Question

To settle a lawsuit concerning ownership of their childhood home, sisters Frances Sparrow and Susan Demonico engaged in voluntary mediation. During mediation, Demonico slurred her words and cried much of the day. Before leaving the mediation, she authorized her attorney to execute a settlement agreement. The agreement required sale of the property, and Demonico to pay Sparrow $100,000. When Sparrow asked the court to enforce the agreement, Demonico claimed she had lacked the capacity to contract at the time of the agreement. However, she testified that she had known she was participating in mediation to negotiate settlement of the lawsuit and that the subject of the mediation had been the childhood home. She had participated in the mediation and listened to the lawyers’ arguments, and “couldn’t believe how things [were] turning out.” Did Demonico lack capacity to contract? Why?

Answer 1

No, Demonico did not lack capacity to contract in this case.

In this case the court of law will not require a proof that Demonico’s mental defect or illness was of some significant duration or was permanent or degenerative in nature. However the court will require a proof in the form of medical evidence or in the form of expert testimony to establish that Demonico’s mental condition interfered with her understanding of the transaction.

Even though Demonico was stressed and emotionally unstable (as apparent from her slurring and her constant crying) she could not be said to not be in a position to not understand the mediation and the undergoing transaction. In fact Demonico did understood that she was participating in mediation to negotiate settlement of the lawsuit and that the subject of the mediation had been the childhood home.

As such it cannot be established that Demonico was incapacitated in any way and hence the court will hold the Demonico did not lack capacity to contract in this case. As such the settlement agreement will be enforced.