Incapacity & Contracts: Contracts with Intoxicated Persons

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  • 0:07 Mental Incapacity
  • 1:29 Intoxicated People & Contracts
  • 2:46 Lucy v. Zehmer (1954)
  • 5:11 Lesson Summary
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Lesson Transcript
Instructor: Kat Kadian-Baumeyer

Kat has a Master of Science in Organizational Leadership and Management and teaches Business courses.

Incapacity in contract law generally means a person who is not mentally sound, which can include being intoxicated. Persons who are intoxicated cannot legally enter into a contract and intoxication thereby makes the contract voidable.

Mental Incapacity

There are a few reasons a person would not have the capacity to enter into a contract. Minors, the mentally ill, and persons who are intoxicated or drug-addicted are generally excluded from entering into legal agreements. Mental incapacity simply means that a person does not have the competence to enter into a contract. In addition to intoxication, mental incapacity can result from mental illness, such as schizophrenia, senility, and even bipolar condition.

Most courts look at contracts with persons of mental incapacity as voidable contracts, or contracts that may be voided by the incapacitated party. But, a person cannot just make a claim of mental incapacity. There are two tests used to help to determine whether a party to a contract is incapable of fulfilling its promises: a cognitive or affective test, or a motivational test. The court will administer a cognitive or affective test to determine whether the person understands the contract language and consequences of entering into the contract.

Sometimes, the person understands the language and the consequences, so the court will test motivational reasons for entering into the contract. The test may indicate a condition like mania or delusional thinking as a motivator. In the case of an intoxicated person, the court looks at other things as well.

When an Intoxicated Person Enters Into a Contract

When an intoxicated person enters into a contract, the contract can either be enforceable, meaning held to the fullest extent of the law, or voidable by the intoxicated person. The court will look at two criteria that need to be present in order to make the contract voidable:

  1. The intoxication was severe enough that the person entering into the contract was incapacitated.
  2. The other party was aware of the intoxication at the time.

A voidable contract, in this instance, is one in which the intoxicated party can end the agreement under certain terms. To expand on the criteria above, in order for the intoxicated person to void the contract, there needs to be adequate proof that one of the following occurred:

  1. The intoxicated person consumed enough alcohol or drugs to cause impairment in thinking sufficient enough that he could not understand the legal ramifications of entering into the contract.
  2. The other party to the contract knew of the intoxication.

Alcohol or drugs cannot be provided to a party to a contract to entice or persuade them to enter into a contractual agreement. It should be noted that even if the intoxicated person is able to void the contract, once sober, the contract can be re-entered by the parties. Let's see what happens when a seemingly friendly night of drinking turns to a dispute over contractual capacity.

Lucy v. Zehmer (1954)

Back in December of 1952, the Lucy's and Zehmer's enjoyed dinner and a few drinks when the conversation turned to the sale of the Ferguson Farm. Zehmer propositioned Lucy to purchase it for the sum of $50,000. Zehmer didn't really want to sell his farm. What he wanted was for Lucy to admit that he did not have the $50,000 needed to make the purchase. In other words, it was a one-sided joke, probably fueled by alcohol, on the part of Zehmer.

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