Nancy was the administrator of her deceased father's estate. Several years before he died, Wilbur, the father, had entered into a lease agreement with an oil exploration company. The company had leased the rights to explore and drill for oil on Wilbur's farm for a period of 20 years. About two years after entering into the lease, the oil company began drilling. According to the terms of the lease, the company was requested to pay Wilbur a basic monthly fee regardless of whether any drilling was underway, and regardless of the outcome of the drilling. In addition, Wilbur was to receive a substantial additional payment if any drilling proved to be profitable. For about six years before his death, Wilbur suffered from a mental illness that had impaired his ability to remember things. While he seemed generally lucid and aware of his actions in present time, he would be unable to remember events which had occurred only an hour before.
The oil company was not aware of Wilbur's illness at the time it entered into the lease. It became apparent, however, once drilling was underway as Wilbur did not seem to remember that the company had paid him extra amounts as the result of successful drilling. Nancy, who believes that the oil company can afford to pay more for the lease rights wishes to void the lease on the basis of her father's mental incapacity and renegotiate it herself. Discuss the legal principles she will rely upon and the response of the oil company. What would be the likely outcome of Nancy's challenge?

Based on Hill Estate v. Chevron Standard Ltd. (1991), [1993] 2 W.W.R. 545
This case examines the consequences of mental incapacity on the validity of a contract. The oil company was unaware of Wilbur's mental state at the time it entered into the contract with him, although it did learn of his condition after performance was underway. Nancy's argument will be founded on the premise that Wilbur, regardless of appearances, did not have adequate mental capacity to appreciate his actions in entering into an agreement with the oil company. Therefore, he may have agreed to terms that were not in his best interest and which, in fact, would be disadvantageous. Nancy will be required to enter evidence as to his mental state in order to support her contention. The oil company will respond with the argument that it was unaware of his condition when it entered the contract. Even if it had known of Wilbur's mental state at the outset, the nature of the condition did not appear to impair his ability to comprehend and appreciate the nature of his actions in present time. The fact that he had difficulty remembering them later should not impair the quality of his decisions. This fact ought to prevent Nancy from voiding the contract as there was no action by the oil company to take unfair advantage of Wilbur's state. The contract itself appears to be fair and reasonable on its face and Wilbur profited from it. The fact that the oil company later became aware of Wilbur's incapacity should not affect the validity of the contract.
Since Wilbur had, prima facie, a mental incapacity when he entered into the contract, Nancy can attempt to void the contract if she acts quickly after his death. As discussed above, the oil company may rebut her ability to void the contract by setting out evidence regarding its knowledge of Wilbur's condition at the time the contract was negotiated and on the basis that it had dealt fairly and reasonably with Wilbur throughout. The outcome at trial, although the facts of the original case differ somewhat from those here, favoured the oil company on the basis of the arguments set out above.