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CONTRACTS MADE BY AGENTS ON BEHALF OF PRINCIPALS WITH LATENT MENTAL INCAPACITY: THE COMMON LAW POSITION

Published online by Cambridge University Press:  26 March 2015

Peter Watts
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Abstract

The common law regarding the formation of contracts made through an agent on behalf of a principal suffering from latent mental incapacity is still undeveloped. This article argues that, in general, such a principal can confer actual authority to contract on an agent so long as the agent (reasonably) is, and remains, unaware of the incapacity. On the same basis, an incapax principal can manifest to a third party that such an appointment has been made, thereby creating apparent authority in the agent.

Keywords

mental incapacityagencyconferral of authoritycapacity to contract
Type
Articles
Information
The Cambridge Law Journal , Volume 74 , Issue 1 , March 2015 , pp. 140 - 154
Copyright
Copyright © Cambridge Law Journal and Contributors 2015 

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References

1 See Powers of Attorney Act 1971, s. 5, not confined to the mentally incapable, and the Mental Capacity Act 2005.

2 [2014] UKSC 18; [2014] 1 W.L.R. 933. See also Blankley v Central Manchester and Manchester Children’s University Hospitals NHS [2015] EWCA Civ 18 at [37].

3 See CPR, Part 21. Even at common law, courts would sometimes withhold enforcement orders in relation to compromises made by counsel with apparent, but without actual, authority: see Neale v Gordon Lennox [1902] A.C. 465.

4 For an example of a case of the latter sort, see Taylor v Walker [1958] 1 Lloyd's Rep. 490, 514.

5 [2014] UKSC 18; [2014] 1 W.L.R. 933, at [31].

6 See e.g. Tesco Supermarkets Ltd. v Nattrass [1972] A.C. 153, 199, per Lord Diplock.

7 See Re The Estate of Park [1954] P. 112; Gibbons v Wright (1954) 91 C.L.R. 423, 437Google Scholar; Re Beaney [1978] 1 W.L.R. 770. See also Everett v Griffiths Lewis [1920] 3 K.B. 163, 198; affirmed [1921] 1 A.C. 631. For an account of the older categories and degrees of insanity recognised by common lawyers, see Broome, J. and Fowke, V., Pope's Treatise on the Law and Practice of Lunacy, 2nd ed. (London 1890)Google Scholar, ch. 1.

8 (1954) 91 C.L.R. 423, 437.

9 (1829) 1 D. & Cl. 380, 391, 6 E.R. 568, 572.

10 As to constructive knowledge being sufficient, see Molton v Camroux (1849) 4 Exch. 17, 19Google Scholar; 154 E.R. 1107, 1108; York Glass Co. Ltd. v Jubb (1926) 134 L.T. 36, 41; Hart v O'Connor [1985] A.C. 1000, 1014. Cf. Kakavas v Crown Melbourne Ltd. [2013] HCA 25; (2013) 298 A.L.R. 35 (alleged unconscionable bargain).

11 [1892] 1 Q.B. 599.

12 [1985] A.C. 1000. See also Daily Telegraph Newspaper Co. Ltd. v McLaughlin (1904) 1 C.L.R. 243, 272Google Scholar.

13 Authority is scarcely necessary, but see Smith v Hughes (1871) L.R. 6 Q.B. 597, 607; Gissing v Gissing [1971] A.C. 886, 906; Rainy Sky SA v Kookmin Bank [2011] UKSC 50; [2011] 1 W.L.R. 2900, at [14].

14 This was accepted in Blankley v Central Manchester and Manchester Children's University Hospitals NHS Trust [2014] EWHC 168 (QB), at [30]. The point was left open on appeal: [2015] EWCA Civ 18 at [37].

15 Bowstead & Reynolds on Agency, 20th ed. (London 2014)Google Scholar, Article 120.

16 See, e.g. Hart v O'Connor [1985] A.C. 1000.

17 A prospect constrained, but not eliminated, by Bolton Partners v Lambert (1889) 41 Ch.D. 295Google Scholar.

18 [1964] 2 Q.B. 480, 502. See also Restatement of the Law 3d, Agency (St Paul 2006)Google Scholar, at §2.02, and the commentary thereto.

19 Bowstead & Reynolds on Agency, para. 1–006.

20 See Blankley v Central Manchester and Manchester Children's University Hospitals NHS [2015] EWCA Civ 18 at [40], affirming [2014] EWHC 168 (Q.B.).

21 Note 7 above.

22 (1849) 4 Exch. 17, 154 E.R. 1107.

23 (1954) 91 C.L.R. 423.

24 See Beverley's Case (1603) 4 Co. Rep. 123bGoogle Scholar, 76 E.R. 1118.

25 (1904) 1 C.L.R. 243.

26 [1904] A.C. 776.

27 See (1904) 1 C.L.R. 243, 274, 276.

28 (1904) 1 C.L.R. 243, 273. Later Australian case law has since confirmed that contracts caught by the doctrine are nullities – see Ford v Perpetual Trustees Victoria Ltd. [2008] NSWSC 29; (2008) 70 N.S.W.L.R. 611, at [83], implicitly affirmed on this point in [2009] NSWCA 186; (2009) 75 N.S.W.L.R. 42, at [30].

29 (1904) 1 C.L.R. 243, 276. See also Ford [2009] NSWCA 186, at [38].

