Are there ethical parameters to who can enter into a contract?

Grand Junction Real Estate Advice

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Dave

 About a year ago, a family member began suffering with, which luckily turned out to be short-term, a mental breakdown. During that episode, my family member reconnected with an old friend who happened to work in real estate. In a manic episode, a listed piece of real estate was put under contract by my family member with a real estate agent. Because of the breakdown, my family member lost their job and had to forfeit their deposit.

When I called the Realtor and asked about getting the deposit back, I was told he was not the listing agent and would not be able to return the earnest money. I questioned the Realtor about his relationship with my family member and he told me they were "friends" and had known each other for years. When I asked him if he knew there was mental illness interfering with his "friend’s" ability to make good decisions at the time he wrote the contract, he assured me he was. My question—is there some sort of ethical expectation in real estate that would question the decision to write a contract with a person who is obviously not of sound mind?

Thank you,

 Linda, Grand Junction


Linda,

Wow, this is complicated! The question of ethics is a real one, if they were “knowledgeable” about the mental breakdown and still allowed them to enter into a contract. There is a lot that is open to interpretation in your question, like the fact that he was “obviously not of sound mind”. What may be obvious to one, may not be obvious to another. Mental capacity should be evaluated by professionals who are trained to make such determinations. There have been a couple of instances over the past 10 years where we have had questions about a person’s mental capacity and we have found a way to discuss it with family members, of the party in question, but had to proceed with care. Let’s cover the basics.

Contracts are enforceable against anyone having legal capacity, but some persons are deemed by law as either incapable of contracting or having some limited capacity to contract.

Contracts are enforceable against anyone having legal capacity, but some persons are deemed by law as either incapable of contracting or having some limited capacity to contract. In the instances of limited capacity, the contract can be voided if the individual goes before the court to void the contract. As long as the person of limited capacity allows the contract to exist, the contract may not be voided. An example of a person with limited capability would be someone who is illiterate or one who has diminished mental capacity. Any person declared to be mentally incompetent is deemed incapable of contracting. Any agreement of purchase or sale entered into by such a person is voidable.

It sounds like the contract could have been voided, if your family member was either declared to be mentally incompetent or in limited capacity at the time he signed the contract.  However, if he was of limited capacity, he would have to petition the court to void the contract. As devil’s advocate, one question still remains, was he competent at the time he signed the contract? The water gets muddier at every turn. I think that there is an ethical expectation for everyone, regardless of the business type, to be aware and try to identify those who should not be entering into a contract. In this case, there is enough “gray area” that I can’t make a firm ethical verdict, but if the real estate agent “had actual knowledge” of the breakdown, then I can say there should have been some significant due diligence and legal consultation performed prior to executing any contract.

I am thankful that he only lost his earnest money and at least he did not close on the property and left holding a much more devastating financial burden. In cases like these, we refer our people to a knowledgeable and reputable local attorney for consult. Contacting an attorney to evaluate a legal minefield like this one is advised. Thanks for your question and all the best to your family.

Dave Kimbrough
The Kimbrough Team

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