Supreme Court of Canada
Wilson v. The King, [1938] S.C.R. 317
Date: 1938-06-23
Effie Wilson (Suppliant) Appellant;
and
His Majesty The King Respondent.
1938: March 1; 1938: June 23.
Present: at the hearing: Duff C.J. and Rinfret, Crocket, Davis and Kerwin JJ. Rinfret J. took no part in the decision.
ON APPEAL FROM THE EXCHEQUER COURT OF CANADA
Contract—Crown—Lunatics—Agency—Purchase of government life annuity by person of unsound mind and in poor health—His condition not known to government administering officials, but known to local postmaster through whom purchase price of annuity paid—Annuity paid to time of purchaser’s death—Suit, after his death, to recover from the Crown the purchase price (less amount of annuity payments made)— Unfairness of the contract in purchaser’s state of health—Imputability of postmaster’s knowledge to the Crown—Government Annuities Act, R.S.C., 1927, c. 7, and regulations thereunder.
W. (the suppliant’s husband) purchased from the Government of Canada a life annuity, paying therefor $10,000, the major portion of his assets. He was then 73 years old, in very poor health and of unsound mind, having fixed delusions against his wife and son, in pursuance of which delusions his purchase was made. His condition of health and mind was known by the local postmaster through whom said $10,000 was paid (who did not encourage W., rather, perhaps, tried to discourage him from his course), but was not known or suspected by the administering officers of the Crown. The contract was in the Government’s usual terms and made on its behalf in the ordinary course of business. After seven monthly annuity payments, aggregating $882.49, had been paid to W., he died. The action was to recover the sum paid to the Crown.
Held (Kerwin J. dissenting): The suppliant was entitled to recover $9,117.51 (the $10,000 less annuity payments made) with interest from date of the petition of right. Judgment of Maclean J., President of the Exchequer Court of Canada, [1937] Ex. C.R. 186, reversed.
Per Duff C.J.: The contract, obviously improvident on W.’s part in his state of health, and made in his said mental condition, was one
[Page 318]
which a court of equity would not allow to stand if entered into between W. and any private person (e.g., an insurance company) having knowledge of the facts—the latter would be chargeable on equitable principles with fraud in the sense of taking an unconscientious advantage. The government officers would not be performing their duty to the Crown if they concluded a contract with an applicant for an annuity in circumstances which were such that, if they were acting in a private capacity, a court of equity would set aside the contract as one obtained by taking a fraudulent advantage of the purchaser’s mental and physical weakness; and it would be their duty to the Crown not to retain the money paid for an annuity if before the execution of the contract it came to their knowledge that the intending purchaser had paid it in circumstances such as existed in this case. Having regard to the provisions of the Government Annuities Act, the regulations made thereunder, and the practice (as shewn in evidence) of the Government department administering the Act, the postmaster was an agent of the Crown in such a way that his knowledge of the facts should be imputed to the Crown (otherwise, semble, the suppliant would have been without a remedy); it was his duty to communicate to his superior officer, the’ Superintendent of Annuities, facts coming to his knowledge which would render it the duty of the Crown officers, as between them and the Crown, not to conclude the contract. The fact that the consideration, for which W. paid the sum sought to be recovered, had been fully enjoyed, did not, in the circumstances, bar the obtaining of restitution. The circumstance that a contract has been executed on both sides is not in itself a bar to relief in the case of fraud. Though the benefit of the chances of a long life for W. could not strictly be restored, yet that always was obviously illusory; complete restitution could be made as to the property which actually passed; and there was no obstacle in the way of effecting practical justice. The case comes within the principle of the judgments of Buckley L.J. and Bray J. in Kettlewell v. Refuge Assce. Co., [1908] 1 K.B. 545, at 552; [1907] 2 K.B. 242, at 247, which seems to have been approved by the Lord Chancellor, [1909] A.C. 243, at 244, 245. The Crown cannot lawfully retain the money paid to its agent in the circumstances.
Per Davis J.: Whether or not the local postmaster’s knowledge could be imputed to the Crown, and assuming that the Crown had no knowledge of W.’s incapacity, yet on the facts of this case—an extraordinary one—the court is not powerless to give relief according to the manifest justice of the case. The contract was an unfair bargain —in the sense that no man with normal mentality, in W.’s physical condition, would have purchased the annuity, and no one, if he knew W.’s physical and mental condition, would honestly have entertained his application. No injustice would be done to the Crown if the moneys ($9,117.50) were returned. Though strictly the parties could not be placed in statu quo, yet the limitation in that regard as to the court’s interference can have no practical application where the court is dealing only with a sum of money. It is not a case where disturbance of conditions following upon an executed contract would be highly inconvenient or unjust. (Story’s Equity Jurisprudence, 13th ed., p. 242; Daily Telegraph Newspaper Co. Ltd. v. McLaughlin, [1904] A.C. 776; 1 C.L.R. 243, at 280, 281; Niell v. Morley, 9 Ves. 478, at 481; York Glass. Co. Ltd. v. Jubb, 134 L.T.R. 36, at 43; and other cases, referred to).
[Page 319]
Per Kerwin J. (dissenting): Molton v. Camroux, 2 Ex. 487, affirmed 4 Ex. 17, may be taken to have firmly established the modern rule as to commercial contracts by a lunatic to this extent: that even if the lunatic was incapable of understanding what he was doing in the particular transaction, he will be bound by his undertaking where no advantage was taken of him and where the contract has been executed in whole or in part so that the parties cannot be restored to their original position, unless he can also prove that the other party knew of his state of mind or wilfully shut his eyes to means of knowledge thereof. Daily Telegraph Newspaper Co. Ltd. v. McLaughlin, [1904] A.C. 776, and Molyneux v. Natal Land & Colonization Co. Ltd., [1905] A.C. 555, have no bearing upon the rule to be applied here and are not in conflict with it. In the present case, while it was objected that W.’s purchase was unwise, no objection was raised as to the consideration for the contract; nor was it suggested that there was practised any fraud or imposition by any one; furthermore, the annuity contract was delivered to him and he received the specified monthly payments to the time of his death. Under these circumstances the suppliant is prohibited from setting up W.’s incapacity unless she can show that the other party to the contract was aware of W.’s condition. As to that, the intervention of the postmaster, under the Act and regulations, in the manner established by the evidence, cannot assist her. Even if the postmaster could be termed an agent in any sense of the word, authority was not conferred upon him of such a nature as to impute to the Minister any knowledge he may have had of W.’s condition. (Blackburn, Low & Co. v. Vigors, 12 App. Cas. 531, at 537-538, cited).
