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Mental Illness and the right to contract.

Contractual relationships provide the basis of a significant body of our law, and most lawyers must address contractual issues in their practices. However, many attorneys misunderstand the nature of mental illness and how it affects these legal relationships. If a mentally incompetent individual enters into a contract, under many instances that individual is entitled to disaffirm the contract.[1]

The Florida Supreme Court first set forth the standard for determining mental incompetence in a contract matter in Waterman v. Higgins, 28 Fla. 660, 10 So. 97 (1891). In this case, a decedent's heirs sought to have a deed set aside on the grounds that at the time the deceased executed the deed he was "entirely non compos mentis, insane." Id. at 663, 10 So. at 98. The Supreme Court established the following as the test of mental incompetency in Florida for contract matters: "The sole question is whether [the alleged incompetent], at the time he executed the deed, ha[d] sufficient intelligence to understand fully the nature and effect of the transaction." Id. at 672, 10 So. at 100 (emphasis added).

Several years later, the Florida Supreme Court appeared to reaffirm its position in Douglas v. Ogle, 80 Fla. 42, 85 So. 243 (1920). Here, the court considered whether a trial court acted properly in finding a party incompetent because he did not understand the nature and extent of a transaction in which he had signed a satisfaction of mortgage. Id. at 44, 85 So. at 245. The Supreme Court upheld this ruling, stating that the "law required no more" than a determination of whether the party understood the nature and extent of the transaction. Id. No further requirements were announced for the threshold to be met.

However, a year later, in Travis v. Travis, 81 Fla. 309, 311-12, 87 So. 762,763 (1921), the Florida Supreme Court appeared to add to the incompetency test a requirement that the contractual transaction include "evidence of imposition or undue influence" before it will be set aside.[2] Three decades after the Travis decision, however, in the 1953 case of Donnelly v. Mann, 68 So. 2d 584, 586 (Fla. 1953), citing Douglas, 80 Fla. at 45, 85 So. at 244, the Florida Supreme Court appeared to retreat from Travis by restating the prior Douglas holding, noting that "`mere weakness of mind, unaccompanied by any other inequitable incident, if the person has sufficient intelligence to understand the nature of the transaction and is left to act upon his own free will, is not a sufficient ground to set aside an agreement.'"[3]

The test adopted by the Florida Supreme Court comports with the more modern statement of such test in the Restatement. Today in Florida, in the absence of an adjudication of incompetency, the standard to determine incompetency is whether the party is "unable to understand in a reasonable manner the nature and consequences of the transaction."[4] This test is "almost universally accepted by courts nationwide."[5]

With Adjudication of Incompetency

If a person has been adjudicated incompetent, the test of competency no longer is implicated. The incompetent party may disaffirm the contract without regard to that person's ability to understand the nature and consequences of the transaction. This is true even though the other party may have no knowledge of the adjudication. If the person has been adjudicated incompetent, and the court has appointed a guardian, authority exists for the proposition that the contract is not merely voidable, but void.[6]

Without Adjudication of Incompetency

Most cases that result in litigation involve instances when no adjudication is present. That is, a person is sued and then defends the suit claiming that he or she was incompetent to enter into the transaction. To determine whether an individual is "unable to understand in a reasonable manner the nature and consequences of the transaction," a court must look at a wide range of factors: 1) the party's medical and psychiatric history (e.g., past records of medical treatment and hospitalization; use of drugs); 2) medical and psychiatric diagnoses and opinions; 3) behavior and conduct at the time of the transaction (e.g., irrational or unintelligent behavior, the party's conversations); and 4) circumstances surrounding the transaction (absence of independent advice; confidential or fiduciary relationship; undue influence; the departure from the normal pattern of similar transactions; the complexity of the transaction; and the fairness of the transaction).[7]

