Under the Restatement (Second) of Contracts § 13 (1981), the existence of a valid legal guardianship precludes the formation of a valid contract with the guardianship's ward. In keeping with the Restatement's view, the Supreme Court of Alaska ruled that a party who attempts to enter into a contract with a ward will be entitled to restitution only in the absence of actual or constructive knowledge of the ward's incompetence.
The guardians of a developmentally disabled 19-year-old sued appellant automobile dealer and its insurance agency, seeking to void a contract entered into by their ward and alleging a violation of Alaska's Unfair Trade Practices Act (UTPA), Alaska Stat. § 45.50.471 et seq. The Superior Court of the State of Alaska, Third Judicial District, Kenai,, granted the guardians summary judgment, awarded them treble damages, but denied sanctions against the dealer. The parties cross-appealed.
Can a ward, under legal guardianship, enter into a valid contract with a third party?
The superior court's remaining rulings were affirmed. The dealer was not entitled to restitution where the ward was under a formal guardianship order that declared him incompetent to enter into a contract and the order gave public notice of the ward's incapacity. The guardians had not abandoned the ward as neither the absence of a routine nor encouraging the ward to act independently amounted to abandonment. Moreover, they were not obliged to watch the ward's every move and the evidence demonstrated their ongoing efforts to control his finances. Any error in granting the guardians summary judgment on the defense of failure to mitigate damages was harmless as the dealer was allowed to contest the reasonableness of the claim for loss of use damages.