To: Large Alabama Firm’s Senior Attorney’s Name
From: Intern’s Name
Re: Our client, Dick Jefferson, and the validity of his contract with Yolanda Jackson
Our client, Mr. Jefferson, owns House Doctor, Inc., a construction business. Ms. Yolanda Jackson (hereafter Jackson) and her son, Melvin (hereafter Melvin), met with Jefferson to discuss adding a room to Jackson’s house. As Jackson is elderly, Melvin handles her financial arrangements.
Jefferson reports that he saw literature from the American Schizophrenia Society in Jackson’s kitchen and prescription bottles labeled Haldol™ (“[treats] psychotic disorders, […] confusion and difficulty thinking” (PubMed, Haloperidol, May 2011)) and Abilify™ (“[treats symptoms of] schizophrenia ([including] disturbed or unusual thinking)…” (PubMed, Aripiprazole, May 2011)). Jefferson also witnessed Jackson taking a dose of Abilify™: he helped open the prescription bottle and prepared her a glass of water.
Melvin left shortly after Jefferson arrived and was not a witness to the verbal agreement between Jefferson and Jackson which included a $50,000 two-year home-maintenance package (including any house repairs) and the room addition. Jackson agreed to these terms and they set a date for Jefferson to start work the following Monday. When Jefferson arrived at the agreed-upon time, Jackson was not at home and did not return until after Jefferson had worked for nine hours on her home. At this point she told Jefferson she had found a better deal with another contractor and wished to cancel her contract with him. Jefferson has come to our firm to discover how or if he can enforce his verbal contract with Jackson.
- Is the contract between House Doctor, Inc. and Jackson valid?
- If the contract is invalid, why, and which contract formulation processes were omitted?
- Suggest solutions to Jefferson to attempt to remedy his situation.
- If Jefferson’s account is accurate, then the contract is valid because Jackson verbally accepted Jefferson’s offered terms, and agreed to pay Jefferson for his work (consideration). However, it is not binding under the Statue of Frauds, as this verbal contract involves work which could not be completed within one year. The Statute of Frauds is a defense and does not affect the validity of the contract – It comes into play when there is a breach and we seek a remedy. It will then be raised to prevent enforcement.
- This non-binding contract is also likely to be voidable, because Jackson is apparently mentally ill (Black, 2008). She has to no know and appreciate the nature and quality of her acts at the moment of contracting for it to be voidable.Jackson or her representative (like Melvin) may argue that she does not have the capacity to contract as she is schizophrenic: a contract is voidable if one party is aware the other party may be unable for some reason to behave in a competent or responsible fashion (Nolo, 2012) and (Johansen, 2012). Alabama law (specifically Section 8-1-170) also makes contracts of “an insane person” void (Onecle, 2012).
- Jefferson failed to involve Melvin in the decision process even after being told that Melvin handled Jackson’s financial matters and after noting that Jackson was schizophrenic, which is a mental disorder that makes it difficult to differentiate between reality and fantasy […] and to feel and behave “normally” in social situations (PubMed, 2011). We would need to have a Power of Attorney of a court ordered guardianship for Melvin to matter.Jefferson also failed to draw up a written contract, relying only on an alleged verbal agreement. Jefferson can attempt to meet again with Melvin and Jackson and present them with a written contract our firm has helped him prepare that will reflect the original home maintenance and construction agreement. Failing that, Jefferson can send the Jacksons a payment demand letter (bill) for his nine hours of labor, but may have trouble collecting if the Jacksons dispute that they had a legally binding agreement.
Jefferson did not get his agreement in writing, and Melvin–the family member responsible for making financial decisions–was not present when the agreement was reached. The agreement was not covered by the Statute of Frauds due to the two-year time period involved.It would apply if it was a two year contract – The SOF applies to any contract that cannot be performed within one year – assuming we have a contract. Jefferson also admits that he was aware that Jackson was medicated for schizophrenia. His success pursuing his complaint in court is not assured.
