Sparrow v. Demonico

• Citation: 960 N.E.2d 296,461 Mass. 322
• Decision Date: 13 January 2012
• Docket Number: SJC–10868.
• Parties: Frances M. SPARROW v. David D. DEMONICO & another.1
• Court: United States State Supreme Judicial Court of Massachusetts

461 Mass. 322
960 N.E.2d 296

Frances M. SPARROW
v.
David D. DEMONICO & another.1

SJC–10868.

Supreme Judicial Court of Massachusetts, Middlesex.

Argued Sept. 7, 2011.Decided Jan. 13, 2012.

[960 N.E.2d 297]

Kevin B. Nugent, Boston, for David D. Demonico.

Christopher W. Driscoll, Burlington, for the plaintiff.

Present: IRELAND, C.J., SPINA, CORDY, BOTSFORD, GANTS, & DUFFLY, JJ.

[960 N.E.2d 298]

DUFFLY, J.

[461 Mass. 322] A family dispute over ownership of what had been the family home in Woburn prompted Frances M. Sparrow ² to file a complaint in the Superior Court against her sister, Susan [461 Mass. 323] A. Demonico, and Susan's husband, David D. Demonico.³ Prior to trial, the parties resolved their differences by a settlement agreement reached during voluntary mediation. When Sparrow sought an order enforcing the agreement, a Superior Court judge denied her motion, concluding in essence that, due to mental impairment, Susan lacked the capacity to contract at the time of agreement. Sparrow appealed and, after initially vacating the order denying enforcement and remanding the case for findings of fact, Sparrow v. Demonico, 73 Mass.App.Ct. 1121, 2009 WL 321276 (2009), the Appeals Court reversed the judge's order and remanded the case for entry of an order enforcing the settlement agreement. Sparrow v. Demonico, 77 Mass.App.Ct. 1120, 2010 WL 3447507 (2010).

We granted further appellate review to consider whether a party can establish that she lacked the capacity to contract, thus making the contract voidable by her, in the absence of evidence that she suffered from a medically diagnosed, long-standing mental illness or defect. We conclude that our evolving standard of contractual incapacity does not in all cases require proof that a party's claimed mental illness or defect was of some significant duration or that it is permanent, progressive, or degenerative; but, without medical evidence or expert testimony that the mental condition interfered with the party's understanding of the transaction, or her ability to act reasonably in relation to it, the evidence will not be sufficient to support a conclusion of incapacity. Because the evidence was insufficient to support a determination of incapacity in this case, we vacate the motion judge's order and remand for entry of an order enforcing the settlement agreement.

Background. Sparrow's complaint, filed initially in July, 2003, and later amended, alleged that Sparrow was entitled to a one-half interest in the Woburn property, consistent with the wishes of her (and Susan's) now-deceased mother, under theories of constructive and resulting trusts. Susan, who resided in the Woburn property at the time of the mediation, and David, who had been separated from Susan for several years and was no longer residing with her, asserted that they were the sole owners of the property, as reflected in a deed, and denied that Sparrow [461 Mass. 324] had any interest in it.⁴ Shortly before what was scheduled to be a final pretrial conference, the parties sought to achieve a settlement through voluntary mediation and the matter was removed from the trial list.

The parties and the attorneys who were representing them in the Superior Court proceeding participated in mediation on October 19, 2006. Sparrow contends that the case was settled during this mediation by an agreement that the Demonicos would sell the property and pay Sparrow $100,000 from the sale proceeds. When

[960 N.E.2d 299]

Sparrow sought an order enforcing the agreement, alleging that the Demonicos “reneged on their obligations under it,” the Demonicos claimed that the agreement was unenforceable because Susan had, in their view, experienced a mental breakdown during the mediation and thus lacked the capacity to authorize settlement. At an evidentiary hearing on the motion, David and Susan were the only witnesses and no exhibits were admitted, although they were marked for identification.⁵ The motion judge denied Sparrow's motion on the basis that “the purported agreement may have been the product of an emotionally overwrought state of mind on the part of Susan Demonico.” ⁶ The case proceeded to trial by jury before a different judge, who, at the close of evidence, allowed the Demonicos's motion for a directed verdict on all counts. Sparrow appealed from the judgment and the denial of her motion to enforce the mediated settlement agreement.

[461 Mass. 325] The Appeals Court concluded, in an unpublished memorandum and order issued pursuant to its rule 1:28, that the motion judge's determination that Susan may have been emotionally overwrought was not grounds to avoid the contract, vacated the order denying the motion to enforce it, and remanded for “express findings of fact on the extent of Susan's impairment at the time that she authorized the settlement agreement.” Sparrow v. Demonico, 73 Mass.App.Ct. 1121, 2009 WL 321276 (2009). On remand, the motion judge issued written findings and an order denying Sparrow's motion to enforce the settlement agreement based on his determination that Susan “was mentally incapacitated on the day of the mediation,” and thus that “she was not able to understand in a reasonable manner the nature and consequences of what was happening and did not have an ability to comprehend the transaction or its significance and consequences.”

