What duties does a notary (or lawyer) have when witnessing a signature on a document, such as a land transfer document, to ensure that the person signing the document understands that document and is voluntarily signing it? What if you are only retaining this person for the limited purpose of witnessing your signature because the document must be notarized?

In Engman v. Canfield 2023 BCCA 56, a notary witnessed a signature on a Form A Transfer document, which transferred her 20-acre property to a third party. The notary only witnessed the signature (and was paid $50 for his services). It turned out that the transfer was part of an unconscionable purchase and sale agreement, and the transferor was “situationally vulnerable” when she signed the document. She was elderly, had health problems, and was feeling pressure to sell. She was also deprived of important information when she agreed to the sale, and the agreement was the product of unequal bargaining power and was an improvident bargain. However, the notary was not aware of any of this.

When the transferor was not paid for her property, she brought a claim against various defendants, including the notary (who she sued for negligence). At trial, the notary was held liable for $465,000 in damages, which was the fair market value of the property at the time of the transfer.

At trial, the Court found that the notary owed the transferor a duty to act with reasonable care when he witnessed her signature, and he breached that duty by not inquiring into the transferor’s capacity, her understanding of the form, the voluntariness of the transfer, or that she received independent legal advice.

The B.C. Court of Appeal allowed the appeal, and dismissed the action in negligence against the notary.

The notary argued that he was merely an “officer” witnessing a signature on a Land Title transfer form, and so he had very narrow responsibilities to confirm the identity of the person signing the form and confirm this was the person named in the form, and witness that person’s signature on the document.

The Court of Appeal did not accept this. The notary was acting in his role as a notary public, and there are standards established for his profession, including urging unrepresented persons to obtain independent legal advice, and if they fail to do so taking care to make sure the person is not under the impression that their interests would be protected by the notary. The Court of Appeal held that the Land Title Act and the notary’s professional guidelines required him to go beyond confirming the identity of the signatory and the fact that the signature on the document belongs to that person. For example, the guidelines provide that notaries should make sure the signature is given voluntarily, and the signatory is aware of the significance of the transaction.

The Court of Appeal upheld the finding of the trial judge that the notary breached his standard of care. However, the Court of Appeal allowed the appeal of the finding of causation. The trial judge found that had the notary insisted that the transferor receive legal advice before he witnessed the form (which he was supposed to do), she would have avoided the loss. The notary argued that this was conjecture, and that the loss would have been suffered in any event.

A defendant is not liable in negligence unless their breach caused the plaintiff’s loss. In some cases, causation can be established by inference, but it cannot be guesswork or conjecture. The Court of Appeal held that there were too many unknowns about what would have happened if the notary had met the standard of care, and that the transferor failed to establish on a balance of probabilities that had the notary made in proper inquiries and declined to witness the Form A because of the responses, the transferor would have acted in a different manner. The other evidence in the case showed that the transferor had capacity, and was not interested in seeking legal advice about the inherent risks.

The appeal was allowed that the claim in negligence against the notary was dismissed.

If there are suspicions transfers during the deceased’s lifetime, these can be scrutinized and investigated after the death of the deceased. A personal representative ought to consider whether any large transfers should to be challenged, on the basis that a gift was not intended, or that the transfer is otherwise invalid (i.e. due to undue influence, lack of capacity).

In Schwab Estate v. Warriner 2023 BCSC 220, the deceased died from a fentanyl overdose at the age of 47. He had two children, aged 11 and 9. The deceased did not leave a will.

There was a dispute as to whether the defendant was living in a marriage-like relationship such that she was a “spouse” of the deceased. If she was a spouse, she would get a share of the estate under an intestacy. If she was not a spouse, then the children would get the entirety of the estate. It was held that the defendant was not a spouse. This is a highly fact-specific inquiry. I discuss the issue of consideration of spousal status in other posts, for example here.

The second issue in Schwab Estate related to a transfer of $350,000 from the deceased to the defendant four days before his death. The deceased sold his home five weeks before he died, received $800,000 from the sale, and provided a $350,000 bank draft to the defendant.

