This Case Commentary originally was published in the September 2015 WEL Newsletter. To subscribe to the WEL Newsletter click here.
Smith v. Croft1 http://canlii.ca/t/gg5jh
A recent Ontario Small Claims Court decision highlights a growing concern for our aging population: people who prey upon the elderly for financial gain. While we might think more typically of elder abuse involving greedy grandchildren stealing from their vulnerable grandparents, or children from their parents, this case demonstrates how strangers may not hesitate to take financial advantage of an older person if they see an opportunity to do so.
The Transaction in Question
In Smith v. Croft 2015 CanLII 3837 (ON SCSM) an older adult, Adeline Smith, suffered from dementia and Alzheimer’s and was struggling with living on her own. She would have hallucinations and would sometimes wander on her own not knowing where she was. Rita was assisted by “Meals on Wheels” and the Alzheimer’s Society. At one point she was admitted into the hospital by her daughter (her primary caregiver and attorney under a power of attorney). However Smith checked herself out and returned to her house despite her daughter’s concerns.
Smith owned an antique truck. The truck had been in her family for many years and held great sentimental value for Smith and her children. One day, her neighbour Mr. Croft was over assisting her around the house and noticed the truck in the garage. He told Smith that he would buy it if she ever wanted to sell it. The next day Smith told Croft she would give it to him for his birthday. He declined but said he would buy it from her. A few days later, Smith told Croft she would sell it to him for $2000 because she needed $1700 to buy shingles for her roof.
On April 21, 2011 Croft and Smith signed a contract quoted exactly:
“I’am Adeline Smith I am selling my 1931 modle A ford to Steven Croft for som $100.00 on the date of April 21 2011.”
Croft testified regarding the $100 figure that ‘she tried to pull a fast one’ so Croft would pay less taxes on transferring the vehicle in his name. The sale price was actually $2,000.00 paid in cash. Croft testified that he had no real idea of the value of the truck. The truck was assessed at $18,000.00 by an expert for the trial.2 Croft moved the truck that day.
The matter was reported to the police by Smith’s family but the investigation was closed with no charges laid. The police viewed it as a civil matter. Croft stated a little old lady sold him a truck and he didn’t know why he was in court for that.3 He never saw her have hallucinations. He described her as a “funny old lady with a bit of attitude”.4
The Trial
Smith’s daughter acted as her litigation guardian and argued that Croft knew or ought to have known that Smith did not have the mental capacity to sell the truck. She argued that Croft’s version of events was suspect and self-serving. He had to be aware of Smith’s mental issues and took advantage of them. The Plaintiff wanted the transaction set aside based on undue influence and/or unconscionability.
Croft argued that he was unaware of any mental health issues involving Smith. His limited contact with her precluded him from making any observations about her state of mind. He thought she simply wanted to sell him the truck to “spite some of her children”. He described it as a simple transaction amongst neighbours.
Undue Influence / Unconscionability
The Court started by examining the Substitute Decisions Act 1992, S.O. 1992, c. 30 (“SDA”) and s.2(1) which states that a person who is eighteen years of age or more is presumed to be capable of entering into a contract. A person is entitled to rely upon the presumption of capacity with respect to another person unless he or she has reasonable grounds to believe that the other person is incapable of entering into the contract.5
Based on the medical evidence and testimony of the caregiver daughter and other witnesses, the Court found that Smith continued to suffer from moderate dementia after her release from hospital. That she was living alone could not be equated with being of sound mind. She could no longer drive and her ability to do small things – like using a microwave – were in question.
With respect to the allegation of undue influence, the Court adopted the approach and words of Justice Lang (citing from John D McCamus, The Law of Contracts, 2nd ed. (Toronto: Irwin Law, 2012)) at paragraphs 9 and 10 in Juzumas v. Baron 2012 ONSC 7220 http://canlii.ca/t/fvfc2, (a predatory marriage case we have written about in the past):
McCamus describes the equitable doctrine of undue influence as providing a “basis for setting aside a gift or a transaction where the transfer has been induced by an ‘unconscientious use by one person of power possessed by him [or her] over another”. .
