Wе granted appellees’ petition for rehearing en banc to consider whether we should continue to follow the rule of Sulli
The background is as follows. Appellant’s predecessor-in-interest, 718 Associates,
I. Background
The Bankses entered into a lease agreement regarding the Property at issue in this case with Ms. Speleos in March 2001. Pursuant to that lease, appellees were obligated to pay $500 per month in rent and were given the exclusive option to purchase the Property at any time for $50,000. In July 1997, 718 Associates purchased a tax sale certificate to the Property for $2,103 and was subsequently issued a tax deed in August 2001. See D.C.Code § 47-1304 (1997 Supp.) (providing that when a
In November 2001, as part of a separate proceeding initiated by Adult Protective Services, Superior Court Judge Kaye K. Christian found Ms. Speleos, who was then eighty-four years old, to be mentally incapacitated as defined by D.C.Code § 21-2011(11) (2001).
On August 4, 2003, Judge Hiram E. Puig-Lugo found, based on the testimony of Ms. Speleos’s conservator and guardians, that Ms. Speleos was mentally ill and was likely to injure herself. See D.C.Code § 21-545(b)(2) (2001). For that reason, Ms. Speleos was committed indefinitely to the District of Columbia Department of Mental Health for outpatient treatment. On August 5, 2003, 718 Associatеs filed suit against Ms. Speleos’s estate to quiet title to the Property, claiming that their tax deed divested all interest and title of the Estate and vested good title to the Property in 718 Associates. See D.C.Code § 47-1304 (2001). While the suit to quiet title was pending, Ms. Speleos passed away, and her sister, Ann E. Pizzulo, became Personal Representative of the Estate. The suit to quiet title was resolved in October 2006, when 718 Associates and the Estate entered into a settlement agreement, which resulted in 718 Associates obtaining title to the Property. Pursuant to that settlement agreement, the Estate provided an affidavit attesting that there were no valid leases or permissive tenants on the Property.
In April 2008, 718 Associates filed the present action seeking a non-redeemable judgment for possession of the Property
II. Discussion
We begin our discussion by outlining the relevant legal principles governing the contracts of mentally incapacitated persons. We then explain our reasons for overruling Sullivan and adopting the voidable rule, as stated in the Restatement (Second) of Contracts, as the law of the District of Columbia.
A. Legal Background
We granted rehearing en banc to consider whether the rule from Sullivan, that contracts entered into by mentally incapacitated persons are inherently void, should continue to be followed in the District of Columbia, or if we should join a majority of jurisdictions and hold that such contracts are voidable. We first address the applicable standard of review and define the void and voidable rules concerning the contracts of mentally incapacitated persons.
1. Standard of Review
Because neither this court sitting en banc nor the D.C. Circuit (prior to 1971) overturned or announced a departure from Sullivan, it remains the law in the District of Columbia. This court sitting en banc may overrule our predecessor courts’ decisions, including common law decisions. See, e.g., Davis v. Moore,
2. Void Rule
Sullivan held “that the deed of an insane person is void, and therefore cannot be ratified by acts in pais.”
3. Voidable Rule
A majority of jurisdictions follow the rule that contracts entered into by mentally incapacitated persons are voida
(1) A person incurs only voidable contractual duties by entering into a trans*67 action if by reason of mental illness or defect
(a) he is unable to understand in a reasonable manner the nature and consequences of the transaction, or
(b) he is unable to act in a reasonable manner in relation to the transaction and the other party has reason to know of his condition.
(2) Where the contract is made on fair terms and the other party is without knowledge of the mental illness or defect, the power of avoidance under Subsection (1) terminates to the extent that the contract has been so performed in whole or in part or the circumstances have so changed that avoidance would be unjust. In suсh a case a court may grant relief as justice requires.
Restatement (Second) of Contracts § 15 (1981). In sum, a voidable contract — unlike a void contract, which has no legal effect — binds both parties unless disaf-firmed or avoided by the incapacitated party. Absent fraud or knowledge of the asserted incapacity by the other contracting party, the power of avoidance is subject to limitation based on equitable principles.
B. Overruling Sullivan v. Flynn
In considering whether the precedent established in Sullivan should be overruled, we examine whether Sullivan’s rationale still withstands careful analysis. Concluding that it does not, we first explain why the outcome in Sullivan was not compelled by the holding in Dexter v. Hall,
The court in Sullivan reasoned that it was bound by the United States Supreme Court’s decision in Dexter to hold that the deed of an insane person is void. Sullivan, supra,
Next, we examine the rationales commonly used to support the void rule, as explained by the Court in Dexter: 1) that a mentally incapacitated person cannot enter into a valid contract because to do so “requires the assent of two minds” and a mentally incapacitated person “has nothing which the law recognizes as a mind;” and 2) that a mentally incapacitated person, unlike an infant, will never gain the mental capacity necessary to avoid a contract and therefore “has no protection if his contract is only voidable.” Dexter, supra,
1. Contract Formation
Implicit in the holdings of both Dexter and Sullivan is the premise that formation of a contract requires the mental assent of the parties involved, or a “meeting of the minds.”
