I thought this might be of interest to those with elders to care for in the state of Oklahoma.  Yes! we have a so called elders law but absolute nothing has been or will soon be acted on.  We can thank the Osage Congress for this one two, because of their tight fisted and underhanded maneuvers.

Sept. 9,2008 - Sharing information: WHAT EVERY OKLAHOMA ELDER LAWYER SHOULD KNOW ABOUT
MENTAL CAPACITY FOR BUSINESS TRANSACTIONS
By John David Lackey
December 1, 2003
I.  INTRODUCTION
Oklahoma lawyers serving elder clients face a myriad of challenges that do not normally surface for lawyers who do not serve the elderly.  The concept of capacity is especially important, as it pervades every transaction an elderly client might attempt to make, and an attorney serving an older client would be well advised to have an understanding of the levels of competency for different types of transactions, as well as the solutions available when capacity becomes an issue.  In this regard, the terms “capacity” and “competence” shall be used interchangeably.
The mental capacity of an older adult is not always easily determined.  This problem can be made even more difficult by the reluctance or anger created by the suggestion that the client may need assistance.  This problem is even more difficult for the elder lawyer, since the standard for capacity itself may change, depending on the type of transaction the client may be attempting to undertake.  The standard for capacity in the ability to form contracts or dispose of real or personal property is different than the standard for determining capacity in testamentary bequests and donative transfers.  Further, the standard for capacity in making medical decisions for the client is different than either the business transaction sense or the gift sense.  There are social policy concerns that have helped shape and mold the standard of capacity for each of these situations. 
This paper does not attempt to address all of these concerns.  Rather, this paper will identify the standards for capacity in making business transactions (contractual competency) in Oklahoma, and will only briefly touch on other types of transactions. Pertinent Oklahoma case law and statutory material and commentary from other sources will be considered in order to gain a more complete understanding of where the law regarding contractual competency in Oklahoma stands at this time.
II. OKLAHOMA LAW
A.  BASIC DEFINITION OF CAPACITY
The official definition of incapacity, found in the Oklahoma Guardian and Conservatorship Act,  is referenced by numerous other statutes when referring to incapacity.  The statute holds a person incapable “whose ability to receive and evaluate information effectively or to make and to communicate responsible decisions is impaired to such an extent that said person either lacks the capacity to meet essential requirements for his physical health or safety, or is unable to manage his financial resources.”   The law holds adults incompetent if they are unable to manage their finances due to an inability to comprehend information relating to those decisions due to impairments such as mental disease or physical disability.
B.  BUSINESS TRANSACTIONS
1.  Contract Law
More applicable to business transactions, Title 15 of the Oklahoma Code, Contracts, §11, specifically states the legislative intent with regard to capacity in business transactions,  stating that persons of unsound mind are incapable of forming binding contracts.
Another Oklahoma statute that bears on capacity to form contracts is found at 15 Okla. Stat. § 22, Persons Without Understanding,  stating that a contract is unenforceable against a person who lacks the ability to understand the transaction.  This section may be important in the business transaction context, since it does not include the term capacity or competence, and does not cross reference the definition of incompetence as found in 30 Okla. Stat. § 1-111.  As will be seen, Oklahoma courts have interpreted § 22 as referring to capacity, and not some other amorphous standard.
A very similar provision in the Oklahoma Code to Persons Without Understanding is found in Rescission of Person with Unsound Mind,  holding that in contracts entered by incompetent persons, the third parties have the right of rescission without prejudice.  This statute is similar to the language in § 22, but the difference is important, as § 22 makes contracts void as applied to incompetent persons, while § 23 only makes those contracts voidable. 
2.  Uniform Commercial Code
The Uniform Commercial Code (UCC) has been adopted by Oklahoma,  as it has by every other state.  Article 2 of the Code, Sales of Goods, may apply to contracts in which an incompetent person might enter.  While the UCC as it is adopted in Oklahoma makes no explicit mention of capacity of parties, there are still provisions that bear on capacity to contract.  Specifically, Unconscionable Contract or Clause,  states that a court may void a contract if it finds a clause or even the entire contract to be unconscionable.  Certainly this would apply to a contract entered into by an incompetent person.  Other UCC provisions that are substantively the same include Article 2A’s lease clause, Unconscionability,  which deals with leases of goods and provides the same rule as for the sale of goods.
3.  Property Law
From a property perspective, Oklahoma has established a standard for determining whether a party has capacity to convey title to real property.  Entitled Mental Capacity to Convey,  the statute requires that incapacity be judicially determined either through a guardianship proceeding, a mental-health proceeding, or in some civil action.  This is no method of determining capacity itself, but defers to standards of capacity found in other sections of the Oklahoma Code, such as the general provision found at 30 Okla. Stat. § 1-111.
C.  OTHER LAW
1.  Testamentary Law
As opposed to contractual capacity, testamentary capacity is a concept that many people are aware of.  Generally, a person is found competent for testamentary reasons if they know what they have, know to whom they are giving it, and know why they are giving it to them.  In Oklahoma, the applicable law is found in Title 84, Wills and Succession.   Regarding capacity, 15 Okla. Stat. §41 provides that even those declared incompetent by a court may still effectively dispose of their possessions, so long as the will is approved by a court.  Importantly, there is no ability by the court to amend or disapprove of the contents of the will; the requirement is merely a safeguard.  So long as this safeguard is used, the traditional “fruit of one’s bounty”  test still applies.  
