Is a contract signed by a corporation still valid if the person who signed for the coporation lacked mental capacity at the time?
This was the question that arose in 1252020 Ontario Inc. v. The Overbrook of Congregation of Jehovah’s Witnesses Ottawa, Ontario, 2024 ONSC 361.
The case involved an agreement of purchase and sale of a property. The plaintiff pleaded in its Statement of Claim that Mr. Syed, its sole director, officer and shareholder, suffered from bipolar disorder over the previous 30 years and was incapable of managing his affairs when the agreement was signed. The defendant moved to strike those paragraphs of the Statement of Claim.
The court granted the defendant’s motion in part, striking the pleadings that related to Mr. Syed’s mental condition over the past 30 years but granted leave to the plaintiff to amend its pleadings.
The court held that a corporation can suffer mental incapacity to contract through its directing mind and that the plaintiff had pleaded sufficient facts to support that Mr. Syed was the directing mind of the corporation. However, the court also noted that the plaintiff would have to establish that defendant was aware or should have been aware of Mr. Syed’s mental state. As a result, the court granted leave to plead to allege that the defendant knew or ought to have known of Mr. Syed’s mental incapacity at the time of signing the agreement of purchase and sale.
This case highlights the importance of assessing the mental capacity of the parties involved in a contract, even if one of the parties is a corporation.
Rikin Morzaria is a Toronto civil litigation lawyer at Kinara Law. If you’d like assistance with a legal matter, feel free to reach out to him for a free initial consultation.
