Canfield v. Bronze Wines Ltd.

 

Madam Justice Horsman’s decision in Canfield v. Bronze Wines Ltd., 2022 BCSC 546, additional reasons at 2022 BCSC 1435, illustrates the application of unconscionability to improvident transfers of wealth. The doctrine may apply where value is given for the transfer, it does not require a finding that the transferor did not have capacity, nor evidence of undue influence.

This case also illustrates the responsibilities of lawyers and notaries public in witnessing transfer documents. On this point, the trial judge’s finding of liability of the notary public was overturned in Engman v.Canfield, 2023 BCCA 56, although the Court Appel agreed with her analysis of the notary’s responsibilities.

Jean Canfield signed an agreement to sell her home on an acreage in Grand Forks B.C. in January, 2012, to Bronze Wines Ltd. for 465,000. Pursuant to the agreement, Bronze Wines was not required to make a down payment or any payments for two years, after which Bronze Wines was required to make monthly payment to her of $2,500 until she was paid in full. Bronze Wines was required to pay interest at the “Bank of Canada Prime rate + 1%.” The agreement provided that she could foreclose and reclaim the property if Bronze Wines missed three consecutive payments. 

When she made the agreement, she was in her 70s, recovering in an assisted-living residence in Langley, B.C. from hip surgery. In 2010, she found it too difficult to manage the acreage and she moved in with one of her children in Langley, and then into the assisted living residence. She listed the property in 2010 and then in 2011, but had no success in selling.

The principal of Bronze Wines was Scot Stewart, who was a friend of Mrs. Canfield’s son-in-law Max Bottoni. Mr. Stewart wanted to start a winery. He had no training or experience making wines, was unemployed, and did not have substantial assets. Mr. Bottoni negotiated the agreement with Mr. Stewart, who wrote up the agreement using a self-counsel precedent. Mrs. Canfield met Mr. Stewart for the first time when he took the agreement to her residence, and they both signed it. She did not request any changes and did not receive any legal advice before signing. It should also be noted that the trial judge found that Mr. Bottoni had an interest in Bronze Wines, and was not acting as an agent for his mother-in-law.

In order to transfer title to the acreage, Mrs., Canfield need to sign a Form A transfer in the presence of an “Officer,” under the Land Title Act, which include a lawyer or notary public. Mr. Stewart scheduled an appointment for Mrs. Canfield with a notary public, Mr. Engman, in New Westminster. Mr. Stewart and Mr. Bottoni attended the notary’s office with her. Mr. Stewart brought a Form A transfer document with him and the notary witnessed Mrs. Canfield’s signature, and gave the Form A transfer back to Mr. Stewart, who later arranged for registration of the change in title to Bronze Wines.

The meeting between Mrs. Canfield and the notary took about 10 to 15 minutes, for which the notary charged $50. Mr. Stewart paid the fee. Madam Justice Horseman found that the notary did not take any steps to ensure that Mrs. Canfield understood the document, had capacity to sign it and was not subject to undue influence. Mrs. Canfield did not receive and legal advice nor did she confirm to the notary that she had received legal advice in respect of the transfer.

Mr. Stewart and Bronze Wines needed to arrange financing to carry out repairs and renovations to the property. Bronze Wines granted mortgages of the property to secure the financing, and at trial there were tow mortgages: one for the principal amount of $335,000 and the other for $69,440. Sadly, Bronze Wines’ business failed, and the property went into foreclosure. It was sold sale proceeds of $338,000 were paid into court.

Mrs. Canfield never received a payment for the sale of her home. At the time of trial, she was living in a subsidized residence in Nelson, B.C. She has no significant assets.

Several claims were advanced on Mrs. Canfield’s behalf, including:

1.     A claim seeking rescission of the agreement with Bronze Wines and damages on the  basis of unconscionability;

2.      A claim for damages against Mr. Stewart personally;

3.      A claim that the limitation period for one of the lenders to enforce its mortgage had expired;

4.      A claim for damages against the notary for negligence.

Mrs. Canfield had settled with one of the lenders. Madam Justice Horsman dismissed the claim that the other creditor’s right to enforce its mortgage was out of time, and also dismissed the claim against Mr. Stewart personally. I will focus on unconscionability and the claim against the notary.

The leading recent case on unconscionability is the Supreme Court of Canada decision in Uber Technologies Inc. v. Heller, 2020 SCC 16, decided in the very different context of the enforceability of an arbitration clause in Uber contracts (the Court held that it was not).

