Does Mental Incapacity Void a Deed of Settlement? What this video to find out the short story of whether mental incapacity can render a deed void…

The question from a reader: does mental incapacity void a deed? This is an interesting one. So interesting I didn’t actually know the answer, and I had to go and look at it. Well, I’m slightly joking. I knew part of the answer, but not all of it.

Hi, everyone, Simon here from The Contract Company. Contracts – that’s what we do all day every day. And sometimes every night. Lucky us. It is lucky us, we like it. Right on.

So I’ve had to go and print out some material and referencing some case law that I had to find. The question was put to us through our website, askacontractlawyer.com.au,. It is whether mental incapacity on behalf of one person signing a deed can render the deed void.

So in this case, there was a dispute between an employer and an employee. The employee signed a deed and then the question that was posed to us. Can the employee signature on the deed, render the deed void if the employee was mentally incapacitated?

Right interesting question.

So does mental capacity void a deed?

The answer to the question is simply that, yes, mental incapacity can render a deed void. But the real issue is you got to be able to prove it.

So I went found some case law, and I’m gonna have to look at my notes here of an unfortunate case in New South Wales. This is about a person who was abused or alleged abuse by the church, and they signed a deed.

So I get into the details, obviously of that, but they signed the Deed of Settlement with the church in receipt. Or sorry, in receipt for some payment. What that meant was they had a date of release, they signed up, got some money from the church, and walked away.

Turns out later they weren’t happy with the amount that they were given.  They weren’t happy with the amount that they settled for under the Deed of Settlement. They looked to overturn the deed.

Proof of Mental Incapacity

And so the court was asked to look at whether the person’s mental incapacity would overturn the deed. The answer was, well, yes, it would, if you can prove that the person was mentally incapacitated.

And so the court basically said, and I’ll just read a bit of this out.  A person lacks the mental capacity to enter into a binding transaction if they are not capable of understanding the general nature of the transaction.

So that seems to be the threshold test. Does the person who signed the deed understand the nature of the deed? Not necessarily the ins and outs of the deed, but the general transaction the deed is contemplating.

If the answer to that is they do not understand what they are assigning they do not understand the general nature of the deed, then that potentially renders the deed void.

The Case of Gibbons V Wright

The other issue is, where am I, I looked at a high court case of Gibbons V Wright and that basically said the mental capacity required by the law in respect of any instrument is relative to the particular transaction which is affected by the means of the instrument and may be described.

I see that wasn’t helpful was it, wasn’t helpful for me and I had to read it.

But basically, they say that it is also necessary for a transaction entered into by a person without the required capacity to be avoidable, that the other party to the transaction have knowledge of the incapacity.

So that was the part I didn’t realize is that in my employee versus employer scenario, according to the High Court, they’re saying the employer also needs to be aware that in this case, the employee had that mental incapacity.

And if this person who signs the deed doesn’t know what they’re doing, because they and this party the employer knew, or ought to have known, had they taken undertaken reasonable inquiries, then that will render the deed voidable.

Final Notes

But as I said, the whole issue with this, well, the biggest issue with this whole transaction is the fact that to render the deed unenforceable, you actually going to have to go to court and get that proof and that ain’t gonna be cheap.

Anyway, I hope that helps, sort of helps me. If you have any questions feel free to get in touch with us simon@contractcompany.com Today you or call 1 800 355 455

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