To continue to adhere to the Court’s rationale in Dexter, and by extension Sullivan, one also has to accept the premise that “a lunatic, or a person non compos mentis, has nothing which the law recognizes as a mind....”
2. “Protection” of the Party with a Mental Illness or Defect
The other rationale relied on by Dexter and incorporated in Sullivan is that a mentally incapacitated person, unlike an infant, will never regain the mental capacity necessary to avoid a contract and therefore “has no protection if his contract is only voidable.” Dexter, supra,
At the time Dexter and Sullivan were decided, “idiocy” and “lunacy” were primarily understood to be permanent conditions.
Dexter, upon which Sullivan was predicated, relies on an outdated understanding of what it means to “protect” a person with a mental illness or defect. Whereas people with mental illnesses were once stigmatized and segregated from the rest of society as a common form of “treatment,”
Determining how to treat the contracts of mentally incapacitated persons requires the reconciliation of two conflicting policies: “the protection of justifiable expectations and of the security of transactions, and the protection of persons unable to protect themselves against imposition.” Restatement (Second) of Contracts § 15 cmt. a. We have already discussed how the voidable rule better serves the second policy. The voidable rule also better serves the first policy of creating greater certainty for real property and other commercial transactions. Under the Sullivan rule, because a mentally incapacitated person’s contract is inherently void, the competent contracting party and others with rights dependent on that party cannot obtain the benefit of their bargain, regardless of the inequities (although he or she may still have some remedy based on a quasi-contract theory). See, e.g., Nevin v. Hoffman,
Because we conclude that the void rule relies on an outdated theory of contract formation and outdated understandings of mental illness, we overrule the holding of Sullivan v. Flynn,
III. Application of the Voidable Rule to This Case
In the instant case, Ms. Speleos was found to have been incapacitated at the time she entered the lease with appellees.
So ordered.
Notes
. While this appeal was pending before a three-judge division of this court, 718 Associates sold the Property and аssigned all rights in the Property to Ricardo Hernandez, the current appellant. While 718 Associates’ petition for rehearing en banc was pending, 718 Associates submitted a motion for leave to amend the caption to substitute parties, which we granted. See Flack v. Laster,
. As the three-judge division of this court concluded, Sullivan v. Flynn,
. D.C.Code § 21-2011(11) defines an "[¡Incapacitatеd individual” as:
[A]n adult whose ability to receive and evaluate information effectively or to communicate decisions is impaired to such an extent that he or she lacks the capacity to manage all or some of his or her financial resources or to meet all or some essential requirements for his or her physical health, safety, habilitation, or therapeutic needs without court-ordered assistance or the appointment of a guardian or conservator.
. The affidavit was prepared by an attorney and signed by the Personal Representative of the Estate. The attorney, who also represented the Estate in the settlement agreement negotiations, later testified that she paid a brief visit to the Property and saw a broken-down vehicle in the backyard, broken top-floor windows, and overgrown grass. She did not attempt to knock on the door or deliver written notice to determine whether the Property was occupied. Although at this point Ms. Bradley, thе conservator of the Estate, was aware of the Bankses’ lease, the attorney representing the Estate testified that she was not aware of the Bankses’ lease or occupancy of the Property.
. 718 Associates also claimed that Ms. Spel-eos’s signature on the lease was forged. The trial court found that Ms. Speleos's signature was not forged, and 718 Associates did not challenge that finding on appeal. In addition, 718 Associates argued that Ms. Speleos lacked the authority to lease the Property to appel-lees because, 718 claimed, title was transferred before Ms. Speleos signed appellees' lease. The trial court rejected this argument because the deed was notarized after the lease was signed, and 718 Associates did not challenge this finding on appeal.
. Judge Duncan-Peters based her finding on the following evidence:
(1) Judge Christian’s declaration that Ms. Speleos was incompetent to handle her own affairs in November 2001; (2) Judge Christian’s decision to void the March 2001 deeds in January 2002; (3) the timing of these deeds, i.e., that they were [] entered into no more than a week after Ms. Speleos leased the subject property; (4) Dr. Lowy's testimony that it is highly unlikely that Ms. Speleos was competent in March 2001 (i.e., the year the lease was entered into); (5) Ms. Bradley's [Ms. Speleos's conservator’s] pri- or and current testimony regarding Ms. Speleos’[s] state of mind during the relevant time period; and (6) the fact that Mr. and Ms. Banks [appellees] are the only individuals asserting that Ms. Speleos was competent and they have a vested interest in such a finding.