Unconscionability provides an equitable exception to the enforceability of contracts when the agreement is both unfair and resulted from an inequality of bargaining power between the parties to the agreement. As set out in Madam Justice Horsman’s reasons in paragraph 72:

Through the doctrine of unconscionability, equity provides relief where the traditional presumptions underlying freedom of contract—the “freely negotiated bargain or exchange” between “autonomous and self-interested parties”—lose their justificatory authority due to the vulnerability of one party to the contracting process: Uber at paras. 56-60. Courts will not ignore serious flaws in the contracting process where those flaws challenge the traditional paradigms of the common law of contract. As explained by the Supreme Court of Canada in Uber:

[58]      …The elderly person with cognitive impairment who sells assets for a fraction of their value (Ayres v. Hazelgrove, Q.B. England, February 9, 1984); the ship captain stranded at sea who pays an extortionate price for rescue (The Mark Lane (1890), 15 P.D. 135); the vulnerable couple who signs an improvident mortgage with no understanding of its terms or financial implications (Commercial Bank of Australia Ltd. v. Amadio, [1983] HCA 14, 151 C.L.R. 447) — these and similar scenarios bear little resemblance to the operative assumptions on which the classic contract model is constructed.

To succeed in an allegation that the agreement is unconscionable, the weaker party must by “unduly disadvantaged.” But it is not necessary to show that the stronger party knowingly took advantage of the weaker party.

Applying the analysis in Uber to the facts, Madam Justice Horsman found that Mrs. Canfield established that she was in a position of an inequality of bargaining power:

[92]         There was an inequality of bargaining power as a result of Mrs. Canfield’s inability to adequately protect her own interests. I accept the defendants’ submission that there is no basis in the evidence for a finding that Mrs. Canfield lacked capacity to contract. However, as Uber makes clear, the doctrine of unconscionability is not restricted to cases where a party lacks capacity. In this case, Mrs. Canfield had situational vulnerability as a result of the circumstances she found herself in at the time of the Agreement. She was an elderly widow with health problems who felt pressure to sell a Property she could no longer manage. She was deprived of information that was critical to her exercise of autonomous decision-making in the contracting process. She did not know that Mr. Bottoni had aligned himself with Bronze Wines, and thus could not be relied on to protect her interests. She had no information about Mr. Stewart’s limited income and assets, nor was she told of his lack of experience in the wine-making business. She did not know of Mr. Stewart’s plan to mortgage the Property as soon as it was transferred to Bronze Wines. She was not provided with full information about the nature of the risks inherent in the Agreement that Mr. Bottoni and Mr. Stewart wished her to sign.

[93]         This contracting process did not take place on a level playing field. As a practical matter, only Mr. Stewart and Mr. Bottoni could understand and appreciate the full import of the contractual terms, as well as the extent to which the bargain imperilled Mrs. Canfield’s interests. Unbeknownst to her, she was agreeing to transfer her only asset of any significant value to Bronze Wines in return for an unsecured stream of future income that was dependent on the financial success of a wine-making business operated by someone with no income, assets, or wine-making experience.

Madam Justice Horsman agreed with Mr. Stewart that there was no evidence that Bronze Wines deliberately took advantage of Mrs. Canfield, but it is not necessary to show that he intended to do so for unconscionability to apply.

Madam Justice Horsman also found that Mrs. Canfield met the criteria of an improvident transaction:

[98]          Turning to the second requirement for a finding of unconscionability, I have no difficulty in concluding that this was an improvident transaction. A substantively improvident bargain was struck as a result of Mrs. Canfield’s inequality of bargaining power. The terms of the Agreement, which are more favourable to Bronze Wines than to Mrs. Canfield, offered Bronze Wines, a corporation with no assets, a generous two-year payment holiday as well as a 20 to 40-year amortization period to repay the purchase price without providing any real security or an agreed interest rate. In the context of Mrs. Canfield’s situational vulnerability and the informational asymmetry that characterized this contracting process, she could not have understood or appreciated the meaning or significance of the contractual terms, as well as how they unduly disadvantaged her position.

Ideally, when an agreement is set aside as unconscionable, the weaker party is restored to the position they were in before the agreement was made. The contract is rescinded. In this case, because the acreage was mortgaged and sold, Mrs. Canfield could not have the acreage, nor the full proceeds of sale, returned to her. Madam Justice Horsman ordered rescission, but it was limited to restoring the portion of sale proceeds remaining after the lender was paid. She also ordered that Bronze Wines compensate Mrs. Canfield for the difference between the fair market value of the acreage of $465,000 less the amount she receives from the proceeds of sale.

