Chapter 2 The Law of Contract

1. Chapter 2 The Law of Contract Capacity 缔约能力

2. Definition of Capacity The capacity required by the law for a party who enters into a contract to be bound by that contract.

3. Minors A person has not attained the age of majority Infancy doctrine: Minors under the age of majority may disaffirm (cancel) most contracts they have entered into with adults. The contract is voidable by the minor but not by the adult.

4. Disaffirmance A minor can expressly disaffirm a contract orally, in writing, or by his or her conduct. Must occur before or within a reasonable time after the minor reaches the age of majority.

5. Competent Party’s Duty of Restitution If a minor disaffirms a contract, the adult must place the minor in status quo by returning the value of the consideration that the minor paid.

6. Minor’s Duty upon Disaffirmance a. Minor’s duty of restoration b. Minor’s duty of restitution

7. Minor’s Duty of Restoration Generally, upon disaffirmance of a contract, a minor owes a duty to return the consideration to the adult in whatever condition it is in at the time of disaffirmance even if the item has been consumed, lost or destroyed or has depreciated in value at the time of disaffirmance.

8. Minor’s Duty of Restitution A minor’s duty to place the adult in status quo by returning the value of the consideration paid by the adult at the time of contracting if the minor (1) misrepresented his or her age or (2) intentionally or with gross negligence caused the loss to the adult’s property.

9. Ratification If a minor does not disaffirm a contract during the period of minority or within a reasonable time after reaching the age of majority, the contract is ratified (accepted ).

10. Ratification (Continued) • Express ratification exists when the minor, through a written or an oral agreement, explicitly assumes the obligations imposed by the contract. • Implied ratification exists when the conduct of the minor is inconsistent with disaffirmance.

11. Jones V. Free Flight Sport Aviation, Inc. 623 p.2d 370 (1981) Supreme Court of Colorado Case 2-4

12. Case Briefing On November 17, 1973, William Michael Jones, a 17 years old minor, signed a contract with Free Flight Sport Aviation, Inc. for the use of recreational sky-diving facilities. A covenant not to sue and an exculpatory clause开脱罪责的条款exempting Free Flight from liability were included in the contract. On December 28, 1973, Jones attained the age of majority (18 years of age). Ten months later, while on a Free Flight skydiving operation, the airplane crashed shortly after takeoff from Littleton Airport, causing severe personal injuries to Jones. Jones filed suit against Free Flight alleging negligence and willful and wanton misconduct.

13. The trial court’s decision The trial court granted summary judgment(即决审判)in favor of Free Flight. Jones appealed. The Colorado court of appeals affirmed. Key Issue Did Jones ratify the contract?

14. A minor may disaffirm a contract made during his or her minority within a reasonable time after attaining the age of majority or he or she may, after becoming of legal age, by acts recognizing the contract, ratify it. “Affirmance is not merely a matter of intent. It may be determined by the actions of a minor who accepts the benefits of a contract after reaching the age of majority, or who is silent or acquiesces默许in the contract for a considerable length of time. We conclude that the trial court properly determined that Jones ratified the contract, as a matter of law, by accepting the benefits of the contract when he used Free Flight’s facilities on October 19, 1974.”. Court’s Reasoning

15. Decision The supreme court held that Jones had ratified his contract with Free Flight by continuing, for 10 months after reaching the age of majority, to perform under the contact. Therefore, the covenant not to sue and the exculpatory clause exempting Free from liability to Jones are enforceable.

16. Necessaries of Life Minors are obligated to pay the reasonable value for the necessaries of life (e.g, food, clothing, shelter).

17. Emancipation This occurs when a minor voluntarily leaves home and lives apart from his or her parents. The parent’s duty to support the minor terminates upon emancipation.

18. Intoxicated Persons Contracts by intoxicated persons are voidable by the intoxicated person but not by the competent party to the contract. Duty of restitution Both parties owe a duty to place the other party in status quo by returning the value of the consideration paid by the other party at the time of contracting. Necessities of life Intoxicated persons are obliged to pay the reasonable value for the Necessities of life.

19. Case 2-5 Smith v. Williamson Carolyn Ann Williamson entered into a contract to sell her house to Mr. and Mrs. Matthews at a time when her house was threatened with foreclosure（抵押人）回赎抵押品权利的取消. Evidence showed that Williamson was an alcoholic. Having read about the threatened foreclosure in the newspaper, attorney Virgil Mr. Smith appeared at Williamson’s home to discuss the matter with her. Williamson told Smith that she expected to receive $17,000. On the following day, after drinking a pint of 100-proof vodka, Williamson and her son went to Smith’s office, where Smith prepared a lawsuit to have the sale of the house set aside 搁置，撤消based on Williamson’s lack of capacity due to alcoholism. At that time, Smith loaned Williamson $500 and took back a note and mortgage on her house to secure repayment of this amount and his attorney fees.

20. Evidence showed that Smith did not allow Williamson’s son to read the mortgage. The sale to Mr. and Mrs. Matthews was set aside. Subsequently, Smith began foreclosure proceedings on Williamson’s house to recover attorney’s fees and advances. Williamson filed this lawsuit to enjoin阻止，禁止the foreclosure. The trial court held that Smith’s mortgage was void and permanently enjoined him from foreclosing on it. Smith appealed.

21. Key Question Was Williamson’s alcoholism a sufficient mental incapacity to void the mortgage?

22. Court’s Reasoning The record indicated that Ms. Williamson executed the note and mortgage on her home to Smith on October 12, 1978, the following morning. The record further shows that Ms. Williamson had consumed a pint of 100-proof vodka. To hold that Ms. Williamson was incapable of understanding the nature of the transaction with the Matthewses and then to hold that she was able to comprehend the nature of her dealings with Smith would be to reach illogical results, especially in light of the facts presented at trial.”. “To accept Smith’s position would require us to ignore certain subtle ironies arising from the facts of this appeal. The transaction between Ms, Williamson and the Matthewses was set aside. In overturning推翻 the contract and deed to the Matthewses, the court found that Ms. Williamson was incapable of understanding the nature of the transaction and also found that her intoxication, coupled with the gross inadequacy严重不足 of consideration, supported this result.

23. Decision The appellate court held that Williamson was not bound to the contract and mortgage with attorney Smith because she was mentally incompetent by reason of intoxication at the time she signed the documents. Affirmed.

24. Mentally Incompetent Persons Adjudged insane: A person who has adjudged insane by a proper court or administrative agency. Insane, but not adjudged insane: A person who is insane has not been adjudged insane by a court or administrative agency.