2.  Medical Decisions
The test for capacity in medical decision making is found in Title 63 of the Oklahoma Code.  63 Okla. Stat. § 3131.3, part of the Oklahoma Do-Not-Resuscitate Act, defines incapacity as the inability “to appreciate the nature and implications of a health care decision, to make an informed choice regarding the alternatives presented, and to communicate that choice in an unambiguous manner.”   This differs from business transactions in that the DNR Act envisions some individuals who are incapable to make business transactions and have been appointed guardians or conservators may still be capable of making a medical choice for themselves, especially as they pertain to life prolonging procedures.
Another law that relates to capacity is the Oklahoma Rights of the Terminally Ill or Persistently Unconscious Act, found at 63 Okla. Stat. §§3101 et seq.  Included in the Act is the authorization and guided forms for health care proxies, organ donations, and living wills.  Under the advance directive forms, the subject of capacity is determined by the attending physician.  As an example, in 63 Okla. Stat. § 3101.4, the form for advance directives provides:  “If my attending physician and another physician determine that I am no longer able to make decisions regarding my medical treatment, I direct my attending physician and other health care providers, pursuant to the Oklahoma Rights of the Terminally Ill or Persistently Unconscious Act, to withhold or withdraw treatment from me under the circumstances I have indicated below by my signature.”
The standard for capacity in medical decisions is different from that in business transactions primarily for policy reasons.  There is a significant presumption of personal autonomy with regard to one’s own body, and the state has been reluctant, barring clear evidence of incapacity, to prevent an individual from making their own choices, especially with regard to end of life issues such as DNR and Advance Directives.
III. CASE LAW
A.  PRIOR TO INCAPACITY DETERMINATION
There are a number of Oklahoma cases that bear on capacity to perform business transactions.  The total number of cases in this context is relatively slight when compared with a search of capacity for testamentary transfers.  The most likely reason for this disparity may lie in the fact that many business transactions involve relatively small amounts of money, and may not be challenged later by a guardian or other conservator.  Additionally, testamentary capacity involves substantially higher emotions for those involved, and at least the perception that a more significant amount of money is in play. 
In Loman v. Paullin,  the Supreme Court of Oklahoma found that incompetence could not be founded solely upon the facts that a man was an illiterate, uneducated Indian with no business skills.  The Court held that competence was to be determined by the following question: “Did he possess sufficient intelligence to understand what he was doing; that is, the effect of his acts? In this case, that he was parting with the particular property he was disposing of, the disposition he was making of it, and the person to whom he was conveying it?”   Certainly this is not a very objective test for determining a person’s ability to understand and complete business transactions, especially since the court found that an uneducated illiterate did sufficiently understand what he was doing when conveying a deed to property.
In Harris v. Commerce Trust Co. , the court held that capacity was to be determined at the time of the transaction.   In this case, the court found that despite a prior adjudication of incompetency, the person in question “was at the time of the transaction in question a person of unsound mind, but not entirely without understanding.”   Following this analysis of the entire record before the court, it was held that the ward did possess the requisite level of awareness in order to effectively contract.   The court in this case set aside a prior judicial determination that the ward was incompetent to enter into contracts and found competency.   Certainly from this evidence, it appears that at the very least, early Oklahoma courts were willing to find competency to contract, especially where the opposing party was held to have proceeded in good faith.
In re Woodward  continued the trend toward legitimizing business transactions occurring before a judicial determination of incapacity.  In Woodward, an elderly person conveyed a deed after being forced to leave the family farm and enter a nursing home.   There was evidence that the person was not fully aware of the ramifications of the transfer, but the court held:  “The test of capacity to make a deed is that the grantor shall have the ability to understand the nature and effect of the act in which he is engaged and the business he is transacting. To invalidate a deed it must appear that the grantor was incapable of comprehending that the effect of the deed, when made, executed and delivered would be to divest him of the title to the land set forth in the deed.”   This test makes it extremely difficult to prove to a court in retrospect that incapacity for the purpose of that conveyance existed.
B.  POST INCAPACITY DETERMINATION
While it would appear from the brief sample of cases presented thus far that Oklahoma courts lean heavily in the favor of capacity, not all cases have held such transactions valid.  In fact, in a significantly more recent decision, the Supreme Court of Oklahoma held in Sooner Federal Savings and Loan Association v. Smoot  that a contract entered into by an incompetent person was void.  The court stated: 
The just and correct rule to be applied in determining the competency of a grantor to execute a deed requires that the test to be applied in such circumstances is that the grantor shall have the ability to understand the nature and effect of the act in which he is engaged and the business he is transacting, and that in order to invalidate the deed it must be shown that the grantor was incapable of comprehending that the effect of the deed when made, executed, and delivered would be to divest him of the title to the land set forth in the deed.  

