Level 3: Morgan’s Credibility

“Whether parties have reached a contractual agreement and on what terms are questions for the fact finder when conflicting versions of the parties’ negotiations require a determination of credibility.” (Hebberd-Kulow Enterprises, Inc. v. Kelomar, Inc. (2013) 218 Cal.App.4th 272, 283.
Jury instruction No. 107. “However, if you decide that a witness did not tell the truth about something important, you may choose not to believe anything that witness said. On the other hand, if you think the witness did not tell the truth about some things but told the truth about others, you may accept the part you think is true and ignore the rest.”

Level 2: Did AG have the capacity to enter into a contract?


Guidici v. Guidici (1935) 2 Cal.2d 497, 502 (Guidici), provides, “The law upon this question is well settled and is stated as follows: ‘The rule that the person alleging his incapacity should be bound by his contract because intoxication is his voluntary act was at first relaxed by allowing him to show that his condition was brought about by the other party. But a more rational view now prevails. The law now regards the fact of intoxication and not the cause of it, and regards that fact as affording proof of want of mental capacity. A completely intoxicated person is generally placed on the same footing as persons of unsound mind. One deprived of reason and understanding by reason of drunkenness is, for the time, as unable to consent to the terms  of a contract as are persons who lack mental capacity by reason of insanity or idiocy. A person who at the time of making a contract is completely intoxicated may avoid his contract notwithstanding the fact that his intoxicated condition may have been caused by his voluntary act and not by the contrivance of the other party to the contract. . . .’ [Citation.]

Smalley v. Baker (1968) 262 Cal.App.2d 824, 832 (Smalley), states, “In California, as in many states, a party is entitled to rescission of a contract if, when he entered into the contract, he was not mentally competent to deal with the subject before him with a full understanding of his rights, the test being, in each instance, whether he understood the nature, purpose and effect of what he did. [Citations.] The test is aimed at cognitive capacity and specifically asks the question whether the party understood the transaction which he seeks to avoid. Some contracts require less competence than others, so that the test of understanding varies from one contract to the next. [Citation.] [¶] The traditional test of competence goes to understanding, that is, cognitive capacity, rather than to motivation. [Citation.]”

Level 1: Was the Contract Legal?


  • Answer re Inc.:

Corp Code section 409
(1) For such consideration as is determined from time to time by the board, or by the shareholders if the articles so provide, consisting of any or all of the following: money paid; labor done; services actually rendered to the corporation or for its benefit or in its formation or reorganization…but neither promissory notes of the purchaser (unless adequately secured by collateral other than the shares acquired or unless permitted by Section 408) nor future services shall constitute payment or part payment for shares of the corporation;

  • Answer re LLC:

Cor Code section 17704.01. Becoming A Member

After formation of a limited liability company, a person becomes a member as follows:

(1) As provided in the operating agreement.
(2) As the result of a transaction [Merger & Acquisition] effective under Article 10 (commencing with Section 17710.01).
(3) With the consent of all the members.
(4) If, within 90 consecutive days after the limited liability company ceases to have any members, the last person to have been a member, or the legal representative of that person, designates a person to become a member, and the designated person consents to become a member.

© Copyright | Nakase Law Firm (2019)