The defendant argued that the deceased owed her money, and the $350,000 draft was to pay her back. She said that the deceased owed her money for being the primary bread-winner for the years they were together. She gave evidence that there was an agreement between her and the deceased about the approximate amount of the debt and what he was to repay to her.

The court rejected this claim. The Court did not accept the defendant’s testimony, and the documents (in particular bank records) did not assist with her position. There was no evidence of an agreement to pay, and there was no evidence that the amount that would have been payable was $350,000. The Court relied upon the testimony of a witness who described a conversation which suggested that the deceased did not consider that he owed the defendant any money. The bank records also showed that the deceased attended to payment of other debts that he discussed with other parties (including a debt to his drug dealer).

As a result, the transfer was gratuitous and the presumption of resulting trust applied. The defendant failed to establish that the deceased intended to gift her the funds. The evidence was that the deceased intended to gift the funds, potentially with the deceased’s brother. There was also evidence that the deceased intended to shield the monies from the mother of his children.

The Court also held that the transfer was procured by undue influence. The deceased did not transfer the $350,000 of his own full, free and informed thought. The deceased was vulnerable as a result of his ongoing drug addiction, health condition, and paranoia about the mother of his children.

The funds had been spent without an accounting, and so they could not be simply returned. Instead, the court awarded the deceased’s estate damages in the amount of $350,000. The Court also awarded punitive damages in the amount of $50,000, for using her position for her own profit, and spending all of the money with no accounting.

I have previously discussed that gifts are irrevocable, and so a donor cannot change their mind and seek to take back property that they have gifted. However, the Court may set aside a gratuitous transfer if it was procured by undue influence, whether that be intentional influence or unintentional influence.

In Sandu v. Sandu 2023 BCSC 323, the Court considered the transfer of property in 2016 from a husband and wife to their youngest son. The property was the parents’ only substantial asset. The transfer was purportedly a gift, and no consideration was paid by the son. The parents later requested that their son transfer title to the property back into their names, and he refused to do so.

In this case, the Court ordered that the transfer be set aside, and title be restored to the parents.

At the time of the transfer, the father was 91 years old and the mother was 88 years old. Neither of them received any formal education, neither of them spoke or read English, and both of them were functionally illiterate in their mother tongue of Punjabi. They had always been completely dependent on family members for assistance with written transactions. In fact, their eldest son was appointed as their litigation guardian for the trial of the action.

Equity presumes bargains over gifts. Where property is transferred to another without consideration, the presumption of resulting trust applies. The onus is on the transferee to rebut the presumption by demonstrating that a gift was intended.

In B.C., section 23(2) of the Land Title Act provides for a statutory presumption of indefeasibility – the idea that registration of title is conclusive evidence at law and in equity that the person named on title is indefeasibly entitled to an estate in fee simple in the land. In other words, the registered owner is presumed to be the true beneficial owner of the property.

However, the presumption of indefeasibility can be rebutted, including by the existence of a resulting trust, and also if the registered owner took their interest by the exercise of undue influence. There can be no gift where the transfer was made under undue influence.

There are two branches of undue influence for inter vivos transfers:

1. intentional or actual undue influence; and
2. unintentional or presumed influence.

The first branch is characterized by the influencer’s conduct, and may include:

• “overt and violent threats (give me the house or I’ll beat you…);
• “subtle forms of persuasion (give me the house or I don’t know if I’ll be able to look after you anymore…)”;
• persistent requests for the property ultimately disposed of; or
• exploitation of the donor’s desire to keep the family peace.

The second branch recognizes unintentional undue influence, which is to be presumed if:

• there is a “potential for domination” given the nature of the relationship between the parties (this includes solicitor/client, parent/child, and guardian/ward relationships);
• the defendant unduly benefited or the plaintiff was unduly disadvantaged, but only if the transaction is commercial.
• If the plaintiff establishes circumstances that trigger the presumption of undue influence, the defendant has the onus of rebutting it. To rebut the presumption, the defendant must show that the plaintiff entered into the transaction with full, free and informed thought.

The receipt of independent legal advice may be a critical factor.

In Sandu, the Court observed that in the context of intergenerational relationships involving care, undue influence is a particular concern.

