Date Issued: February 10, 2021

File: SC-2020-005503

Type: Small Claims

Civil Resolution Tribunal

Indexed as: iFinance Canada Inc. v. B.M., 2021 BCCRT 164

Between:

IFINANCE CANADA INC.

 

Applicant

And:

B.M.

 

Respondent

REASONS FOR DECISION
Tribunal Member:	Shelley Lopez, Vice Chair

INTRODUCTION

1.      This dispute is about a loan agreement for the purchase of an electric scooter, sold by Ride The Glide – RTG E-Bikes Inc. (RTG). RTG is not a party to this dispute. The respondent B.M. (BM), is now 20 years old and has undisputedly been diagnosed with various mental health conditions. His mother and litigation guardian in this proceeding, PB, says the applicant iFinance Canada Inc. (iFinance) unconscionably and illegally entered into a loan agreement with her disabled son BM, when he was 19. PB argues that BM did not have mental capacity to enter into the loan contract, and says it cannot be enforced against him. iFinance claims $2,157.49, the amount it says is owing under the loan agreement. iFinance also claims contractual interest, as discussed below.

2.      iFinance says BM applied by email and was approved for the loan without any indication of a capacity concern. iFinance also argues that BM was mentally capable of signing the loan agreement.

3.      There is a related dispute filed by BM and PB against iFinance, RTG, and RTG’s co-director Michael Besler. That dispute, SC-2020-004224, is the subject of my separate decision issued today.

4.      I have anonymized BM and PB’s names, to protect BM’s identity given he acts under a litigation guardian.

5.      iFinance is represented by an employee. PB represents BM.

JURISDICTION AND PROCEDURE

6.      These are the formal written reasons of the Civil Resolution Tribunal (CRT). The CRT has jurisdiction over small claims brought under section 118 of the Civil Resolution Tribunal Act (CRTA). Section 2 of the CRTA states that the CRT’s mandate is to provide dispute resolution services accessibly, quickly, economically, informally, and flexibly. In resolving disputes, the CRT must apply principles of law and fairness, and recognize any relationships between the dispute’s parties that will likely continue after the CRT process has ended.

7.      Section 39 of the CRTA says the CRT has discretion to decide the format of the hearing, including by writing, telephone, videoconferencing, email, or a combination of these. Here, I find that I am able to assess and weigh the documentary evidence and submissions before me. Further, bearing in mind the CRT’s mandate that includes proportionality and a speedy resolution of disputes, I find that an oral hearing is not necessary in the interests of justice.

8.      Section 42 of the CRTA says the CRT may accept as evidence information that it considers relevant, necessary and appropriate, whether or not the information would be admissible in a court of law. The CRT may also ask questions of the parties and witnesses and inform itself in any other way it considers appropriate.

9.      Where permitted by section 118 of the CRTA, in resolving this dispute the CRT may order a party to do or stop doing something, pay money or make an order that includes any terms or conditions the CRT considers appropriate.

10.   PB filed with the CRT a Litigation Guardian Declaration form, as provided for under CRT rules 1.13(1)(a) and (2), which say a person with “impaired mental capacity” must participate in the CRT process through a litigation guardian. On the form, PB indicated she is a representative under a representation agreement, and PB also submitted a certificate that stated she was appointed BM’s representative under section 7 of the Representation Agreement Act. I note the fact that BM has PB as his litigation guardian in this proceeding does not determine whether he had the capacity to contract. There can be different thresholds for capacity, depending on the context. I will address BM’s capacity to contract and available remedies below.

ISSUES

11.   The issues in this dispute are:

a.    Whether BM had capacity to contract with iFinance for the loan,

b.    If not, whether iFinance knew of BM’s alleged incapacity to contract, and

c.    Whether the loan agreement is enforceable against BM.

EVIDENCE AND ANALYSIS

12.   In a civil proceeding like this one, as the applicant iFinance must prove its claims on a balance of probabilities. I have read all the evidence and submissions before me, but refer only to what I find relevant to provide context for my decision.

