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Gibbons v Wright

(1954) 91 CLR 423

Overview

The case concerned whether a contract was ineffective as a result of lack of 'mental capacity' on the part of two of the parties.

The Court held that it had been demonstrated that the sisters were incapable of understanding the nature of the agreement with the result that they lacked capacity to enter into the contract. This rendered the contract voidable with the result that, unless the sisters, during their lifetime, avoided the contract, it remained valid and enforceable.

Old ladies silhouette

 

Facts

Gibbons and her two sisters-in-law became owners of land as joint tenants. Subsequently the sisters executed documents converting the joint tenancy into a tenancy in common.

After their death Gibbons claimed that these documents were ineffective because the sisters lacked mental capacity (if this was the case she would become sole owner).

 

High Court

Dixon CJ, Kitto and Taylor JJ

There is no ‘fixed standard of sanity’ – simply a requirement that each party be of ‘such soundness of mind as to be capable of understanding the general nature of what he is doing by his participation.’  The capacity required is relative to the transaction being effected – what is the capacity of the party to understand the nature of the transaction when explained?

Here, it was necessary to show that the two sisters were

‘capable of understanding, if the matter had been explained to them, that by the executing the mortgages … they would be altering the character of their interest in the properties … so that instead of the last survivor … becoming entitled to the whole, each of them would be entitled to a one-third share …’.

This was not satisfied here.

Their Honours then considered if the lack of capacity rendered the contract void or voidable; they concluded lack of capacity made a contract voidable only – so unless the sisters, in their lifetime, sought to avoid the contract it remained valid and enforceable.