The Court held that it did not need to determine whether their was actual undue influence (the first branch), as there was a presumption of undue influence (the second branch) which had not been rebutted. The Court considered whether the parents received independent legal advice, and determined that what limited advice they received did not constitute adequate legal advice. The mere presence of legal advice is insufficient.

Finally, the presence of undue influence meant that the limitation period to bring the claim had not expired. In cases of undue influence, the time does not begin to run to bring a claim until the donor can be said to have been freed from the sphere of undue influence. As a result, while more then two years had passed since the transfer, in effect the limitation period was extended while the parents remained under the influence of their son.

In B.C., a spouse or child (including an adult independent child) can bring an action to vary a will if they believe it does not make adequate provision for them. However, a wills variation claim can only seek a greater share of assets which form part of the estate. If assets pass outside of the estate, they are not available to claim against in a wills variation claim.

As a result, some will-makers take steps to deplete their estate so that there are no assets available for the purpose of a wills variation claim. This may include registering assets in joint ownership with right of survivorship, direct beneficiary designations, or inter vivos transfers (gifts during the will-maker’s lifetime).

Disappointed beneficiaries must first succeed in attacking these planning steps and “returning” the assets to the estate for the purpose of the wills variation claim. This may include claims that the assets are held in resulting trust for the estate, or claims attacking the validity of the transfers (lack of capacity, undue influence, etc…).

A recent example can be found in the B.C. Supreme Court decision in Franco v. Franco Estate 2023 BCSC 1015. In Franco, the deceased father took certain planning steps during his lifetime. He transferred property, proceeds of sale of property and monies from bank accounts to one of his children, and changed his will to leave the entirety of his estate to that child (and to name that child as executor). As a result, his other two children (the plaintiffs in the action) did not receive a share of the transferred assets, and were disinherited under the will. If the planning and transfers were upheld, it would mean that there would be very little in the estate available for a wills variation claim.

The defendant argued that her father validly gifted assets to her. There are two requirements for a legally binding gift:

1. the donor must have intended to make a gift and must have delivered the subject matter to the donee. The intention of the donor at the time of the transfer is the governing consideration.
2. The donor must have done everything necessary, according to the nature of the property, to transfer it to the donee and render the settlement legally binding on him or he

Where a parent makes a gratuitous transfer to an independent adult child (as was the case in Franco), the presumption of resulting trust applies. The transferee must prove on a balance of probabilities that the transferor intended the transfer as a gift.

The most compelling evidence is direct evidence of the transferor’s intention at the time of transfer. Post-transfer conduct may be relevant, but must be approached with caution as it may be self-serving (or show a change in intention).

The Court in Franco held that the fact that the deceased continued to deal with jointly-owned property unilaterally does not cause the gift to fail. Continuing control and use of the property by the transferor after the transfer is not necessarily inconsistent with a gift.

The Court held that documentary and affidavit evidence established an intention to gift. The evidence included transfer documents, a deed of gift document, bank account documents, and the affidavit evidence of the defendant, the deceased’s niece, and the deceased’s financial advisor.

The Court also found there was no undue influence.

As a result, the Court concluded that the gifts were valid, and the assets passed outside of the estate. The parties agreed that if the claim relating to the gifts failed, the wills variation claim would not be pursued (because there were insufficient assets in the estate to justify the action). Accordingly, the plaintiffs’ claims were dismissed.

 

When a party wishes to allege undue influence, they must consider the cost consequences if this claim is unsuccessful.

A common question from parties to estate litigation (or any litigation) is whether the other side can be ordered to pay their costs. After a claim is determined on its merits, the court must decide upon the issue of costs.

The general rule is that costs follow the event, meaning that the successful party will receive costs payable by the unsuccessful party. However, in estate litigation the court may order that the costs of some or all parties be paid from the estate. The court will look at whether the litigation resulted from the conduct of the deceased (i.e. how they chose to set up their estate plan) or the conduct or motivations of a beneficiary.

In addition to who gets their costs, and who pays those costs, there is the issue of the scale of costs. In the ordinary course, costs are determined using a tariff system set out in the B.C. Supreme Court Civil Rules. However, the costs payable under this system are significantly less than a party’s actual legal fees, often a quarter or a third of the actual legal fees.

