MEMORANDUM OF LAWTO: ProfFROM:DATE: May 9, 2011RE:APPLICABLE STATUTEA person entirely without understanding has no power to make a contract of any kind, but the person is liable for the reasonable value of things furnished to the person necessary for the support of the person or the persons family. Cal. Civ. Code 38 (2011)DISCUSSIONMr. Bibes situation involves a contract. There are six requirements to form a valid contract: offer, acceptance, consideration, legality of subject matter, contractual capacity, and contractual intent. Lotts made an offer that Bibe accepted. The consideration is Lotts coffee shop and Bibes $300,000. It is legal to buy or sell a business. The requirements in question are contractual capacity and contractual intent. Contractual capacity refers to an individuals mental ability to understand and hence enter into a contract. In modern law, intoxicated persons are considered mentally incompetent and lack the capacity to enter into a legal contract. Bibe therefore could not be bound by the contract because at the time of signing it, he was intoxicated. The contractual intent of both parties should be genuine and fair for a contract to be valid. In this case, Lotts coffee shop was worth $ 300,000 yet it made an annual profit of only $ 30,000, hence it was a fraudulent transaction.The first part of the applicable statute speaks of lack of mental capacity to understand the requirements and complexity of a contract should not enter into the contract. Lack of understanding leads to a lack of power to contract. Bibe drank several glasses of wine with only a salad to eat, leading to a lack of understanding. The second part of the statute notes that even if a person lacks understanding to form complex contracts, that individual is still liable for necessary items to survive. Bibe has a well-paying job and does not need the coffee shop to provide for himself or his family. Furthermore, Lotts cannot use this statute to force Bibe to complete the contract.Looking further at the statutory language, it says entirely without understanding. Cal. Civ. Code 38. Considering that Bibe drove twenty miles home and recalled all the events of the afternoon, it is not possible to say that Bibe was entirely without understanding. Even if Bibe was not entirely without understanding, there is still the possibility that his drinking led to a lack of contractual capacity.Contractual capacity is the ability to understand what one is contracting for at the time of contracting. The issue here is the lack of contractual capacity due to Bibes intoxicated state at the time the contract was executed. There are a number of elements to prove lack of contractual capacity; drinking alcohol, having little to eat, drinking large quantities of alcohol over a short period, agreeing to a contract flippantly, passing out, and waking with a hangover., 2 Cal.2d 497 (1935), looks at intoxication negating contractual capacity. Q.C. Guidici had been drinking for ten to fourteen days when Nellie Malley took him to Reno to get married. Before the wedding, Nellie had Q.C. sign over the deed to his property to her as the exchange for the marriage. The attorney and notary public involved here both testified as to Q.C.s appearance of stupidity. When Q.C. sobered up, he learned what had happened and demanded his property back. Nellie refused and Q. C. sued. The trial court held for Q.C. and Nellie appealed. The appellate court upheld the trial courts ruling noting a shift in the law: The law now regards the fact of intoxication and not the cause of it, and regards the fact as affording proof of want to mental capacity. A person who at the time of making a contract is completely intoxicated may avoid his contract notwithstanding the fact that his intoxicated condition may have been caused by his voluntary act and not by the contrivance of the other party to the contract. . at 502 (internal citation omitted)., 43 Cal. 306 (1872), deals with whether evidence of intoxication hours after contracting is valid proof of intoxication during contracting. Gardner owed Phelan a $1500 commission. Phelan brought suit for the commission. During the suit, Gardner took Phelan to a saloon, got Phelan drunk, and had Phelan sign a release contract for $300. At trial, Gardner introduced the release contract. Phelan had his wife testify that he was intoxicated a few hours after contracting as evidence of his intoxicated state during contracting. The trial court held for Phelan and Gardner appealed. The appellate court upheld the trial courts ruling. The appellate court stated that it was competent for the plaintiff to rebut defendants evidence of settlement and receipt of proof that at the time of the transaction the plaintiff was incapable of contracting intelligently by reason of intoxication. . at 311.With Bibes dilemma, it is necessary to determine what amounts to lack of contractual capacity. The first three elements of lack of capacity are drinking alcohol, having little to eat, and drinking large quantities of alcohol over a short period of time. Bibe drank multiple glasses of wine with only a salad to eat over a period of two and a half hours. It wasnt until the second bottle of wine that Lotts brought up the idea of the sale. After Bibe declined, Lotts purchased more wine and continued pressing the sale until Bibe agreed after three bottles of wine. This is similar to in that the drinking occurred over a specific period of time. With , Q.C. was intoxicated over multiple days.When signing the contract, Bibes comment Oh, why not? shows a flippant attitude towards entering into a large contract. These points towards Bibe being intoxicated and unable to contract intelligently. Bibe has an educational background in accounting and practical experience in contracts as a marketing executive. With this background, Bibe should be able to readily assess a good deal. With the disparity in the $300,000 asking