What is the effect of slight intoxication on the capacity of a person to enter into a contract?

In order for a contract to be legally binding, all of the individuals who signed the agreement must have "contractual capacity." Contractual capacity is a legal term that refers to the minimum mental capacity required to enter into an agreement. In other words, individuals who lack the capacity to contract are presumed to not know what they're doing, and they can "void," or set aside, the contract.

The law recognizes three categories of individuals who lack the capacity to contract: minors, individuals with psychological disabilities, and intoxicated persons. If anyone from these categories enters into a contract, the agreement might be considered "voidable" by them. This protects the party who lacks capacity from being forced to go through with a deal that takes advantage of his or her lack of savvy.

Let's look at some situations in which a person might lack the legal capacity to enter into a legally binding contract.

Can a Minor Sign a Contract?

Minors (those under the age of 18, in most states) lack the capacity to make a contract. So a minor who signs a contract can either honor the deal or void the contract. There are a few exceptions, however. For example, in most states, a minor cannot void a contract for necessities like food, clothing, and lodging.

Also, a minor can void a contract for lack of capacity only while still under the age of majority. In most states, if a minor turns 18 and hasn't done anything to void the contract, then the contract can no longer be voided.

Disaffirmance by a Minor

A minor can "disaffirm," or set aside, a contract by stating their intention to not honor the contract. The minor can state this intention verbally (in words or in writing) or through actions that indicate the minor does not intend to honor the contract. For example, if a child entered into an agreement to mow his neighbor's lawn, and then the child sells his lawnmower, that action indicates his intention to disaffirm the contract.

However, the disaffirmation must happen before the minor comes of age, and the minor can't pick and choose which parts of the contract to set aside. Further, if the minor paid provided consideration, such as money to the other party, the other party must give the consideration back to the minor following disaffirmation.

Mental Incapacity and Contracts

A person who lacks mental capacity can void, or have a guardian void, most contracts (except contracts for necessities). As with contracts with minors, the contract is voidable, and not automatically void. In other words, the person who lacked the capacity to enter the contract can either end the contract or permit it to go ahead as agreed on.

In most states, the standard for mental capacity is whether the party understood the meaning and effect of the words comprising the contract or transaction. This is called the "cognitive" test.

Some states use what's called the "affective" test: a contract can be voided if one party is unable to act in a reasonable manner and the other party has reason to know of the condition.

And some states use a third measure, called the "motivational" test. Courts in these states measure capacity by the person's ability to judge whether or not to enter into the agreement. These tests may produce varying results when applied to mental conditions such as bipolar disorder.

Can an Intoxicated Person Sign a Contract?

People who are intoxicated by drugs or alcohol are usually not considered to lack the capacity to contract. Courts generally rule that those who are voluntarily intoxicated shouldn't be allowed to avoid their contractual obligations, but should instead have to take responsibility for the results of their self-induced altered state of mind.

However, if a party is so far gone as to be unable to understand even the nature and consequences of the agreement, and the other (sober) party takes advantage of the person's condition, then the contract may be voidable by the inebriated party.

To enter into a contract, a person must have mental capacity sufficient to understand the nature and consequences of her actions. If mental capacity is absent, the contract is voidable by the person lacking capacity. There are three classes of persons commonly understood to lack capacity to be bound by contractual promises:

Do Minors have Mental Capacity to Contract?

A minor is someone below the statutory age of mental capacity within a jurisdiction. Generally, a person must be 18 years old or older to have the requisite mental capacity to contract. As such, a minor who enters into a contract can void the contract at any time prior to reaching the age of majority. The exception to this rule is when the contract involves goods or services necessary for the childs survival. This could include food, water, shelter, etc. In the case of necessities, the child will be obligated to pay the reasonable value of the goods or services received. If the child fails to disaffirm the contract by this time, she thereby ratifies the contract and is bound going forward.

• Example: Jane is 17 years old. She goes to a local gym and signs up for a year-long membership. This is not a contract for a necessity. Jane will be able to void the contract at any time before she turns 18 years old. She will, however, have to pay the reasonable cost of any value she receives from the gym.

Does an Intoxicated Person have Mental Capacity to Contract?

An intoxicated person may lack the mental capacity necessary to contract. Generally, this will require extreme intoxication. If the intoxicated person enters into a contract, she must disaffirm the contract within a reasonable time of regaining capacity and learning of the contract. If she fails to do so within a reasonable time, she has ratified the contract and will be bound.

• Example: Don gets incredibly drunk in a bar. He does not know where he is and asks a stranger for a ride home. He offers to give the stranger, Gary, his Rolex watch in exchange for a ride home. Gary takes him home and takes the Rolex. When Don sobers up, he can immediately demand return of the Rolex. He was too intoxicated to appreciate the nature of his actions. As such, he can void the contract. He must act within a reasonable period to void the contract upon becoming sober.

Does a Mentally Incompetent Person have Mental Capacity to Contract?

A mentally incompetent person generally lacks the ability to enter into a contract. If the mental incompetency is temporary, the individual must disaffirm any contract entered into during incapacity within a reasonable time of regaining capacity. If the person is permanently incapacitated, the contract is either void or voidable at the insistence of a legally appointed guardian.

• Example: Ernie is having psychotic delusions. He goes to a security firm and hires a private security guard. Ernie's legally appointed caretaker will be able to void the contract based upon Ernie's lack of mental competence to enter into the agreement.

Each state may pass additional situations in which it deems an individual mentally incompetent to enter into contractual relations.

Next Article: Lawful Purpose for Contracts Back to: CONTRACT LAW

Related Topics

How do you feel about the requirement for mental capacity to contact? Do you agree with arbitrarily setting an age at which a person is deemed to have mental capacity? Why or why not? How should a persons level of intoxication be measured to determine whether she has mental capacity to contract?

Phyllis is in a bar and drinking heavily. She realizes that she cannot drive in her state, so she solicits a ride from Harriet. She does not have any money, so she offers Harriet her new Rolex watch in exchange for a ride. Harriet accepts and drives Phyllis 3 miles to her home. The next morning Phyllis realizes that she traded a very expensive watch for a 3-mile ride. What are Phyllis options?

•  People who are under the influence of drugs and alcohol are generally in no position to enter into a contract. Extreme intoxication can cause a person to lack the mental capacity to enter into an agreement. In applying this rule, the courts consider two rules:
  • Was the person intoxicated, and did the other party influence them into entering a contract? In this situation, if there is undue influence to enter into a contract, the contract will be considered voidable.
  • Was the party able to make informed decisions pertaining the situation as to enter into a contract? If the court determines that the party was not intoxicated beyond reason, and that they were sufficiently aware of their surroundings to be able to enter into a contract, and did so without undue influence from another person, then that contract shall be considered valid.
• The court also considers if the other party was aware of the persons intoxication at the time the contract was made.

In the above situation, Phyllis will have to demonstrate that she was intoxicated (to the point of inability to reason) and thus lacked mental capacity to contract. She may also be required to demonstrate the Harriet induced her into the agreement. For example, if Harriet offered the ride in exchange for the watch, this may be considered inducing the agreement. [/ht_toggle]

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