In view of the fact that the sale price does not appear to be significantly higher than the amount of the loans, and that Bronze Wines has no assets, Mrs. Canfield would likely receive little or no compensation, unless she succeeded in her claim against the notary in negligence. 

In determining the standard of care required of the notary, Madam Justice Horsman considered the requirements of the Land Title Act for an officer witnessing a transfer, and the standards set in the Notaries Guideline form the Society of Notaries Public of British Columbia. The Land Title Act provides that the signature of a transferor is proof that they know the contents of the document, has signed it voluntarily and has capacity to execute it. Accordingly, it is necessary that the notary witnessing the signature establish those facts. The Notaries Guideline also contained the following provision:

2-G6  Unrepresented Persons – A Member should not advise an unrepresented person in a transaction, but should urge such a person to obtain independent advice and, if the unrepresented person does not do so, the Member should take care to see that such person is not proceeding under the impression that his or her interests will be protected by the Member.

Madam Justice Horsman found the standard of care to be as follows:

[215]     For these reasons, I conclude that the standard of conduct expected of Mr. Engman as a reasonable and prudent notary witnessing Mrs. Canfield’s execution of a Form A included:

(1)  Confirming Mrs. Canfield’s identity;

(2)  Advising Mrs. Canfield that Mr. Engman was not providing her with legal advice on the transaction;

(3)  Confirming that Mrs. Canfield had received independent legal advice, or at least that she had made an informed decision not to seek legal advice;

(4)  Making inquiries that were sufficient to satisfy himself that Mrs. Canfield had the capacity to sign the Form A; and

(5)  Making inquiries that were sufficient to satisfy himself that Mrs. Canfield understood the content and legal effect of the Form A, and was signing it voluntarily.

The notary did not meet that standard of care, Madam Justice Horsman finding that he did not take steps to determine Mrs. Canfield’s capacity, her understanding of the transaction, whether she received independent legal advise and whether she was acting voluntarily.

The next question in determining negligence is whether the notary’s conduct caused Mrs. Canfield loss. The first test Is cause in fact: but for his conduct, would she have gone ahead with the transfer? The second is cause in law :is the relationship between his conduct and the loss too remote?

Madam Justice Horsman found that Mrs. Canfield had established that the notary’s conduct caused her loss:

[229]     If Mr. Engman had insisted that Mrs. Canfield receive independent legal advice before he witnessed her signature on the Form A, then she would have had the opportunity to have the unconscionable Agreement rescinded before the transfer of the Property had occurred. But for Mr. Engman’s breach of duty, Mrs. Canfield would have avoided the loss of her Property to Bronze Wines. She could have sold it in the ordinary course for its full market value. I find, therefore, that the evidence establishes that Mr. Engman’s breach of his standard of care was a factual cause of Mrs. Canfield’s injury.

[230]     The loss for which Mrs. Canfield seeks compensation—the value of her Property at the time of its transfer to Bronze Wines—is not too remote to be recoverable. Mrs. Canfield’s actual loss is a reasonably foreseeable consequence of Mr. Engman’s breach of duty. It was reasonably foreseeable that if Mr. Engman failed in his duty to make the inquiries necessary to satisfy himself that the transfer was voluntary, its effect was understood by Mrs. Canfield, and that she had received legal advice about the transaction, then Mrs. Canfield risked losing the Property without adequate compensation. I find, therefore, that the evidence also establishes that Mr. Engman’s breach of his standard of care was a legal cause of Mrs. Canfield’s injury.

The Notary appealed the finding of liability against him to the B.C Court of Appeal.

The Court of Appeal agreed with Madam Justice Horseman’s analysis of the duty of care owed by the notary to Mrs. Canfield, rejecting the notary’s argument that his obligations in witnessing the transfer were more limited.

However, the Court of Appeal allowed the appeal on the basis that the Mrs. Canfield failed to prove that the notary’s negligence caused her loss. To establish causation, she would have had to show that if he had confirmed that she had legal advice or refused to proceed with witnessing the transfer that she would not have proceeded with the transfer. The evidence did not establish that she would not have proceeded with the transaction. There were too many unknowns and a finding that she would not have proceeded with the transfer was, in the Court of Appeal’s view, speculative.

Accordingly, although Mrs. Canfield established her case that the agreement to sell her acreage to Bronze Wines was unconscionable, her claim against the notary failed, and sadly she will not likely be compensated for her loss.