In some cases, a party can apply for “special costs”. Special costs are increased costs, which are intended to more closely resemble the reasonable fees actually charged by a lawyer to their client. Special cost awards are intended to address the conduct of a party. Special costs are awarded only in exceptional circumstances, where the conduct of the party is deserving of rebuke.

There are a number of cases in which special costs have been awarded in the face of unproven and unsubstantiated allegations of undue influence. This is because the allegation of undue influence is a serious one, impugning the character of another person. It has been compared to allegations of fraud, which also may attract an award of special costs if unfounded.

The B.C. Supreme Court recently considered this issue and the line of authority in Lambrecht v. Lambrecht Estate 2023 BCSC 1051. In Lambrecht, the Court observed that the primary considerations in previous cases were that allegations were pursued based on speculation, without foundation, and unduly prolonged the proceedings. In one case, costs were awarded where the allegations were only abandoned three days before trial.

In Lambrecht, the plaintiff advised before trial that he agreed to withdraw his claim of undue influence. Although the notice of civil claim was not amended to reflect this agreement, the court was advised of the concession at trial. The defendant argued that despite this agreement, the plaintiff continued to make assertions that the defendant acted improperly which were, in substance, allegations of undue influence, which the defendant was obliged to defend, and which the plaintiff knew had no chance of success.

The Court agreed with the plaintiff. Although the pleadings were not amended, the plaintiff advised that he would not pursue the claim of undue influence, and he maintained that position at trial. Even though the plaintiff was not successful in the claim that he did pursue (in resulting trust), that alone was not sufficient to warrant an order for special costs.

This case is an important reminder that if you are unable support allegations of undue influence which you make in your pleadings, you should carefully consider whether you want to pursue those allegations at trial. If you withdraw the allegations of undue influence far enough in advance, you can potentially avoid a special costs award that would otherwise be payable for making the unfounded allegations.

It should be noted, however, that the plaintiff was ordered to pay double costs because he failed to accept a formal offer to settle which was reasonable and ought to be accepted (triggering double costs under Rule 9-1 of the B.C. Supreme Court Civil Rules).

 

Courts are occasionally asked for direction on whether a term in a will creates a life estate or a licence to occupy real property. This often results from imprecise drafting in the will, which creates ambiguity.

A life estate grants the holder the right to immediate possession of the property and to its use as the owner, subject to some restrictions to protect the rights of the person entitled to the property at the end of the life estate. Rights to use and transfer the property are restricted by the terms of the grant and the common law doctrine of waste. Ordinarily, the holder of a life estate is responsible for current expenses and routine maintenance.

A licence with respect to real property is a privilege to go on premises for a certain purpose, but does not operate to confirm on, or vest in, the licencee any title or estate in such property.

No particular words are required to create a life estate. Cases have held that to grant a “use” of property can create a life estate. However, the court must determine the testamentary intention of the deceased. The court must read the entire will, and consider it in light of the surrounding circumstances. This means that depending upon the circumstances, similar wording may create a licence or a life estate. The courts have held that since the meaning of words in wills can differ so much according to the context and circumstances in which they are used, it seldom happens that the words of one instrument are a safe guide in the construction of another.

In the recent B.C. Supreme Court decision of Swift v. Nazaroff 2023 BCSC 1602, the Deceased’s will provided that if her daughter had not obtained her real property by right of survivorship (which the Court held she did not), then the daughter was to receive all right, title and interest in the property:

for her use absolutely and forever, subject however, to the right of my son …, to occupy the premises in such circumstances and for such time as may be required when he has no other permanent residence, provided, however, that my son, …, shall be responsible for all expenses, including taxes, utilities and upkeep (maintenance) while he resides on the property.

The issue was whether this created a life estate or a licence to occupy.

The Court held that this created a life estate in the circumstances. This was consistent with the deceased’s testamentary intention to ensure that her son would always, having regard to his recognized challenges (including mental health issues requiring repeated hospitalization), have a place to reside during his lifetime. The deceased was aware of this, and would not have wanted her son to forego seeking medical assistance (including hospitalization) at risk of losing his right to occupy the property. Also, if the deceased had intended to transfer the property to her daughter free from her son’s life estate interest, she would have done so.

