Heights Realty, Ltd. v. Phillips

Supreme Court of New Mexico · 1988 · Contracts

749 P.2d 77 (1988)

Updated July 26, 2026

ContractsMental capacityCompetency to contractcompetencyclear and convincing evidencelucid intervalsubstantial evidence reviewexclusive listing agreement

Facts

Mrs. Gholson, about eighty-four years old, signed an exclusive listing agreement with Heights Realty on September 26, 1984, listing her North Valley property for $250,000 with a $75,000 cash down payment, and later signed an addendum raising the down payment to $100,000. She set the asking price by guessing at the property's value, left other vital terms open, and later testified that she had no recollection of signing the addendum. At trial, the broker testified that Mrs. Gholson appeared sharp and understood the documents, while family members who had observed her for years described a long mental decline and confusion around the relevant time. A psychiatrist who examined Mrs. Gholson in January 1985 testified that she had suffered a progressive cognitive decline and was incompetent on the execution date within reasonable medical probability.

Issue

Whether substantial evidence supported the trial court's finding that the presumption of Mrs. Gholson's competency was overcome by clear and convincing evidence, so that she lacked mental capacity to enter the listing agreement and addendum.

Rule

The test of mental capacity is whether the person is capable of understanding in a reasonable manner the nature and effect of the act in which the person is engaged. Every person is presumed competent, and the party asserting lack of capacity bears the burden of proving incompetency by clear and convincing evidence. Although capacity is measured as of the date of execution, evidence of the person's prior or subsequent condition is admissible to show the condition at that time. If incompetency of a general permanent nature has been shown to have existed before execution, it is presumed to continue unless the party relying on the instrument proves a lucid interval at execution.

🔒

See the holding & full analysis

Create a free KwikCourt account to unlock the rest of this brief — and practice the case.

The court's holding and reasoning
Doctrine tests, pitfalls & exam hypotheticals
10 practice questions + 4 AI-graded essays on this case

Free sample · practice this case

Test yourself

One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Santa Fe, Nora Benton, age 79, signed a contract giving Desert Mesa Storage the right to buy her warehouse for a fixed price. The same afternoon, she accurately described to her niece that she was selling the building, identified the price, and explained that the deal would transfer ownership if accepted, but she later forgot the broker's name and where she left her keys.

If Nora later challenges the contract for lack of capacity, which fact most strongly supports enforcing the contract under the governing test?

Explanation. The controlling test is whether the person was capable of understanding in a reasonable manner the nature and effect of the act at the time of execution. Age, forgetfulness, and failure to consult others do not by themselves establish incapacity. The strongest fact supporting enforcement is that Nora understood what she was doing and its consequences when she signed. (Derived from Heights Realty, Ltd. v. Phillips (1988).)