Reference no: EM132489090

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 that 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?