Sparrow again appealed and a different panel of the Appeals Court, in another unpublished memorandum and order, reversed, concluding that although “the evidence supported a finding that Susan was extremely upset and mentally distressed during—and by—the mediation, ... it does not support a finding that she was mentally incapacitated to the extent required by our cases.” The court noted that decisions that have concluded contracts were void due to incapacity have done so only where medical evidence demonstrated a permanent, progressive, degenerative or long-term illness “that has been diagnosed by a mental health professional.” Sparrow v. Demonico, 77 Mass.App.Ct. 1120, 2010 WL 3447507 (2010).

Findings of fact. We summarize the motion judge's subsidiary findings of

[960 N.E.2d 300]

fact, which we accept as not clearly erroneous, see Kendall v. Selvaggio, 413 Mass. 619, 620, 602 N.E.2d 206 (1992) and Mass. R. Civ. P. 52(a), as amended, 423 Mass. 1402 (1996), and include additional details from evidence that the judge implicitly credited. See Commonwealth v. Isaiah I., 448 Mass. 334, 337, 861 N.E.2d 404 (2007), and cases cited. “[T]o ensure that the ultimate findings and conclusions are consistent with the law, we scrutinize without deference the legal standard which the judge applied to the facts.” Kendall v. Selvaggio, supra at 621, 602 N.E.2d 206.

On the date of the scheduled mediation, Susan drove from her home to David's residence. From there, David drove them [461 Mass. 326] to the location of the mediation session because, in David's view, Susan was not capable of driving to the mediation. The mediation began at approximately 9 a.m. and ended at 3 p.m. The judge, crediting David's testimony, found:

“Susan was having a breakdown that day, according to David, and was slurring her words, although she had not had any alcoholic beverages on that day. She became less coherent throughout the day, was crying and out of control.... They left the mediation before it was over as Susan could not handle it.”

The judge noted Susan's testimony that she had been taking a medication, Zoloft, prior to the mediation, but that she had stopped taking the medication at some point before the mediation, and that she cried much of the day; he specifically credited Susan's testimony that she “was out of control emotionally during the mediation” and found also that “she was not thinking rationally” on that day.⁷

As noted, both sides were represented by counsel throughout the mediation. At some point before they departed from the mediation session, the Demonicos authorized their attorney to execute a settlement agreement on their behalf. ⁸ According to [461 Mass. 327] the terms of a written agreement titled, “Memorandum of Settlement,” which was

[960 N.E.2d 301]

signed by Sparrow, her attorney, and the Demonicos's attorney, and witnessed by the mediator, the Demonicos agreed to pay Sparrow “the settlement amount of $100,000.00” from the proceeds of the sale of the property, which would occur “as soon as practicable,” and in any event within a specified timeframe. The agreement also set forth other affirmative requirements regarding the marketing and sale of the property.

[2] Discussion. A settlement agreement is a contract and its enforceability is determined by applying general contract law. Warner Ins. Co. v. Commissioner of Ins., 406 Mass. 354, 360 n. 7, 548 N.E.2d 188 (1990). It has been long established that a contract is voidable by a person who, due to mental illness or defect, lacked the capacity to contract at the time of entering into the agreement.⁹ See, e.g., Bucklin v. National Shawmut Bank, 355 Mass. 338, 341, 244 N.E.2d 726 (1969); Gibson v. Soper, 72 Mass. 279, 6 Gray 279 (1856). The burden is on the party seeking to void the contract to establish that the person was incapacitated at the time of the transaction. Meserve v. Jordan Marsh Co., 340 Mass. 660, 662, 165 N.E.2d 905 (1960). See Wright v. Wright, 139 Mass. 177, 182, 29 N.E. 380 (1885).

a. Standard for determining contractual incapacity. As Justice [461 Mass. 328] Holmes observed, it is a question of fact whether a person was competent to enter into a transaction—that is, whether the person suffered from “insanity” or “was of unsound mind, and incapable of understanding and deciding upon the terms of the contract.” Id. at 182–183, 29 N.E. 380. In Reed v. Mattapan Deposit & Trust Co., 198 Mass. 306, 314, 84 N.E. 469 (1908), we described this inquiry as the “true test” of mental incapacity:

“But while great mental weakness of the individual may exist without being accompanied by an entire loss of reason, and...