Estate Litigation Blog

Capacity to Enter into Contracts


by Robin Spurr, Published: April 25, 2016

Tags: capacity,  contract law,  estate litigation,  guardianship,  incapacity,  power of attorney

A recent case reported in the news by CBC has brought up an issue we see far too often; individuals being taken advantage of because they lack capacity.

In this particular case, a door-to-door sales company allegedly induced an elderly woman with Alzheimer’s disease to sign unfavourable contracts for heating/air-conditioning services locking her in for the next 15 years.  According to her son, the woman was diagnosed with Alzheimer’s disease two years before the contract was signed, and was showing clear signs of forgetfulness and delusion.  The son has taken legal action in Small Claims Court to have the contract declared void.  The sales company has brought its own claim against the woman for breach of contract.  These allegations have not been proven in court.

Whether the family in this situation succeeds in court or not, the fact is that this type of situation happens all the time.  Whether it is a door-to-door salesperson, a “helpful” neighbour, or leeching family members, elderly and incapable people are frequently induced into signing contracts or giving gifts when they lack the capacity to understand the consequences of such actions.

In order to sign contracts or give gifts, the law states that the person must be able to appreciate the reasonably foreseeable consequences of a decision, or lack of decision, to enter into the contract. There is a presumption that everyone over the age of 18 has that capacity.  However, that presumption does not apply where the other party to the contract has reasonable grounds to believe the person is incapable of giving or refusing consent.  There are a number of factors which could lead to the person having “reasonable grounds” to believe that the person entering into the contract does not have capacity, for example if they show signs of confusion or disorientation, or if the other person is aware of a diagnosis/capacity issues, even if symptoms are not being exhibited at that moment.

In the case reported by CBC, after the son found out about the contract signed by his mom, he contacted the company directly and explained that his mother did not have the capacity to enter into a contract.  In our experience, that kind of direct action can be effective and can result in the incapable person being released from the contract.  In other situations however, such as the current case, it does not work.  In that case, legal action can be taken.  As in the CBC case, the son sought legal advice and commenced a claim against the sales company.  Taking proactive steps and seeking the necessary advice can lead to getting the contract voided and restoring any money lost as a result. 

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