He addresses the distinction between the two categories of undue influence: actual and presumptive undue influence. As an example of actual undue influence, McCamus refers to Re Craig, [1970] 2 ALL E.R. 390, in which a caregiver threatened an elderly dependent with abandonment. . .The onus is on a plaintiff to establish actual undue influence.
A presumption of undue influence arises from the nature of a recognized relationship (e.g. solicitor and client, doctor and patient, etc. The presumption can also arise from the particular circumstances of the case, where one party has the ability or potential to “dominate the will of another, whether through manipulation, coercion, or outright but subtle abuse of power”.
The Court went on to cite Newbould J in Buccilli v. Pilliterri 2012 ONSC 6624 on undue influence:
The doctrine of undue influence is well known. Where there is no special relationship such as trustee and beneficiary or solicitor and client, it is open to the weaker party to prove the stronger was able to take advantage, either by actual pressure or by a general relationship of trust between the parties of which the stronger took advantage.6
As Smith and Croft were neighbours there was no presumptive influence to consider under typical categories of lawyer/client or doctor/patient. So the Court had to look for actual influence. It concluded however that:
I find there was no actual influence exerted by Croft over Smith. He did not exert any domination or control over Smith. I find he was aware she needed assistance in her day to day life – visits by [the drug store employees] and Meals on Wheels for medications and meals, respectively – but his contact with her was limited. Croft did take some evening meals over to Smith but in my view this falls appreciably short of establishing the “high burden” of a finding of undue influence.7
The Court next examined whether the transaction was unconscionable. The Court cited Newbould J., in Buccilli:
An unconscionable transaction arises in contract law where there is an overwhelming imbalance in the power relationship between the parties. . . a plea that a bargain is unconscionable invokes relief against an unfair advantage gained by an unconscientious use of power by a stronger party against a weaker. On such a claim the material ingredients are proof of inequality in the position of the parties arising out of the ignorance, need or distress of the weaker, which left him in the power of the stronger, and proof of substantial unfairness of the bargain obtained by the stronger. On proof of those circumstances, it creates a presumption of fraud which the stronger must repel by proving that the bargain was fair, just and reasonable.
. .The circumstances of each case must be examined to determine if there is an overwhelming imbalance of power in the relationship between the parties….[emphasis added]
The Court in Smith v. Croft found that the basic elements for unconscionability had been met. The Deputy Judge stated:
Even if I were to accept that Croft knew nothing prior about Smith’s mental health issues and had not seen the truck before looking for the extension cord, Smith wanting to give him the truck the next day should have alerted him to concerns about Smith’s state of mind. I find that offer was an irrational act. It ought to have been so viewed by Croft, suggesting to him there was ‘something wrong’ with Smith. Before any suggested negotiations had been entered into, I find Croft knew or ought to have known he should have taken steps to assure Smith knew what she was doing. In not doing so, I find Croft took advantage of Smith. There was a clear inequality in the positions of the parties. 8
I find the truck transaction was an improvident bargain. Leaving aside the chicanery of the original $100.00 sale document, the truck was sold for $2,000.00. Even the appraisal that Croft obtained for purposes of the transfer listed a value of $8,000.00, one quarter of the sale price: Paying $0.25 on the dollar amounts to substantial unfairness.9
The Court found that the sale price was grossly unfair and improvident and there was no indication Smith had at minimum suitable advice on the matter, yet alone legal advice. There was an overwhelming imbalance in bargaining power due to Smith’s mental illness and Croft knowingly took advantage of Smith’s mental illness. Croft could not prove that the transaction was fair, just and reasonable.
