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 undue influence, and secondly on the ground that Tremills was, to the knowledge of the Bentons, of unsound mind. The trial judge found that although Tremills was in full possession of his faculties, he suffered from delusions; he was not however acting in subjection to any undue influence.
The Chief Justice said: ‘Was the contract itself, which was entered into by the parties, a fair and bona fide contract? If it was, this case is clearly within the legal and the equitable rule by which such a contract, if executed and completed, is to be upheld, although it has been made by a person of unsound mind with another person who has no knowledge that he is contracting with a lunatic. In determining whether a contract is or is not unfair, the adequacy of the consideration is, as the learned primary judge observed, one of the elements to be regarded; but it should be added that it is only one element, and that in order to justify the avoidance of a contract on this ground, the inadequacy of the consideration must be so great as to be unconscionable, and to amount in itself to conclusive and decisive evidence of over-reaching or fraud.’ and ‘Holding, as we are bound to do, that proof of undue influence on the part of the defendants has failed, and that the deceased had full possession of his faculties, and perfectly comprehended what he was doing, I cannot find any evidence whatever that the transaction between these parties was in itself wanting in fairness and bona fides. The deceased, who was advised by his solicitor, had a single, definite object in view. Under the influence of an insane delusion, he wished to deprive his son of his property after his own death, while at the same time he sanely and prudently desired ,to retain full possession of it during the remainder of his life, and also to secure for himself the benefits and comforts of a home.
He bargained for this as a condition of his gift, and the defendants complied with his wish, and covenanted to carry it into effect. The burden of the covenant was in the event small in proportion to the money value of the gift, but the disparity was not caused by the act or demand or undue influence of the defendants. They gave the consideration they were asked to give, and that was all that the deceased in his insane delusion, and in his prudent regard for himself, thought of requiring. The bargain was made a legal and binding bargain by the act of the deceased, and apart from the suspicion, which we must hold to be unfounded, of undue influence having been employed to bring it about, presents no trace of fraud or over-reaching on the part of the defendants, although they undoubtedly reaped the larger share of the benefit of the bargain. I think that we should be departing from the principles on which courts of equity have acted in similar cases if these deeds should now be set aside at the instance of the administrator.’
Holroyd J said: ‘After much hesitation, and examining carefully all the authorities that were cited, I have come to the conclusion that a contract entered into with a lunatic by a person who does not know him to be, or suspect him to be, a lunatic, cannot be avoided by the lunatic or by his representatives after his death on the ground merely of the insufficiency of the consideration; but that some fraud or imposition must have been practised by the party who desires to uphold the contract, or something done by him which would render it unconscientious on his part to take advantage of the bargain, to afford a ground for setting it aside. For that reason only I differ from the learned primary judge.’
Hodges J said: ‘The learned judge has found, and in my opinion has so found on sufficient evidence, that there was not undue influence, that there was bona fides on the part of the defendants, and that the defendants did not know that H. Tremills was insane; but he has declared the deeds void on the ground that H. Tremills was insane at the time that he executed them, and that they were not ‘fair’ within the meaning of that word as used in the judgment In Hassard v. Smith, Ir. Rep. 6 Eq. 433 and it is against this decision that the defendants have appealed. The learned judge appears to have acted on the following passage, which he quoted from the case of Hassard v, Smith:- ‘The rule which now prevails, both at law and in equity, in reference to contracts entered Into by a person of apparently sound mind, and not known by the other contracting party to be insane, is, that such contracts, If executed and completed, and if fair and bona fide, will not be held void or set aside’ . This, I think, correctly states the law if the word ‘fair’ be understood in the sense in which the Vice-Chancellor must be taken from the context to have intended that it should be understood. And by ‘fair’ I understand him to mean not unfair, not unconscientious, not over-reaching. I think it refers to a contract not obtained by imposition, but I do not think that it would correctly give the Vice-Chancellor’s meaning to substitute for the word ‘fair’ the words ‘for full consideration’.’ and
‘There the word ‘fairly’ could not, I think, be referring to a perfect equality of the consideration given by each party to the contract. Again, a little further on, the Vice-Chancellor quotes with approval the following passage from Story:- ‘The ground upon which courts of equity now interfere to set aside the contracts and other acts, however solemn, of persons who are Idiots, lunatics, and otherwise non compotes mentis, is fraud’. The Vice-Chancellor could not quote, with approval, Story’s opinion that the ground on which courts of equity set aside these contracts is fraud, if he was deciding that inequality of consideration was a sufficient ground for setting aside such contracts. Again, The Vice-Chancellor a little further on again quotes with approval Story’s view that ‘ If a purchase is made without any knowledge of the incapacity, and no advantage has been taken, courts of equity will not interfere to set aside the contract etc’ Here again the Vice-chancellor shows that what invalidates these contracts is not mere inequality of consideration, but the taking of an advantage. If an advantage is taken, the contract is not ‘fair’.’
Judges:
Holroyd J, Hodges J
Citations:
(1892) 18 VLR 607
Jurisdiction:
Australia
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.
Contract
Updated: 06 December 2022; Ref: scu.252477
