In Wychavon District Council v EM (HB)  UKUT 144 (AAC), the claimant, who was profoundly physically and mentally disabled, appealed from a decision that she was not entitled to housing benefit in respect of the sums payable under a tenancy agreement which, in the space for the tenant's signature, stated that she was “profoundly disabled and cannot communicate at all.”
The first instance tribunal had considered that the claimant’s parents were capable of agreeing to the tenancy on her behalf. The Upper Tribunal disagreed because the parents had not been conferred with that power by the Court of Protection. After having considered Hart v O’Connor  AC 1000 (PC), Judge Mark said that the absence of any agreement was manifest and that the claimant had no liability to pay rent. Therefore, he concluded, she was not entitled to housing benefit.
This conclusion in EM caused some consternation amongst practitioners in the mental health field and it was criticised as misunderstanding the decision in Hart and other cases. It is submitted that criticism was misplaced.
The original rule at law was that a contract with a person of unsound mind was void, because there could be no consensus ad idem. That was the principle of Roman law and it is still the rule in Scotland. In England and in other common law jurisdictions the law has mutated and it is generally held that such contracts are voidable rather than void[i]. However, at least in English law, it is submitted that terminology is apt to mislead.
The starting point is what does the law require in terms of capacity for an adult[ii] to enter into a tenancy agreement (or any other form of contract)? In Local Authority X v M  EWHC 2003 (Fam)[iii], Munby J sought to encapsulate a general theory of capacity in the common law which applies, in principle, to all ‘problems’ and to all ‘decisions’, namely that capacity depends upon the ability to understand the nature and quality of the relevant transaction.
Thus, the threshold of comprehension may be fairly low, particularly for an assured tenancy or a secure tenancy or a residential licence. A long lease, particularly of business premises or farmland, may be more demanding and may require a greater sophistication of understanding. Particular care may be necessary when it comes to variations or surrenders on leases.
If a party to the transaction is found to have lacked the requisite capacity at the time it was made, the question then arises as to what is the effect of the transaction in law. In Hart v O'Connor (above) Lord Brightman explained that the original rule had become qualified by a rule that a person could not plead his own unsoundness of mind in order to avoid a contract he had made. This in turn gave way to a further rule that such a plea was permissible if it could be shown that the other contracting party knew of the insanity.
The historical roots for that approach were explained by Fry LJ in Imperial Loan Co Ltd v Stone (1892)[iv] which Lord Brightman cited. The headnote in Stone states that where a defendant in an action of contract sets up the defence that he was insane when the contract was made, he must, in order to succeed in this defence, show that at the time of the contract his insanity was known to the plaintiff. Insofar as that suggests such contract is voidable rather than void, it is open to doubt.
In Thompson v Leach (1689)[v], Holt CJ held that a surrender by a person non compos mentis was void ab initio. That decision was subsequently affirmed in the House of Lords[vi]. It was relied on in Yates v Boen (1738)[vii] to allow of plea of non est factum by reason of insanity.
In Molton v Camroux (1848)[viii]; which Stone purported to follow, Pollock CB gave an explicit caveat that the Court was “not disposed to lay down so general a proposition, as that all executed contracts bona fide entered into must be taken as valid, though one of the parties be of unsound mind.”
A decade after Stone, Thompson v Leach was still regarded as good authority by the Privy Council in Daily Telegraph Newspaper Co Ltd v McLaughlin (1904)[ix] albeit only in denying leave to appeal from the High Court of Australia. That case concerned the validity of a grant of a power of attorney by a man who lacked all knowledge of what he was doing and the donee was aware of that fact. The High Court of Australia treated the case before it as a species of non est factum, to which the doctrines of Camroux and Stone had no application[x]. The High Court regarded the doctrine of those cases as being an exception to the non est factum rule which applies where the counter-party believes the incapacitated party to be of sound mind.
Where those doctrines do not apply, a plea of non est factum ought logically to be available to a person who lacks capacity: Saunders v Anglia Building Society (1971)[xi]. Thus, rather than describing a contract made by an adult[xii] who lacks specific capacity as “voidable”[xiii], it may be preferable to say it is void but that there is a public policy bar against reliance upon that defence unless the counterparty was aware of the incapacity at the time of the contract.
Analysed in this way, so far as the claimant in EM was concerned, the tenancy agreement was clearly foul of the non est factum rule: her incapacity was patent and known to her parents. There was a happy ending in that case, however. When faced with an application for permission to appeal, Judge Mark decided to review his own decision[xiv] and he concluded that the claimant did have a liability within the meaning of the Social Security Contributions and Benefits Act 1992 and the Housing Benefit Regulations 2006, because even though there was no contract the common law imposed an obligation to pay for “necessaries” with which she had been provided[xv]. That meant that she was entitled to housing benefit after all[xvi].
In his review decision in EM Judge Marks also considered whether the claimant had a liability by operation of s 7 of the Mental Capacity Act 2005, which provides,
(1) If necessary goods or services are supplied to a person who lacks capacity to contract for the supply, he must pay a reasonable price for them.
(2) “Necessary” means suitable to a person’s condition in life and to his actual requirements when the goods or services are supplied.”
He doubted whether the expression “services” in that section is wide enough to cover the provision of accommodation.
That doubt was extinguished by Andrews J in Aster Healthcare Ltd v The estate of Shafi (2014)[xvii], who held that the section was designed to cure the hardship that would otherwise arise where a supplier who intended the person under a mental incapacity to pay for necessary goods or services would be unable to recover payment from him under a contract, if there was one.
These considerations show that care needs to be taken whenever contractual capacity is an issue. When it comes to litigation, the evidential requirements and the need for careful pleading are particularly important.
[i] see e.g. Special Trustees for Great Ormond Street Hospital for Children v Rushin  WTLR 1137 per Rimer J at . Likewise in the majority (but not all) of jurisdictions in the United States: see e.g. Hernandez v. Banks 65 A.3d 59 (D.C. 2013)
[ii] Children lack capacity as a matter of law.
[iii]  1 FLR 443;  3 FCR 788
[iv]  1 QB 599, at 601 - 2
[v] 3 Mod. 301; 87 ER 199; (1690) Holt, KB 357 90 ER 1097
[vi] Leach v Thomson (1698) Shower 150; 1 ER 102
[vii] 2 Strange 1104; 93 E.R. 1060
[viii] 2 Exch. 487; 154 ER 584; affrmd. (1849) 4 Exch. 17; 154 ER 1107
[ix]  AC 776
[x] McLaughlin v Daily Telegraph Newspaper Co Ltd (No 2)  HCA 51; (1904) 1 CLR 243
[xi]  AC 1004 (HL) per Lord Reid at 1016; see also Lord Wilberforce at 1026 and Lord Pearce at 1034
[xii] Contracts made by children are treated differently. They are voidable.
[xiii] Of course, the lack of capacity may mean that the person was vulnerable to abuse and the contract was voidable because of some equitable fraud, but the principles for that are the same as if the person had full capacity.
[xiv] i.e. under rule 45(1)(a) of the Tribunal Procedure (Upper Tribunal) Rules 2008
[xv] In re Rhodes, Rhodes v Rhodes (1890) 44 Ch D 94
[xvi] Wychavon District Council v EM (HB) (2012) UKUT 12 (AAC), (2012) MHLO 5
[xvii]  EWHC 77 (QB);  3 All E.R. 283;  PTSR 888;  COPLR 397