13.   The underlying facts are essentially undisputed. On May 1, 2020, BM applied to iFinance for a loan, to fund the electric scooter’s purchase. After reviewing BM’s credit history, identity card showing proof of age, his LinkedIn page, and evidence of his running a business, iFinance agreed to fund the loan and BM signed the agreement along with its repayment terms.

14.   The loan was for $1,898.40. I infer iFinance’s claim for $2,157.49 is inclusive of applicable contractual interest, to the date of its CRT application. The loan agreement was for a 24-month term, with $102.40 monthly payments beginning on June 1, 2020. It is undisputed BM never paid anything towards the loan, which provided for 19.95% annual interest.

15.   As set out in a Direct Electronic Funds Transfer Summary document, iFinance sent the loan proceeds of $1,898.40 directly to RTG on May 1, 2020. It is undisputed RTG shortly after delivered the scooter to BM. Nothing turns on the exact delivery date.

16.   PB says BM entered into the loan agreement and purchased the scooter, both online, when she was not at home. The iFinance loan document in evidence shows BM initialed and signed where applicable. In order to obtain the loan, BM sent iFinance a copy of his BC identity card and a copy of his bank statement as proof of income. It also shows BM had a gross income of $39,000 a year with about $15,000 of that being “disability income” and the rest from BM’s business. The credit check iFinance did shows BM had credit cards in 2019, though the credit report in evidence shows those had been closed by the time BM applied for the loan. A later credit check shows BM opened another credit card in June 2020, a month after he bought the scooter.

17.   I find that there is nothing in the evidence before me that would have alerted iFinance that BM might not have the mental capacity to enter into the loan agreement. Section 3 of the Adult Guardianship Act states that unless the contrary is shown, every adult is presumed to be capable of making decisions about the adult’s financial affairs, among other things.

18.   iFinance says it was not aware BM had any mental disability. I find iFinance reasonably presumed BM was capable. I do not agree with PB that iFinance should have made embarked on an investigation into BM’s capacity based on the fact that it knew he received some disability income. A person’s disability income could be related to a purely physical disability, and based on the evidence before me I find it would have been inappropriate for the respondents to ask intrusive questions about the basis for the disability income.

19.   Given this conclusion, it follows that I dismiss PB’s allegations that iFinance behaved unconscionably or that it took advantage of BM’s vulnerability. In particular, contrary to PB’s allegation, I find no evidence that iFinance breached the unconscionability provisions set out in the Business Practices Consumer Protection Act.

20.   I turn then to the question of whether BM in fact had mental capacity to agree to the loan contract, and if not, whether it is nonetheless enforceable against him.

21.   As noted above, PB says BM did not understand what he was signing or what he was doing. There is no statement in evidence from BM, though other evidence before me shows BM had entered into credit agreements with financial institutions prior to the scooter’s purchase and he was able to clearly communicate with iFinance and provide it supporting documentation.

22.   I turn to the applicable law. It is basic law that mental disability, illness, or impairment does not, on its own, mean a person is legally incapable of carrying out business transactions or entering into contracts.

23.   PB bears the burden of proving BM did not have the mental capacity to enter into the loan agreement with iFinance. As set out in Bhandar v. Bhandar, 1996 CanLII 3430 (BCSC), incapacity must be “strictly proved”. I find this means PB must prove BM lacked capacity, on a balance of probabilities.

24.   Here, I note PB cites Kendall v. Rankin, 1998 CanLII 6224 (BCSC), for the proposition that “a lack of mental capacity to contract is a defence in law”. While that proposition is generally true, in Kendall the court found the alleged mental incapacity unproven. I find Kendall does not assist PB’s argument that BM was in fact mentally incapable of agreeing to the loan.

25.   Courts have recognized there is a hierarchy of capacity levels. There are varying levels of capacity required for different decisions, and varying degrees of incapacity to make decisions: Wolfman-Stotland v. Stotland, 2011 BCCA 175 at paragraphs 26 to 27. Whether an individual has the required capacity for the decision being made is a question of fact to be determined in all of the circumstances. The assessment is a highly individualized and fact-specific inquiry: Laszlo v. Lawton, 2013 BCSC 305 at paragraph 197.