I previously wrote about the B.C. Supreme Court decision of Sandwell v. Sayers 2022 BCSC 605. In that case, a father (unsuccessfully) tried to take back the transfer of his property into joint ownership with right of survivorship. My post on that decision can be found here.

The father (unsuccessfully) appealed the result, and the B.C. Court of Appeal recently delivered reasons for judgment at Sandwell v. Sayers 2023 BCCA 147.

In Sandwell, the plaintiff father had two children, a son and the defendant daughter.  In December 2020, the father transferred an interest in his home in Kelowna to his daughter, making them joint tenants.  He later brought legal proceedings to get the property back into his sole name.

The father tried to argue that the doctrine of unconscionable procurement applied. The doctrine of unconscionable procurement provides that where there is a transfer of significant benefit that the recipient actively caused to occur, there must be proof of the donor’s full comprehension and understanding of the effects of the transfer for it to be upheld.

The B.C. Supreme Court had “real doubt” about the place of the doctrine of unconscionable procurement in British Columbia law. If it did exist and had any place in B.C., it did not assist the father in this case. The B.C. Supreme Court also refused to set aside the transfer on the basis of unjust enrichment.

The father’s appeal was dismissed.

The B.C. Court of Appeal held that the judge in the court below correctly found that if there is evidence that the transferor intended to make a gift, this rebuts the presumption of resulting trust and any presumption of undue influence that might arise from the facts. Here, there was evidence to rebut the presumption. This included a deed of gift signed by the plaintiff father, as well as a further solemn declaration setting out an intention to gift. The Court also relied upon the evidence of the notary who prepared and witnessed the documents, and gave advice.

The presumption of resulting trust is simply a tool to assist the court in determining a donor’s intention where the evidence is unavailable, lacking or ambiguous. However, it is a presumption that can be displaced by the evidence that the transferor intended the transfer to be a gift.

With respect to the application of unconscionable procurement in B.C., the Court of Appeal held that the case at hand does not require this issue to be decided. The Court did observe that if the doctrine was found to exist, it could upend certainty for the recipients of intended gifts, including charities whose employees cultivate relationships in order to encourage donations. The parameters of such a doctrine would have to be carefully considered, including whether it should be limited to donors who become unconscionably financially vulnerably by the gift at the time it is made. However, the present case was not the best case to determine the existence of the doctrine (especially when the plaintiff/appellant had not established the factual basis for the application of the doctrine).

As a result, we can expect to continue to see claims which include allegations of unconscionable procurement, and there will likely be further direction from the court on (1) whether such a claim is available in B.C., and (2) if so, the parameters of such a claim.  In the meantime, this case serves as an important reminder that you cannot take back a gift that you have made.

 

A person acting under a power of attorney (the “attorney”) cannot make or change a will for the adult for whom the person is acting (the “donor”).  However, in certain circumstances, the attorney may settle a trust which mirrors the terms of the donor’s will, and then transfer the donor’s assets into the trust.  This may be done to avoid probate fees which would be payable if the assets formed part of the donor’s estate.  There may also be other advantages in administering and distributing the assets through a trust instead of an estate.

There is a further advantage, whether it is intended or unintended:  if the assets form part of the estate, then they are available for a wills variation claim.  If the assets are settled into a trust then they are not available for a wills variation claim.

A disappointed beneficiary attempted to set aside such an arrangement in the recent B.C. Supreme Court decision of Kramer v. Kramer 2023 BCSC 116.

In Kramer, Clara died leaving two children, Karen and Leanne.  Karen and Leanne were the executors of her estate, and the beneficiaries of the estate.  However, Karen was not happy with what she was to receive under the terms of Clara’s will and codicil.

Leanne held a power of attorney over Clara’s affairs.  Clara died in 2017.  In 2015, Leanne used the power of attorney to authorize the creation of an alter ego trust, transferring the majority of Clara’s assets into the trust, and appointing herself and two solicitors as trustees.  The distribution of the trust assets was to precisely mirror the terms of the will and codicil.  Karen learned of the trust after the Clara’s death.

