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Legal Memorandum: Effect of a Voidable Transaction in MN

Issue: Under Minnesota law, what is the effect of a voidable transaction?

Area of Law: Business Organizations & Contracts
Keywords: Voidable transaction; Mentally incompetent; Disaffirm
Jurisdiction: Minnesota
Cited Cases: None
Cited Statutes: Restatement (Second) Contracts § 7
Date: 09/01/2009

Minnesota has long followed the majority rule that holds that if a party who is mentally incompetent purports to enter into an agreement or execute a deed, the transaction is voidable, but not void. Schultz v. Oldenburg, 277 N.W. 918, 921 (Minn. 1938); Czyrson v. Roseau County Nat. Bank, 218 N.W. 224, 225 (Minn. 1927); Schaps v. Lehner, 55 N.W. 911, 912 (Minn. 1893).

Generally, if a transaction is merely “voidable,” only one party to the contract may elect “to avoid the legal relations created by the contract.” Restatement (Second) Contracts § 7. Where the basis is incapacity, only the person who is subject to the incapacity is entitled to make the election to disaffirm the contract. Id. cmt. b.; Blinn v. Schwartz, 69 N.E. 542, 543 (N.Y. 1904). Where the basis is mutual mistake, however, both parties are entitled to make the election. Restatement § 7 cmt.b.

The general rule is that until the party who has the right to avoid the contract actually disaffirms it, the contract remains valid. See Blinn, 69 N.E. at 543. Moreover, the failure to disaffirm the contract after the party has a reasonable time to do so may be considered a ratification of the agreement and the party’s right to disaffirm it will be lost. Weber v. Bottger, 154 N.W. 579 (Iowa 1915); see Restatement § 7, cmt. d. Further, if the incompetent person regains his competence and retains the benefits of the transaction, again, he will be deemed to have ratified the […]

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