Generally speaking, the law will not protect you from making a bad bargain. However, when a transaction is so grossly unfair to one party and was obtained through an unfair advantage by the other party, the legal doctrine of unconscionability may be used to set it aside. In my practice, most often the issue comes up in the context of the elderly being induced by family members or others to sell a property significantly under fair market value, or to transfer it in exchange for a promise for some other benefit which may never materialize.
The plaintiff was an elderly man who lived and ranched in a community west of Calgary. The defendants were a young ranching couple in the same community. The parties' families had known each other for over 100 years.
In 1999, the defendants began leasing a few quarter sections of land from the plaintiff for grazing his cattle. In 2009, the parties amended their lease agreement to include a right of first refusal in favour of the defendants. In the spring of 2010, the defendants purchased two quarter sections from the plaintiff for $600,000. They then subdivided the property, made some improvements, and listed the subdivided parcels for sale for a total list price of $2.2 million in November 2012. By that time, the plaintiff was residing in a long-term care facility. His brother commenced the lawsuit as a litigation representative in December 2012 seeking to set aside the sale of the lands to the defendants on the basis of undue influence and unconscionable transaction. The matter went to trial in January 2017.
The plaintiff's mental capacity at the time of the sale to the defendants was in question. There was considerable evidence about the plaintiff's generous dealings with his land in the years prior to the transaction in question. There was also evidence from neighbours and family members about a decline in the plaintiff's cognitive abilities in the years prior to the sale. However, no concerns about cognition were recorded in the plaintiff's medical chart until his admission to the hospital in 2012.
The legal test for unconscionability in Alberta
Tilleman J adopted the test for unconscionability from the 2005 Alberta Court of Appeal decision in Cain v Clarica Life Insurance Company, which requires the plaintiff to establish all four of the following elements:
- a grossly unfair and improvident transaction: the question to ask is whether the transaction "shocks the conscience." The analysis is both objective (ie. the actual sale price vs. the fair market value) and subjective, particularly where family or close relations are involved. In this case, there was evidence that it was important to the plaintiff that the land remain ranching land. There was evidence from the plaintiff's family that the he was happy with the deal because it went to a young ranching family. The judge concluded that even though it was financially imprudent for the plaintiff, the sale gave him the intangible satisfaction of knowing the land would be used according to his wishes. The transaction was therefore not grossly improvident and the case would have failed on this element alone.
- that the victim lacked independent legal advice or other suitable advice: independent legal advice is usually a complete defence to a claim based on unconscionability. However, a lack of such advice is not necessarily fatal to a transaction. In this case, the plaintiff met with a lawyer who explained the documents to him for about an hour. Although the plaintiff did not seek advice about the merits of the transaction, the trial judge concluded it was adequate in the circumstances.
- that there was an overwhelming imbalance in bargaining power: the imbalance is usually caused by the victim's ignorance of business, illiteracy, ignorance of the language of the bargain, blindness, deafness, illness, senility, or similar disability. In this case, it was argued that the plaintiff lacked the decisional mental capacity to enter into the agreement due to old age and dementia. Each party tendered medical experts, who performed retroactive capacity assessments based on the plaintiff's medical records and collateral interviews with friends and family (he had lost capacity by time of trial). Unsurprisingly, they came to different conclusions. However, the trial judge gave the reports little weight because of his concerns about the reliability of retroactive capacity assessments, which were based on hearsay information which was not tendered as evidence at trial in all instances. The trial judge concluded that the plaintiff had capacity based on his own assessment of the evidence he heard at trial. In light of that finding, there was no imbalance in this case.
- that the other party knowingly took advantage of this vulnerability: the plaintiff must show that the defendants knew about the vulnerabilities described above and used that knowledge to their advantage. Given the decision on point 3 above, this part of the analysis was moot. However, the trial judge found that the defendants were not aware of the plaintiff's decline in cognitive functioning in the years surrounding the deal.
As a result, the trial judge dismissed the claim. The plaintiff appealed and in a relatively short judgment released a few weeks ago, the Court of Appeal dismissed the appeal, confirming Clarica Life as the test for unconscionability and concluding that there was ample support on the record for the trial judge's decision.
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Predrag (Peter) Tomic is a wills and estates lawyer with a focus on complex estate and trust litigation, estate planning and probate matters.
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