Brief Fact Summary.
Jasgur claimed that a settlement agreement with PITA, a subsidiary of Seminole Walls & Ceilings Corporation, was not enforceable because he wasmentally incompetent at the time he entered into the agreement.
Synopsis of Rule of Law.
A contract is voidable for incompetency if a party lacked the mental capacity to enter into the contract.
The trustee, as the party proposing the compromise, has the burden of persuading the bankruptcy court that the compromise is fair and equitable and should be approved.View Full Point of Law
Seminole Walls & Ceilings Corporation (Seminole) filed for bankruptcy when PITA, an organization owned by Seminole, purchased a collection of photographs owned by Jasgur. Jasgur protested PITA’s ownership of the photographs because Jasgur was over 85 years old when the agreement was signed, suffered a mini-stroke, and was declared mentally incompetent. Jasgur, however, was represented by competent counsel at the time the agreement was signed, Jasgur’s acquaintance testified that Jasgur knew he was signing a legal compromise, and Jasgur signed the agreement in front of notaries.
Whether a contract is voidable for incompetency if a party lacked the mental capacity to enter into the contract?
Yes. Judgment is entered for Seminole because Jasgur was represented by legal counsel that believed Jasgur was competent. Similarly, Jasgur’s acquaintance testified that Jasgur knew he was signing a legal compromise.
Even if a party suffers from mental incompetence, the party will be legally bound to the contract if the party understood the transaction and acted on their own free will. Mental incompetence only makes a contract voidable if the contracting party is mentally incompetent at the time of the transaction.