Contracts I, Pages 580–593

Fingerhut v. Kralyn Enterprises, Inc.

Supreme Court, New York County, New York, 1971

Facts:

Plaintiff was an investment advisor who formed an investment company that had $5,000,000 in capital. Plaintiff was a member of a golf club and wanted to buy his own country club. He visited defendant's golf & country club for this goal. The parties and their lawyers negotiated a sale for $3,075,000, which they executed the binder for, and plaintiff gave a check for $25,000 to defendant. They then negotiated for six more hours and made a formal contract, which they executed and plaintiff paid defendant $200,000 more. The remaining payment was to be due in a couple months in November, but plaintiff could elect to close sooner or a month later.

The property had three mortgages totaling $1,950,000. At least $900,000 of them had to be paid to take title, possibly plus adjustments and inventory. These mortgages could have been required in cash depending on whether preliminary negotiations were successful. Defendant was obligated to assist plaintiff in obtaining extensions of the first two of these mortgages. A liquidated damages clause was negotiated out by plaintiff's counsel.

Plaintiff elected to adjourn closing until a month later. Plaintiff's lawyers then notified defendant that he suffers from a manic depressive psychosis, which rendered him totally incapable of managing his own affairs until after the contract was signed. Because of this, they notified defendant that plaintiff elected to rescind the binder and contract and demanded return of his payments.

Issue:

Was the contract voidable because of plaintiff's mental illness?

Rule:

R2C § 15

Reasoning:

  • A mentally ill person can be competent sometimes and incompetent in others. Evidence shows that plaintiff acted competently, as he was running his business successfully and negotiated this deal.

  • Even if plaintiff was not competent when the contract was signed, he regained his faculties before electing to adjourn closing and still did not object to the contract itself due to his mental illness. He continued to act in furtherance of the lawsuit.

Holding:

No, the contract was not voidable because of plaintiff's mental illness. Dismissed.

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