Karen sought a variation of the deceased’s will.  However, most of the assets of the deceased were transferred during her lifetime into the Trust.  This meant that Karen must first succeed in obtaining a declaration that the trust was void, and an order transferring the assets back into the estate.  Karen brought an action to vary the will, and for an order that the disposition of property to the trust was a fraudulent conveyance, and an order that the property put into the trust is part of Clara’s estate.

The Fraudulent Conveyance Act provides that a disposition of property, if made to delay, hinder or defraud creditors and others of their just and lawful remedies, is void and of no effect against a person whose rights and obligations are or might be disturbed, hindered, delayed or defrauded.

The issue to be determined in Kramer was whether the disposition of property to the trust constituted a fraudulent conveyance.  The defendants argued that the Karen had no standing under the Fraudulent Conveyance Act, because she was not a creditor and had no rights or obligations that had been disturbed, hindered, delayed or defrauded.

A wills variation claim does not create standing as a creditor or other within the meaning of the Fraudulent Conveyance Act.  Karen accepted this, but argued that she was a creditor as a result of a loan that she made to the deceased.  Karen argued that the trust was created to avoid paying her money that was owed to her.

The Court held that Karen was a creditor of Clara in 1998 when Karen loaned money to Clara.  However, it appeared that this amount was repaid in 2012, before the trust was settled in 2015.  At the time the Trust was entered into, Karen had not provided any proof she was owed more than the monies she received in 2012, and after that she never demanded further payment for the loan or took any steps to collect any balance owing.    The Court held that Karen had been repaid, and so she was not a creditor of the deceased at the time of the transfer of assets into the trust.  Since she was not a creditor, she did not have standing under the Fraudulent Conveyance Act.

In the alternative, the Court also found there was no fraudulent intention in creating the trust.  The party claiming a fraudulent conveyance must establish that the person making the transfer of assets did so with the intent to put their assets out of the reach of creditors.  The Court in Kramer held that the trust was created for honest purposes.  It was recommended by the deceased’s tax lawyer and prepared with the assistance of counsel.  At no time during the planning and settlement of the trust did anyone discuss an outstanding debt owing to Karen.  The stated purpose of the trust (which was accepted by the Court) was to facilitate estate planning by avoiding substantial probate fees and to affect an efficient and non-confrontational administration of Clara’s estate.  Again, the distribution of the trust assets was to precisely mirror the terms of the Will and Codicil.

However, the Court declined to rule on the validity of the trust or any suggestion that Leanne acted outside her powers under the power of attorney, because that issue was not raised in the pleadings and before the Court.  Karen may seek to argue that Leanne settling the trust was outside her powers as attorney.  However, there is authority to support the position that an attorney can settle a trust on behalf of a donor when the terms of the trust mirror the terms of the donor’s will (see Easingwood v. Cockroft 2011 BCSC 1154, aff’d at 2013 BCCA 182).

I have previously written about the importance of documenting transactions between family members (for example, here and here).  Often, transactions between family members (loans, gifts, property transfers, etc…) are not documented.  This is a common occurrence in transactions between parents and children.  There are numerous cases which illustrate the importance of reducing intentions to writing.

However, the parties must also take care to properly document the agreement, and to make sure the agreement as documented is valid and enforceable.  There must be certainty of terms to create a binding agreement.  The agreement must also not be invalid as a result of the circumstances surrounding its creation.  For example, the agreement must not be unconscionable or procured by undue influence.

In the recent decision of Woods v. Woods 2022 BCSC 2269, the B.C. Supreme Court considered the enforceability of an alleged agreement whereby a son would receive his father’s property in return for the right to remain on the property, as well as a share of his son’s business.  There were some attempts made to document the agreement, but the question was whether there was an enforceable agreement.

The Facts

In Woods, the father owned a 20 acre property in Golden B.C.  He lived a manufactured home on the property, and also used the property as a junk yard.

The son developed a plan to open a tourism business on the property using Volkswagen vehicles, called “Camping in the Woods.”  He took steps to clean up the property, and made improvements to set it up for his business, in which visitors would be able to sleep in converted VW busses on the property.

