Replacing precedent dating back to 1892, the District of Columbia Court of Appeals ruled today that contracts entered into with mentally incapacitated individuals will no longer be considered automatically void.
Under the new standard, those contracts will be voidable, as opposed to inherently void. According to the ruling, a contract will be binding unless the incapacitated person or someone approved to act on his or her behalf takes steps to cancel it. If an incapacitated person or the representative does want to cancel a contract, they can only do so if it would be fair to the parties involved.
Judge Anna Blackburne-Rigsby, writing for the court, said the new standard, which is used in the majority of jurisdictions in the United States, "better comports with modern contract law and modern understandings of mental illness."
Blackburne-Rigsby wrote that the previous case law from 1892, Sullivan v. Flynn, was based on a belief that mental illness was permanent and that an incapacitated person was unable enter into a legally-binding agreement, even if it was in their interest. Such thinking was outdated, she said, and wasn't in keeping with modern public policy that the best way to "protect" incapacitated individuals was to make it easier for them to participate in society.
The decision didn't resolve the underlying case, which involved a dispute over ownership of a property in Washington. A three-judge appeals panel will have to decide whether there was evidence that the original owner of the property, Patricia Speleos, or someone authorized to act for her took steps to cancel a lease agreement.
According to filings, Bryant and Sheilla Banks leased the property from Speleos in March 2001. Several months later, a Superior Court judge found Speleos was mentally incapacitated and voided several transactions she entered into in March 2001, but didn't address the lease with the Bankses.
A company that later bought the property's tax deed sued Speleos' estate for the title, arguing the lease was void because of Speleos' incapacitation. Judge Stephanie Duncan-Peters found that although Speleos was mentally incapacitated when she agreed to the lease with the Banks family, it was voidable and not inherently void. She affirmed the lease, finding there was no evidence that Speleos or her estate cancelled it.
On appeal, a three-judge appeals panel reversed Duncan-Peters, citing the Sullivan ruling. That case was decided by the court's predecessor, the District of Columbia Supreme Court, which upheld an even older U.S. Supreme Court decision from 1872. A full sitting of the D.C. appeals court heard the case last June.
Daniel Harawa argued for the Banks family in conjunction with the D.C. Law Students in Court program; he is finishing a clerkship in the U.S. Court of Appeals for the Fourth Circuit after graduating last year from Georgetown University Law Center and will soon join Covington & Burling. He said today he was glad "the court progressed from what I considered outdated precedent and tried to adopt a more modern view of mental illness and the rights of the mentally ill."
Aaron Sokolow of Washington's Battino & Sokolow, who argued for the current owner of the tax deed, said he wasn’t surprised by the decision, noting the original three-judge panel foreshadowed how they might have ruled if not for the 1892 precedent.
Sokolow said he hoped the three-judge panel now handling the case would look at the facts in deciding whether Speleos voided the contract. He said he was disappointed the new voidable standard, as applied to the Speleos case, "is not being used to protect the incapacitated individual…It's really protecting the person who profited from an unfair contract."
Julie Becker of the Legal Aid Society of the District of Columbia, who was part of an amicus brief in favor of replacing Sullivan, said the new interpretation would offer more protection to incapacitated persons. "This decision really gives maximum decision-making power to the incapacitated person or the person specifically designated to act on their behalf," she said.