In determining whether a party was mentally incompetent at the time of a transaction, a trial court is entitled to consider actions and conversations at the time of the transaction, as well as at other times, so long as they are not too remote in time to the subject transaction.[8] Further, the trial court must consider the complexity and fairness of the transaction, as well as its departure from other similar transactions.[9] The more a transaction is complex and unfair, and the more it departs from other similar transactions, the more likely incompetency exists.[10]

The contract and other documents surrounding the transaction may facially provide evidence of the individual's incompetency at the time of the transaction.[11] Additionally, the unfairness of a transaction can suggest an absence of capacity.[12] For instance, an individual's ability to comprehend a single monthly disability check over a period of many years is clearly distinguishable from a transaction involving thousands of dollars and numerous loan documents over a period of three months.[13]

As mentioned previously, attorneys frequently misunderstand the nature of mental illness. Confusing the issue of intelligence with mental illness is not uncommon. Mental illness, however, may not necessarily affect the level of a person's intelligence. Clearly, though, the illness may well affect the way a person uses his or her intelligence. Further, many mentally ill individuals may be able to read well, although the illness may cause the individual to distort what is read into a very bizarre content. Accordingly, although a lack of intelligence may contribute to a finding of incompetency, the presence of intelligence does not mean that mental illness is nonexistent.

Restoration of Status Quo

An incompetent's remedy often may be limited to rescission, with both parties being returned to status quo. This may include restitution to the other party. If, however, a court finds a party mentally incompetent in a contract transaction, the competent party is not entitled to restitution if he or she knew or had reason to suspect the other party's incompetency. Perper v. Edell, 35 So. 2d 387, 390 (Fla. 1948); Sheppard v. Cherry, 118 Fla. 473, 477, 159 So. 661, 662 (1935); Farrior v. Hughes-Law Lumber Co., 113 Fla. 209, 210, 151 So. 377, 377 (1933).[14] Further, if an incompetent party has received little or no benefit from what was received, no restitution should be required under any circumstance.[15]

Practical Considerations

In cases involving incompetency,[16] courts are presented most frequently with conflicting evidence as to the alleged incompetent's mental abilities. The party alleging the incompetency has the burden of proof by a preponderance of the evidence.[17] The Florida Supreme Court has long held that an appellate court cannot disturb a court's finding of incompetency "unless the evidence clearly shows that it was erroneous." Machtei v. Campbell, 102 So. 2d 722, 724 (Fla. 1958) (affirming finding of incompetency on conflicting evidence); Douglas v. Ogle, 80 Fla. 42, 49, 85 So. 243, 244 (1920) (affirming finding of incompetency on conflicting evidence); Waterman v. Higgins, 28 Fla. 660, 679, 10 So. 97, 102 (1891) (affirming finding of competency on conflicting evidence).[18] Moreover, the court owes a duty of "special protection [to incompetents] ... with respect to their legal transactions."[19]

In evaluating the credibility of witnesses to the transaction, the factfinder may consider the benefit that a witness received from the transaction, and the trial court is entitled to consider that benefit in determining a witness's credibility on the issue of another's incompetency. See Clarke v. Hartt, 56 Fla. 775, 777, 47 So. 819, 819 (1908) (court weighed evidence of "wholly disinterested witnesses").

Conclusion

Attorneys considering an attack on a contract based on incompetency, as well as trial courts faced with these cases, should understand the standard set by Florida law for such a defense to be successful. Attorneys and judges should, however, avoid the mistake of assuming that a presence of intelligence equates with absence of mental illness.

[1] M. FREY & T. BITTING, INTRODUCTION TO CONTRACTS AND RESTITUTION 202 (1988). The other party does not have the power to void the contract. Id. See also Kaler, An Overview of Void and Voidable Title, 29 FUND CONCEPT 149, 156 (1997) (deed by incompetent person not under guardianship is not void, but merely voidable).

[2] This standard was further reaffirmed in Sheppard v. Cherry, 118 Fla. 473, 477, 159 So. 661, 662 (1935); Hassey v. Williams, 127 Fla. 734, 738, 174 So. 9, 11 (1937); and Wise v. Wise, 134 Fla. 553,566, 184 So. 91, 96 (1938).