The father fell behind on his mortgage payments, and the property was in danger of foreclosure.

The father and son began to discuss an arrangement whereby the son would buy the property (saving it from foreclosure) and further develop his business.

There was a meeting between the father, the son and a second son (not a party to the agreement) to formalize the plan.  The son alleged that there was a cocktail napkin agreement, which was actually written on a cocktail napkin.  The Court included a photo of the agreement in the reasons for judgment:

The father denied ever seeing a copy of the napkin agreement before the litigation, and also denied that certain writing was in his handwriting.  He said that they discussed that he would receive a 40% interest in the property, not a 10% interest.  He also said that the business was to be restricted to an acre or less of the property.

There was a subsequent draft agreement prepared for the transfer of the property.  The agreement did not discuss the father getting a share in the business.  The lawyer who prepared the agreement recommended that the father obtain independent legal advice.

The father and son both signed the agreement on a bench following the meeting with the lawyer. The father did not get independent legal advice.  The son conceded that he “urged” his father to sign, but said this was because the property was going to be foreclosed upon the next day.  In hindsight, the son said that he should have forced this father to get independent legal advice, but that his father said he didn’t have the money to pay a lawyer.

The lawyer subsequently wrote to raise concerns that the proposed transaction was unfair, or worse fraudulent, as it did not appear to address the equity in the property, for which the father ought to receive some compensation.

After signing the agreement, the father refused to transfer the property.

Relations between the father and son deteriorated.  The son attended to remove his belongings from the property, the father called the police, the son was arrested for mischief, and a no-contact order was put in place.

The son concluded that there was no way the father was going to proceed with the transfer, and did not take any steps to close the deal.

The son rented an alternative location for his business (which he says was not as attractive a location), and incurred additional expenses.  He also claimed that some of his items were still on the property, and that some of them were damaged.

The son commenced an action claiming specific performance, damages, malicious prosecution and conversion.

After the action was commenced, the father entered into an agreement to sell the property for $350,000 to another party, with the understanding that the father could continue to live in the home on the property for as long as he wishes.

There was no certainty of terms, and therefore no enforceable agreement

The first issue was whether there was certainty of terms sufficient to establish the existence of a contract.

The test that governs whether the parties have formed an enforceable contract involves answering two questions:

1. whether the parties objectively intended to enter contractual relations; and
2. whether they had reached agreement on essential terms that are sufficiently certain to enforce.

The court will look at whether a reasonably third-party observer would conclude from all the circumstances, including the document itself, the circumstances underlying execution, and the parties’ subsequent conduct, that the parties intended to enter into binding legal relations.  This is a fact-specific inquiry.

The Court referred to the following recent summary of the law on certainty of terms:

When [parties] agree on all of the essential provisions to be incorporated in a formal document with the intention that their agreement shall thereupon become binding, they will have fulfilled all the requisites for the formation of a contract. The fact that a formal written document to the same effect is to be thereafter prepared and signed does not alter the binding validity of the original contract.

However, when the original contract is incomplete because essential provisions intended to govern the contractual relationship have not been settled or agreed upon; or the contract is too general or uncertain to be valid in itself and is dependent on the making of a formal contract; or the understanding or intention of the parties, even if there is no uncertainty as to the terms of their agreement, is that their legal obligations are to be deferred until a formal contract has been approved and executed, the original or preliminary agreement cannot constitute an enforceable contract.

Where there is an intention to contract, the court will make a significant effort to give meaning to that agreement. However, a court cannot create an agreement on essential terms where none exists.  The fact that parties may wish to contract, or believe they have entered into a binding contract, does not make it so.

What constitutes an “essential” term will depend upon the nature of the agreement and the circumstances of the case.  The key question is whether the parties have agreed on all matters that are “vital and fundamental” to the arrangement.

In Woods, the son argued that the cocktail napkin agreement and the subsequent document prepared by the lawyer formed the contract.

However, the Court observed that there were uncertainties in the agreement, including but not limited to:

1. If the father was entitled to a 10% stake in the son’s business, what did this mean? i.e. ownership, gross rental income, profits net of expenses, etc…
2. Was the father actually only entitled to 10%, or was it 40% as asserted by the father?
3. Was the son entitled to pay himself a salary before calculating the 10% (or 40%)?
4. What remedy would the father have if the son simply abandoned his business after getting the property?
5. What were the implications of the father not remaining sober, and what was the test for sobriety?

