## Facts

- Seminole Walls & Ceilings Corporation (Seminole) filed for bankruptcy under Chapter 7.
- PITA Corporation (PITA), a subsidiary of Seminole, had purchased a collection of photographs from photographer Joseph Jasgur.
- During the bankruptcy case, Jasgur disputed that PITA owned the photographs, creating a contested ownership dispute involving property claimed by the estate.
- To resolve the dispute, Seminole’s Chapter 7 trustee and Jasgur entered into a written settlement agreement in January 2005.
- The trustee and Jasgur executed an amendment to the settlement in March 2005.
- When the settlement documents were signed, Jasgur was over 85 years old.
- Around the time of signing, Jasgur suffered a “mini-stroke” and was later diagnosed with serious medical conditions.
- Jasgur was declared mentally incompetent by a state court on August 10, 2005, several months after the January and March 2005 agreements.
- Jasgur was represented by counsel during settlement negotiations, and the settlement was heavily negotiated.
- Lawyers involved in the negotiations believed that Jasgur supported the settlement terms.
- Jasgur’s acquaintance, Tom Endre, assisted him during the period in which the settlement and amendment were signed.
- Endre later testified that Jasgur understood he was signing a legal compromise.
- Jasgur signed the settlement and the amendment before notaries, and neither the notaries nor Endre reported that Jasgur appeared confused or behaved unusually at execution.
- After being declared incompetent, Jasgur asserted that the settlement agreement and amendment were unenforceable because he lacked mental capacity when he signed them.

## Issues

1. Whether the January 2005 settlement agreement and March 2005 amendment were voidable because Jasgur lacked mental capacity at the time of execution.
2. Whether Jasgur’s later state-court adjudication of mental incompetency, by itself, established incapacity at the earlier contract-formation dates.

## Decision

- The court enforced the settlement agreement and its amendment.
- The court held Jasgur did not carry his burden to show he lacked capacity in January and March 2005 when he executed the agreements.
- The court treated the presence of competent counsel, the negotiated character of the settlement, and contemporaneous observations at signing (including Endre’s testimony and notarization) as evidence that Jasgur understood he was entering a compromise.
- The court concluded the August 2005 incompetency adjudication did not automatically prove Jasgur lacked capacity months earlier, so it did not invalidate the settlement on its own.

## Legal Principles

- A contract is voidable for mental incapacity only if the party lacked mental capacity at the time of the transaction.
- The capacity inquiry centers on whether the person could understand, in a reasonable manner, the nature and consequences of the agreement when it was made.
- Advanced age, illness, or a later incompetency determination may be considered but does not alone establish incapacity at an earlier time.
- Evidence that a party had competent legal representation, participated in negotiated terms through counsel, and appeared to understand the transaction at execution supports a finding of capacity.
- The party seeking to avoid an agreement for incapacity bears the burden of proving incapacity at the time of contracting.

## Conclusion

In *In re Seminole Walls & Ceilings Corp.*, the bankruptcy court enforced the trustee’s January 2005 settlement and March 2005 amendment resolving a dispute over photographs because Jasgur did not prove he lacked contractual capacity when he signed; his later incompetency adjudication and medical problems did not, without stronger evidence tied to the signing dates, render the agreements voidable.


In re Seminole Walls & Ceilings Corp., 366 B.R. 206 (2007)