26.   As cited in RMK v. NK, 2020 ABQB 328, the decision in Bank of Nova Scotia v. Kelly (1973), 1973 CanLII 1289 (PE SCTD), sets out a test for determining capacity to contract. Kelly has been followed by other Canadian courts, although I was not able to identify a BC decision that cited it. However, as discussed further below, I find the law applied both in BC and in Alberta is consistent with the Kelly test, which I find useful.

27.   Under the Kelly test, for the contract to be valid, both parties must have: (a) the ability to understand the nature of the contract, and (b) the ability to understand the contract’s specific effect in the circumstances.

28.   So, in law a person is mentally incapable when they are unable to understand the nature and terms of the contract and are unable to form a rational judgment of its effect on their interests: see RMK citing Fowler Estate v. Barnes et al, 1996 CanLII 11726 (NLSC) at paragraphs 25 and 26.

29.   The decision in Sandhu v. Insurance Corporation of British Columbia, 2011 BCSC 793, 2011 BCSC 793 does not cite Kelly, but sets out essentially the same test. To prove mental incapacity to contract, PB must show that at the time of the contract, BM was incapable of appreciating his own interest. In Sandhu, the court quoted from Rogers (Re), 1963 CanLII 472 (BCCA), in finding that to invalidate a contract a party must be “so insane” as to be incapable of understanding what they were doing at the time of the contract. While the phrasing “so insane” is not language I would use today, I find the material point is that the threshold for capacity is relatively low.

30.   I find PB has failed to prove BM lacked mental capacity at the time of the loan agreement. My reasons follow.

31.   The question is whether BM understood the 2-page loan agreement and what its effect on him would be: if he took a loan he would have to repay it with interest, and that the loan would fund the scooter he wanted and had delivered.

32.   As noted above, the fact that PB is BM’s litigation guardian in this CRT proceeding, under the CRT’s rules for representation, does not, by itself, prove BM lacked mental capacity to agree to the loan contract. Similarly, the fact that BM receives “disability income” is not determinative of whether he had the mental capacity to agree to the loan.

33.   PB submitted a May 2017 document from BC Mental Health & Substance Use Services, titled “Collaborative Care Plan”, that listed BM’s diagnoses: OCD (obsessive compulsive disorder), GAD (generalized anxiety disorder), inattentive ADHD (attention deficit hyperactivity disorder), and an “unspecified neurodevelopmental disorder”. There was one other condition listed, which appears to say “h/o motor tic disorder”. There is nothing obvious from the listed diagnoses that would establish BM lacked capacity to agree to a loan.

34.   PB also provided an October 20, 2020 opinion by Dr. A, a family physician whose name I have also anonymized to protect BM’s identity, about BM’s capacity to contract. Dr. A did not say how long he had been BM’s physician. Dr. A did not list BM’s diagnoses, and instead simply wrote BM’s “intellectual disabilities and more mental illnesses” cause him to lack the mental capacity to “manage his financial or make coherent decisions signing on loans or borrowing money from financial institutions, solely” (quote reproduced as written). I note the May 2017 Collaborative Care Plan indicated other doctors referred BM to that program, and Dr. A is not mentioned.

35.   In his brief opinion, Dr. A did not explain how BM’s mental illnesses impair his ability to form or be bound by financial contracts, and in particular BM’s loan agreement with iFinance. There is no evidence Dr. A reviewed the loan agreement before forming his opinion. There is no evidence Dr. A reviewed the Collaborative Care Plan in evidence that set out BM’s diagnoses in 2017 and Dr. A does not refer to any recent diagnoses. Dr. A also does not address BM’s ability to run an income-producing business and obtain credit from other lenders, as shown in iFinance’s evidence, and so it is unclear whether those factors might have impacted Dr. A’s opinion. There is also no evidence before me that Dr. A, a family physician, has any specialization in assessing mental capacity. The law is clear that certain decisions require a higher level of mental capacity than others, and that the assessment of mental capacity is very fact-specific. Overall, I find I can place little weight on Dr. A’s opinion given the concerns addressed above.