APPEAL by the suppliant from the judgment of Maclean J., President of the Exchequer Court of Canada, holding that the suppliant was not entitled to the relief sought by her petition of right, which asked that the Crown foe condemned to repay the sum paid to the Crown by the suppliant’s husband, now deceased, for the purchase of an annuity. The suppliant was the sole beneficiary and executrix of the will of said deceased. The material facts of the case are sufficiently stated in the reasons for judgment now reported and are indicated in the above head-note. By the judgment now reported the appeal to this Court was allowed and it was declared that the suppliant is entitled to the sum of $9,117.51 (being the sum, $10,000, paid for the annuity less the aggregate amount of the seven monthly annuity payments made to the said deceased before his death), with interest from the date of the petition of right, with costs throughout. Kerwin J. dissented.
J. J. Bench K.C. and H. P. Cavers for the appellant.
F. E. Hetherington for the respondent.
[Page 320]
The Chief Justice.—The appellant and suppliant in the petition of right before us is the widow, sole beneficiary and executrix of the last will and testament of George S. Wilson, late of Merritton, deceased.
On the 30th of November, 1928, George S. Wilson, deceased, formally applied to the Government of Canada for the purchase of an annuity of $1,512.86 payable in monthly instalments, having previously paid therefor on the 24th of November, 1928, the sum of $10,000. A contract was, accordingly, entered into dated the 11th of December, 1928, in the terms of the application. Wilson died in the following July, some seven months after the date of this contract, having received seven monthly instalments of the annuity.
The appellant claims a return of the sum of $10,000 on the ground that, at the date of the application for the contract, the deceased George S. Wilson was, to the knowledge of the Crown, of unsound mind and incapable of managing his affairs.
It is not seriously open to dispute that Wilson was of unsound mind. It is established by the evidence, and the learned trial Judge has so found, that he was under the influence of fixed delusions with regard to his wife and his son and had been so for some years, which delusions led him to believe that they had designs against his life, and, moreover, that the purchase of the annuity was the direct result of them. The evidence seems to be conclusive that in spite of the remonstrances of all his friends and advisers he acted on the determination to invest practically the whole of his assets in the purchase of an annuity which would come to an end with his life, partly with the direct object of gratifying his desire that his wife and son should derive no benefit from his estate on his death and partly with the purpose of removing the pecuniary motive which he believed was prompting them to make such attempts.
Nor does there appear to be room for dispute that the postmaster through whom the price of $10,000 was paid was fully aware of these facts. It would be difficult indeed to separate his personal knowledge from his knowledge as postmaster. Wilson’s plan of procuring an annuity had been the subject of discussion between them some years before the date of the contract and it is, I think, established
[Page 321]
that in his capacity as postmaster, as well as personally, he was aware of Wilson’s mental derangement and that his determination to purchase an annuity was the direct consequence of that derangement. Furthermore, it is a necessary inference, I think, that he knew Wilson’s physical condition and knew that no person of Wilson’s advanced age and in his precarious state of health and capable of any reasonable appreciation of his own interests could have thought of entering into such a transaction involving the payment over of nearly the whole of his assets in return for an annuity terminable with his life.
There can be no doubt that if the postmaster, Schooley, had been acting in his own behalf the transaction would have been impeachable on equitable principles on the ground that advantage had been taken of Wilson’s weakness. Nor can there be any doubt, I think, that if the facts known to Schooley had been in the possession of the Superintendent of Annuities, the transaction would have been impeachable on the same ground by Wilson in his life time or by a representative, as for example, a committee.
We have not before us a simple case of a contract with a person of unsound mind. The contract, improvident as it was from the point of view of Wilson, to the knowledge of Schooley, in his known mental and physical condition, was one which a court of equity would not allow to stand if entered into between Wilson and any private person, such, for example, as an insurance company, having knowledge of the facts. The necessary inference from the established facts would be that such a person contracting with Wilson in such circumstances was taking advantage of Wilson’s weakness to Wilson’s detriment and to his own benefit, and such a transaction would be set aside by a court of equity on the well settled principles which protect people in Wilson’s condition from being victimized for the benefit of others (Allcard v. Skinner).
Schooley’s own personal conduct except in one point may well not have been blameworthy. There is no suggestion in the evidence that he encouraged Wilson in the course he had decided upon and, indeed, the facts, apart from some evidence not admissible against the Crown, would point to the contrary. In so far as the circumstance is
[Page 322]
favourable to the Crown, the Crown is entitled to say there is evidence that Schooley endeavoured to prevent Wilson proceeding with his design. He ought, however, to have communicated the facts to his superior officers.
In this case it cannot be said that there was any unfairness in the actual terms of the contract. As regards the Department the contract was one made in the ordinary course and the terms were the usual terms of a contract made with a person of Wilson’s age.
Unfair, the contract unquestionably was from Wilson’s point of view because of the obvious improvidence of it in the precarious state of his health. It is not necessary for the purposes of this case to go so far as to say that every person dealing with a lunatic, knowing his incapacity, is presumed to perpetrate a meditated fraud upon him and his rights, which appeared to be the view of Wigram V.-C. in Price v. Berrington.