This holding demonstrates the conflict between § 22 and § 23 of Title 15 of the Oklahoma Code, as discussed above.  In this case, both parties in the action admitted incompetence,  but were basing their opinion on different statutes,  and the court was forced to determine which statute controlled.  The court found that § 22 controlled, with the result that the contract was automatically void.
IV. OUTSIDE SOURCE MATERIAL
A.  INTRODUCTION
For purposes of this paper, information not contained within a statute or case arising in Oklahoma is considered an outside source.  As will be seen, some “outside sources” arise from sources within Oklahoma but are not legal in nature, and serve only as a guide for evaluating those legal sources found in the Oklahoma Code or common law.
B.  AMERICAN BAR ASSOCIATION
Governed by the rules of professional responsibility, Oklahoma lawyers must be aware of the ethical duties prescribed when dealing with an elderly client.  ABA Rule 1.14, Client Under A Disability,  adopted by Oklahoma, states in the comments that even elderly clients of advanced ages may be competent for most transactions, and only need protection for major transactions.  Further, Rule 1.4, Communication,  also provides special rules for the normal standard of full disclosure to a client with special mental disabilities that would prevent a reasoned response.
C.  OKLAHOMA BAR ASSOCIATION
Another important source of information is the Oklahoma Senior Citizens Handbook.  Containing an enormous amount of information for seniors or lawyers serving elderly clients, the senior handbook contains a section on guardianship,  conservatorship,  durable powers of attorney,  and health care proxies,  all of which relate directly to the subject of capacity.  With regard to capacity, the handbook states the basic rule regarding capacity; namely that normally a person has the right to make decisions for themselves so long as they are not incapable due to some illness or disability, especially when those decisions can not harm other persons.   Going further, the handbook also provides: 
In order for the court to appoint a guardian, the court must be convinced by evidence presented at the hearing that you are not capable of making informed decisions about your own care or the management of your property. A guardian cannot be appointed just because of your age or because you are physically disabled. For example, a general guardianship of the person is not appropriate merely because a person is wheelchair-bound due to severe arthritis. A limited guardianship may be imposed if a disability affects the individual's ability in some way to care for himself or manage his property.
D.  RESTATEMENT OF CONTRACTS
The Restatement (Second) of Contracts also has a section on capacity.   The Restatement basically holds that incompetent persons are unable to legally contract, and that contracts formed by incompetent persons may be voidable, but are not necessarily void.   Further, the Restatement recognizes that capacity may be different depending upon the type of transaction or contract entered into.   Certainly a contract for lawn care services may be given a different standard than a contract for sale of real property.  In the situation where the contract is voidable, evidence of good faith, misrepresentation, and duress would all tell in an evaluation of the efficacy of the contract in question.
E.  CORBIN ON CONTRACTS
Yet another source of outside material that bears on capacity to enter business transactions is the analytical treatise Corbin on Contracts.   Within the treatise, Chapter 27 specifically deals with the capacity of parties to contract, and states the following:  “It is generally held that incapacity exists when a party does not understand the nature and consequences of what is happening at the time of the transaction.”   Further, Corbin goes on to deal with contracts that have been formed by the incompetent.  In this regard, he states “According to older authority, transactions of the mentally infirm are void, but under the overwhelming weight of modern authority, the contracts and executed transactions of the mentally infirm are, with one exception, merely voidable.”   This outside source once again affirms the common law approach of the Restatement, and also shows that Oklahoma courts, in their reluctance to automatically void contracts entered into by the incompetent are following the current trend in the law.
F.  AMERICAN JURISPRUDENCE 2D
American Jurisprudence 2d also weighs in on the capacity of parties, stating in Capacity to Contract   that capacity is the ability to understand the nature of the transaction taking place.  In this respect, it offers substantively the same guidance as is found in the Restatement and Corbin, but then continues, finding it is the mental state when the contract is executed that is relevant.  A contract may not be voided based on previous incompetence or for alleged incompetence arising after the execution of the contract, though a party's capacity before or after execution of an agreement is relevant in determining competency at the time the contract was executed.   This reinforcement is important, especially in light of the reticence Oklahoma courts have shown to retroactively voiding contracts for supposed incompetent individuals.
V.  CONCLUSION
 There is no doubt from the different statutory provisions and case law that once a person has been declared incompetent, there is an inability to legally contract.  However, the history of the Oklahoma courts has been to find some measure of competency for transactions that are challenged after the fact, especially when the other party involved has acted in good faith.
The lesson for elder lawyers to learn from this is simple.  If competency becomes an issue in representing a client, it will be extremely difficult to challenge business transactions the client enters into until such time as some sort of guardianship proceeding is initiated.  While this result may be unfair in some circumstances, it reinforces the concept that until the court determines a person incompetent, that person is competent.