While the Court found the transaction to be unconscionable, it also allowed Croft’s counter claim in unjust enrichment and quantum meruit. Croft had expended monies on the truck to the ultimate advantage of the Plaintiff by paying the $2000 purchase price. If the Plaintiff was allowed to keep the $2000 purchase price they would be unjustly enriched. The Court also found that Croft was entitled to reimbursement of some expenditure he had made to improve the truck based on quantum meruit, an equitable remedy:
It is ultimately a question of fairness. I have found the value of the truck had increased while in Croft’s possession. Quantum meruit awards have been made where a court has otherwise found unconscionability and/or undue influence by a party.10
In the costs award, the Court further condemned Croft’s actions:
What started the entire process in action was Croft trying to justify the unconscionable transaction involving the truck. He took advantage of an elderly lady. The equities readily compel me to find Smith is entitled to costs in advancing the Plaintiff’s Claim but Croft is not entitled to costs relative the Defendant’s Claim. This reflects the court’s disapproval of the underlying facts. It was always open to Croft to return the vehicle and then sue for his expenses if Smith was not forthcoming in that regard. He chose to try to sustain a highly dubious transaction. Disallowance of any costs to Croft—fees and disbursements–is the court’s assessment of the overall equities.11
Conclusion
This decision is yet another example in which vulnerable older adults may become victims of financial abuse. Fortunately, family members were able to intervene and assist the older adult in this situation before more damage could be done. These situations will only continue and most will go undetected which underscores the importance of planning for future disability.
—
1. Smith v Croft,2015 CanLII 3837 (ON SCSM)
2. 2015 CanLII 3837 (ONSCSM) at para. 95-96 (“Smith”)
3. Smith at para. 148
4. Smith at para. 132
5. SDA at s.2(1).
6. Smith at para. 203
7. Smith at para. 223
8. Smith at para. 230
9. Smith at para. 238
10. Smith at para. 264
11. 2014 CanlII 34247 (ON SCSM) at para. 32.
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Written by: Kimberly A. Whaley
Posted on: October 5, 2015
Categories: Commentary, WEL Newsletter
This Case Commentary originally was published in the September 2015 WEL Newsletter. To subscribe to the WEL Newsletter click here.
Smith v. Croft1 http://canlii.ca/t/gg5jh
A recent Ontario Small Claims Court decision highlights a growing concern for our aging population: people who prey upon the elderly for financial gain. While we might think more typically of elder abuse involving greedy grandchildren stealing from their vulnerable grandparents, or children from their parents, this case demonstrates how strangers may not hesitate to take financial advantage of an older person if they see an opportunity to do so.
The Transaction in Question
In Smith v. Croft 2015 CanLII 3837 (ON SCSM) an older adult, Adeline Smith, suffered from dementia and Alzheimer’s and was struggling with living on her own. She would have hallucinations and would sometimes wander on her own not knowing where she was. Rita was assisted by “Meals on Wheels” and the Alzheimer’s Society. At one point she was admitted into the hospital by her daughter (her primary caregiver and attorney under a power of attorney). However Smith checked herself out and returned to her house despite her daughter’s concerns.
Smith owned an antique truck. The truck had been in her family for many years and held great sentimental value for Smith and her children. One day, her neighbour Mr. Croft was over assisting her around the house and noticed the truck in the garage. He told Smith that he would buy it if she ever wanted to sell it. The next day Smith told Croft she would give it to him for his birthday. He declined but said he would buy it from her. A few days later, Smith told Croft she would sell it to him for $2000 because she needed $1700 to buy shingles for her roof.
On April 21, 2011 Croft and Smith signed a contract quoted exactly:
“I’am Adeline Smith I am selling my 1931 modle A ford to Steven Croft for som $100.00 on the date of April 21 2011.”
Croft testified regarding the $100 figure that ‘she tried to pull a fast one’ so Croft would pay less taxes on transferring the vehicle in his name. The sale price was actually $2,000.00 paid in cash. Croft testified that he had no real idea of the value of the truck. The truck was assessed at $18,000.00 by an expert for the trial.2 Croft moved the truck that day.