It is undisputed that the Superintendent of Annuities had no knowledge in fact of the condition of Wilson either physical or mental. A correspondence passed between them both before and after the granting of the annuity and nothing in that correspondence was calculated in the slightest degree to arouse any suspicion on the part of the Superintendent as to the capacity of Wilson to manage his own affairs. Nor is there any suggestion whatever that the Superintendent of Annuities had any knowledge or suspicion of the state of Wilson’s health which made the purchase by Wilson so improvident on his part.
The contract as it presented itself to the Superintendent of Annuities was a perfectly fair contract. That is to say, it was fair in its terms. On the other hand, having regard to the condition of Wilson’s health, it was, as already observed, a most improvident arrangement. If the Superintendent of Annuities, having no knowledge in fact, is not to be regarded as having constructive notice of the state of Wilson’s mental and physical health, then I think on the authorities the appellant is without a remedy. If the contract had been unfair in its terms, not, that is to say, a contract in the usual terms of the departmental contracts and not made in the ordinary course of business, another
[Page 323]
question might have arisen which it is unnecessary to consider.
The real question for decision before us is whether, having regard to the ignorance of the Minister and the Superintendent of the cardinal facts, the representatives of Wilson are entitled to restitution, especially in view of the fact that the consideration, for which the sum they now seek to recover was paid, has been fully enjoyed. The phase of that question which it will be convenient first to consider is whether Schooley’s knowledge is imputable to the Crown.
By section 4 of the Government Annuities Act, authority is given to His Majesty, represented and acting by the Minister appointed by the Governor in Council to administer the Act, to contract with any person, subject to the provisions of the Act and of any order in council made under the authority of it, for the sale of annuities.
By section 5, the purchaser may, by payment of any sum not less than ten dollars, or by payment of a stipulated sum periodically at fixed and definite intervals “to any agent of the Minister appointed under the provisions of this Act,” purchase an annuity under the provisions thereof.
It is provided by section 14 that all moneys received under the provisions of the Act shall form part of the Consolidated Revenue Fund; and, by section 9, that the Minister may refuse to contract for an annuity in any case where he is of opinion that there are sufficient grounds for refusing to do so. By section 13, the Governor in Council is authorized to make regulations not inconsistent with the Act, inter alia,
(d) as to the selection of agents of the Minister to assist in executing the provisions of this Act, and the remuneration, if any, to such agents therefor;
and,
(h) for the doing of anything incidental to the foregoing matters, or necessary for the effectual execution and working of this Act and the attainment of the intention and objects thereof.
At the period with which we are concerned, the Act was administered by the Minister of Labour who was the Minister appointed by the Governor in Council in that behalf. Regulations were made under the authority of
[Page 324]
section 13 and, by section 7 of the Regulations, it is provided as follows:—
7. Payments on account of the purchase of Canadian Government Annuities may be made at any Post Office or Sub-Post Office in the Dominion of Canada where a Money Order Office is established, during the hours at which the office is required to be open for the transaction of Post Office business, and the Postmaster or Acting Postmaster of such office is hereby authorized and required to receive such payments, and to remit the same in manner instructed by the Superintendent of Annuities; or the purchaser may, if he prefers, send his payments direct to the Superintendent of Annuities by registered letter; or payments may be made in person at the Annuities Department, Ottawa. Where payment is made by cheque, bank draft, money order, or postal note, it should be drawn to the order of the Receiver General of Canada.
(a) Every Postmaster or Acting Postmaster of any Post Office or sub-post office in the Dominion of Canada where Money Order business is transacted, other than those whose salaries are paid on a city office basis, shall be allowed a commission of five per cent on all moneys remitted by him for the purchase of deferred annuities.
(b) A commission of one per cent, shall be allowed to any Postmaster or Acting Postmaster as aforesaid on all moneys remitted by him for the purchase of Immediate Annuities.
(c) The said rates of commission shall be allowed the Postmaster or Acting Postmaster not only on all moneys remitted by him, but also on all moneys remitted to the Department direct by or on behalf of a purchaser where it can be shown to the satisfaction of the Department that the Postmaster or Acting Postmaster was instrumental in inducing the said purchaser to purchase.
(d) The said rates of commission shall be payable on moneys remitted before as well as since the passing of the Order.
The practical operation of this section of the Regulations at the time with which we are concerned is explained by Mr. Blackadar, the Superintendent of Annuities, in his evidence. In the case of post offices in the smaller places where the postmaster as such was paid by commission, and not by salary as in the larger towns and cities, such postmasters were encouraged to press the sale of annuities. Section 4 of the Regulations makes provision with respect to agents “permanently appointed to assist in executing the provisions of this Act” and for their remuneration. Such agents and the provision for their remuneration are to be approved by the Governor in Council on recommendation of the Minister of Labour.
Appointment of such agents began in 1927, but, in 1928, there were, as Mr. Blackadar explains, very few and none in Merritton. Mr. Blackadar said that the real agent for the sale of annuities in Merritton would be Mr. Schooley, the postmaster. At that time the Department was by advertisement inviting the public to make application to the
[Page 325]
local postmaster in respect of contracts of annuities. A circular letter is produced which it is convenient to reproduce in full:—
Department of Labour
Government Annuities Branch,
Ottawa
Dear Sir:
I am forwarding to you under separate cover all supplies necessary for the transaction of Government Annuities business.
I am also sending to you herewith a copy of Instructions to Postmasters as to the proper method of handling payments received for the purchase of annuities.
The posters should be placed in a conspicuous position in your office where they may be seen by the public. The descriptive booklets are, of course, for distribution to persons who make enquiry, or to those persons who you feel might be interested in the purchase of Government Annuities.
Postmasters who are on a commission basis are allowed a commission of eleven-fortieths of one per cent. on applications secured or payments received for the purchase of immediate annuities and one per cent. on deferred annuities.