OSAGE NATION CONGRESS



2nd Special Session of the 1st Legislature (2007)



BILL NUMBER ONCA 07-10



AS INTRODUCED

November 28, 2006



AUTHOR: Shannon Edwards by Request



An Act

Relating to the Senior Service Satelitte Program; Making an Appropriation theretos; Authorizing the employment, duties and compensation of employees and limiting the amount of funds that may be expended for salaries and wages;

Authorizing spending; Making appropriated funds available as use as federal matching dunds; Declaring an emergency, and setting an effective date.


Be it enacted by the Congress of the Osage Nation:

SECTION 1. APPROPRIATION

There is hereby appropriated to the Senior Service Satellite Program, from the General
Treasury Fund Account for the Fiscal Year 2007 beginning October 1, 2006 and ending
September 30, 2007, the sum of $107,367.00 to carry out the duties assigned to that Program.

SECTION 2 . EMPLOYEES- DUTIES AND COMPENSATION

The Program Director shall fix the duties of the employees not otherwise provided by law necessary to carry out the functions of the Program. The salaries and benefits for the employees shall not exceed the sum of $24,281.00. The maximum number of part-time
employees under the program shall be two, as set forth below:

BUDGET AMOUNT

PERSONNEL: Site Workers $ 23,936 2 part time @ $8.22 hr X 7 hrs day X 4 days per week

GS2-1

This line item is to provide funding for salaries for program personnel. Fiscal year is broken down into 26 pay periods. Each pay period consist of two 28 hours a week. $8.22 hr. x 7 hrs. a day 4 days a week. This is for both of the workers for 12 months. $23,700. Of all support staff

Fringe:

The fringe benefits is for 2 employees for12 months. $3,000 Fica/Medicare @ 7.65 % 1,831 Suta @ 3.1 % 735 Workers comp @ 2% 479

SECTION 3. EXPENSES

A. The sum of $83,086.00 is authorized for the following purposes: Telephone Expense: $ 960

This line item is for (2) two cell phones. at $39.99 per month per phone x 12 months=$960.

Vehicle Maintenance $ 5,300 $442 per month x 12 months = $5,300 for the year.

Office Supplies: $ 3,000

This is for the purchase of office items. $250 per month x 12 months=$3,000.

Equipment Expense: $ 6,500

$542 per month x 12 months $6,500 for the year.

Depreciation of Vehicles: $ 8,055 This is for the three vans for the year. $8,055.

Insurance on Vehicles: $ 3,000 This is for insurance on three vans for the program.

$3,000.for the year. by the department

Meals: $ 43,344

Meals to be served 4.3 weeks in a month.