. See, e.g., United. States v. Manny,
. Because the trial court found that the lease had not been disaffirmed, it did not reach the issue of whether equity would have prevented Ms. Speleos, or her representative, from avoiding the lease. See Restatement (Second) of Contracts § 15 cmt. f (1981) ("If the contract is made on fair terms and the other party has no reason to know of the incompetency, performance in whole or in part may so change the situation that the parties cannot be restored to their previous positions or may otherwise render avoidance inequitable. The contract then ceases to be voidable.").
. An “act in pais " is an "act performed out of court, such as a deed made between two parties on the land being transferred.” Black’s Law Dictionary 27 (9th ed. 2009).
. Sullivan was followed in Martin v. Martin,
.In their en banc brief appellees argue:
Because both Sullivan and Martin II concern contraсts entered into by persons already adjudicated incapacitated, the precedent set in Sullivan and Martin II does not govern this case. Neither decision precludes this [cjourt, under the principle of*65 stare decisis, from ruling that contracts entered by those not previously adjudicated incapacitated should be voidable.
This argument is based on a misreading of Sullivan. The "inquisition de lunático" (commission of lunacy) in that case occurred after, not before, the execution of the deed in question. See Sullivan, supra,
. We recognize that the use of the term "insane” and other terms used by prior decisions may be offensive to some. However, we quote the original language of cases to ensure accuracy and to highlight society’s evolving understanding of mental illness. Furthermore, while we prefer the term "incapacitated” to the term "incompetent,” see infra note 36, we have retained the terminology used by other courts, including the trial court in this case.
. See, e.g., Shoals Ford, Inc. v. Clardy,
. See infra note 36.
. 5 Williston on Contracts § 10:3, at 296. See, e.g., Pappert v. Sargent,
. See, e.g., 5 Williston on Contracts § 10:5, at 313 ("With respect to third parties, the contract is considered valid until it has been avoided.”); see also Aetna Life Ins. Co., supra note 15,
. Usually the mentally incapacitated party or his or her representative is the party who will seek to disaffirm or avoid the agreement. However, "if the other party did not know of the incompetency at the time of contracting he cannot be compelled to perform unless the contract is effectively affirmed.” Restatement (Second) of Contracts § 15 cmt. d; see also id. at illus. 2 (providing an example of a contract where the competent party may insist on ratification before beginning performance).
. Restatement (Second) of Contracts § 7 (1981) ("A voidable contract is one where one or more parties have the power, by a manifestation of election to do so, to avoid the legal relations created by the contract, or by ratification of the contract to extinguish the power of avoidance.”). Avoidance is often referred to as disaffirmance, and ratification is often referred to as affirmance; the terms are used interchangeably.
. Restatement (Second) op Contracts § 15 cmt. f; see also id. at illus. 5 (providing an example of a contract that ceases to be voidable for equitable reasons).
. Restatement (Second) of Contracts § 380 (1981).
. Compare Kevan v. John Hancock Mut. Life Ins. Co.,
. As amici in this case point out, had the highest court of the District of Columbia had the opportunity post-Sullivan, but pre-Erie Railroad Co. v. Tompkins,
. The Sullivan court also noted that it would have adopted the void rule in any event. The court observed that the voidable rule, as articulated by some American courts in relation to deeds, was the result of "the omission of Sir William Blackstone to observe that authoritative decisions had distinguished these deeds from the ancient feoffments with the livery of seisin, and that it should have been considered, even in his time, settled that they were absolutely void, while feoffments were voidable only.” Sullivan, supra,
. Another possible explanation for the void rule has been posited:
One reason older cases talked of such contracts as void is that only by doing so could a court of law, as distinguished from equity, grant relief. The law courts could not administer equitable relief, such as requiring*70 reconveyance or restoration. ' To protect the incompetent, the courts had to call the contract or deed void in order to hold that the incompetent had not parted with title or made a binding promise.
Henry Weihofen, Mental Incompetency to Contract or Convey, 39 S. Cal. L. Rev. 211, 231 (1966). To the extent that this reason motivated courts to find contracts void, it is no longer necessary because law and equity have merged. See, e.g., Green, supra note 21, at 574 (“There is no such impediment in our liberalized modern procedure.").
. See Green, supra note 21, at 559 ("[The subjective] theory of the basis of contract used to have widespread acceptance and at such a time it was perfectly natural that it should serve as the major premise in a syllogism dealing with the operative effect of mental incompetency.”).
