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 against the creditor, who appealed.
Held: A contract made by a person who lacked the capacity to make it was not void, but could be avoided by that person provided that the other party to the contract knew (or, as is now generally accepted, ought to have known) of his incapacity.
The submission that there was no authority that a man could be sued and made liable on an executory contract which he had made when of unsound mind, except in the case of a contract for necessaries was rejected. Lord Esher MR: ‘I shall not try to go through the cases bearing on the subject; but what I am about to state appears to me to be the result of all the cases. When a person enters into a contract, and afterwards alleges that he was so insane at the time that he did not know what he was doing, and proves the allegation, the contract is as binding on him in every respect, whether it is executory or executed, as if he had been sane when he made it, unless he can prove further that the person with whom he contracted knew him to be so insane as not to be capable of understanding what he was about.’
Fry LJ said: ‘It thus appears that there has been grafted on the old rule the exception that the contracts of a person who is non compos mentis may be avoided when his condition can be shown to have been known to the plaintiff. So far as I know, that is the only exception.’
Lopes LJ said: ‘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. A defendant who seeks to avoid a contract on the ground of his insanity, must plead and prove, not merely his incapacity, but also the plaintiff s knowledge of that fact, and unless he proves these two things he cannot succeed.’
Lord Esher MR, Fry LJ, Lopes LJ
[1892] 1 QB 599
England and Wales
Cited by:
Cited – Bailey v Warre CA 7-Feb-2006
The claimant had been severely injured in a road traffic accident. His claim was compromised and embodied in a court order, but later a question was raised as to whether he had had mental capacity at the time to make the compromise he had.
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 – 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 . .
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 – 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 . .
Cited – Josife v Summertrot Holdings Ltd Admn 4-Apr-2014
The claimant sought to avoid liability under a banking guarantee, saying that he had lacked mental capacity to grant it.
Held: The appeal failed. The judge had correctly applied the law. The execution of the guarantee had been especially . .
Cited – Blankley v Central Manchester and Manchester Children’s University Hospitals NHS Trust CA 27-Jan-2015
This case concerns a claimant with fluctuating capacity to conduct legal proceedings. At a time when she had capacity, she retained a firm of solicitors under a conditional fee agreement. The issue was whether the CFA terminated automatically by . .
Cited – Dunhill v Burgin SC 12-Mar-2014
Lack of Capacity – Effect on Proceedings
The Court was asked ‘First, what is the test for deciding whether a person lacks the mental capacity to conduct legal proceedings on her own behalf (in which case the Civil Procedure Rules require that she has a litigation friend to conduct the . .
Lists of cited by and citing cases may be incomplete.
Contract, Health
Leading Case
Updated: 01 November 2021; Ref: scu.238883