Hernandez v. Banks

• Decision Date: 02 May 2013
• Docket Number: 09–CV–744.,Nos. 08–CV–1571,s. 08–CV–1571
• Citation: 65 A.3d 59
• Parties: Ricardo HERNANDEZ, Appellant, v. Bryant BANKS and Sheillia Banks, Appellees.
• Court: D.C. Court of Appeals

65 A.3d 59

Ricardo HERNANDEZ, Appellant,

v.Bryant BANKS and Sheillia Banks, Appellees.

Nos. 08–CV–1571, 09–CV–744.

District of Columbia Court of Appeals.

Argued En Banc June 19, 2012.

Decided May 2, 2013.

Aaron G. Sokolow, with whom Morris R. Battino was on the brief, for appellant.

Daniel S. Harawa, Student Attorney (No. 12689), with whom Doreen M. Haney, Supervising Attorney, was on the brief, for appellees.

Julie H. Becker, The Legal Aid Society of the District of Columbia, with whom John C. Keeney, Jr., The Legal Aid Society of the District of Columbia, was on the brief, for The Legal Aid Society of the District of Columbia, AARP Legal Counsel for the Elderly, University Legal Services, Bread for the City, and Washington Legal Clinic for the Homeless, amici curiae, in support of appellees.

Before WASHINGTON, Chief Judge, GLICKMAN, FISHER, BLACKBURNE–RIGSBY, THOMPSON, OBERLY, BECKWITH, EASTERLY, Associate Judges, and RUIZ, Senior Judge.^*

BLACKBURNE–RIGSBY, Associate Judge:

We granted appellees' petition for rehearing en banc to consider whether we should continue to follow the rule of Sullivan v. Flynn, 20 D.C. (9 Mackey) 396 (1892), that the contracts of mentally incapacitated persons are inherently void, or should instead join the majority of jurisdictions in deeming such contracts only voidable.

The background is as follows. Appellant's predecessor-in-interest, 718 Associates,¹ appealed a decision by the trial court determining that it was not entitled to a non-redeemable judgment for possession of property located at 718 Marietta Place, N.W., Washington, D.C. (the “Property”). Appellees Bryant and Sheillia Banks (the “Bankses”) contend that they are legally entitled to continue living in the Property by virtue of a lease entered into with the previous owner of the Property, Ms. Patricia Speleos. At trial, 718 Associates argued that appellees' lease was void because Ms. Speleos was mentally incapacitated when she signed the lease. The trial court upheld the validity of the lease, finding that although Ms. Speleos was mentally incapacitated when she entered into the lease agreement, her incapacity rendered the lease voidable at her election, rather than inherently void. The trial court found that the lease had not been disaffirmed by Ms. Speleos or her representatives and therefore did not award possession of the Property to 718 Associates. 718 Associates appealed, and a three-judge division of this court reversed the trial court's decision, holding that Sullivan controlled and the lease was inherently void.²718 Assocs. v. Banks, 21 A.3d 977, 984 (D.C.), reh'g en banc granted, opinion vacated sub nom. 718 Assocs. Tr. 718 NW Trust v. Banks, 36 A.3d 826 (D.C.2011). We conclude that the voidable standard better comports with modern contract law and modern understandings of mental illness and therefore overrule Sullivan and adopt the majority approach that such contracts are voidable, rather than inherently void.

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. SeeD.C.Code § 47–1304 (1997 Supp.) (providing that when a property is not redeemed by the owner following the issuance of a tax sale certificate, a deed shall be given to the tax sale purchaser).

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).³ Pursuant to the finding of incapacity, Judge Christian appointed Stephanie Bradley as conservator of Ms. Speleos's estate and Ms. Speleos's nieces as guardians of Ms. Speleos. SeeD.C.Code §§ 21–2051, – 2044 (2001) (appointment of conservators and guardians, respectively). A hearing was later held to determine the status of seven real estate transactions Ms. Speleos had entered into in March 2001, prior to her adjudication of incapacity. Ms. Bradley alleged that Ms. Speleos was already incapacitated at the time of the transactions, in which she purportedly transferred seven properties with tax-assessed values of over half a million dollars for only $41,000 in recited consideration. Judge Christian voided the transactions, but did not rule on the validity of the Bankses' lease, which was also entered into prior to Ms. Speleos's adjudication of incapacity. Instead, Judge Christian noted that another hearing would need to be held to address that lease. However, that additional hearing was never held.

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. SeeD.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 Associates 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. SeeD.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.⁴

In April 2008, 718 Associates filed the present action seeking a non-redeemable judgment for possession of the Property against the Bankses. The Bankses claimed that they were entitled to remain tenants when 718 Associates obtained title to the Property because they had a valid lease with the Property's former owner, Ms. Speleos. 718 Associates challenged the validity of that lease, claiming that Ms. Speleos lacked capacity at the time that she entered into the lease transaction with the Bankses and, as a result, the lease was void.⁵ The trial court, Judge Stephanie Duncan–Peters, found that Ms. Speleos was mentally incompetent when she entered into the lease agreement with appellees.⁶ The trial court concluded, however, that the lease was voidable, rather than void. Citing Sullivan v. Flynn, 20 D.C. (9 Mackey) 396 (1892), the trial court recognized that “[h]istorically, a conveyance or contract by an insane or non compos mentis individual was declared void, and not merely voidable.” The trial court observed that “the District of Columbia has not considered this particular issue,” but did not discuss whether Sullivan remained binding precedent in the District of Columbia. The trial judge then examined what she described as the “modern view” that such a transaction is voidable, citing to cases from other jurisdictions ⁷ and discussing the public interest in protecting incapacitated persons' personal and property rights. After concluding that contracts entered into by mentally incapacitated persons are voidable, rather than void, the trial court found that there was “no ratification or disaffirmance by Ms. Speleos or an authorized representative on her behalf....” ⁸ The trial court concluded by observing that “[t]he public policy considerations that would give the [c]ourt power to void the lease agreement, namely protection of the incompetent party, are not applicable to [718 Associates, a subsequent purchaser].”

On appeal to the division, although 718 Associates “largely accede[d] to the trial court's determination that the lease was voidable and not void,” they did “ask [the division] to find ‘that the lease agreement is void in accordance with’ Sullivan, supra, 20 D.C. (9 Mackey) at 401 (1892) (holding that ‘the deed of an insane person is void, and therefore cannot be ratified by acts in pais ’).” ⁹718 Assocs., supra, 21 A.3d at 981 n. 9. The division concluded that it was constrained to apply Sullivan because Sullivan remained binding precedent in the District of Columbia and therefore could only be overruled by this court sitting en banc. ¹⁰718 Assocs., supra, 21 A.3d at 984 (citing M.A.P., supra note 2, 285 A.2d at 312).

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, 772 A.2d 204, 234 (D.C.2001) (en banc) (Ruiz, J., concurring in part and dissenting in part). “[I]n common law cases our task is to carefully consider our own precedents, weigh...