Capacity Of The Mentally Ill To Conclude Contracts

Explain the law relating to the mentally ill to conclude contracts and consider why these rules exist.

Introduction

A contract is a legally binding agreement between two or more persons that is recognised by the courts. In order for an agreement to be legally binding there are certain criteria that have to be met. One of these criteria is capacity. The majority of us have the capacity to form a legally binding agreement, however certain categories of people are limited by law to make contracts the main categories are minors, people judged incapable of contracting due to mental disorders, drunkenness or under the influence of drugs.

The purpose of this essay is explain the law relating to the mentally ill to conclude contracts and consider why these rules exist.

Apart from persons certified insane under section three of the Mental Health Act 1983 (www.statutelaw.gov.uk) a contract with an individual person with mental illness is valid. Persons with mental illnesses are bound by contracts for necessaries and must pay a sensible price, however other contracts are voidable if (a) individual did not know what they were doing and (b) the other party was aware of this.

Persons of unsound mind

Persons certified as insane under the Mental Health act 1983 section 3 can never make a valid contract, however a mentally unbalanced person has full contractual capacity, although such an individual may be entitled to avoid a contract that has been made if they did not know what they were doing and the other party was aware that they did not know what they were doing.

In Imperial Loan co - v Ð'- Stone [1892] where a person of unsound mind was sued on a promissory note. He had signed it as a 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. It was held that the defendant was wrong and in order for the action to succeed the defendant has to convince the court of both issues. (English Law pg 689) this means that an individual, who seeks to avoid a contract on the ground of their insanity, must plead and prove, not merely their incapacity, but also the other parties knowledge of that fact, and unless they prove these two things they cannot succeed. Similarly

In Hart -v- O'Connor [1985] there was an agreement between two people; one was to sell some land in New Zealand to the other however unbeknown to the buyer the seller was of unsound mind when he made the agreement.

The trustees and the beneficiaries of the late seller tried to get the contract made void. The Privy Council held that because the buyer did not know that the seller was mentally unbalanced as he appeared sane when the contract was made the seller was to be judged by the same standards as a person of sound mind and that the contract was not voidable by the seller or his representatives. (Cracknell's Companion Contract Law 2000 pg94) in this case because the buyer was unaware of the illness of the seller then not all the criteria to void a contract was filled.

Necessaries

Necessaries means. Where an individual with a mental unbalance enters into a contract with another person, whereby that person sells or supplies them with a necessary or necessaries, the contract will bind that individual.

Section 3 (2) of the Sale of Goods Act 1979 says "Where necessaries are sold and delivered [to a minor or] to a person who by reason of mental incapacity or drunkenness is incompetent to contract, they must pay a reasonable price for them". (www.statute law. Sale of goods Act 1979). This is to protect the seller, if the seller of such goods enters into the contract in good faith and is unaware that the individual has a mental unbalance. Necessaries will depend largely on the individual circumstances and requirements of the individual but the following general categories include Food and Drink, Clothing, Board and Lodging, Funeral Expenses and Medical Aid, however the burden of showing not only that the goods were suitable to the condition in life of the individual but also that they were suitable to their actual requirements at the time of the sale and delivery, rests upon the supplier of the goods. Consequently, where an individual has already been sufficiently supplied with the goods in question, even though this fact is not known to the supplier, the contract will not be a binding one. A comparison can be drawn in the case of Nash -v- Inman [1908] a tailor supplied a Cambridge student who was a minor at the time with clothing which included eleven fancy waistcoats. The claimant in this case sued the defendant for the price of the clothes, at court the claimant's father a man of means gave evidence