Where a mentally incapacitated claimant has transferred a benefit to the defendant, the claimant may be able to obtain restitution of the benefit without relying on incapacity specifically, but by establishing that one of the grounds of restitution which are founded on the exploitation principle can be established.18 For example, the claimant may be able to show that the defendant had unduly influenced the claimant or that the defendant had acted unconscionably in exploiting the claimant’s weakness.
In all other cases the transaction which the claimant entered into will be treated as valid unless two conditions are satisfied.19
(1) Failure to Understand the Nature and Effect of the Transaction
It must first be established that the claimant did not understand the nature and effect of the transaction at the time he or she entered into it.20 The extent to which the claimant must fail to understand the nature and effect of the transaction depends on the type of transaction and its potential effect on the claimant’s circumstances. A particularly important consideration concerns the type and value of any property which the claimant transferred to the defendant. So, for example, in Re Beaney21 the deceased, who was suffering from advanced senile dementia, transferred her house, which was her only valuable asset, to her eldest daughter. The transfer was set aside because the deceased had not understood that the consequence of the transaction was to make an absolute gift of the house to her daughter and the effect of this transfer on the claims of her other children had not been explained to her. As Martin Nourse QC said:22
[I]f the subject matter and value of a gift are trivial in relation to the donor’s other assets a low degree of understanding will suffice. But, at the other extreme, if its effect is to dispose of the donor’s only asset of value and thus for practical purposes to pre-empt the devolution of his estate under his will or on his intestacy, then the degree of understanding required is as high as that required for a will and the donor must understand the claims of all potential donees and the extent of the property to be disposed of.
(2) Defendant’s Knowledge of the Incapacity
The second condition is that the defendant must have known that the claimant lacked the capacity to understand what he or she was doing.23 Knowledge refers to actual or constructive notice, so it is sufficient that the defendant had sufficient awareness of the facts which would indicate to the honest and reasonable person that the other party to the contract was suffering from mental infirmity.24 But why should this be relevant, particularly because such a requirement does not apply where the claimant is a minor?25 The only possible explanation for this requirement is that, where the claimant is suffering from a mental disorder, there may be nothing to indicate to the defendant that the claimant might be suffering from mental infirmity, whereas it is easier to establish that the defendant has been put on notice that the claimant is an infant and is required to investigate what the claimant’s age is.       
(3) Consequences of the Conditions Being Satisfied
Where the mentally incapacitated claimant has transferred a benefit to the defendant in circumstances where both these conditions have been satisfied, the claimant will be able to recover the benefit. Where, however, the claimant has entered into a contract with the defendant in circumstances where both conditions have been satisfied it is first necessary to show that the contract has ceased to operate before restitutionary relief can be awarded. It is unclear whether the claimant’s incapacity makes the contract void or voidable. The preferable view is that the incapacity renders the contract voidable, save where the claimant’s incapacity is so severe that he or she could not be considered to know that he or she was entering into a transaction at all, for then the doctrine of non estfactum will apply. If the claimant was aware of what he or she was doing but fails to understand the nature and effect of the contract and the defendant knew this, the claimant can rescind the contract, although this will be subject to the usual bars on rescission, including that the claimant must be in a position to make counter-restitution to the defendant. Once the contract has been rescinded, the claimant will be able to recover all the benefits which he or she had transferred to the defendant. Where, however, the mentally incapacitated person is supplied with necessaries, he or she must pay a reasonable price for them.
-  See Chapter 11.
-  The ground of mental incapacity is distinct from that of unconscionable conduct, see p 278, above,because for the latter it is also necessary to prove that the relevant transaction was fair, just and reasonable.That is not a requirement for the mental incapacity doctrine.
-  Re Beaney  1 WLR 770.
-  Ibid. See also Simpson v Simpson  Fam Law 20 and the decision of the High Court of Australia in
-  Gibbons v Wright (1954) 91 CLR 423 . 22 Re Beaney  1 WLR 770, 774.
-  Imperial Loan Co v Stone  1 QB 599,601 (Lord Esher MR). This was affirmed by the Privy Councilin Hart v O’Connor  AC 1000.
-  Hassard v Smith (1872) IR 6 Eq 429. 25 See p 385, below.
-  See, for example, Daily Telegraph Newspaper Co Ltd v McLaughlin  AC 776 and Simpson v Simpson Fam Law 20.
-  Imperial Loan Co Ltd v Stone  1 QB 599,602 (Lopes LJ) and Gibbons v Wright (1954) 91 CLR 423.
-  Molton v Camroux (1849) 4 Ex 17, 154 ER 117. For analysis of the bars to rescission, see p 25, above.
-  Mental Capacity Act 2005, s 7.