Do I have a duty to verify the mental capacity of a potential client?

QUESTION:  I was recently contacted by an individual who owns several properties. The owner asked me to list all of those properties for sale. Before I could prepare the necessary listing agreements, the owner’s son called me. He told me that his mother was not mentally competent, and that social services had already been called in to evaluate her. This was a complete surprise to me as the property owner seemed to understand exactly what she was doing when I met with her. Do I now have a duty to verify this potential client’s mental capacity before entering into a listing agreement with her?

ANSWER:  In the situation you have described, we do not believe that you have any obligation to hire a medical professional to evaluate the mental condition of your potential client. However, whenever a potential client’s “legal capacity” is called into question, there are some principles to keep in mind, and some suggested steps to take, before you enter into an agency agreement.

Under North Carolina law, for any contract to be binding there must be a mutual agreement of two parties both of whom are in possession of “legal capacity”. This issue comes up when a minor wishes to enter into a contract. Because persons under the age of 18 are said to lack legal capacity, they generally cannot enter into a valid contract. Similarly, a certain level of mental capacity is required in order to enter into a binding contract.

What is the standard? The North Carolina Court of Appeals has stated the following: “A person has mental capacity sufficient to contract if he knows what he is about, and the measure of (that) capacity is the ability to understand the nature of the act in which he is engaged and its scope and effect, or its nature and consequences, not that he should be able to act wisely or discreetly, nor to drive a good bargain, but that he should be in such possession of his faculties as to enable him to know at least what he is doing and to contract understandingly.”

Chapter 35A of North Carolina’s General Statutes establishes procedures that can be followed in order for a Court to determine a person’s competence. Under that statute, a verified petition seeking adjudication of the incompetence of an adult may be filed with the clerk by any person, including any State or local human services agency.

Because your prospect’s son has raised the issue of his mother’s competency, you should ask him whether a court has determined his mother to be incompetent. If the answer is yes, ask for a copy of that determination, and then consider contacting the court-appointed guardian. In the absence of a determination of incompetency, you should arrange for a disinterested person to meet with you and your prospect to observe the prospect and (hopefully) verify your evaluation of her mental capacity. Together, you should consider the standard quoted above: does the prospect truly understand the nature of the listing agreements she is about to sign, and the obligations they will impose on her? If you both agree that the standard is satisfied, you can safely proceed with the listing agreements. Later, if you are questioned about your decision to move forward, it will be very helpful to have an independent third party to confirm your evaluation of the prospect’s legal capacity.

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