Imperial Loan Co. Ltd. v. Stone

Material Facts:

The defendant, a lunatic person, signed a promissory note as surety. When the plaintiff brought an action against the defendant, the defendant claimed he was mentally unsound at the time of the contract and that the plaintiff was aware of this.

Procedural History:

At the trial court, it was held that the fact that the defendant was insane at the time of the contract renders it unenforceable. The plaintiff appealed.

Issue:

Whether or not the defendant can successfully use insanity as a defence.

Holding:

In order to use insanity as a defence, not only must the defendant be insane at the time of the contract such that he was incapable of comprehending the terms of the contract, and that the other party must be aware of the insanity. Since the court was not satisfied that the plaintiff knew about the insanity of the defendant at the time of the contract, the contract was enforceable on the defendant.