36.   I find the fact that BM undisputedly ran his own business earning yearly income of about $27,000 (in addition to his disability income) and had credit cards does not support a conclusion he lacked mental capacity to agree to an $1,898.40 loan plus interest. I find the evidence shows BM likely knew he was borrowing money in order to get the scooter he wanted, and that he would have to repay that money with interest. I find he understood the loan agreement with iFinance and knew the effect it would have for him.

37.   Under the Adult Guardianship Act section 2, all adults are entitled to live in the manner they wish so long as they do not harm others and are capable of making decisions about those matters. As set out in McMullen v. Webber et al, 2006 BCSC 1656, it is irrelevant if the capable adult makes a decision others consider unwise. In other words, to the extent PB thought the scooter purchase was unwise, this is not relevant. As referenced above, there is no evidence before me that BM is the subject of a committeeship under the Patients Property Act, which would impact the capacity to contract analysis. Dr. A’s evidence is not a declaration of incapacity within the meaning of the Patients Property Act.

38.   Even if I had found BM lacked mental capacity to contract, the loan agreement is not necessarily void, but only voidable if iFinance had actual or constructive knowledge of such mental incapacity. If that knowledge is not shown, a fair and good faith contract is binding: Kelly at paragraph 6. Sandhu also notes that a contract with someone lacking mental capacity is voidable, rather than being automatically void.

39.   I have found above that iFinance had no knowledge at all of BM’s alleged mental incapacity and there is no evidence that it should have known. I find iFinance contracted with BM in good faith, based on the due diligence it did and the documents it collected from BM. I have already found the fact that BM collected “disability income” is not determinative of his actual mental incapacity nor iFinance’s knowledge of any incapacity. There is no evidence before me that the iFinance loan of $1,898 plus 19.95% annual interest was not reasonable for the scooter’s purchase. I find it was a fair and reasonable contract. So, even if BM was mentally incapable when the loan was made, I find iFinance is entitled to the loan’s repayment under the agreement’s terms, including interest.

40.   In summary, I find PB has not proved BM lacked mental capacity at the time he made the loan agreement with iFinance. The evidence shows, and PB does not dispute, the amount owing under the loan is $1,898.40 plus 19.95% annual contractual interest. The loan agreement also states that if any payment is not made punctually on the due date, the entire balance of the loan plus interest is due. As noted above, BM has made no payments. While iFinance claims $2,157.59, it did not explain how it arrived at that figure. I find BM owes $1,898.40 for the loan principal, plus the claimed contractual interest discussed below.

41.   As set out in the loan agreement, I find iFinance is entitled to 19.95% contractual interest on the $1,898.40 principal, from May 1, 2020 when the loan was funded to the date of this decision. This interest equals $295.72.

42.   Under section 49 of the CRTA and the CRT’s rules, as iFinance was successful in this dispute I find it is entitled to reimbursement of $125 in paid CRT fees. No dispute-related expenses were claimed.

ORDERS

43.   Within 30 days of this decision, I order BM to pay iFinance a total of $2,319.12, broken down as follows:

a.    $1,898.40 in debt,

b.    $295.72 in contractual interest at 19.95% annually, and

c.    $125 in CRT fees.

44.   iFinance is entitled to post-judgment interest as applicable.

45.   Under section 48 of the CRTA, the CRT will not provide the parties with the Order giving final effect to this decision until the time for making a notice of objection under section 56.1(2) has expired and no notice of objection has been made. The time for filing a notice of objection is 28 days after the party receives notice of the CRT’s final decision. The Province of British Columbia has enacted a provision under the COVID-19 Related Measures Act which says that statutory decision makers, like the CRT, may waive, extend or suspend mandatory time periods. This provision is expected to be in effect until 90 days after the state of emergency declared on March 18, 2020 ends, but the Province may shorten or extend the 90-day timeline at any time. A party should contact the CRT as soon as possible if they want to ask the CRT to consider waiving, suspending or extending the mandatory time to file a Notice of Objection to a small claims dispute.

 

 

46.   Under section 58.1 of the CRTA, a validated copy of the CRT’s order can be enforced through the Provincial Court of British Columbia. A CRT order can only be enforced if it is an approved consent resolution order, or, if no objection has been made and the time for filing a notice of objection has passed. Once filed, a CRT order has the same force and effect as an order of the Provincial Court of British Columbia.