Many postmasters throughout Canada who devote a portion of their time towards the sale of Government Annuities receive a considerable proportion of their income from this source. I would, therefore, suggest that you familiarize yourself with the various plans of annuity available in order that you may be in a position to intelligently deal with persons making enquiry.
The Department of Labour is actively promoting the sale of these annuities and it would be to your personal advantage to do what you can to increase the number of applications being received from your vicinity.
If there should be any further information or supplies desired at any time, I shall be glad to hear from you again.
Yours truly,
E. G. Blackadar,
Superintendent.
This letter is undated but, admittedly, it was circulated some time prior to November, 1928. The rate of remuneration mentioned was subsequently changed and, in 1928, was that prescribed by section 7 of the Regulations. Mr. Blackadar, on his examination, agreed that the Department was anxious that postmasters should take an active interest in the sale of Government Annuities as the letter, indeed, sufficiently shews.
It is not very difficult, I think, to understand the nature of the functions of agents, including postmasters, appointed under the authority of the Act. They had no authority to conclude contracts for the sale of annuities. That is sufficiently clear from the provisions of the statute and
[Page 326]
section 10 of the Regulations, which provides that all contracts shall be signed by the Actuary and Deputy Minister or Superintendent holding office under the Act for the time being.
The postmaster was the agent of the Crown for the purpose of receiving, pursuant to section 5 of the statute, payments for the purchase of annuities which he received for the Annuities Branch of the Labour Department and for which he was required to account to the Superintendent of Annuities.
It is true that section 5 speaks of “agent of the Minister” and subsection (d) of section 13 uses the same phrase. But postmasters, at all events, who are already officers of the Crown and authorized as such to receive payments by section 7 of the Regulations, as well as by section 5 of the statute, would appear (inasmuch as moneys received under the provisions of the Act become by section 14, already referred to, part of the Consolidated Revenue Fund), in the receipt of such moneys, to be acting as agents of the Crown.
By the provisions of section 7 of the Regulations a postmaster not receiving a salary, such as the postmaster at Merritton, is paid a commission on moneys transmitted by him for the purchase of annuities and on moneys transmitted direct to the Department where the application had been brought about by his efforts.
In view of the terms of section 7, the practice of the Department, as illustrated by the circular already reproduced, and as explained by Mr. Blackadar in his evidence, in regarding and treating postmasters within the contemplation of subsections (a), (b) and (c) of section 7, as the postmaster at Merritton, as the “real” agents of the Department would appear to be justified. As such, it would be within the scope of their functions and it would be their duty to give all suitable explanations and proper assistance to persons contemplating the purchase of Government Annuities under this statute. They would also be acting within the scope of their functions under the Regulations in inducing people to become purchasers. Section 7 constitutes a formal representation by the Crown, acting through the Governor in Council, to that effect. These Regulations, it should be noticed, are, by section 16,
[Page 327]
to be laid before Parliament and are, therefore, public documents intended for the information, not only of all persons who are expected to act under them, but also of the public generally.
The difficult question is thus presented: can the knowledge which Schooley possessed, as already explained, of Wilson’s mental and physical weakness and of the obvious improvidence of a purchase by Wilson in the circumstances existing of an annuity terminating with his life, properly be imputed to the Crown? My conclusion is that the question should be answered in the affirmative, although, in expressing that conclusion, I do so with the greatest respect for the President of the Exchequer Court and those who take another view because I fully agree that weighty considerations can be urged against it.
The foundation upon which my view rests is this: While full discretion is vested in the Minister in respect of the circumstances in which applications for grants of annuities are to be accepted or rejected; and while, as between the Crown and third parties, the authority of the Minister is co-extensive with this discretion, I nevertheless think that as between the Crown and its officers, who are nominated by Order in Council to execute contracts under the statute, it would be the duty of such officers not to retain the purchase money paid for an annuity if before the execution of the contract it came to their knowledge that the purchase money had been paid by the intending purchaser in circumstances such as have been established as existing in this case.
As I have already observed, a private individual entering into such a contract with Wilson with full knowledge of the circumstances would be chargeable on equitable principles with fraud in the sense of taking an unconscientious advantage of the weakness, mental and physical, of the party with whom he was dealing. In my opinion, the departmental officers would not be performing the duty they owe to the Crown if they concluded a contract with an applicant for an annuity in circumstances which were of such a character that, if they were acting in a private capacity, a court of equity would set aside the contract as one obtained by taking a fraudulent advantage of the purchaser’s incapacity to understand and protect his interests.
[Page 328]
And in speaking of duty, I am speaking of legal duty, not the moral duty which a high minded official recognizes as owing to himself as well as to the public service in which he is employed.
It would, moreover, I think, be the plain duty of Schooley—and, once again, I mean by that his legal duty—to communicate to his superior officer, the Superintendent of Annuities, facts coming to his knowledge which would render it the duty of the officers concerned, as between those officers and the Crown, not to conclude the contract for which the application was being made.
There still remains the question whether Wilson, having fully enjoyed the consideration, is on that account disabled from obtaining restitution.
There is nothing in the judgment in Molton v. Camroux, either in the Exchequer Court or in the Exchequer Chamber, to justify the inference that, if advantage had been taken of the lunatic in the bargain there complained of, his representatives would have been without a remedy. Nor is there anything in Lord Cranworth’s judgment in Elliott v. Ince to suggest such an inference. The circumstance that a contract has been executed on both sides is not in itself a bar to relief in the case of fraud. In the present case complete restitution can be made in so far as concerns the property which actually passed. The benefit of the chances of a long life for Wilson cannot, of course, strictly be restored, but in the circumstances of the case that is, and always was, obviously, illusory and there seems to be no obstacle in the way of effecting practical justice.
My conclusion is that this case comes within the principle of the judgments of Buckley L.J. and Bray J. in Kettlewell v. Refuge Assurance Co. which seem to have met with the approval of the Lord Chancellor; and that the Crown cannot lawfully retain the money paid to its agent in the circumstances.
