Where a person with an intellectual disability has made an unwise contract or gift, the law can assist in a number of ways.
A person who lacks general understanding of the nature and effect of a contract or gift is said by the law to have ‘incapacity’. In deciding whether incapacity applies to a particular transaction, attention is paid to the level of understanding of the person, the complexity of the transaction and the value of the property involved. The more complex the transaction and higher the value of the properties, the greater is the understanding required.
Incapacity has no effect on contracts for purchase of ‘necessaries’ providing only a reasonable price was paid. Necessaries are things a person needs to maintain a reasonable lifestyle (for example, food, clothing, medical treatment, rent). Any other contract may be overturned by a person with a disability if:
- the person lacked capacity for the transaction;
- the other person involved realised or ought to have realised that the person lacked capacity;
- the person with a disability can give back at least most of the benefits they have received under the contract (for example, if the contract was for purchase of a television, it is necessary that the television can be given back in much the same condition as when it was purchased); and
- property that the person with a disability wants back has not been sold to someone else who is not aware of the person with a disability’s incapacity.
A gift may be overturned if some of the above conditions apply. It is not necessary that the recipient of the gift ought to have realised that incapacity applied. Sometimes a person with a disability will enter a contract because (or partly because) of a misleading statement. This is called misrepresentation (for example, a car salesperson may say ‘this car has only done 20,000 kilometres’ when the car has in fact done 80,000).
Sometimes a misrepresentation is fraudulent (that is, intentionally false or made without caring whether it is false) in which case the person with a disability can normally overturn the contract and sue for damages to recover any loss suffered. If a misrepresentation is made innocently, the contract can still normally be overturned, but the person with a disability cannot usually sue for damages.
The court can also overturn transactions entered into following ‘undue influence’ or ‘unconscionable bargaining’. There is a ‘presumption’ of undue influence where:
- a transaction is between people whose relationships the law recognises as giving rise to risk of undue influence, for example, doctor and patient, parent and child;
- a person with a disability gains much less than they give in a transaction with a person in whom the person with a disability has great trust and confidence, for example, if a person with a disability gives their television to a house-parent whom the person with a disability depends on for advice.
Where this presumption of undue influence arises, it is then up to the person without a disability to prove that the person with a disability made an informed and independent decision to enter the transaction. If the person with a disability received independent advice, this would be easier to prove.
Consumer Protection Legislation
The Competition and Consumer Act 2010 applies to all those who provide goods or services. A person who believes that they have been the victim of misrepresentation or unconscionable conduct should seek legal aid or contact a community legal service.