But ZoT doesn't check to see if what the character says is a lie mechanically, it checks to see if it's a lie within the fiction.
Ah....here is where we differ. And you should edit the above to say, "I would say that ZoT doesn't check..." because it's purely a matter of interpretation, not fact. (Go ahead and show me THAT rule...). Anyway, yeah, if you're going to start crossing the beams, as it were, and having the mechanical results of a spell interact with the fictional narrative when the two need to remain separate...well, let's just say that the Stay Puff Marshmallow Man should steer clear.
If you're going to say that the mechanics apply rigidly to the narrative, then Eloelle never would have solved the Riddle in the first place. It's inconsistent to allow them to be separate in one case but not in the other.
Further, you've said that you would allow LOL to narrate the results if another player character cast the ZoT. Because that cuts down on character conflicts, I assume. But, it seems to me that LOL is initating the conflict by lying to the other party members, so when does this restriction come into play? Only when a mechanical effect is activated? Otherwise, it seems that a player can manipulate that system. How would you deal with a player character taking a contract out on another player's character though an NPC? The turtles here run out.
Pretty much. I can be ok with a character lying to another character, or even a player lying to another player, as long as it's for the benefit of the story, and not to undermine each other. Again, for me it's about assuming that players want to tell a good story, and trusting them to do so, and then dealing with it out of game if the trust is misplaced.
Eloelle's player lying and one player another player in PvP are very different, but I'm sure if we nudge them toward each other eventually we'd find some kind of blurry grey area. And I don't (yet) have a strict definition that I think can distinguish one from the other, partly because I've never needed it and I'm sure it's going to take some thought. But, as I love to say, "the existence of dawn does not invalidate the difference between day and night."
If you're interested in such a definition I'll ponder it and see what I can come up with, but I hope you'd take it in the spirit of "this is an interesting question, let's mess around with it" and not say, "Ha! I found a flaw in your definition! Clearly you are wrong about everything!" (Which I don't think you'd do, but I would sadly expect it, given recent experience, of at least one other participant in this thread.)
As for a contract? No, I'd let the victim/target narrate that as well.