Hedgepeth v. Home Savings & Loan Ass'n, 87 N.C. App. 610 (1987)

Nov. 17, 1987 · North Carolina Court of Appeals · No. 8715SC224

87 N.C. App. 610

MARY E. HEDGEPETH, Guardian of Cora Haith v. HOME SAVINGS AND LOAN ASSOCIATION

No. 8715SC224

(Filed 17 November 1987)

Principal and Agent 8 1— power oi attorney — incompetent principal — note and deed of trust valid

In an action by the guardian of an incompetent to annul a note and deed of trust, the trial court did not err by upholding the validity of the note and deed of trust where the defendant contracted solely with the attorney-in-fact in reliance on the recorded power of attorney and there was sufficient evidence to support the trial court’s finding that all of the requirements of Chesson v. Insurance Company, 269 N.C. 98, had been met. A power of attorney executed by a non-adjudicated incompetent should be considered voidable and not void ab initio.

Appeal by plaintiff from Lee, Judge. Judgment entered 29 October 1986 in Superior Court, CHATHAM County. Heard in the Court of Appeals 28 September 1987.

Plaintiff brings this action on behalf of her mother and ward, Cora M. Haith. On 11 February 1981, Mrs. Haith executed a durable power of attorney appointing her now deceased son, James H. Haith, attorney-in-fact with power to convey or encumber her real property. On 9 May 1983, pursuant to the power of attorney, James Haith executed a promissory note and deed of trust in favor of defendant in the amount of $19,000. The loan was intended to refinance an existing mortgage and to finance remodeling.

Plaintiff was appointed guardian after her mother was adjudicated incompetent on 9 September 1985.

Plaintiff filed suit to have the note and deed of trust annulled for failure of consideration. She alleged, and the trial court found, that Mrs. Haith was totally incompetent by reason of unsound mind when she signed the power of attorney and when her son executed the note and deed of trust. Plaintiff claims her now deceased brother, James H. Haith, received the loan proceeds but did not apply them to their mother’s benefit.

At trial defendant argued it had no knowledge of Mrs. Haith’s incompetency nor reason to inquire about her mental state. The testimony showed defendant had extended eight loans to Mrs. Haith, the first of which was made in 1955 for the purpose of buying the lot upon which Mrs. Haith’s residence is located and to finance its construction. All of these loans were secured by a lien on the property. James Haith as attorney-in-fact negotiated four of these loans.

The trial court found defendant had satisfied each of the five requirements which must be proven in order to enforce the written contract of an incompetent, and upheld the validity of the note and deed of trust. From this decision, plaintiff appeals.

Gunn & Messick, by Paul S. Messick, Jr., attorney for plaintiff-appellant.

L.T. Dark, Jr., attorney for defendant-appellee.

ORR, Judge.

It is well established in our state that a contract executed by an incompetent prior to being so adjudicated, is voidable and not void ab initio. Reynolds v. Earley, 241 N.C. 521, 85 S.E. 2d 904 (1955). The party contracting with an incompetent may nevertheless enforce the agreement if the following requirements can be established: (1) ignorance of the party’s mental incapacity; (2) lack of notice of the incapacity such as would indicate to a reasonably prudent person that inquiry should be made of the party’s mental condition; (3) payment of a full and fair consideration; (4) that no unfair advantage was taken of the incompetent; and (5) that the incompetent had not restored and could not restore the consideration or make adequate compensation therefor. Chesson v. Insurance Co., 268 N.C. 98, 150 S.E. 2d 40 (1966).

In the case sub judice there is a durable power of attorney executed by an incompetent. The issue before us is whether a note and deed of trust can be enforced by a party contracting solely with the attorney-in-fact in reliance on the recorded power of attorney.

To begin with we acknowledge the distinction between a third party seeking to enforce a power of attorney executed between two other parties and a party seeking to enforce a contract made directly with the incompetent as found in Chesson. However, we find that the logic behind the decision in Chesson and the established rule set forth in Reynolds should apply to the facts of this case. Therefore, the power of attorney in the case sub judice should be treated the same as any other contract. 2 S. Williston, The Law of Contracts § 250 (3d ed. 1959) and cases cited therein. See generally 44 C.J.S. Insane Persons § 116 (1945). Likewise, a power of attorney executed by a nonadjudicated incompetent should be considered voidable and not void ab initio.

If the third party contracting solely with the attorney-in-fact can satisfy all five of the Chesson requirements, the power of attorney will be enforced even though the principal was a nonadju-dicated incompetent when the power of attorney was executed.

After carefully examining the record, we are satisfied it contains sufficient evidence to support the trial court’s finding that all five Chesson requirements were met in this case.

Plaintiff conceded defendant did not know Mrs. Haith was incompetent when she executed the power of attorney in 1981 or when her attorney-in-fact executed the note and deed of trust in 1983. When coupled with the fact that James Haith as attorney-in-fact executed three of his mother’s seven previous loans from defendant, all of which were routine transactions, we find sufficient evidence to support the trial court’s finding that defendant was not aware of anything which would reasonably indicate it should have inquired into Mrs. Haith’s mental condition.

Uncontradicted testimony shows more than one-half of the loan proceeds were used to pay off Mrs. Haith’s prior indebtedness to defendant. Moreover, the evidence tends to show Mrs. Haith’s home increased in value substantially as a result of renovations made after James Haith received the remaining proceeds of approximately $5,000. We believe both of these factors sufficiently support the findings that defendant paid full and fair consideration to Mrs. Haith in exchange for the note and deed of trust and that defendant did not take unfair advantage of her.

Finally, three factors convince us that sufficient evidence existed for the trial court to conclude that Mrs. Haith could not restore the consideration or make adequate compensation thereof. First, the uncontradicted testimony that Mrs. Haith owed a balance in excess of $18,000 on the note and was in arrears several months at the time of trial. Second, the uncontradicted testimony also showed her total liquid assets were approximately $2,000. Finally, plaintiffs own statement that her mother “can’t afford to pay noway.”

The trial court was not required to find that all of the evidence supported his decision. So long as sufficient evidence supported the judgment, it will not be disturbed on appeal. Aetna Casualty and Surety Co. v. Younts, 84 N.C. App. 399, 352 S.E. 2d 850, disc. rev. denied, 319 N.C. 671, 356 S.E. 2d 774 (1987). We believe the evidence sufficiently supports the trial court’s conclusion and therefore affirm.

Affirmed.

Chief Judge HEDRICK and Judge Arnold concur.