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 the same standards as a contract by a person of sound mind, and is not voidable by the lunatic or his representatives by reason of ‘unfairness’ unless such unfairness amounts to equitable fraud which would have enabled the complaining party to avoid the contract even if he had been sane.
Lord Brightman: ‘In the opinion of their Lordships it is perfectly plain that historically a court of equity did not restrain a suit at law on the ground of ‘unfairness’ unless the conscience of the plaintiff was in some way affected. An unconscionable bargain in this context would be a bargain of an improvident character made by a poor or ignorant person acting without independent advice which cannot be shown to be a fair and reasonable transaction. ‘Fraud’ in its equitable context does not mean, or is not confined to, deceit; ‘it means an unconscientious use of power arising out of the circumstances and conditions’ of the contracting parties; Earl of Aylesford v Morris (1873) L.R. 8 Ch. App. 484, 491. It is victimisation, which can consist either of the active extortion of a benefit or the passive acceptance of a benefit in unconscionable circumstances.’
To accept the proposition enunciated in Archer v. Cutler that a contract with a person ostensibly sane but actually of unsound mind can be set aside because it is ‘unfair’ to the person of unsound mind in the sense of contractual imbalance, is unsupported by authority, is illogical.
Lord Brightman, Lord Scarman, Lord Bridge of Harwich, Sir Denys Buckley
[1985] 1 AC 1004, [1985] UKPC 1
England and Wales
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 – Archer v Cutler 1980
(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 . .
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 – Tremills v Benton 1892
A lunatic who appeared to be sane, entered into a contract. His representatives sought to set aside deeds of gift by the lunatic to the defendants. The administrator sought to set aside the deeds on the ground that their execution was obtained by . .
Cited by:
Cited – Portman Building Society v Dusangh and Others CA 19-Apr-2000
The defendant sought to set aside an order for possession under a mortgage.
Held: Where a case was strong enough on its face in terms of conduct and terms, unconscionable conduct could be inferred if there was no explanation offered to . .
Cited – Portman Building Society v Dusangh and Others CA 19-Apr-2000
The defendant sought to set aside an order for possession under a mortgage.
Held: Where a case was strong enough on its face in terms of conduct and terms, unconscionable conduct could be inferred if there was no explanation offered to . .
Cited – Masterman-Lister v Brutton and Co, Jewell and Home Counties Dairies (No 1) CA 19-Dec-2002
Capacity for Litigation
The claimant appealed against dismissal of his claims. He had earlier settled a claim for damages, but now sought to re-open it, and to claim in negligence against his former solicitors, saying that he had not had sufficient mental capacity at the . .
Lists of cited by and citing cases may be incomplete.
Contract, Commonwealth, Health
Updated: 18 December 2021; Ref: scu.186684