[3] See Note, Mental Incompetence as it Affects Wills and Contracts, 13 U. FLA. L. REV. 381, 383 (1960) (stating that the Florida test is the same as that noted by the commentator Williston: "`whether the alleged lunatic had sufficient reason to enable him to understand the nature and effect of the act in dispute,'" citing 1 WILLISTON, CONTRACTS 754 (rev. ed. 1936)).

[4] REST. CONTRACTS 2D [sections] 15. See 29 FLA. JUR. 2D Incompetent Persons [sections] 158; Note, supra note 3, at 383.

[5] E. FARNSWORTH, CONTRACTS [sections] 4.6 (2d ed. 1990). See also Krasner v. Berk, 366 Mass. 464, 319 N.E.2d 897, 898 (1974).

[6] See Kaler, supra note 1, at 156.

[7] REST. CONTRACTS 20 [sections] 15, comment (c); E. FARNSWORTH, CONTRACTS [sections] 4.6; Note, supra note 3, at 385, 387, and 389.

[8] See Note, supra note 3, at 389.

[9] REST. CONTRACTS [sections] 15, comment (c); Note, supra note 3, at 390.

[10] E. FARNSWORTH, CONTRACTS [sections] 4.6, citing Oullette v. Ledoux, 92 N.H. 302, 306, 30 A.2d 13, 16 (1943). The New Hampshire Supreme Court stated: "The greater the improvidence, the nearer is the approach to incapacity."

[11] Note, supra note 3, at 389.

[12] "The contract ... is itself an important evidence of capacity.... [T]he naturalness or fairness of it can indicate presence or absence of capacity." Id.

[13] See Walker v. Cornelius, 4 Fla. L. Weekly Supp. 39 (17th Cir. 1996), aff'd sub nom., Ganymede Corp. v. Cornelius, 699 So. 2d 1387 (Fla. 4th D.C.A. 1997). See also Mental Incompetence, supra note 3, at 388 ("The ability to understand a will disposing of valuable estates with diverse holdings and interests should necessarily require a mind freer from aberration than would be required to comprehend the simple act of contracting to sell a bicycle.").

[14] 29 FLA. JUR. 2D Incompetent Persons [sections] 160 n.97. Accord, Metter Banking Co. v. Millen Lumber & Supply, 191 Ga. App. 634, 382 S.E.2d 624, 628 (1989); Upton v. Hall, 225 Va. 168, 300 S.E.2d 777, 779 (1983).

[15] E. FARNSWORTH, CONTRACTS [sections] 4.8.

[16] The test to determine incompetency in a contractual transaction is not the same as the test to determine incompetency (insanity) in a criminal action or for purposes of testamentary capacity. See Note, supra note 3, at 382.

[17] See id. at 385.

[18] See also Krasner, 366 Mass. 464, 319 N.E.2d at 900-01 (upholding finding of incompetency on conflicting evidence). The Massachusetts court found sufficient evidence for either ruling the lower court could have entered: "On the sufficiency of understanding, the case is a close one. ... If the judge had found that the defendant was competent to contract, we would have little difficulty in upholding the finding .... We think the judge could [also] find that [the defendant] was not competent to make [the agreement]." Id.

[19] 57 CJS Mental Health [sections] 211; 17 CJS Contracts [sections] 133(1)(a).

Robert W. Lee is a Broward County Court judge. He received his B.A. in 1982 from Jacksonville University and his J.D., with honors, in 1985 from the University of Florida. He was the recipient of the 1995 Individual Attorney Support Award from Broward Legal Aid for his work involving mental illness issues He is a past president of the Broward County Hispanic Bar Association and a past member of the executive council of the Public Interest Law Section.

This column is submitted on behalf of the Public Interest Law Section, Fran L. Tetunic, chair.
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Title Annotation:Florida
Author:Lee, Robert W.
Publication:Florida Bar Journal
Geographic Code:1U5FL
Date:Dec 1, 1998
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