Normally, a mentally incapacitated person can still make a binding contract.
When a contract may not be binding
The person (or someone on their behalf if they are suffering from the mental incapacity) can apply to the court to undo the contract (called having it 'set aside'), on the basis that when it was made they were suffering from some mental incapacity. The court may undo the contract, if it thinks that the person really was unable to understand the nature of the contract when they made it, and also that the other person knew or should have realised this.
When a contract will be binding
- If there was no way the other person should or could have known about the incapacity, the contract is unlikely to be undone - it will be binding.
- Even if the person has an incapacity, if they were not affected by it at the time of making the contract, they will be bound, regardless of whether the other party knew about the incapacity.
- Furthermore, if the contract was made at a time when the person was affected by the incapacity, if they have had the benefit of goods or services, they can still be required to pay a reasonable price for them, if they were 'necessaries', that is, things reasonably necessary or appropriate to their way of life at the time.
The content of the Law Handbook is made available as a public service for information purposes only and should not be relied upon as a substitute for legal advice. See Disclaimer for details. For free and confidential legal advice in South Australia call 1300 366 424.