One of the requirements to enter into a contract is mental competency. In the case of Faber v. Sweet Style Mfg. Corp. (40 Misc.2d 212, 242 N.Y.S.2d 763 (N.Y.Sup. 1963)), Mr. Faber was manic-depressive. He made a major contract to purchase land while in his manic state. He then sought to void the contract while he was in his depressive state (and had been institutionalized). Although manic-depressives do suffer from psychosis, they are capable of living in the real world and can usually pass the cognitive test which is generally used to determine if a person is mentally incompetent enough to lose the capacity to make contracts (aka the doctrine of capacity).

  • Faber went off his meds, and decided to build a drugstore. So in only a day, he bought the land (even bargaining over the price), did the title search, applied for a mortgage, put up a sign saying a drug store was coming, hired contractors, sought a building license, and did a bunch of other stuff. Then he hit his depressed phase and was institutionalized.
  • While in his manic phase, Faber clearly would have understood what he was doing and therefore would have passed the cognitive test. However, the Court held that there was a second test that needed to be applied. Faber was acting out of compulsion from a mental disorder.
  • “Incompetence of a contract also exists when a contract is entered into under the compulsion of a mental disease or disorder for which the contract would not have been made.”
  • Courts are divided as to whether the compulsion test held in this case should count, of if they should stick with the older cognitive test.
    • What protection does the seller have if a person acting in a completely rational manner shows up trying to contract with you?
    • In criminal law, most courts follow the cognitive test only. So if you shoplift because you think the item belongs to you, you can be found not-guilty by reason of insanity. But if you shoplift because you are a kleptomaniac and can’t help it, you are going to jail.