price and the $30,000 per year profits, it would take Bibe ten years to recoup the initial investment. Between the comment when signing and this large disparity in price versus profit, it can be seriously argued that Bibe was highly intoxicated. Even though Lotts did not force Bibe to drink the wine, according to the rule in , the cause of intoxication is not relevant; solely that one party was intoxicated during contracting which will make the contract questionable.After leaving the lunch, Bibe got home and fell asleep. When he awoke about four hours later, he had a headache. A headache after drinking alcohol is a common sign of a hangover and can be used to show Bibe was intoxicated at the time of contracting as allowed by the rule in .There are facts that point towards Bibe having capacity at the time of contracting. Bibe was the one who asked for the contract to be put in writing. Bibe is experienced in sales and contracts as a marketing executive. Bibe had the ability to decline Lotts offer again. Bibe signed the contract on his own volition. Although Bibe helped consume four bottles of wine over a two and a half hour period, he still drove 20 miles home without incident. Bibe remembered all the events of the afternoon, including the wording of the contract, which points towards Bibe having capacity at the time of contracting. From these facts, it appears that Bibe has buyers remorse. Buyers remorse is not a valid reason to avoid a contract. Even if Bibe is found to have capacity, there is the question of contractual intent.Contractual intent is the meeting of the minds where both parties are agreeing to exchange items and both parties fully understand the exact nature of those items. If one party uses undue influence over the other, that is fraud that negates contractual intent. There are several factors to show undue influence. The parties to a contract know each other personally. One party knows personal information, financial information, and/or the personal wants of the second party. One party arranges a situation or takes advantage of a situation to convince the second party to enter into a contract. One party provides alcohol to weaken the second partys mental faculties. The parties were in disparate bargaining positions.Undue influence is seen in , 141 Cal. 56 (1903). Donnellys father, Kean, was a known alcoholic. Rees overheard Kean try to have Keans friend Carroll take possession of Keans interest in a mine to avoid a debt. When Carroll refused, Rees took advantage of the situation and joined the discussion. Since Kean wanted two people on the deed to his mine interest, Rees brought in his friend OBrien. While drinking, Kean signed over the deed to Rees and OBrien without any consideration from Rees and OBrien. Donnelly brought suit to reclaim the mine interest after her fathers death. The trial court held for Donnelly, and Rees and OBrien appealed. The appellate court upheld the decision for Donnelly stating that where one gains a thing by fraud or undue influence takes as trustee for the grantor. . at 62. Even though Kean committed a fraud, Rees and OBrien could not profit from their own fraud.The issue of undue influence is exemplified by , 19 Cal. App. 326 (Cal. Ct. App. 1912). Mary Marron took advantage of her son Thomas Marron while he was intoxicated to gain possession of all his real property. Thomas was a known alcoholic and sold $15,000 worth of property for $10 to his mother. Thomas was married and had a child at this time. Nellie Marron, Thomas wife, did not know of the transaction until she was made administrator of Thomas estate after his death. Nellie sued Mary to cancel the property transfer arguing that Mary used undue influence over Thomas while he was in a drunken state. The trial court granted Marys motion for nonsuit. Nellie appealed. The appellate court reversed saying that generally, where there is weakness of mind in a person executing a conveyance of land, arising from age, sickness, intoxication, or any other cause, although not amounting to absolute disqualification, and inadequate consideration, imposition or undue influence will be presumed. . at 332., 152 Cal. 142 (1907), deals with evidence to show disparity of bargaining positions as proof of undue influence. Swan was a sharecropper on one of Talbots ranches. Talbot had an affair with Swans wife. Swan found out and went on a drinking spree. Talbot heard about Swans binge and sought him out. Talbot encouraged Swans continued inebriation and got Swan to sell Talbot Swans farming equipment. Talbot paid Swan $200 in cash and released Swan from a $10,404.32 debt. Swans property was worth $21,949.86. When Swan sobered, he sued Talbot to get his property back. There was sufficient evidence to show Swan was intoxicated at the time of contracting. The trial court found that Talbot used undue influence and held for Swan. Between the time of the contract and the trial, Talbot had sold the farming equipment. Due to this change in circumstances, the trial court could not return Swans property to him, so it awarded money damages for $11,345.54. Talbot appealed arguing that since Swan did not ask for money, Talbot should not have to pay and Swan was just out of his property. The appellate court upheld the trial courts decision, stating that equity will not assist a man to avoid a contract which he has entered into when drunk, merely because when in his sober senses he may wish he had not entered into it. However, on the other hand, it will not countenance fraudulent imposition. Gross inequality in the values exchangedbetween the consideration moving to and that moving from the drunken partyis always received as evidence of imposition. . at 145In order for undue influence to be present in contractual negotiations, the parties must have a relationship. Bibe and Lotts are co-workers. Therefore, they know each other personally. This element is illustrated in with Mary and