Tzina Goodman, a sufferer of mental illness and now deceased, had inherited from her mother the family home and a life interest in her mother’s residual estate. Upon death, this interest was to pass to Tzina’s children. Under her mothers will, Tzina’s brothers each received bequests of $1000. Prior to the creation of this will, the mother had initially given Tzina a life estate. The estate was to be divided among the mother’s grandchildren equally, upon Tzina’s death.
Due to Tzina's history with mental illness, the brothers were concerned that she would sell the family home and be left with nothing. Tzina and her brothers sought legal advice, however they came to no collective agreement on how to remedy the situation and their relationship fell apart.
Tzina continued to consult with the lawyer, Mr. Pearce, who advised her to put the family home into a trust where Tzina would have a life estate in the home, the trustees would sell the home upon Tzina’s request if it was in her best interest. The trust stipulated that upon Tzina’s death the trust property would be divided equally among her mother’s surviving grandchildren.
Tzina agreed to these terms and Mr. Pearce drafted the trust agreement in which Tzina’s two brothers and one nephew were the trustees.
Tzina died with her last will and testament leaving the entire estate to her children.
Was presumption of undue hardship properly applied by the Court of Appeal?
At the trial level, the plaintiff (Stacy - Tzina’s son) claimed Tzina entered trust agreement as a result of undue influence by the defendants (Sam, Will & Ted - Tzina’s brother and nephew) and other brother Jack. Based on Mr. Pearce testimony and other witnesses it was found brothers did not influence her to signing the agreement. The trial judge based this on the fact there was minimal contact between the brothers and Tzina and she did not rely on them in making the decision.
At the Alberta Court of Appeal respondents (Stacy) claimed that the trial court failed to recognize and address presumption of undue influence. The Court of Appeal agreed and determined the first step for the presumption of undue influence was triggered, because the nature of the relationship was one in which dominance or influence could be exerted over one party by the other. The Court of Appeal determined the nature of the transaction was that of a gift, and all that was needed for the presumption to stand was the potential for dominance in the relationship. Also noted was that the life estate put her at a disadvantage, she did not receive independent legal advice. The appellants failed to rebut this presumption and the Court ruled in favour of the respondent.
The Supreme Court of Canada stated that because there is no evidence for undue influence, the trial court erred in failing to look to the nature of the relationship to determine if it gave rise to the presumption of undue influence. They concluded the nature of the transaction was that of a gift, and therefore the presumption of undue influence stands.
However, contrary to the Court of Appeal, it was found that the appellants were successful in rebutting the presumption on the basis there was little contact between the brother and sister during the relevant time, Tzina was not relying on her brothers to advise her and the prime motivation of the brothers was their sisters welfare.
Thus the appeal was allowed.
Inquiry for Undue Influence
Step One: The Nature of the Relationship
Must assess the relationship if there is a potential for domination or dependency in the relationship.
Step Two: The Nature of the Transaction
Commercial relationships (where consideration is at play) must show that the contract was unfair in the sense that - simply giving more than getting does not suffice. If an individual privy to the transaction is unduly disadvantaged or unduly benefits, this will be evidence towards the existence of undue influence. When dealing with gifts or bequests situations (no consideration), establishing step one is all that is required for the presumption to exist.