30 See also the early case Gore v Gibson (1845) 9 Jur. 140, discussed further below.

31 See Chitty on Contracts, 31st ed (London 2013)Google Scholar, ch. 5, section 4.

32 See Saunders v Anglia Building Society [1971] A.C. 1004, 1015–16, 1019, 1025–27; Petelin v Cullen (1975) 132 C.L.R. 355, 359Google Scholar.

33 (1954) 91 C.L.R. 423, 443.

34 [1892] 1 Q.B. 599.

35 [1985] A.C. 1000.

36 [1985] A.C. 1000, 1027.

37 As alluded to in the introduction to this article, the unambiguous nature of death assists in explaining why death of the principal automatically terminates authority, whether or not the agent knows of the death – see Bowstead & Reynolds on Agency, Article 119. Whether someone is a minor is also unambiguous. While mere viewing cannot confidently establish age, usually proof can be insisted upon.

38 (1848) 2 Exch. 487, 154 E.R. 584; and (1849) 4 Exch. 17, 154 E.R. 1107.

39 (1904) 1 C.L.R. 243, 272. See also Tremills v Benton (1892) 18 V.L.R. 607, 622, also cited with approval by Lord Brightman in Hart [1985] A.C. 1000, 1027.

40 See (1904) 1 C.L.R. 243, 272.

41 Ibid., at pp. 271, 275.

42 Ibid., at p. 275.

43 Ibid.

44 Ibid., at p. 276.

45 Stead v Thornton (1832) 3 B. & Ad. 357, 110 E.R. 134; Tarbuck v Bispham (1836) 2 M. & W. 2, 150 E.R. 643.

46 (1904) 1 C.L.R. 243, 267.

47 (1857) 7 D.M. & G. 475, 487, 44 E.R. 186, 190.

48 1 C.L.R. 243, 275.

49 It seems unlikely that restitutionary solutions could provide satisfactory protection for agents.

50 (1954) 91 C.L.R. 423.

51 Ibid., at p. 443.

52 Ibid., being a quotation from Carlisle & Cumberland Banking Co. v Bragg [1911] 1 K.B. 489, 496.

53 (1845) 13 M. & W. 623, 153 E.R. 260.

54 (1873) L.R. 8 Exch. 132.

55 91 C.L.R. 423, 444, 448.

56 Ibid., at p. 445.

57 See also A.H. Hudson, “Some Problems of Mental Incompetence in the Law of Contract and Property” (1961) 25 Conv. 319.

58 MacKenzie, V.S., The Law of Powers of Attorney and Proxies (London 1913), 92–93Google Scholar. The Powers of Attorney Act 1971, s. 5, and its predecessors (including the Conveyancing Act 1881) may have been drafted on an assumption that powers of attorney granted by incapax persons were ipso facto void, but that could not be decisive of the common law: see Pritchard v Briggs [1980] Ch. 338, 398.

59 2 M. & W. 2.

60 3 B. & Ad. 357.

61 (1857) 7 De G.M. & G. 475, 44 E.R. 186.

62 Ibid., at pp. 487, 488.

63 (1879) 4 Q.B.D. 661.

64 Ibid., at p. 665. A similar assumption was made in Evans v James [2000] 3 E.G.L.R. 1 but it is clear that the relevant solicitor had actual knowledge of the stroke that caused his client's disability. The issue has been left open in Blankley v Central Manchester and Manchester Children’s University Hospitals NHS [2015] EWCA Civ 18 at [36].

65 4 Q.B.D. 661, 666.

66 Ibid., at p. 667.

67 [1910] 1 K.B. 215.

68 The difficulties of Yonge v Toynbee on this issue were adverted to by Buxton L.J. in AMB Generali Holding AG v SEB Trygg Liv [2005] EWCA Civ 1237; [2006] 1 Lloyd's Rep. 318, at [60]. Yonge v Toynbee was assumed to be correct in Bank of Scotland v Qutb [2012] EWCA Civ 1661, another wasted-costs case. That case, however, involved death of the principal not mental incapacity and in circumstances where the litigation friend knew of the death.

69 One should note that Raphael Powell in his text on agency law had already adopted the view that incapax principals could not appoint agents: The Law of Agency (London 1952), 312Google Scholar. See also the differing views in H. Goudy, “Contracts by Lunatics” (1901) 17 L.Q.R. 147; and R. Wilson, “Lunacy in Relation to Contract, Tort and Crime” (1902) 18 L.Q.R. 21. Cf. R. Munday, “The Capacity to Execute an Enduring Power of Attorney in New Zealand and England” (1989) 13 N.Z.U.L.R. 253.

70 A.H. Hudson, “Agency and Insanity” (1959) 37 Can. Bar Rev. 497.

71 See A.H. Hudson, “Mental Incapacity in the Law of Contract and Property” [1984] Conv. 32.

72 Reynolds, F.M.B. and Davenport, B., Bowstead on Agency, 13th ed. (London 1968), 14Google Scholar.

73 In Article 6 in each edition.

74 See Halsbury's Laws of England, 1st ed. (London 1907)Google Scholar, vol. 1, para. 330, and compare with Halsbury's Laws of England, 5th ed. (London 2008)Google Scholar, vol. 1, para. 6.

75 Restatement of the Law 3d, Agency, above note 19, at §3.08. See also §3.11 in relation to apparent authority. “Notice” is defined in §1,04(4) as including knowledge and reason to know.

76 Bowstead & Reynolds on Agency deals with this in para. 8–008, tentatively suggesting that actual authority continues but that the third party cannot rely on it.