Thomas being mother and son with a familial relationship. In , Talbot was the landlord and Swan the tenant, which is a contractual relationship. In , the relationship is somewhat tangential. Rees and OBrien used Carroll and Carrolls relationship with Kean to induce Kean to contract.Another element is that one party knows personal information, financial information, and/or the personal wants of the second party. Lotts knew Bibe was interested in buying a side business. Lotts knew Bibe had just gotten a large bonus, as well as some of Bibes previous bonuses. Lotts offered the small business and tied the purchase price to the previous two years worth of Bibes bonuses. In , Rees overheard a private conversation between Kean and Carroll and used the divulged information to enter the discussion. In , Swan owed Talbot a large sum of money. Talbot also knew Swan was drinking away his sorrows after finding out his wife cheated on him. Using this information, Talbot sought out Swan to gain possession of Swans farming implements to Talbots benefit and Swans detriment. Mary Marron used her knowledge of her sons property holdings and Thomas alcohol weakened mental state to gain possession of Thomas property holdings.Lotts took advantage of the lunch situation to press the offer. Lotts waited until the second bottle of wine before making the offer to Bibe. When rebuffed, Lotts ordered additional wine for the table and got his business records from his car. All of the precedent cases illustrate the point of taking advantage of a situation in the use of undue influence. Rees overheard Keans conversation with Carroll and jumped in when he saw an opening. Mary Marron took her son to a notary without Thomas wife present to prevent Nellie from challenging the deed transfer. In addition, Talbot sought out Swan in a bar and continued purchasing drinks to keep Swan in an intoxicated condition.Another element that ties in with taking advantage of a situation is providing alcohol while contracting. Lotts continued to order wine and push the sale until Bibe agreed to the contract. Lotts paid for the entire meal and the wine, even though he did not drink any of the wine. The precedent cases show the same course of action. Talbot continued to purchase alcohol for Swan, even though Swan had already been drinking. When executing the deed transfer in , OBrien purposefully provided Kean, a known alcoholic, with alcohol. With , there is no outright evidence that Mary Marron provided Thomas, a known alcoholic, with alcohol, but there was testimony that Thomas appeared stupid at the time he signed over the deed.A major element is that the parties were in disparate bargaining positions. This means that the value of the item exchanged was much less than the money paid for it. Comparing the sale price of $300,000 to the annual shop profits of $30,000, it would take Bibe ten years to recoup his initial investment. Considering Bibes schooling and work history, it is unlikely that Bibe would have agreed to such a disproportionate agreement. Even with the point in that if one causes his own intoxication he is bound to any contract entered, if the consideration exchanged in the contract is so unequal, the court will consider that as prima facie evidence of undue influence according to the rule in Even though Bibe did not commit fraud like Kean did, the rule supports the conclusion that Lotts actions were undue influence and Bibes $300,000 is only held in trust by Lotts. Bibe had weakness of mind due to intoxication and while that is not an absolute disqualification of the contract, because the consideration exchanged here is so disparate, undue influence should be presumed under the rule in .The counter-arguments against undue influence begin with the fact that Bibe was the one who asked for the contract to be put in writing. Lotts didnt get a piece of paper or write up a contract until Bibe made the request. And Bibe signed the contract on his volition, without assistance.Additionally, Bibe has an education in business with an emphasis in accounting. He works with contracts in his job as a marketing executive. With this academic and practical knowledge Bibe should be able to readily assess a good deal. Whether Bibe actually took the time to review the books Lotts provided or not is irrelevant. Bibe was provided with the information and chose to go through with the contract.Furthermore, Bibe drove twenty miles home without incident leading to the conclusion that he had capacity at the time of contracting. Safe driving requires close attention to detail to events going on around the car. If Bibe had enough wherewithals to drive home without getting into an accident, it is reasonable to assume he had enough wherewithal to assess an offer and enter into a contract. It is commonly known that courts will not invalidate a bad bargain in a contract unless fraud, undue influence, or out right deception is shown.CONCLUSIONReviewing all the available information and case law, Bibe was intoxicated to the point where he lacked contractual capacity when he signed the contract with Lotts. If one party to a contract is intoxicated, the actions of the other party must be reviewed. Reviewing Lotts actions, it appears Lotts took advantage of and contributed to Bibes intoxicated state. Lotts used his knowledge of Bibes desire to own a small business and Bibes recent bonuses to propose the contract. Lotts did not bring up the sale until Bibe had already shared two bottles of wine. These actions show a course of undue influence to obtain the contract. If one party to a contract uses undue influence over the other party, then contractual intent is negated and the contract is void. If this goes to trial, the court should find the contract void and hold in favor of Mr. Bibe.ReferenceHelewitz, J.A. (2010).. New York, NY: Aspen Publishers.Miller, R. L. & Jentz, G. A. (2008). . Mason, OH: Thomson/South-Western West.