Capacity to Contract and New Jersey Divorce Law

Let’s say you and your spouse want a divorce but you don’t want to hire attorneys. The two of you feel that you can draft a reasonable property settlement agreement and work with the county court clerk regarding procedural matters.

Beware of your future. Your ex-spouse may challenge the validity of the property settlement agreement, although it will be difficult. New Jersey Courts have held it is a fundamental principle that “the settlement of litigation ranks high in our public policy.” Jannarone v. W.T. Co., 65 N.J. Super. 476, 168 A.2d72 (App. Div.) certif.. denied, 35 N.J. 61, 171 A.2d 147 (1962).

Courts encourage parties to settle. Therefore, Courts are not likely to overturn agreements entered into by the parties voluntarily.

The goal of this policy is “the notion that the parties to a dispute are in the best position to determine how to resolve a contested matter in a way which is least disadvantageous to everyone.” Peskin v. Peskin, 271 N.J.Super. 261, 275, 638 A.2d 849 (App.Div.)(quoting Dep’t of Pub. Advocate, 206 N.J Super at 528, 503 A.2d 331), certif. denied 137 N.J. 165, 644 A.2d 613 (1994).

However, if a settlement agreement is achieved through coercion, deception, fraud, undue pressure, or unseemly conduct, or if one party was not competent to voluntarily consent thereto, the settlement agreement must be set aside. Peskin, 271 N.J.Super. at 276.

The longstanding rule is that where there is not the mental capacity to comprehend and understand, there is not the capacity to make a valid contract. Wolkoff v. Villane, 288 N.J.Super. 282, 287, 672 A.2d 242 (App.Div.1996) (quoting Hillsdale Nat’l Bank v. Sansone, 11 N.J.Super. 390, 399, 78 A.2d 441 (App.Div.1951)).

The test of capacity to make an agreement is “ that a man shall have the ability to understand the nature and effect of the act in which he is engaged, and the business he is transacting…. If the mind be so clouded or perverted by age, disease, or affliction, that he cannot comprehend the business in which he is engaging, then the writing is not his deed.” Eaton v. Eaton, 37 N.J.L. 108, 113 Sup.Ct.1874).

The Wolkoff Court emphasized that the party seeking to set aside the settlement agreement has the burden of proving his incapacity or incompetence to contract or other extraordinary circumstance sufficient to vitiate the agreement. Wolkoff, 288 N.J. Super. 282, at 287.

In Jennings, where a party entered into a settlement agreement and later claimed he was incompetent to do so, the Court held that “absent any competent evidence of fraud, coercion or other unseemly conduct, plaintiffs may avoid the settlement only if lacking mental capacity to make a valid contract.” Jennings v. Reed, 381 N.J. Super. 217, at 230, 885 A.2d 482 at 489 (App. Div. 2005), (citing Wolkoff, 288 N.J.Super. at 286-87, 672 A.2d 242).

In Jennings, the plaintiff did not claim he was without understanding of the terms of the settlement agreement, or unable to appreciate the force of the agreement. In fact, the plaintiff negotiated modifications to the agreement that benefited him. Additionally, plaintiff’s medical proofs did not suggest mental incapacity or incompetence. Id.

Beware of your spouse’s representations. You should ask the following: (1) Is your spouse capable of understanding the terms of a settlement agreement? (2) Do you think your spouse feels coerced into signing the agreement?