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Hernandez v. Banks

District of Columbia Court of Appeals
65 A.3d 59, 2013 D.C. App. LEXIS 250, 2013 WL 1831713 (2013)
ELI5:

Rule of Law:

A contract entered into by a person who is mentally incapacitated, but not yet judicially adjudicated as such, is not inherently void but is merely voidable at the election of the incapacitated person or their representative.


Facts:

  • In March 2001, property owner Patricia Speleos entered into a lease agreement with Bryant and Sheillia Banks for her property at 718 Marietta Place, N.W.
  • The lease obligated the Bankses to pay $500 per month in rent and gave them an exclusive option to purchase the property for $50,000.
  • In July 1997, 718 Associates had purchased a tax sale certificate to the same property, and in August 2001, it was issued a tax deed.
  • In November 2001, in a separate proceeding, a court found Ms. Speleos to be mentally incapacitated, and a conservator was appointed for her estate.
  • The court that found Speleos incapacitated later voided seven other real estate transactions she had entered into in March 2001 due to her incapacity, but it did not rule on the validity of the Bankses' lease.
  • In October 2006, following Ms. Speleos's death, 718 Associates entered into a settlement agreement with her Estate, which gave 718 Associates title to the property.
  • As part of the settlement, Speleos's Estate provided an affidavit attesting that there were no valid leases or tenants on the property.

Procedural Posture:

  • 718 Associates filed suit in the Superior Court of the District of Columbia (trial court) seeking a non-redeemable judgment for possession against the Bankses.
  • The trial court found that Ms. Speleos was incompetent at the time she signed the lease, but held that the lease was voidable, not void.
  • The trial court further found that neither Ms. Speleos nor her representatives had disaffirmed the lease, and therefore ruled in favor of the Bankses.
  • 718 Associates (appellant) appealed the decision to the District of Columbia Court of Appeals.
  • A three-judge division of the Court of Appeals reversed the trial court, holding that the controlling precedent of Sullivan v. Flynn rendered the lease inherently void.
  • The Bankses (appellees) successfully petitioned for a rehearing en banc before the full District of Columbia Court of Appeals.

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Issue:

Is a contract entered into by a person later found to be mentally incapacitated merely voidable, rather than inherently void?


Opinions:

Majority - Associate Judge Blackburne-Rigsby

Yes. A contract entered into by a mentally incapacitated person is merely voidable, not inherently void. The court overrules the 120-year-old precedent of Sullivan v. Flynn, which held such contracts to be void, and adopts the modern majority rule as articulated in the Restatement (Second) of Contracts § 15. The prior rule was based on an outdated 'meeting of the minds' theory of contract formation and an archaic understanding of mental illness. The voidable rule better protects the incapacitated party by allowing them or their representative to either ratify a favorable contract or disaffirm an unfavorable one. This approach also promotes the security of transactions by balancing the interests of the incapacitated person against those of the other contracting party, especially when the other party acted in good faith without knowledge of the incapacity.



Analysis:

This decision marks a significant modernization of contract law in the District of Columbia by explicitly overruling a long-standing but obsolete precedent. By aligning with the vast majority of U.S. jurisdictions and the Restatement (Second) of Contracts, the court shifts from a rigid, all-or-nothing 'void' rule to a flexible, equitable 'voidable' standard. This change provides greater protection to mentally incapacitated individuals by granting them agency—the choice to enforce or disaffirm a contract—rather than treating them as legally non-existent. The decision will require lower courts in D.C. to engage in a more nuanced, fact-sensitive analysis, considering the fairness of the transaction and the knowledge of the other party, thereby promoting both the security of commerce and the rights of vulnerable persons.

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