Randy Hyland, unable to pay two promissory notes due September 19, 1981, negotiated with The First State Bank of Sinai for an extension. The Bank agreed on the condition that Randy's father, Mervin, act as cosigner. Mervin, a good customer of the Bank, had executed and paid on time over sixty promissory notes within a seven-year period. Accordingly, the Bank drafted a new promissory note with an April 20, 1982, due date, which Randy took home for Mervin to sign. On April 20, 1982, the new note was unpaid. Randy, on May 5, 1982, brought the Bank a check signed by Mervin to cover the interest owed on the unpaid note and asked for another extension. The Bank agreed to a second extension, again on the condition that Mervin act as cosigner. Mervin, however, refused to sign the last note, and Randy subsequently declared bankruptcy. The Bank sued Mervin on December 19, 1982. Mervin responded that he was not liable since he had been incapacitated by liquor at the time he signed the note. He had been drinking heavily throughout this period and in fact had been involuntarily committed to an alcoholism treatment hospital twice during the time of these events. In between commitments, however, Mervin had executed and paid his own promissory note with the Bank and had transacted business in connection with his farm. The trial court held that Mervin's contract as cosigner was void due to alcohol-related incapacity, and the Bank appealed.

DECISION Judgment for the Bank.

OPINION Henderson, J. Historically, the void contract concept has been applied to nullify agreements made by mental incompetents who have contracted after a judicial determination of incapacity had been entered. [Citations.]

Mervin had numerous and prolonged problems stemming from his inability to handle alcohol. However, he was not judicially declared incompetent during the note's signing.

Contractual obligations incurred by intoxicated persons may be voidable. [Citation.] Voidable contracts (contracts other than those entered into following a judicial determination of incapacity) ** may be rescinded by the previously disabled party. [Citation.] However, disaffirmance must be prompt, upon the recovery of the intoxicated party's mental abilities, and upon his notice of the agreement, if he had forgotten it. [Citation.]

A voidable contract may also be ratified by the party who had contracted while disabled. Upon ratification, the contract becomes a fully valid legal obligation. [Citation.] Ratification can either be express or implied by conduct. [Citations.] In addition, failure of a party to disaffirm a contract over a period of time may, by itself, ripen into a ratification, especially if rescission will result in prejudice to the other party. [Citations.]

Mervin received both verbal notice from Randy and written notice from Bank on or about April 27, 1982, that the note was overdue. On May 5, 1982, Mervin paid the interest owing with a check which Randy delivered to Bank. This by itself could amount to ratification through conduct. If Mervin wished to avoid the contract, he should have then exercised his right of rescission. We find it impossible to believe that Mervin paid almost $900 in interest without, in his own mind, accepting responsibility for the note. His assertion that paying interest on the note relieved his obligation is equally untenable in light of his numerous past experiences with promissory notes.

We conclude that Mervin's obligation to Bank was not void. Mervin's obligation on the note was voidable and his subsequent failure to disaffirm (lack of rescission) and his payment of interest (ratification) then transformed the voidable contract into one that is fully binding upon him.

Questions

INTERPRETATION An intoxicated party ratifies a contract by not disaffirming it when she is not intoxicated and learns of its existence and by making interest payments on it when she is not intoxicated.

CRITICAL THINKING QUESTION When should a person be allowed to invalidate an agreement because of intoxication? Explain.

 

Answer rating: 100% (QA)

A person should be allowed to invalidate an agreement due to intoxication if they can prove that the... View the full answer