Individuals with some form of mental disability are provided with some protection under UK law if they enter into a legal contract.
Mental Capacity Act 2005
Where an individual lacks mental capacity to such an extent that their affairs are under the control of the court or an attorney under a Lasting Power of Attorney, by virtue of the Mental Capacity Act 2005 any contracts purported to be made personally by the individual will be unenforceable against him/her. This is because only the attorney or the court has the power to act on his/ her behalf.
Incapacity but not under control
Until recently under UK law, an individual with some form of mental disability – who is not under the control of the court or who does not have an LPA in place – could have contracts enforced against them provided it could be shown they could understand the general nature of what they were doing.
However, in Fehily v Atkinson (2016), the court clarified that the ‘general understanding’ test required that the individual should have more than the capacity to ‘understand…the general nature of what he is doing’.
S/he must be able ‘to absorb, retain, understand, process and weigh information about the key features and effects of the contract, and the alternatives to it, if explained in broad terms and simple language’. The test, however, does not require them to be capable of comprehending every element of the planned transaction in the manner that, for example, a lawyer might.
The court stressed that the individual must only have the capacity to do these things, not that they actually did them. As long as they are capable of doing them, the fact that they did not do so in the run up to a specific transaction does render the transaction void.
For example, to fully understand a transaction some individuals need advice. The fact they did not receive advice, however, would not automatically affect capacity. The correct test of capacity, the court said, is whether a person has the insight and understanding to realise advice is required, the ability to find and instruct an adviser, and the capacity to understand and make decisions based on that advice.
The court also said that a person may have sufficient capacity for one type of decision but not another. Similarly, a person’s capacity to enter into a contract may change over time and therefore, when deciding whether a person has capacity, the court must decide whether the person had capacity at the time of entering into the transaction.
Contract for necessities
The only exception to the above rules relate to contracts for necessities. Under Mental Capacity Act 2005, a person who lacks capacity to contract for the supply of such goods and services must pay a reasonable price for them if they are supplied. ‘Necessary’ means suitable to a person’s condition in life and to his/her actual requirements at the time when the goods or services are supplied.