I concur with the disposition of the appeal proposed by Mr. Justice Davis.
[Page 329]
Crocket, J.—I agree that this appeal should be allowed with costs throughout and that it should be declared that the suppliant was entitled to receive $9,117.51 with interest from the date of the petition of right.
Davis, J.—The facts of this case are very exceptional. The deceased, Wilson, on November 30th, 1928, made application to the Government of Canada for the purchase of an annuity which provided monthly payments to him of $126.07, commencing on December 24th, 1928. He paid the local postmaster in the town of Merritton, in the county of Lincoln, in the province of Ontario, which was his place of residence, the sum of $10,000 in cash for the purchase of this annuity. He died on July 24th, 1929, having received pursuant to the provisions of the contract for annuity the total amount of $882,49. The deceased was, at the date of the application for the annuity, in his seventy-fourth year of age. His widow, as executrix of his last will and sole beneficiary, claimed in this action by way of petition of right against the Crown that she was entitled to repayment of the moneys (her counsel admitting that the $882.49 actually received by the deceased should be deducted) upon the ground that her husband was insane at the time he purchased the annuity.
The deceased was plainly insane at the time he paid the $10,000 to the Government and remained insane until his death a few months later. The learned trial Judge was satisfied on that point; the conclusion was irresistible upon the evidence. The peculiarity of the case lies in the fact that the deceased’s insanity manifested itself in the most insane delusions as to his wife and son. He was married to his wife in 1884 and they lived together until the time of his death. She had assisted him very materially in the conduct of the small fire insurance business which he carried on in Merritton. The $10,000 had been invested in government bonds prior to the purchase of the annuity and was the major portion of his assets. In fact, he had nothing else but two small dwelling houses, appraised for probate purposes at $4,500, and three bonds of $100 each. His purpose in purchasing the government annuity with the $10,000 was directly in pursuance of his insane delusions against his wife and son. His insane desire was to
[Page 330]
cheat them out of this money. The learned trial Judge has found, and the evidence fully supports the finding, if I may say so with respect, that the deceased when he entered into the contract to purchase the annuity was incapable of knowing what he was doing except, perhaps, the mechanical act of signing his name to some letters and other documents referable to the contract. But the trial judge, although he found that the local postmaster well knew the physical and mental condition of the man, did not think he was able to give relief to the widow because, in his view, the postmaster’s knowledge could not be imputed to the Crown. The claim was rejected upon the basis of the decision in Molton v. Camroux, where Chief Baron Pollock, at pp. 502-503, stated this conclusion:—
We are not disposed to lay down so general a proposition, as that all executed contracts bonâ fide entered into must be taken as valid, though one of the parties be of unsound mind; we think, however, that we may safely conclude, that when a person, apparently of sound mind, and not known to be otherwise, enters into a contract for the purchase of property which is fair and bonâ fide, and which is executed and completed, and the property, the subject-matter of the contract, has been paid for and fully enjoyed, and cannot be restored so as to put the parties in statu quo, such contract cannot afterwards be set aside, either by the alleged lunatic, or those who represent him. And this is the present case, for it is the purchase of an annuity which has ceased.
While I readily accept and apply that statement of the law to the case of a contract with a lunatic, I would not, without the most careful further consideration (unless the decisions were binding upon this Court), be prepared to accept and apply some of the subsequent decisions which have extended the rule.
Chief Baron Pollock, it is to be observed, presupposed for the purpose of his rule “a contract for the purchase of property which is fair.” No question of the unfairness of the contract in question was raised in the Molton case. A special verdict had been agreed upon in the case which embodied, amongst other findings of fact, the following:—
The purchases of the annuities by Thomas Lee were transactions in the ordinary course of the affairs of human life, and the granting of the annuities to him in the manner and upon the terms before mentioned, were fair transactions, *****
[Page 331]
When the case went to appeal in the Exchequer Chamber before eight Judges, the unanimous judgment of that Court, delivered by Patteson, J., referred to the findings of the special verdict and said:—
This does not shew such a state of mind in the grantee as to render him necessarily incapable of knowing the nature of his act, and it negatives all knowledge by the Society of his state of mind, and any suspicion whatever of fraud or unfairness of any kind.
The judgment continued:—
The question, therefore, is broadly raised, whether the mere fact of unsoundness of mind, which was not apparent, is sufficient to vacate a fair contract executed by the grantee, by payment of the consideration money, and intended bonâ fide to be executed by the grantor, by payment of the annuity.
The judgment concluded:—
* * * according to the facts stated in this special verdict, the contract in question was not void at law, so as to enable the representatives of the grantee to maintain this action for money had and received.
Story in his Equity Jurisprudence, 13th ed., Vol. 1, at p. 242, after dealing with fraud as the ground upon which courts of equity interfere to set aside contracts and other acts, however solemn, of persons who are idiots, lunatics and otherwise non compotes mentis, proceeds to say in the next paragraph:—
But Courts of Equity deal with the subject upon the most enlightened principles, and watch with the most jealous care every attempt to deal with persons non compotes mentis. Wherever * * * the contract or other act is not seen to be just in itself or for the benefit of these persons, Courts of Equity will set it aside or make it subservient to their just rights and interests. Where indeed a contract is entered into with good faith and is for the benefit of such persons, such as for necessaries, there Courts of Equity will uphold it as well as Courts of Law. And so if a purchase is made in good faith without any knowledge of the incapacity, and no advantage has been taken of the party, Courts of Equity will not interfere to set aside the contract if injustice will thereby be done to the other side, and the parties cannot be placed in statu quo, or in the state in which they were before the purchase.
