"In order to execute or revoke a valid power of attorney, the principal must possess contractual capacity. ... Contractual capacity is generally defined as a person’s ability to understand in a meaningful way, at the time the contract is executed, the nature, scope and effect of the contract." Gaddy v. Douglas, 359 S.C. 329, 350, 597 S.E.2d 12, 23 (Ct. App. 2004). A similar formulation of the standard comes from Davis v. Marshall (Ohio App. 1994): "The test of competency to contract is whether the powers of a person’s mind have been so affected as to destroy the ability to understand the nature of the act in which he is engaged, its scope and effect or its nature and consequences ... ." FN1 "The party asserting incompetency has the burden of proving irrational or unintelligent behavior, and the court may consider "almost any conduct," including lay and expert opinions, and evidence of age, bodily infirmity, or disease." Restatement of Contracts (Second) Section 15, comment c quoted in Estate of Agnes Marquis, 2003 ME 71 (Maine 2003).
Yeah, I know, it's a bunch of attorney speak. How does one determine if an individual has sufficient mental capacity to "understand in a meaningful way, at the time the contract is executed, the nature, scope and effect of the contract"? Obviously, this type of determination is for a medical doctor and not a lawyer. To assist the doctor in making this determination, there are several standardized test out there (such as the Mini-Mental State Examination) that measure mental status. Regarding the measurement of mental status, I found the following from a medical journal particularity enlightening:
There is no "cookbook" approach that one can advocate. Assessments should be tailored to the needs of the patient and the situation. Neither performance on a standard cognitive test such as the Folstein Mini-Mental State Examination nor the presence of a particular condition such as Alzheimer's is itself a sufficient basis on which to conclude that a person is incompetent to perform a specific task. ... Try to obtain collateral information as this is normally needed to make an accurate assessment. The family or other health care workers who know the individual well can provide this information. Assessment unfortunately remains a somewhat uncertain procedure.
Competency Assessment and Surrogate Decision Making: Responsibilities and Roles of a Physician, College of Physicians and Surgeons of Alberta (2002). On the point of whether the existence of a mental disease automatically leads to a determination that a person lacks capacity, I found the following quote: "A person's mental illness or mental disorder does not automatically mean that the person is mentally incompetent. Many people who have mental illness can still make good decisions for themselves." Competency and Incompetency, a publication from the Maryland's Peoples Law Library (PLL). See also Law and Psychiatry: Assessing Civil Competence by Brian Crowley, MD.
Let's recap. There is variation among the states but I believe the following to be a statement of the prevailing US law on the issue. Each person possesses sufficient mental capacity to contract. One attacking the validity of a contract (of which a power of attorney is a form of contract) has the burden of presenting evidence of the mentality instability of the principal. In my opinion, absent overwhelming circumstantial evidence of a mental defect such as dementia, in order to rebut the presumption, the evidence must include testimony from a medical expert concluding that the principal lacked sufficient understanding (at the time the contract was executed) of the nature, scope and effect of the power of attorney. The existence of mental health issues, although calling into question one's mental capacity, do not automatically lead to a conclusion that the individual in question lacks mental capacity.
JJR 2-20-2008
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Footnote 1: See the definition of "incapacity" found in Section 103(3) the Uniform Power of Attorney Act (2005): "'Incapacity' means inability of an individual to manage property or business affairs because of an impairment in the ability to receive and evaluate information or make or communicate decisions even with the use of technological assistance ... ." This definition is for a slightly different purpose than contractual capacity to create a POA. It addresses the issue, I believe, of a springing power of attorney that does not become effective until the principal is found to be incapacitated. In such a case, the focus is on the ability of the principal to handle his or her financial affairs (which includes the ability to effectively communicate). However, contractual capacity focuses solely on mental capacity to understand the document being signed or contract being into separate and apart from other health issues that impair one's ability to manage financial affairs. The issues are related but not 100% the same.
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