## Facts

- A borrower executed two promissory notes to a bank ($6,800 and $3,000), both due in September 1981, and failed to pay them when due.
- The bank agreed to extend and consolidate the debt on the condition that the borrower’s father co-sign.
- A new $9,800 promissory note dated October 20, 1981 consolidated the prior notes and was due April 20, 1982; the father signed the note outside the bank, and the borrower later signed it at the bank.
- The consolidated note was not paid at maturity.
- On May 5, 1982, the borrower delivered to the bank a blank check signed by the father; the borrower filled in the amount and interest then due (about $900) was paid from the father’s account.
- The borrower later obtained a bankruptcy discharge, and the bank sued the father as co-signer on the consolidated note.
- The father asserted that he was so intoxicated when he signed that he lacked capacity and had no recollection of signing.
- Evidence showed the father was a chronic alcoholic with prior involuntary treatment commitments, but also that he engaged in ordinary business activities during the same period (including purchasing livestock and paying for farm-related goods).
- The trial court, after a bench trial, held the father incompetent when he signed, declared his obligation void, and found no later acceptance or ratification.

## Issues

1. Whether the father proved he was entirely without understanding when he signed the consolidated note, rendering his obligation void.
2. Whether intoxication-based incapacity makes the obligation void or merely voidable under South Dakota law.
3. Whether the father ratified any voidable obligation through subsequent conduct, including payment of interest and failure to timely disaffirm.

## Decision

- The Supreme Court of South Dakota reversed and remanded.
- The court held the father did not meet his burden to prove he was entirely without understanding at the time of signing.
- The court held that, at most, the claimed intoxication rendered the note voidable, not void.
- The court held that the father’s later conduct—particularly the interest payment from his account and lack of prompt disaffirmance—ratified the obligation, making it binding.

## Legal Principles

- A contract is void for incapacity only when the party is entirely without understanding at the time of contracting; lesser impairment renders the contract voidable.
- Severe intoxication is analyzed under the same capacity framework: it must eliminate understanding to void the contract; otherwise it provides only a voidable defense.
- A voidable contract may be ratified after capacity is restored by conduct inconsistent with disaffirmance, including making payments, accepting benefits, or failing to rescind within a reasonable time.
- A void contract cannot be ratified; the void/voidable classification controls whether later conduct can validate the obligation.

## Conclusion

The court held that intoxication did not void the co-signer’s promissory note absent proof he was entirely without understanding, and that any voidable defense was lost because he ratified the obligation through an interest payment from his account and by not timely repudiating the note.


First State Bank of Sinai v. Hyland, 399 N.W.2d 894 (S.D. 1987)