Farnum v. Silvano

Massachusetts Appeals Court · 1989 · Contracts

ContractsMental incapacityRescissionmental incapacitycontract capacitylucid intervalvoidable contractrescission

Facts

Viola Farnum, age ninety, sold her South Yarmouth house to Joseph Silvano, age twenty-four, for $64,900, although the trial judge found the fair market value was $115,000 and Silvano obtained a $65,000 bank mortgage at closing. Farnum had suffered serious mental decline since 1983, including confusion, delusions, forgetfulness, getting lost, inability to manage bills, and a 1985 brain scan showing organic brain disease; by January 1987 she was hospitalized for dementia and seizure disorder. Silvano knew Farnum through lawn and landscaping work, had been warned by Farnum's nephew not to proceed because of the unfair price and Farnum's condition, and used a lawyer selected and paid by him to handle Farnum's side of the transfer. Although Farnum appeared coherent and aware of what was happening at the closing, she later insisted to relatives that she still owned the property.

Issue

Whether a seller's momentary lucidity and awareness that a conveyance is occurring is enough to establish contractual capacity to sell real estate. More specifically, whether Farnum's deed was voidable because, by reason of mental illness or defect, she lacked the ability to understand the transaction reasonably or to act reasonably in relation to it, and Silvano had reason to know of her condition.

Rule

Competence to enter into a contract requires more than a transient lucid interval or mere awareness of what is going on. A transaction is voidable if, because of mental illness or defect, the person is unable to understand in a reasonable manner the nature and consequences of the transaction, or is unable to act in a reasonable manner in relation to the transaction and the other party has reason to know of the condition.

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In Portland, Maine, 82-year-old Lena Mercer signed a contract to sell her duplex to Aaron Pike for $140,000. The property had recently been appraised at $255,000, Lena had documented organic brain disease and frequent delusions, and Aaron had been told by Lena’s niece that Lena had become confused about her finances; at signing, however, Lena chatted normally and said she knew she was selling the duplex.

If Lena later seeks rescission through her guardian, what is the strongest argument that the contract is voidable?

Explanation. The governing rule is that contractual capacity requires more than a lucid interval or awareness that a transaction is occurring. A contract is voidable if, by reason of mental illness or defect, the person cannot understand in a reasonable manner the nature and consequences of the transaction, or cannot act in a reasonable manner in relation to it and the other party has reason to know of the condition. Here, the drastic undervaluation, Lena’s mental disease, and Aaron’s warning from the niece strongly support voidability.