In estate or guardianship litigation, disputes may arise in respect of contracts purportedly made by an individual before his or her death or by an attorney for property on behalf of the grantor. While it is trite that such agreements may be set aside on the basis of incapacity or undue influence (topics which have been discussed extensively in previous AAE blogs), it is important to consider some of the others grounds upon which a contract may be determined to be unenforceable by the Court . The principles discussed below are not an exhaustive list of the ways in which a contract may be invalidated.

Generally, the law presumes equality between contracting parties and that a contract is negotiated, freely agreed, and therefore fair.[1] In order to rebut the presumption, a party must demonstrate that the two elements of unconscionability are met: (a) inequality of bargaining power, stemming from some weakness or vulnerability affecting the claimant; and (b) an improvident transaction.[2] Inequality of bargaining power exists when one party cannot adequately protect their interests in the contracting process.[3] The Court may consider personal factors and circumstances in determining whether an inequality of bargaining power is present.[4]

Moreover, a bargain is improvident if it unduly advantages the stronger party or unduly disadvantages the more vulnerable party.[5] Improvidence must be assessed contextually to determine whether the potential for undue advantage or disadvantage has been realized.[6] Further, improvidence is measured at the time the contract is formed, and does not assist parties trying to “escape from a contract when their circumstances are such that the agreement now works a hardship upon them”.[7]

Notably, whether an individual has been unduly influenced to enter an agreement may well play into arguments relating to inequality of bargaining power and improvidence. As a reminder, a presumption of undue influence is triggered when the parties share a relationship where the potential for domination inheres in the nature of the relationship itself, such as with parent-child relationships,[8] and the party repudiating the contract is able to show that they were unduly disadvantaged by the contract or that the other party or parties were unduly benefitted by it.[9]

In addition, a contract may fail where it is determined to be incomplete. For example, where there are terms that are missing or have been left in draft. However, a contract will not fail where the terms left to be determined, whether on subjective criteria or otherwise, are unessential to the main purpose of the agreement.[10] In other words, where an agreement can be divided into separate parts, or where the matter on which agreement was not reached is a minor one, the Court may enforce the parts of the agreement that are sufficiently certain and ignore the rest.[11] It is a matter of construction of the contract whether the impugned clause is severable.[12]

Another way to set aside a contract is on the grounds of mistake. For a mistake to render a contract void, the mistake must go to the substance of the whole consideration, or the “root of the matter.”[13] If the mistake does not affect the substance of the whole consideration, the doctrine of mistake does not apply.[14]

If a beneficiary or an estate trustee endeavours to enforce (or invalidate) an agreement entered into by a deceased person, it is important to keep the above arguments in mind. The same applies to attorneys for property acting on behalf of an incapable person. Certainly, whether a contract will ultimately be found enforceable or not depends upon the specific facts of each case.

[1] Uber Technologies Inc. v. Heller, 2020 SCC 16 (CanLII), at para. 56 (“Uber”).

[2] Uber, at para. 62.

[3] Uber, at para. 66.

[4] Uber, at para. 67.

[5] Uber, at para. 74.

[6] Uber, at para. 75.

[7] Uber, at para. 74.

[8] Goodman Estate v Geffen, 1991 CarswellAlta 91 (SCC), at para. 55 (“Goodman”).

[9] Goodman, at para. 56.

[10] Woodstock Public Utility Comm. v McKay, 1989 CarswellOnt 1471 (ON SC), at para. 40.

[11] Boult, at para. 20.

[12] Boult, at para. 6.

[13] Redekop Properties (Cumberland) Inc v Canada Mortgage and Housing Corp, 1999 CanLII 4296 (BCSC), at para. 7 (“Redekop”).

[14] Redekop, at para. 7.