Intoxication

Intoxication

Intoxication is the fourth and last condition that § 12(2) lists as an exception to the presumption that an adult who manifests assent has full capacity to contract.¹ Section 16 supplies the consequence. A person incurs only voidable contractual duties if the other party has reason to know that, by reason of intoxication, the person is unable to understand in a reasonable manner the nature and consequences of the transaction, or is unable to act in a reasonable manner in relation to it.² Those two inabilities are the cognitive and volitional tests from the mental-illness rules, and the Restatement's test for intoxication is basically the same as its test for mental illness.³ As with a minor or a person with a mental illness, the duties are only voidable, so the impaired person holds an option to undo the contract and is not released automatically.

What changes is who must know. In the mental-illness rules, only the volitional prong carries a knowledge element, and a person who could not understand the transaction needs no showing about what the counterparty saw.⁴ Section 16 opens with the counterparty's reason to know, so that clause governs both inabilities, and the second prong repeats it.⁵ An intoxicated person therefore has to prove two things on either path, the impairment itself and the counterparty's reason to know, which makes this category a stricter version of the mental-illness rules. Intoxication still sits among the conditions that courts treat as mental infirmity, and when a person truly cannot understand the transaction the legal effect is much the same as with any other infirmity of that kind.⁶ The two parts below take up the knowledge requirement first and then the difference between voluntary and involuntary impairment.

Counterparty Knowledge Required

Under § 16 the analysis runs from the counterparty's side of the table, and the question is what that party had reason to know when the contract was made. A party has reason to know when the facts it actually possessed would lead a sensible person to infer the condition. The kinds of facts that satisfied that standard in the mental-illness cases, such as conduct that alarms those nearby or a direct warning, carry over here because the standard is the same phrase.

The requirement has two sources. The first concerns fault. Intoxication is ordinarily self-induced, which weakens the usual ground for rescuing an impaired person, and the older decisions voiced a good deal of moral indignation at the drinker or at the person who supplied the liquor.⁷ The second concerns information. The law is balancing stability in commercial dealings against protection of those who are impaired, and a counterparty with no warning has no means of protecting itself, while one that sees the condition can decline to proceed.⁸ Requiring reason to know places the loss on the party who could have prevented it.

The same requirement explains why successful claims are rare. It would be unusual for a competent party to contract without noticing that the other side was so intoxicated as to lack any understanding of the transaction, so cases permitting avoidance for intoxication alone are few.⁹ When impairment is severe enough to defeat understanding, it is usually visible, and when it is invisible, the claim fails on the knowledge element. A claim can still reach a fact-finder. In Adamar of N.J., Inc. v. Luber a casino sued to collect a $220,000 gambling debt, and the federal district court found a triable issue of fact whether the patron incurred the debt while his judgment was so impaired by intoxication, to the casino's knowledge, as to render him incapable of consent.¹⁰ That ruling does not declare the debt avoided. It identifies the two facts that decide such a case, the degree of impairment and what the casino knew of it.

On an exam stem, a buyer's own testimony that he was too drunk to understand the contract settles only half the analysis. The stem must also supply facts showing what the other side saw, heard, or did, and an answer that finds voidability from the impairment alone has skipped the element that separates this category from ordinary mental incapacity.

Voluntary and Involuntary Impairment

How strictly the knowledge requirement operates depends on how the impairment arose. A person who voluntarily drinks or takes recreational drugs to the point of losing cognitive ability or motivational control may avoid a contract only if the other party knew or had reason to know of the degree of impairment.¹² In practice courts show little sympathy for a party who claims intoxication, and they permit avoidance mostly where it is apparent that the other party either created the situation or knowingly took advantage of an apparent incompetent.¹³ The voluntary drinker chose the risk, so the law will not shift the loss to a counterparty who did nothing to cause it. Creation and exploitation mark the point at which the counterparty stops being innocent, because it either produced the impairment or profited from a condition it could see.

The law treats involuntary impairment differently. A person who is under medication, or who was involuntarily drugged or intoxicated, is treated in the same manner as a person with a mental disability or illness.¹⁴ The reason follows from the source of the strictness above. The unsympathetic treatment of voluntary drinkers rests on the fact that they chose their condition, and a person who took a prescribed drug or was dosed without knowing it made no such choice, so the ordinary mental-incapacity analysis applies in full. The comment to § 16 recognizes that compulsive alcoholism may itself be a form of mental illness, and the side effects of medication appear among the conditions treated as mental infirmity.¹⁵ The label on the stem therefore matters. A night of heavy drinking points to the stricter intoxication rule, while a patient on prescribed painkillers or a person slipped a drug points to the mental-illness rules.