For the purpose of determining this appeal I have considered the case upon the assumption that the Crown had no knowledge of the incapacity of the deceased, and have asked myself the question whether or not the contract can be said to have been a fair bargain in the sense that it was one with which the court should not interfere. The emphasis at the trial, and in fact upon the appeal as well, was put upon the question whether the knowledge of the local postmaster could be imputed to the Crown. The other issue, as to whether or not the contract was in any
[Page 332]
event a fair bargain, was not stressed. The pleadings very definitely raised the issue. The appellant as suppliant alleged that the annuity was not for the deceased’s benefit nor was it a fair bargain and the Crown pleaded that the purchase of the annuity was for the benefit of the deceased and was a fair bargain. It is somewhat difficult to separate the mental from the physical condition of the deceased for the purpose of determining the rights of the parties, but it is perfectly plain that no man in the physical condition the deceased was in at the time he purchased the annuity would in his right mind have done so. Dr. Chapman, who had treated the deceased off and on quite frequently during the three or four years before the deceased died, said that in November, 1928, when the annuity was purchased, the deceased “was in a very weakened condition” and that
you would not expect him to live a very long period of time. It is a matter of months. The man had had high blood pressure, he was suffering from marked arteriosclerosis for some time previously, he had some kidney trouble and he had a chronic heart that goes along with that picture. Those cases may live a few months or they may pass out in a few weeks.
In July, 1929, the deceased attempted to commit suicide by cutting his throat and was examined by Dr. Currey, the local Medical Officer of Health, at the request of a Dr. Ludwig who was of the opinion that Wilson should be sent to the Ontario Hospital for the Insane at Hamilton. Dr. Currey refused to sign the necessary certificate for that purpose. He said at the trial that it would not have been humane to send the man to the institution. “He was insane but he was so weak that I realized it was only a matter of hours or days at the outside that he would live.” Dr. Currey considered Wilson to be suffering from senile dementia. This type of case, the doctor said, was of very long standing. He did not think he had ever seen a case that took less than two years, at least, to come on, of the type that Wilson had. Another local physician, Dr. Poirier, had been called in in May, 1929, to see Wilson. Dr. Poirier said that Wilson had been sick a long time; he had a very high blood pressure and thickened arteries; he was suffering from what was evidently a progressive deterioration, beginning as a circulatory thing, he judged, and a kidney condition, that was affecting his mental condition, “and that was the progressive affair that evidently had been in progress for some time, a long time.”
[Page 333]
No one in his senses, in the physical condition this man was in, would have considered handing over to the Government $10,000 for an annuity of $126 a month. It is absurd to think that men dealing at arm’s length and dealing fairly and honestly in terms of an annuity for a man in Wilson’s physical and mental condition would consider a payment of $10,000 for monthly payments of $126 during lifetime as a fair bargain. It would be regarded as an unconscionable thing. Dr. Chapman said he advised the deceased against buying the annuity because he did not think it was wise for a man in his condition. The deceased then told him that several lawyers in St. Catharines had told him the same thing but the deceased said they were “all in a ring” and they all said the same. The deceased told him that he considered it good business to save his life and not have others poison him for the sake of getting his money. The deceased’s common expression appears to have been that he would buy this annuity to cheat his wife out of the money.
It is contended by counsel for the Crown that, assuming knowledge cannot in this case be imputed to the Crown, the Court is powerless upon the authorities to give any relief and therefore the Crown is entitled to retain the $9,117.51 which remains of the $10,000. I cannot bring myself to the conclusion that on the facts of a case such as this the Court is helpless to do the manifest justice of the case. It is quite true that government annuities are worked out on an actuarial basis solely with reference to age and that it would be a very serious matter in every case in which the annuitant lives but a short time to permit an inquiry into the wisdom of the annuitant in having entered into a contract with the Government. The whole system of government annuities, and a most beneficial system it is to the people of this country, is based upon the natural uncertainty of life. But the case we are dealing with is an extraordinary case. No one would suggest that, if the Government had known the facts, they would for a moment have entertained the application. The Superintendent of Annuities, the officer of the Crown charged with the administration of that branch of the government business, said that the Department does not at any time inquire into the physical condition of applicants
[Page 334]
for annuities unless representation is made by some interested person who thinks that the party making the application is making an improvident arrangement, and that in such a case, as a matter of practice, the case is taken into consideration and the application may be refused.
The contract here in question was made by an insane person and was plainly not a fair bargain, having regard to his physical and mental condition. The contract “is not seen to be just in itself,” to adopt the words of the great Story above quoted. But Story goes further and says that if a purchase is made in good faith without any knowledge of the incapacity and no advantage has been taken of the party (which for my purpose I am assuming to be so in this case) the courts of equity will not interfere to set aside the contract
if injustice will thereby be done to the other side, and the parties cannot be placed in statu quo, or in the state in which they were before the purchase.
No injustice will be done to the Crown in this case if the $10,000 less the $882.49 is returned. Strictly the parties cannot be placed in statu quo, but that limitation can have no practical application where we are dealing only with dollars and cents. One can quite understand the application of that limitation to cases such as Price v. Berrington, where the conveyance of the property sought to be set aside had been long executed, with the knowledge of the family, and the purchaser had acted bona fide and had dealt with the estate believing it to be his own and had made important family arrangements upon that footing, the disturbance of which would have been not only highly inconvenient, but unjust. In many cases where contracts with lunatics have been executed, the consequences of setting them aside would be so extensive and so inconvenient that the court ought not to interfere. In the case of Elliott v. Ince, Lord Cranworth considered the law on this subject and referred with approbation to the case of Molton v. Camroux, stating the principle of that case to be very sound—namely, that an executed contract, where parties have been dealing fairly, and in ignorance of the lunacy, should not afterwards be
[Page 335]
set aside. He added: “That was a decision of necessity, and a contrary doctrine would render all ordinary dealings between man and man unsafe.”