120 Meals a week x 4.3 weeks=516 meals per month for 12 months. Total of 6,192 meals.

Cost of a meal is $7.00 per meal x 516 meals per month for 12 months for a total of 6,192 meals.

Cost of a meal is $7.00 per meal x 516 meals a month = $3,612 each month=$43,344 for the year.

INDIRECT COST 10,227

The indirect cost rate is based on a 19.01% proposed rate for FY-06, we have submitted the proposal to the NBC and we are waiting for approval. The indirect cost rate supports the administration, accounting, personnel and payroll divisions with flow thru funds for contracts and equipment in excess of $5,000 per item

B. No funds withdrawn shall be utilized for any purpose other than those listed above.

C. The Program Director shall ensure that Program:

1. Does not exceed appropriated funds, and

2. There is no shift in line item funds in excess of 10% during the fiscal year without approval and consent of the Osage Nation Congress.

SECTION 4. FEDERAL AID AND MATCHING FUNDS

All funds appropriated in this act may be used and expended in conjunction or

cooperation with any federal or state agency, or other non-tribal funding source under such terms and conditions considered appropriate or necessary by the appropirate Executive Branch official to obtain grants or federal assistance. Funds appropriated by this act shall be available for utilization in matching any federal funds which may be made available for the purpose set out in this act.

SECTION 5. FISCAL YEAR LIMITATIONS- LAPSE DATE

The appropriations made by this act shall be subject to fiscal year limitations and may
be encumbered through September 30, 2007. All funds appropriated that are unexpended at the end of the term shall lapse and be unencumbered for future appropriations.

SECTION 6. DECLARATION OF EMERGENCY AND EFFECTIVE DATE

An emergency exists. This bill is effective upon signature of the Principal Chief or upon
signature of the Speaker of the Osage Nation Congress following legislative override.

ENACTED by the Osage Nation Congress on this __ day of December, 2006.
IN WITNESS WHEREOF, the Speaker of the Osage Nation Congress has hereto attached his signature.

Archie Mason,Speaker

Osage Nation Congress



CERTIFICATION

I, THE UNDERSIGNED, CERTIFY THAT THE FOREGOING IS A TRUE EXTRACT
FROM THE MINUTES OF THE Osage Nation Congress comprised of twelve members
and one ex-officio member with 11 members attending this meeting on the 15th day of
November, 2006, and that the above is in conformity with the provisions therein adopted by a vote of 9 in favor, 1 against, 0 abstentions, and 2 absent.



Faren Revard Anderson yes

Jerri Jean Branstetter absent

Shannon Edwards yes

Mark Freeman yes

Debra Littleton yes

Archie Mason absent

Raymond Red Corn yes

Eddy Red Eagle, Jr. yes

Doug Revard yes

Anthony Shackelford yes

Mark Simms no

William Supernaw yes


Said Bill has not been rescinded or amended in any way and the above is the signature of the Speaker of the Osage Nation Congress. 



___________________________

Alexis Rencountre, Clerk

Osage Nation Congress









EFFECTIVE DATE CERTIFICATION



I, THE UNDERSIGNED, CERTIFY THAT THE FOREGOING EFFECTIVE DATE

was approved by a two-thirds vote of the Osage Nation Congress in accordance with the

Constitution of the Osage Nation Article VI, Section 13. This provision was adopted by

a vote of __ in favor, __ against, __ abstentions, and __absent.



Faren Revard Anderson

Jerri Jean Branstetter

Shannon Edwards

Mark Freeman

Debra Littleton

Archie Mason

Raymond Red Corn

Eddy Red Eagle, Jr.

Doug Revard

Anthony Shackelford

Mark Simms

William Supernaw







_____________________________

Alexis Rencountre, Clerk

Osage Nation Congress



APPROVAL

I, the Principal Chief of the Osage Nation, hereby affix my signature this __ day of December, 2006, to the above Bill No. ONCA 07-03 authorizing it to become a law under the Constitution of the Osage Nation.

____________________________

Jim R. Gray, Principal Chief

Osage Nation







OSAGE NATION CONGRESS



2nd Special Session of the 1st Legislature (2007)



BILL NUMBER ONCA 07-10



AS INTRODUCED

November 28, 2006



AUTHOR: Shannon Edwards by Request



An Act

Relating to the Senior Service Satelitte Program; Making an Appropriation theretos; Authorizing the employment, duties and compensation of employees and limiting the amount of funds that may be expended for salaries and wages;