal person referred to in paragraph 1 of section 98 L.S.S.S.S., having been incorporated prior to June 1, 1972.

[152]                In other respects, this new claim of the Foundation gives rise to questions as yet unanswered that will require further proof.

[153]                Some of these questions may be: who is or was a member of the Hospital corporation, and is the Foundation such a member or the legal successor to past members?  How does one establish which remaining property of the Hospital derives from members' contributions and in what proportions?  How far back can a member’s claim go?  In what form would property be returned to members, monetarily or in kind? 

[154]                Apart from the fact that it is too late for the Foundation to amend its action to encompass the claim, the state of the file does not permit such questions to be adjudicated upon in this action.  Another will have to be brought. 




DISMISSES Plaintiff/Cross-Defendant Raymond Chabot Inc’s action with costs;


DISMISSES Defendant/Cross-Plaintiff La Fondation Communautaire de Lachine’s cross-demand with costs;


RESERVES Defendant/Cross-Plaintiff’s rights, if any, under section 451.12 of an Act respecting Health Services and Social Services, R.S.Q. c. S-4.2.









(Me Jean-Marie Larivière)

Attorneys for the Plaintiff/Cross-Defendant



(Me Jacques Darche )

(Me Marie-Eve Léveillé)

Attorneys for the Defendant /Cross-Plaintiff


Dates of hearing:

May 25, 26, 27 and 28, 2010


[1] L.R.Q. c S-4.2

[2] Règlement d’application de la Loi sur les services de santé et des services sociaux (c. S-5, r.1)

[3] Article 2922 C.C.Q.

[4] J.E. 2000-1388 (C.S.)

[5] R.S.Q. c. I-16

[6] Baudouin Jean-Louis et Pierre-Gabriel Jobin, Les Obligations, 6e edition, Éditions Yvon Blais, Cowansville, 2005, No. 407at p. 421.

[7] If the incapable was capable for some time after the right of action arose. 

[8] If the incapacity existed at the time the right of action arose.

[9] See P.G. du Québec c. Irving Oil Inc., (C.S., 1972-02-17), SOQUIJ AZ-72021110 , [1972] C.S. 665 (assignment of debt); Hickey c. Valleyfield Auto Supply Ltd., REJB 1999-11426 (C.S.) (prescription run before death avails against the heirs); S.C. c. L’Archevêque catholique romain de Québec, 2009 QCCA 1349  (Prescription that runs against the parents as tutors to their minor child who is victim of an accident counts against the child after majority); Groupe Boudreau Richard inc. c. Immeubles Eau-Bois inc., EYB 2005-94435 (C.S.), para. 41 and Ameublement Felice inc. c. Colangelo, REJB 2004-65068 (C.S.) (Prescription that has run against the bankrupt counts against the trustee in bankruptcy and does not begin anew with the latter's appointment.)

[10] Loi modifiant diverses dispositions législatives concernant l’application de la loi sur les services de santé et les services sociaux et modifiant diverses dispositions législatives, 1992, L.Q. c. 21

[11] Corporation de l'Hôpital Général de Lachine c. Pauline Marois, CSM 500-05-039921-984, June 16, 1999.

[12] Corporation de l'Hôpital Général de Lachine c. Pauline Marois, C.A. 500-09-008317-992, February 28, 2000.

[13] The second paragraph of section 262.1 L.S.S.S.S. does not refer to a transfer of the administration of proceeds arising from the sale of excess real estate but to a transfer of the proceeds themselves for use in accordance with section 272 L.S.S.S.S., i.e. their ownership is transferred. The reference to section 271 is not with regard to the kind of transfer that provision contemplates but with regard to the kind of foundation to which the transfer may be made.

[14] Loi sur l’application de la réforme du Code civil, L.Q. 1992, c. 57, sec. 2, 4

[15] An act respecting the implementation of the reform of the Civil code, L.Q. 1992, c.57.

Le lecteur doit s'assurer que les décisions consultées sont finales et sans appel; la consultation du plumitif s'avère une précaution utile.

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