Generally, the goal of a court sitting in equity is to restore the parties to the status quo ante. See Davis v. Colo. Kenworth Corp., 396 P.2d 958, 962 (Colo. 1964). Thus, for the Court to actually consider ordering rescission of the loan agreement, based on fraudulent inducement, negligent misrepresentation, or any other ground challenging formation of the contract, Plaintiffs would need to show some intention and ability to repay the $502,000.

Factors to be taken into account in such cases include not only benefits conferred and received on both sides but also the extent to which avoidance will benefit the incompetent and the extent to which others who will benefit from avoidance had opportunities to prevent the situation from arising. Restatement (Second) of Contracts § 15, comment f (1981); see also Davis v. Colorado Kenworth Corp., 156 Colo. 98, 396 P.2d 958, 961-62 (1964) (where the contract is made on fair terms and the other party is without knowledge of the incompetency, the power to void the contract terminates to the extent that the contract has been performed). Since we conclude that the Papperts could not reasonably be expected to know of Mr. Sargent's condition, they are entitled to restitution.

Elder stands for the compound proposition that a deed is absolutely void if the seller is mentally incapable of making a conveyance, physically incapable of signing the deed, the signature on the deed is forged, and the person seeking to obtain the property by the deed is aware of one or more of the alleged defects. Second, decisions from our supreme court after Elder indicate that Colorado follows the majority rule, which holds that contracts executed by mentally incapacitated people are voidable. Davis v. Colorado Kenworth Corp., 156 Colo. 98, 104-05, 396 P.2d 958, 962 (1964); Green v. Hulse, 57 Colo. 238, 243, 142 P. 416, 418 (1914) ("The great weight of authority is that deeds of persons in fact insane, but not so adjudged, are generally held to be voidable, and not absolutely void."). At least two commentators have cited Davis or Green for the proposition that Colorado follows the majority rule.

A party can be insane for some purposes and still have the capacity to contract. Davis v. Colorado Kenworth Corp., 156 Colo. 98, 396 P.2d 958 (1964). A person is incompetent to contract when the subject matter of the contract is so connected with an insane delusion as to render the afflicted party incapable of understanding the nature and effect of the agreement or of acting rationally in the transaction.

When no such capacity exists because of mental incompetency, the contract is voidable by the person lacking capacity to contract. Davis v. Colorado Kenworth Corp., 156 Colo. 98, 396 P.2d 598 (1964). Petitioners' argument that invalidation of a settlement agreement because of a claimant's incompetency is not permitted because such is not statutorily specified ignores the statutory power of the ALJ to determine a claimant's capacity to enter into a settlement agreement.