Hernandez v. Banks - 65 A.3d 59 (D.C. 2013)

Rule:

A majority of jurisdictions follow the rule that contracts entered into by mentally incapacitated persons are voidable, rather than inherently void. Under that rule, the contractual act of a person later found mentally incapacitated, rather than adjudicated incapacitated or under a guardianship at the time of the contract, is not inherently void but at most voidable at the instance of the mentally incapacitated party, and then only if avoidance is equitable. A voidable contract is presumed valid and legally binding, subject to possible avoidance by the mentally incapacitated party, who must manifest an election to do so.

Facts:

Appellees Bryant and Sheillia Banks (the "Bankses") entered into a lease agreement with Patricia Speleos. Pursuant to that lease, appellees were obligated to pay $500 per month in rent and were given the exclusive option to purchase the Property at any time for $50,000. In July 1997, appellant’s predecessor-in-interest, 718 Associates, purchased a tax sale certificate to the Property for $2,103 and was subsequently issued a tax deed in August 2001. In November 2001, Speleos was adjudged to be mentally incapacitated. In 2003, 718 Associates filed suit against Speleos’ estate to quiet title to the Property, claiming that their tax deed divested all interest and title of the Estate and vested good title to the Property in 718 Associates. The Estate and 718 Associates entered into a Settlement Agreement. In April 2008, 718 Associates filed the present action seeking a non-redeemable judgment for possession of the Property against the Bankses. The Bankses claimed that they were entitled to remain tenants when 718 Associates obtained title to the Property because they had a valid lease with the Property's former owner, Speleos. 718 Associates challenged the validity of the Bankses’ lease, claiming that Speleos lacked capacity at the time that she entered into the lease transaction with the Bankses and, as a result, the lease was void. The trial court found that Speleos was mentally incompetent when she entered into the lease agreement with the Bankses. The trial court concluded, however, that the lease was voidable, rather than void. The division reversed, applying the doctrine enunciated in Sullivan v. Flynn, 20 D.C. (9 Mackey) 396 (1892). A rehearing en banc was granted to consider whether the Sullivan rule should continue to be followed in the District of Columbia.

Issue:

Should the court continue to follow the rule enunciated in Sullivan v. Flynn, 20 D.C. (9 Mackey) 396 (1892), i.e., that the deed of an insane person was void?

Answer:

No.

Conclusion:

The district's highest court held that the rule that contracts entered into with persons while mentally incapacitated were void was based on an obsolete understanding of mental illness--that a mentally incapacitated person did not have a mind recognized by the law and could not form a contract. Sullivan also was based on the incorrect belief that a mentally incapacitated person would never regain the mental capacity necessary to avoid a contract and had no protection if his contract was voidable. The District of Columbia's policy under D.C. Code § 7-1301.02(a)(1) was that residents with intellectual disabilities had all the civil and legal rights enjoyed by all other citizens. Under the voidable rule, a contract might be enforced despite one party's incapacity where the other party had no reason to know of the incapacity and had substantially performed, could not recover his consideration or would otherwise suffer hardship. Sullivan v. Flynn, 20 D.C. (9 Mackey) 396 (1892), was overruled. The owner was incapacitated when she entered into the lease. The lease was voidable at the election of the owner or her representative unless avoidance of the contract would be unjust.