(New Zealand) The purchaser of land sought specific performance of the contract. The vendor and purchaser had been neighbours. The neighbour needed part of the vendor’s land for access.
Held: A contract made by a person of insufficient mental capacity was voidable at his option not only if the other party knew of or ought to have appreciated his unsoundness of mind, but also if the contract ‘was unfair to the person of unsound mind’. There were no considerations of policy or principle precluding the court from holding that a contract entered into by a person of unsound mind is voidable at his option if it is proved either that the other party knew of his unsoundness of mind or, whether or not he had that knowledge, the bargain was unfair. The court considered the idea of an unfair cotract in English law: English law on the subject is ill-defined. The case of Imperial Loan Company v. Stone [ 1892] 1 Q.B. 599 widely accepted as being a statement of the law on avoidance of contracts made with persons of unsound mind would, save in the judgment of Lopes LJ, seem to regard unfairness of the contract as being of no moment. Proof of unsoundness of mind and the other party’s knowledge of that unsoundness alone will avoid the contract. But the passage cited from the judgment of Lopes LJ. and the dicta of Pollock CB. in Molton v. Camroux (1848) 2 Exch 487 of Patteson J. on appeal in the same case, of Sir Ernest Pollock MR. in York Glass Company v. Jubb [1924] 131 L.T. Rep. 559 and of Sargant LJ. in the same case would suggest that proof of unfairness of a bargain entered into by a person of unsound mind, even though that unsoundness be not known to the other party, will suffice to avoid it.’ and ‘I find nothing in policy or principle to prevent me from holding that a contract entered into by a person of unsound mind is voidable at his option if it is proved either that the other party knew of his unsoundness of mind or, whether or not he had that knowledge, the contract was unfair to the person of unsound mind.’
[1980] 1 NZLR 386
Citing:
Cited – Molton v Camroux CEC 2-Jan-1848
The buyer of annuities from a company was of unsound mind. The company had acted in its normal course of business.
Held: The court asked ‘whether the mere fact of unsoundness of mind, which was not apparent, is sufficient to vacate a fair . .
Cited – Molton v Camroux CExC 1848
A person of unsound mind bought an annuity from a life assurance society. The society granted the annuities in the ordinary course of its business. The contracts were challenged.
Held: The court referred to the argument that a plea of insanity . .
Cited – Earl of Aylesford v Morris 1873
One party to a contract knew of the other’s insanity.
Held: The contract of a lunatic is voidable not void. ‘Fraud’ in equity does not mean, and nor is it confined to, deceit; ‘it means an unconscientious use of power arising out of the . .
Cited – Imperial Loan Co v Stone CA 1892
Contract without Capacity – Voidable not Void
A person of unsound mind was sued on a promissory note. He had signed it as surety. The jury found that he was insane when he signed the note but there was no finding as to the creditor’s knowledge of such insanity. The judge entered a verdict . .
Cited – McLaughlin v Daily Telegraph Newspaper Co. Ltd 15-Jul-1904
(High Court of Australia) The court considered the law on the effect of mental incapacity on a contract in the two cases Imperial Loan, and Molton v Camroux: ‘The principle of the decision seems, however, to be the same in both cases, which, in our . .
Cited – York Glass Co Ltd v Jubb 1924
The defendant denied liability under contract, after the vendor brought an action against against the committee of his estate as a person of unsound mind. He said that the fact that he was of unsound mind was known to vendor, and later that the . .
Cited – York Glass Co Ltd v Jubb CA 1925
The vendor sought to enforce a contract. The court had rejected the defendant’s plea first that the vendor knew of his incapacity, and that therefore the contract was void, and that second, the contract should not be enforced in equity because of . .
Cited – Hardman v Falk 1955
Canada – ‘The contract of a lunatic is voidable not void: see York Glass Co. v. Jubb, Courts of equity will not interfere if a contract with a lunatic is made in good faith without any knowledge of the incapacity of the lunatic and no advantage is . .
Cited by:
Cited – Hart v O’Connor PC 22-Apr-1985
Effect of insanity on making of contract
(New Zealand) The parties disputed the effect in law of an agreement for the sale of land. The transferor had proved not to be of sound mind.
Held: The validity of a contract entered into by a lunatic who is ostensibly sane is to be judged by . .
Lists of cited by and citing cases may be incomplete.
Commonwealth, Contract
Updated: 18 December 2021; Ref: scu.252445