The case in this appeal was not an ordinary dealing between man and man, and, while in one sense the parties may be said to have been dealing fairly, that is, without any fraud, or imposition or undue influence, the contract was not a fair bargain in the sense that no man with normal mentality would have purchased the annuity in the physical condition Wilson was in at the time of the purchase and no one if he knew the physical and mental condition of Wilson would honestly have entertained the application.
There is no difficulty in the limitation against interference where the parties cannot be placed in statu quo. Here it is purely a money matter. The Judicial Committee in Daily Telegraph Newspaper Company Ltd. v. McLaughlin, in refusing leave to appeal from the High Court of Australia, after having had the advantage of hearing argument on both sides, said that they saw no reason to doubt that the judgment of the High Court was right. In the High Court it had been said:—
It would, however, be an eminently unsatisfactory result of this litigation if he [the plaintiff] were able to recover the shares themselves and also to retain the benefits which were conferred on him, although without his consent or knowledge, by the application of the proceeds of the shares. His counsel have expressly offered to give the defendants the benefits of these proceeds.
And the Court directed that there should be embodied in the decree:—
the plaintiff’s submission to indemnify the defendants to the extent of all moneys received by his pretended attorney as the proceeds of the shares in question, against any loss which they may sustain, or any liability which they may incur to other persons by reason of obedience to the decree.
That was part of the judgment which their Lordships in the Privy Council said they saw no reason to doubt was right.
In Neill v. Morley, the court refused to set aside a contract of a lunatic, where it appeared to be fair and without notice; especially where the parties could not be
[Page 336]
reinstated. But Sir William Grant, the Master of the Rolls, at p. 481 said this:—
Then it comes to the mere fact, that he was a lunatic. The question with reference to that is, how far, under all the circumstances, this Court will interfere to set aside the whole of the lunatic’s transactions; supposing them void at law. That will depend very much upon the circumstances; and no general rule can be laid down upon it.
In York Glass Co. Ltd. v. Jubb, Lord Justice Sargant at p. 43 reserved a difficulty which a strict application of the decision in Imperial Loan Co. v. Stone might lead to in the future, in that he had not found a single case in which a contract of a lunatic had been binding except where the contract was an ordinary reasonable contract, and declared:—
I mention that because Warrington, L.J., in his judgment, cited a passage from the judgment of Lord Esher in Imperial Loan Co. v. Stone in which he says nothing at all about fairness. On the other hand, Lopes, L.J., deals with it in this way: “In order to avoid a fair contract on the ground of insanity, the mental incapacity of the one must be known to the other of the contracting parties.” It is possible a question may arise in some future case, with which we have not to deal at present, whether, in the case of a contract which is not a reasonable one and which is made by an insane person that contract can be enforced, the other person not knowing of the insanity. I have looked through a number of cases and I have not found a single case in which a contract has in fact been binding except where the contract was an ordinary reasonable contract. I do not in any way want to attempt to express my own view on that point because the point has not been argued before us. It has not been argued before us because the finding of the learned judge is such as to render the point unnecessary for argument and because he has found, and I agree with his finding, that the contract here was a fair one for a fair and reasonable price. I only want to guard myself by saying that my mind is entirely open on the question whether the fairness of the bargain is an essential element to the enforceability of the bargain against a person who was in fact a lunatic although not known to be such by the other contracting party.
Though the prayer of the suppliant, strictly read, was to have the contract declared void and the Crown condemned to repay the sum of $10,000, counsel for the appellant never sought to recover more than the amount which remained in the Government’s hands, $9,117.51.
I would allow the appeal and declare that the suppliant was entitled to the said sum of $9,117.51 with interest from the date of the petition of right, and her costs throughout.
[Page 337]
Kerwin, J. (dissenting).—Accepting the finding of the President of the Exchequer Court in appellant’s favour that her husband, George S. Wilson, at the time he purchased the annuity was insane so as not to be capable of understanding what he was about, and accepting the finding that Schooley, the postmaster at Merritton, was aware of Wilson’s condition, it is impossible to hold that that knowledge is sufficient to impose liability upon the respondent.
It was argued by counsel for appellant that there was in fact no contract, since one of the parties was insane, and reliance was placed upon Daily Telegraph Newspaper Company, Limited v. McLaughlin and Molyneux v. Natal Land and Colonization Company, Limited. In the first of these cases leave was refused to appeal from a judgment of the High Court of Australia, and, at pages 779 and 780, Lord Macnaghten, speaking for their Lordships, states that they, “having had the advantage of hearing argument on both sides, see no reason to doubt that the judgment of the High Court is right.” The question there was as to a power of attorney executed by a man who to the knowledge of the attorney was insane and under which the attorney transferred certain shares of a joint stock company. It was admitted that the company knew nothing of the insanity of the principal. The High Court of Australia held that, having registered the principal as a holder of its shares, the company could not be relieved of its liability to the shareholder by showing that it had transferred the shares on the strength of a document executed by a person who to the knowledge of the appointee did not know what he was doing; that the ordinary rule applied, whereby a party alleging agency is bound to prove it; and that upon the facts as found the company could do this no more than if the power of attorney had been a forgery.
The determination of the issues in the Molyneux case depended upon the Roman-Dutch law which prevailed in Natal but Sir Henry De Villiers, in delivering the judgment of the Privy Council, at page 563, stated:—
Even if the law of England had been applicable to the present case, their Lordships are unable to agree with the majority of the Natal Court that the bond sued upon would have been enforceable.
[Page 338]
The bond referred to was a mortgage bond which had been passed by virtue of a power of attorney executed by an insane person, and it was held to be legally unenforceable where it appeared that the mortgagor derived no benefit from the bond even though the mortgagee had no knowledge of the insanity.
These two cases have no bearing upon the rule to be applied here and are not in conflict with it. In Bawl] Grain Co. v. Ross, Mr. Justice Davies, as he then was, points out, at page 234, that a contract such as the one there in question, i.e., a contract entered into by a man whilst in a state of drunkenness,
is on the same footing as a contract made by a person of unsound mind, whose mental incapacity, in order to avoid the contract, must be known to the other of the contracting parties.
