Skannal v. Bamburg

Rule of Law:

A contract made by a noninterdicted person may be rescinded for lack of capacity if it is proven by clear and convincing evidence that the person was deprived of reason at the time of contracting and the other party knew or should have known of the incapacity. Fraud may be established by circumstantial evidence where a confidential relationship exists and the resulting transaction is grossly inequitable to the incapacitated party.

Facts:

• John C. Skannal, an elderly landowner and chronic alcoholic, had a business partnership with Dennis and Margie Bamburg starting in the mid-1970s to develop his land.
• Over several decades, they formed successful joint ventures, including Sligo Enterprises Inc. and Sligo Hills LLC, in which Skannal and the Bamburgs each held a 50% interest.
• In the 1990s, Skannal became estranged from most of his family, and his alcoholism worsened. Around 1999, he was diagnosed with inoperable prostate cancer.
• By 2003, Skannal's mental and physical health declined sharply, leading to hospitalizations where he was diagnosed with alcohol-induced dementia and Alzheimer's disease.
• On October 9, 2003, while Skannal was a patient in a psychiatric hospital, Dennis Bamburg had him sign an 'Exclusive Right to Sell Agreement' on behalf of their corporation, Sligo Enterprises.
• In February and March 2004, while Skannal was a resident at The Arbor, an assisted living facility, Dennis Bamburg drove him to an attorney's office on two separate occasions.
• During these two visits, Skannal signed documents selling his remaining 50% interest in Sligo Hills LLC, his stock in Sligo Enterprises Inc., and the naked ownership of his mineral interests to the Bamburgs for a total of $843,752.
• The attorney and witnesses at the 2004 signings, who were unaware of Skannal's medical condition or residence, testified that he appeared cogent and aware of the transactions.

Procedural Posture:

• John C. Skannal filed suit against Dennis and Margie Bamburg in district court seeking to rescind nine contracts on the grounds of incapacity, fraud, and other defects of consent.
• Following Skannal's death, his succession representative was substituted as the plaintiff.
• The Bamburgs filed an exception of no right of action regarding the 'Exclusive Right to Sell Agreement,' arguing the claim belonged to the corporation, Sligo Enterprises Inc., not Skannal.
• The district court initially granted the Bamburgs' exception of no right of action.
• After a 16-day bench trial, the district court found Skannal lacked capacity for four of the nine contracts and was unduly influenced by Dennis Bamburg.
• In a supplemental opinion, the trial court found Dennis Bamburg had committed fraud and awarded damages.
• In a second supplemental opinion, the trial court reversed its own prior ruling on the exception, deciding to nullify the exclusive right to sell agreement along with the other three contracts, and fixed costs.
• The Bamburgs appealed the trial court's final judgment to the Court of Appeal of Louisiana, Second Circuit.