The matter was reported to the police by Smith’s family but the investigation was closed with no charges laid. The police viewed it as a civil matter. Croft stated a little old lady sold him a truck and he didn’t know why he was in court for that.3 He never saw her have hallucinations. He described her as a “funny old lady with a bit of attitude”.4
The Trial
Smith’s daughter acted as her litigation guardian and argued that Croft knew or ought to have known that Smith did not have the mental capacity to sell the truck. She argued that Croft’s version of events was suspect and self-serving. He had to be aware of Smith’s mental issues and took advantage of them. The Plaintiff wanted the transaction set aside based on undue influence and/or unconscionability.
Croft argued that he was unaware of any mental health issues involving Smith. His limited contact with her precluded him from making any observations about her state of mind. He thought she simply wanted to sell him the truck to “spite some of her children”. He described it as a simple transaction amongst neighbours.
Undue Influence / Unconscionability
The Court started by examining the Substitute Decisions Act 1992, S.O. 1992, c. 30 (“SDA”) and s.2(1) which states that a person who is eighteen years of age or more is presumed to be capable of entering into a contract. A person is entitled to rely upon the presumption of capacity with respect to another person unless he or she has reasonable grounds to believe that the other person is incapable of entering into the contract.5
Based on the medical evidence and testimony of the caregiver daughter and other witnesses, the Court found that Smith continued to suffer from moderate dementia after her release from hospital. That she was living alone could not be equated with being of sound mind. She could no longer drive and her ability to do small things – like using a microwave – were in question.
With respect to the allegation of undue influence, the Court adopted the approach and words of Justice Lang (citing from John D McCamus, The Law of Contracts, 2nd ed. (Toronto: Irwin Law, 2012)) at paragraphs 9 and 10 in Juzumas v. Baron 2012 ONSC 7220 http://canlii.ca/t/fvfc2, (a predatory marriage case we have written about in the past):
McCamus describes the equitable doctrine of undue influence as providing a “basis for setting aside a gift or a transaction where the transfer has been induced by an ‘unconscientious use by one person of power possessed by him [or her] over another”. .
He addresses the distinction between the two categories of undue influence: actual and presumptive undue influence. As an example of actual undue influence, McCamus refers to Re Craig, [1970] 2 ALL E.R. 390, in which a caregiver threatened an elderly dependent with abandonment. . .The onus is on a plaintiff to establish actual undue influence.
A presumption of undue influence arises from the nature of a recognized relationship (e.g. solicitor and client, doctor and patient, etc. The presumption can also arise from the particular circumstances of the case, where one party has the ability or potential to “dominate the will of another, whether through manipulation, coercion, or outright but subtle abuse of power”.
The Court went on to cite Newbould J in Buccilli v. Pilliterri 2012 ONSC 6624 on undue influence:
The doctrine of undue influence is well known. Where there is no special relationship such as trustee and beneficiary or solicitor and client, it is open to the weaker party to prove the stronger was able to take advantage, either by actual pressure or by a general relationship of trust between the parties of which the stronger took advantage.6
As Smith and Croft were neighbours there was no presumptive influence to consider under typical categories of lawyer/client or doctor/patient. So the Court had to look for actual influence. It concluded however that:
I find there was no actual influence exerted by Croft over Smith. He did not exert any domination or control over Smith. I find he was aware she needed assistance in her day to day life – visits by [the drug store employees] and Meals on Wheels for medications and meals, respectively – but his contact with her was limited. Croft did take some evening meals over to Smith but in my view this falls appreciably short of establishing the “high burden” of a finding of undue influence.7
The Court next examined whether the transaction was unconscionable. The Court cited Newbould J., in Buccilli:
An unconscionable transaction arises in contract law where there is an overwhelming imbalance in the power relationship between the parties. . . a plea that a bargain is unconscionable invokes relief against an unfair advantage gained by an unconscientious use of power by a stronger party against a weaker. On such a claim the material ingredients are proof of inequality in the position of the parties arising out of the ignorance, need or distress of the weaker, which left him in the power of the stronger, and proof of substantial unfairness of the bargain obtained by the stronger. On proof of those circumstances, it creates a presumption of fraud which the stronger must repel by proving that the bargain was fair, just and reasonable.