The Court also observed that there were contradictions between the two documents, making it impossible to read the two documents together as a single contract.  For example, the signed agreement requires that the father give up vacant possession, but he was supposed to be allowed to remain in the home on the property.

The Court concluded that that the uncertainties and the inconsistencies related to terms that were consequential, vital and fundamental.  No enforceable contract was created, and the claim in contract must be dismissed on this basis alone.

The father argued that he did not sign the cocktail napkin agreement, and that he was never given the entire other agreement before signing it.  The Court held that the father signed both documents (relying upon the evidence of his other son, a disinterested party).  However, the fact that he signed the documents did not address the issue that there was no certainty of terms  and therefore no enforcable agreement.

In the alternative, the agreement was invalid due to undue influence and was unconscionable

The father also argued that any agreement was invalid due to undue influence or unconscionability.

With respect to undue influence, there is a presumption of undue influence where there is the potential for domination inherent in the relationship itself.  Equity recognizes certain relationships that may give rise to the presumption, including parent and child.  Where the presumption applies, the party must be shown to have entered into the transaction as a result of his own “full, free and informed thought.”  This may entail showing that no actual influence was exercised in the particular transaction, that the plaintiff had independent advice, etc…

The test for unconscionability is as follows:

1. there must be an inequality of bargaining power between the parties; and
2. there must be an improvident bargain.

With respect to the first element, an inequality of bargaining power exists when one party cannot adequately protect their interests in the contracting process.  With respect to the second element, a bargain is improvident if it unduly advantages the stronger party or unduly disadvantages the more vulnerable party.

In Woods, the Court noted:

1. The contracts that the son was pressuring his father to sign involved the father’s only major asset;
2. This was a parent-child relationship, and the father was heavily reliant on his son’s advice;
3. The father was placed under “substantial pressure and influence” from the son to sell the property to him;
4. There was a material inequality in bargaining power.  The father was not in good health and was in a very tenuous financial position.  He was vulnerable and this created a dependency;
5. The proposed transaction was unfair.  There was no financial analysis offered to show that the proposed terms were fair and reasonable.  There was no effort to obtain an appraisal, even though this was recommended by the lawyer;
6. The Court did not accept that the agreement was explained to the father by the lawyer, or that it was read aloud to the father three times; and
7. The father did not obtain independent legal advice, despite being advised to do so by the lawyer.  This was identified as a “key issue”.  The Court was confident that any independent legal advice would have resulted in a modification or clarification of the terms.

The Court concluded that there was a presumption of undue influence, that undue influence was exercised by the son over his father, and that the transaction was unconscionable.

The Court also held that if it were necessary, the son failed to satisfy or waive the condition to obtain financing, which was a fundamental term, and constituted a repudiation of the agreement.

The Court also considered claims in malicious prosecution and conversion

There were two further separate claims considered by the Court.

First, the son alleged that the father’s report of him to the RCMP when he attended at the property to pick up his items qualified as malicious prosecution.  To succeed on this claim, the son was required to prove that the prosecution was:

1. initiated by the defendant;
2. terminated in favour of the plaintiff;
3.  undertaken without reasonable and probable cause; and
4. motivated by malice or a primary purpose other than that of carrying the law into effect.

The Court held that the son failed to establish #3 and #4.  The father held title to the property and had the right to insist that the son leave the property, and the son failed to do so.

Second, the son sued for conversion of certain of his items that remained on the property.  The father did not contest that his son was entitled to attend at the property to collect certain items.  The Court did not award damages to reflect any degradation of items while they were on the property, as there was no agreement that the father would maintain or secure the son’s property.

Conclusion – the importance of properly entering into and documenting agreements between family members

This case serves as yet another example of the importance of properly documenting agreements between family members, and the importance of taking appropriate steps, including obtaining independent legal advice, to create binding and enforceable contracts.  This case would have been further complicated had the father died and then the son brought proceedings, which is often what happens in estate litigation.