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Chapter 2 The Law of Contract

Capacity

　　　　缔约能力

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Definition of Capacity

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

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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.

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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.

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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.

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Minor’s Duty upon Disaffirmance

a. Minor’s duty of restoration

b. Minor’s duty of restitution

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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.

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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.

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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 ).

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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.

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• Jones V. Free Flight Sport Aviation, Inc.

• 623 p.2d 370 (1981)

• Supreme Court of Colorado

Case 2-4

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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.

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.

Case Briefing

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.

Jones filed suit against Free Flight alleging negligence

and willful and wanton misconduct.

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The trial court granted summary

judgment( 即决审判 ) in favor of Free Flight. Jones appealed. The Colorado court of appeals

affirmed.

Did Jones ratify the contract?

The trial court’s decision

Key Issue

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• 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

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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.

Decision

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Necessaries of Life

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

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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.

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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.

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Case 2-5Smith 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.

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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.

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Was Williamson’s alcoholism a

sufficient mental incapacity to

void the mortgage?

Key Question

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“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.

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.” .

Court’s Reasoning

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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.

Decision

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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.