When the mental capacity of an allegedly mentally incompetent individual to enter into a contract is challenged, courts do not always rule in a consistent manner, especially if the individual is elderly (Nolo, 2012). We have to determine if an individual has been “adjudicated incompetent by a court and had a guardian appointed” or if [s]he can logically be determined by a layperson to be mentally ill but [s]he has not actually been legally determined incompetent. If a court has previously determined incompetence, all contracts are automatically void (Farlex, 2012) except contracts for “necessities” (Nolo, 2012). If no legal determination of competence has been made, contracts made by mentally incapacitated people still remain voidable and therefore potentially unenforceable. Voidable contracts are able to be ratified if capacity to consent is recovered (Farlex, 2012) but, for our purposes, this is irrelevant (as schizophrenia is partially managed by prescription drugs, but is an incurable, progressively severe mental illness) (PubMed, April 2011).
Some cases related to issues of alleged or asserted incompetence and contractual agreements which you may wish to review include: Whitehead v Town House Equities, Ltd., 8 A.D.3d 367 ; Sepulveda v Aviles, 308 A.D.2d 1 ; Inman v Inman, 97 A.D.2d 864 ; Crawn v Sayah, 31 A.D.3d 367  and Buckley v Ritchie Knop, Inc. 838 NYS 2d 84, 86 [NY App Div, 2007] and In the Matter of Agnes D. Rick (Del Ch, No 6920, 1994 WL 148268) (Justia, 2012). It takes very specific circumstances—such as a non-binding oral agreement—to break an otherwise legal contract even if it was made with a mentally incompetent person, if [s]he has not been officially declared by the court system to be incompetent (Psychiatric Zone, 2012).
Our client apparently acted in good faith but chose to verbally contract with a mentally compromised elder, and the agreement was for work that could not be completed within one year, thus their agreement was not binding and he does not appear to have a solid case. If an oral contract is subject to the Statute of Frauds, none of the parties are legally bound and either / any can renege without legal consequences (Wright, 2010).
We can attempt to protect Jefferson by drawing up a written contract for him, and by drawing up a demand letter requesting payment for his already completed work. If Melvin refuses to sign the contract, Jefferson will not be able to legally force Jackson to honor their verbal agreement “as is,” given the problems stated above, but he can present Melvin with a payment demand letter.
There is evidence that Ms. Jackson lacked contractual capacity (factual incapacity) to enter into contract: her age; Melvin’s temporary absence; pamphlets regarding mental health issues; medication; confusion on how to open medication; etc. A factual incapacity may exist when, because of a mental condition caused by medication, drugs, alcohol, illness or age, a person does not understand that a contract is being made or understand its general nature. However, mere mental weakness does not incapacitate a person from contracting. It is sufficient if the individual has enough mental capacity to understand, to a reasonable extent, the nature and effect of what she is doing.
An incompetent person may ordinarily avoid a contract in the same manner as a minor. Upon the removal of the disability (in the event he/she becomes competent), the formerly incompetent person can either ratify or disaffirm the contract. A mentally incompetent person or his estate is liable for the reasonable value of all necessaries furnished that individual. A current trend in the law is to treat an incompetent person’s contract as binding when its terms and the surrounding circumstances are reasonable and the person is unable to restore the other contracting party to the status quo ante.
If a court appoints a guardian for the incompetent person, a contract made by that person before the appointment may be ratified or, in some cases, disaffirmed by the guardian. If the incompetent person makes a contract after a guardian has been appointed, the contract is void and not merely voidable.
The Statute of Frauds and parol evidence rule should be addressed.
Twomey, D. P., and Jennings, M. M. (2011) Anderson’s Business Law and the Legal Environment. Retrieved from http://digitalbookshelf.southuniversity.edu
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Onecle. (2012, February 19). Code of Alabama – Title 8: Commercial Law and Consumer Protection – Section 8-1-170 – Contracts of insane person void; exceptions; liability for necessaries furnished. Retrieved from http://law.onecle.com/alabama/commercial-law-and-consumer-protection/8-1-170.html
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