Gauthier et al v. Gauthier, 2019 MBCA 71
Mental Capacity is Decision, Time and Situation-Specific
The Manitoba Court of Appeal upheld the trial judge’s decision that a bare trust agency agreement and an option agreement that the parents’ signed had no legal effect as the father lacked the capacity to enter into it.
The Court of Appeal noted that “[t]his appeal illustrates the dangers that the combination of diminished decision-making capacity of a donor and distrustful family dynamics can present.” (para 1)
The legal documents that the defendant son’s solicitor had prepared would effect a current transfer of the beneficial ownership of all of the lands to the defendant and gave the defendant purchase rights to other parts of the family farm owned by the parents.
The court found that the transactions were complex and had significant consequents to the parents’ finances while living. The two parcels of land that made up the family farm in southwestern Manitoba could not be dealt with in any way without the defendant’s consent including being used to raise funds for private homecare expenses. The agreements were “legalistic, detailed and complicated” and had “contradictory” wording as to the parents’ obligations. The father was 85 years old and had progressively worsening dementia (due to a stroke and Alzheimer’s disease).
The Court of Appeal held that “Mental capacity is decision, time and situation-specific (see Kimberly A. Whaley & Ameena Sultan, “Capacity and the Estate Lawyer: Comparing the Various Standards of Decisional Capacity” (2013) 32:3 Est Tr & Pensions J 215 at 217). It is to be determined by consideration of all the surrounding circumstances (see O’Neil v. The Royal Trust Co and McClure, 1946 CanLII 13 (SCC),  SCR 622 at 632) (Para 9)
The Court held that on the date of execution of the agreements, the father was incapable of understanding the nature and effect of the documentation despite its purport being fully explained to him by an independent lawyer. The defendant introduced the independent solicitor to his parents and withheld information about his father’s severe dementia which the solicitor testified would have altered how he acted in advising the defendant’s parents. There was compelling inferences available from the medical evidence, and in addition, the father was unable to state the name of one of his daughters on the date of execution, misspelled his surname on the option agreement, said little and communicated mainly by head nods and about a week later “had no recollection of what had happened” (para 11).
The court upheld the decision that the documents had no legal effect due to lack of capacity (the parents had both died in 2011).
The court also upheld the awarding of costs against the defendant: “A party to estate litigation cannot count on the estate funding the litigation; the Court must guard against the estate being depleted by claims that lack a sufficient and reasonable basis.”
The appeal was dismissed with one set of costs in favour of the plaintiffs.