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Can You Void a Contract by Claiming You Were Too Drunk?

For a valid and enforceable contract to be formed under California law, there must have been:

An Offer
Acceptance
Consideration and
A meeting of the minds — that is, both parties understood the subject matter of the contract and their respective obligations

In addition, the parties to a contract must have “capacity” to enter a contract which means, among other things, that the parties must have had the mental ability to understand that they are undertaking legal obligations. See Cal. Civil Code, § 1556 (“All persons are capable of contracting, except minors, persons of unsound mind, and persons deprived of civil rights.”) A recent case from Nevada provides an interesting example where lack of capacity was argued based on being too intoxicated. Here is a quick discussion of that case and California legal principles.

San Diego Corporate Law: “Unsound Mind” Under California Law

Under California Civil Code, persons with an “unsound mind” are legally deemed to lack the legal capacity to enter into contracts. See Cal. Civ. Code, §§ 38-41 and 1556. Section 38 states, for example: “A person entirely without understanding has no power to make a contract of any kind …” and section 39 defines “unsound mind” to mean those who are “substantially unable to manage his or her own financial resources or resist fraud or undue influence.” However, there are not many cases dealing with whether being too drunk can be the basis of an unsound mind. Probably the best case is Guidici v. Guidici, 2 Cal. 2d 497 (Cal. Supreme Court 1935) where the court upheld the invalidity of certain deeds transferring California land following shortly after a Nevada marriage. In that case, the groom claimed — and the jury believed him — that he was too intoxicated during his trip to Reno to have validly consented to sign the deed and transfer papers. (He also argued that he was too drunk to have entered the marriage). On appeal, the California Supreme Court upheld the jury verdict finding that there was enough evidence of lack of capacity.

San Diego Corporate Law: LaBarbera v. Wynn Casino

As noted, there is an interesting recent case from Nevada called LaBarbera v. Wynn Las Vegas, LLC, 134 Nev. Adv. Op. 51 (Nev. Supreme Court July 19, 2018). In that case, Mr. LaBarbera lost over $1 million while gambling at the Wynn Las Vegas casino. While gambling, LaBarbera signed what are called “markers.” In Nevada, markers are considered to be equivalent to checks. If the marker is not redeemed — paid off — it is similar to bouncing a check. In LaBarbera’s case, he failed to redeem the markers and was eventually sued by the casino. Among his defenses was a claim that he had been drinking heavily while he was at the casino and, when he signed the markers, he was too drunk to understand what he was doing. In other words, he lacked the mental capacity to be bound by his signature.

At the trial level, LaBarbera lost and a judgment was entered for more than $2 million. However, on appeal the Nevada Supreme Court reversed holding that the jury had been improperly instructed and that the wrong level of proof had been used. The court held that, generally, a person might be incompetent to form a contract if the person is so intoxicated as to have “dethroned his reason” or to have impaired his/her understanding “… as to render him mentally unsound when the act was performed.” The court cited the Restatement of Contracts which states:

“[a] person incurs only voidable contractual duties by entering into a transaction if the other party has reason to know that by reason of intoxication (a) he is unable to understand in a reasonable manner the nature and consequences of the transaction, or (b) he is unable to act in a reasonable manner in relation to the transaction.”

Restatement (Second) of Contracts § 16 (Am. Law Inst. 1981). The court also noted that a person claiming to be too drunk to enter into a contract must act promptly upon becoming sober to disaffirm the contract or whatever action(s) was/were taken.

The Nevada Supreme Court did not actually hold that LaBarbera was too drunk to be held liable on his markers. Rather, the court sent the case back to the trial court for a new jury trial on the question of whether LaBarbera was too drunk and whether he properly disaffirmed the markers and whether he did so in a timely fashion.

As can be seen, legal issues with respect to contract formation can be somewhat entertaining.

Call San Diego Corporate Law Today

For more information, call experienced business attorney Michael Leonard, Esq., of San Diego Corporate Law. Call Mr. Leonard at (858) 483-9200 or contact him via email. Mr. Leonard has been named a “Rising Star” three years running by SuperLawyers.com and “Best of the Bar” by the San Diego Business Journal. Mr. Leonard’s law practice is focused on business, transactional, and corporate matters and assists business owners in San Diego and the surrounding communities.