In the same case the present Chief Justice of this Court, at page 241, states:—
The course of development in the English law of the rule governing the rights of a person entering into a contract or going through the form of entering into a contract while insane is very clearly traced in the judgment of Fry, L.J., in The Imperial Loan Co. v. Stone. Under the old rule the incapable person was by law precluded from setting up his incapacity in answer to an action on the so-called contract. Under the modern rule this disability is removed where it is shewn that the other party had at the time of the transaction knowledge of the incapacity of the other.
Molton v. Camroux may be taken to have firmly established the modern rule as to commercial contracts by a lunatic to this extent: That even if the lunatic was incapable of understanding what he was doing in the particular transaction, he will be bound by his undertaking where no advantage was taken of him and where the contract has been executed in whole or in part so that the parties cannot be restored to their original position, unless he can also prove that the other party knew of his state of mind or wilfully shut his eyes to means of knowledge of such infirmity. The rule has been extended by the Court of Appeal in Imperial Loan Company v. Stone and in York Glass Co. Ltd. v. Jubb, but with such amplications we are not concerned.
[Page 339]
In the present case, while it was objected that the purchase of the immediate annuity by Wilson, a man in the seventy-fourth year of his age, for the sum of ten thousand dollars, which formed the greater part of his assets, was an unwise transaction for a man of his age and general health, no objection was raised as to the consideration for the contract. Nor was it suggested that there was any fraud or imposition practised by anyone upon Wilson in connection with the purchase. Furthermore, the annuity contract was delivered to him upon payment of the money and he received the specified monthly instalments down to the time of his death.
Under these circumstances we are bound to hold that the appellant is prohibited from setting up her husband’s incapacity to enter into the annuity contract unless she is able to show that the other party to the contract was aware of Wilson’s condition. The trial judge has found that Schooley was aware of that condition and it therefore becomes necessary to determiner the position he occupied and his authority under the Government Annuities Act, R.S.C., 1927, chapter 7, and the relevant regulations.
By section 3 of the statute, the Act is to be administered by the Minister of Labour. By section 4, His Majesty, represented and acting by the Minister, may contract with any person for the sale of an immediate annuity to any person resident or domiciled in Canada, for the life of the annuitant. By section 7, all contracts for the purchase of annuities are to be entered into in accordance with the values stated in tables prepared under regulations made pursuant to section 13 and for the time being in use. By section 9 the Minister may refuse to contract for an annuity in any case where he is of opinion that there are sufficient grounds for refusing so to do. By section 13 the Governor in Council may make regulations,
(b) as to the preparation and use of tables for determining the value of annuities; and the revocation of all or any such tables and the preparation and use of other tables;
(c) as to the mode of making, and the forms of, contracts for annuities, including all requirements as to applications therefor;
(d) as to the selection of agents of the Minister to assist in executing the provisions of this Act, and the remuneration, if any, to such agents therefor;
(h) for the doing of anything incidental to the foregoing matters, or necessary for the effectual execution and working of this Act and the attainment of the intention and objects thereof.
[Page 340]
Number 1 of the Regulations adopts certain tables thereto annexed as the tables to be used for determining the cost and value of an annuity, and Regulation 4 provides:—
That the agents permanently appointed to assist in executing the provisions of this Act, and their remuneration, shall be such as may be recommended by the Minister of Labour and approved by the Governor in Council; but the Minister may from time to time employ such temporary assistance as in his opinion is required, and upon such terms as may be agreed upon.
Regulation 7 (a), (b) and (c) and extracts from a sample of a circular letter forwarded by the Government Annuities Branch to Postmasters are set forth in the reasons for judgment of the learned President and need not be repeated.
We were told that annuity contracts are not preceded by an examination of the applicant and that the tables are based upon age only. Schooley was not an agent of the Minister of Labour, selected to assist in executing the provisions of the Act under Regulation 4, issued by virtue of section 13 (d) of the statute. He had no authority to enter into a contract on behalf of the Minister nor had he the power to refuse to contract for an annuity, as such power is conferred by section 9 of the Act upon the Minister only. As a matter of convenience to the public, he was authorized to receive the purchase price of an annuity and was then required to remit it to the Superintendent of Annuities; and that is all he did, with the exception of writing on Wilson’s behalf certain letters, mentioned in the judgment of the President, requesting information with respect to the purchase of an annuity. He received a commission of one per cent. on the basis of the purchase price received and remitted by him and not on the footing that he was “instrumental in inducing the said purchaser to purchase.”
If the annuity had been purchased by direct correspondence between Wilson and the Superintendent of Annuities, in the absence of knowledge by the latter of the former’s infirmity, it could not be contended that the contract was voidable. The intervention of Schooley, under the Act and Regulations, in the manner established by the evidence cannot assist the appellant. Even if Schooley might be termed an agent in any sense of the word, authority was not conferred upon him of such a nature as to impute
[Page 341]
to the Minister any knowledge he may have had of Wilson’s condition. As stated by Lord Halsbury in Blackburn, Low and Co. v. Vigors (1):—
I cannot but think that the somewhat vague use of the word “agent” leads to confusion. Some agents so far represent the principal that in all respects their acts and intentions and their knowledge may truly be said to be the acts, intentions, and knowledge of the principal. Other agents may have so limited and narrow an authority both in fact and in the common understanding of their form of employment that it would be quite inaccurate to say that such an agent’s knowledge or intentions are the knowledge or intentions of his principal; and whether his acts are the acts of his principal depends upon the specific authority he has received.
The appeal fails and should be dismissed, but, under the circumstances, without costs.
Appeal allowed with costs.
Solicitor for the appellant: J. J. Bench.
Solicitor for the respondent: F. E. Hetherington.
Email this Content