. .The circumstances of each case must be examined to determine if there is an overwhelming imbalance of power in the relationship between the parties….[emphasis added]
The Court in Smith v. Croft found that the basic elements for unconscionability had been met. The Deputy Judge stated:
Even if I were to accept that Croft knew nothing prior about Smith’s mental health issues and had not seen the truck before looking for the extension cord, Smith wanting to give him the truck the next day should have alerted him to concerns about Smith’s state of mind. I find that offer was an irrational act. It ought to have been so viewed by Croft, suggesting to him there was ‘something wrong’ with Smith. Before any suggested negotiations had been entered into, I find Croft knew or ought to have known he should have taken steps to assure Smith knew what she was doing. In not doing so, I find Croft took advantage of Smith. There was a clear inequality in the positions of the parties. 8
I find the truck transaction was an improvident bargain. Leaving aside the chicanery of the original $100.00 sale document, the truck was sold for $2,000.00. Even the appraisal that Croft obtained for purposes of the transfer listed a value of $8,000.00, one quarter of the sale price: Paying $0.25 on the dollar amounts to substantial unfairness.9
The Court found that the sale price was grossly unfair and improvident and there was no indication Smith had at minimum suitable advice on the matter, yet alone legal advice. There was an overwhelming imbalance in bargaining power due to Smith’s mental illness and Croft knowingly took advantage of Smith’s mental illness. Croft could not prove that the transaction was fair, just and reasonable.
While the Court found the transaction to be unconscionable, it also allowed Croft’s counter claim in unjust enrichment and quantum meruit. Croft had expended monies on the truck to the ultimate advantage of the Plaintiff by paying the $2000 purchase price. If the Plaintiff was allowed to keep the $2000 purchase price they would be unjustly enriched. The Court also found that Croft was entitled to reimbursement of some expenditure he had made to improve the truck based on quantum meruit, an equitable remedy:
It is ultimately a question of fairness. I have found the value of the truck had increased while in Croft’s possession. Quantum meruit awards have been made where a court has otherwise found unconscionability and/or undue influence by a party.10
In the costs award, the Court further condemned Croft’s actions:
What started the entire process in action was Croft trying to justify the unconscionable transaction involving the truck. He took advantage of an elderly lady. The equities readily compel me to find Smith is entitled to costs in advancing the Plaintiff’s Claim but Croft is not entitled to costs relative the Defendant’s Claim. This reflects the court’s disapproval of the underlying facts. It was always open to Croft to return the vehicle and then sue for his expenses if Smith was not forthcoming in that regard. He chose to try to sustain a highly dubious transaction. Disallowance of any costs to Croft—fees and disbursements–is the court’s assessment of the overall equities.11
Conclusion
This decision is yet another example in which vulnerable older adults may become victims of financial abuse. Fortunately, family members were able to intervene and assist the older adult in this situation before more damage could be done. These situations will only continue and most will go undetected which underscores the importance of planning for future disability.
—
1. Smith v Croft,2015 CanLII 3837 (ON SCSM)
2. 2015 CanLII 3837 (ONSCSM) at para. 95-96 (“Smith”)
3. Smith at para. 148
4. Smith at para. 132
5. SDA at s.2(1).
6. Smith at para. 203
7. Smith at para. 223
8. Smith at para. 230
9. Smith at para. 238
10. Smith at para. 264
11. 2014 CanlII 34247 (ON SCSM) at para. 32.
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