. In England, ”[p]ersons with intellectual/mental disabilities were divided into two classes: the idiot, who had never had capacity, and the lunatic, ‘a person who hath had understanding but ... has lost the use of his reason.’ ” Kristin Booth Glen, Changing Paradigms: Mental Capacity, Legal Capacity, Guardianship, and Beyond, 44 Colum. Hum. Rts L. Rev. 93, 103 (2012) (citations omitted).
. See, e.g., Green, supra note 21, at 560-61 ("Suffice it to say for present purposes that presence or absence of ‘mind’ is nowhere used as the test of mental incompetency at the present time. The test is the degree of capacity for understanding possessed by the individual. If he fails to possess this degree of capacity for understanding, we say he is incompetent, but because we are measuring his understanding in terms of degree we are assuming that, although incompetent, he has some capacity for understanding, but not
. See Restatement (Second) of Contracts § 12(1) ("Capacity to contract may be partial and its existence in respect of a particular transaction may depend upon the nature of the transaction or upon other circumstances.”); see, e.g., Butler v. Harrison,
. See David L. Braddock & Susan L. Parish, Social Policy Toward Intellectual Disabilities in the Nineteenth and Twentieth Centuriеs, in The Human Rights of Persons with Intellectual Disabilities 83, 86 (Stanley S. Herr, Lawrence O. Gostin & Harold Hongju Koh eds., 2003) (discussing the history of mental institutions and observing that "[i]n the later decades of the 1800s, as treatment gave way to confinement and custodial care in larger facilities, cure rates concomitantly dropped and psychiatrists reported that mental illness was largely incurable.... By the late 1800s, the earlier optimism of rehabilitating patients with mental illness and sending them back to their home communities had been replaced with a rigid pessimism that decried the possibility of cure-”); Allison C. Carey, On the Margins of Citizenship: Intellectual Disability and Civil Rights in Twentieth-Century America 39 (2009) (discussing early American restrictions on "incompetents” and observing that "[t]he adjudication process assumed incompetence to be a permanent and pervasive trait of the individual....”).
. One author summarized part of this history as follows:
In the nineteenth and first half of the twentieth century, however, the primary social and legal policy for persons with intellectual and psycho-social disabilities was institutionalization. Beginning with well-intentioned experimental schools, economic and other forces led quickly to custodial asylums with reduced emphasis on educating residents and returning them to community life. By the beginning of the twentieth century, poor farms or almshouses were also a significant aspect of state provision for people with intellectual disabilities.
The segregation of this population was accompanied by, and in large part generated, a particularly virulent medical model fueled by Social Darwinism. According to this model, persons with intellectual disabilities suffered from a hereditary, incurable disease that led to criminality, immorality or depraved behavior, and pauperism, all of which constituted an unacceptable drain on society.
Booth Glen, supra note 26, at 104 (footnotes and internal quotation marks omitted).
. The D.C. Code, including this section, was recently amended by the People First Respectful Language Modernization Amendment Act of 2012, which ‘'remove[s] offensive, dated languagе referring to persons with disabilities, including the term mental retardation, and replace[s] it with respectful language that puts people first.” 2012 District of Columbia Laws 19-169 (Act 19-361).
. Under certain circumstances the other contracting party cannot be compelled to perform unless the contract is effectively affirmed. See supra note 17.
. Judge Duncan-Peters based this finding partially on Judge Christian’s earlier declaration that Ms. Speleos was incompetent to handle her own affairs in November 2001. Judge Christian found Ms. Speleos to be "an adult whose ability to receive and evaluate information effectively or to communicate decisions is impaired to such an extent that ... she lacks the capacity to take actions necessary to obtain, administer, and dispose of real and personal property....” Thus, after Ms. Speleos entered the lease transaction with the
. The trial court did not reach the issue of whether avoidance would be inequitable in this case because it found that Ms. Speleos and her representatives did not avoid or disaf-firm the lease.
. On appeal to tire division, 718 Associates also argued that "even assuming that the lease was not inherently void, the trial court’s judgment still rests upon an error of law as well as two clearly erroneous findings of fact.” 718 Assocs., supra,
.Importantly, Ms. Speleos had not already been adjudicated by the court as incapacitated or appointed a guardian when she entered into the lease agreement with the Bankses. Therefore, the question of what effect an adjudication of incapacity or appointment of a guardian has on a person’s ability to contract is not squarely before us. Martin II, decided in 1970, held that a contract entered into by a person who had already been adjudicated incompetent and committed to a mental institution was void.
A finding under this chapter that an individual is incapacitated shall not constitute a finding of legal incompetence. An individual found to be incapacitated shall retain all legal rights and abilities other than those expressly limited or curtailed in the order of appointment of a guardian or in a protective proceeding, or subsequent order of the court.
D.C.Code § 21-2004 (2001). The policy subsequently adopted by the District of Columbia