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Contract Law Basics - Formation and Capacity

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Contract Law Basics - Formation and Capacity

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Questions and Answers

What must the principal have at the time the contract is made for it to be valid?

A written agreement

Competent capacity (correct)

Legal representation

Sufficient funds

If a principal is of unsound mind at the time a contract is made, what is the status of that contract?

It automatically becomes invalid after ratification.

It may not be ratified later. (correct)

It can be ratified at any time.

It is valid and enforceable.

What effect does the Companies Act, 1963 have on pre-incorporation contracts?

They are valid if ratified after incorporation. (correct)

They can only be ratified if signed by all members.

They must be renegotiated after incorporation.

All pre-incorporation contracts are void.

Under what condition can an agent be held personally liable in a contract?

<p>If they appear to be a party to the contract.</p> Signup and view all the answers

Which of the following individuals would likely not be able to ratify a contract?

<p>A legal adult with temporary unsound mind</p> Signup and view all the answers

Study Notes

Contract Formation and Capacity

A contract requires a competent principal.
The principal must have capacity to contract at the time the contract is formed.

Ratification by Incapacitated Principals

If a principal lacks capacity (e.g., minor, unsound mind, enemy alien) at the time of contract formation, they cannot later ratify the deal, even if they gain capacity.

Pre-Incorporation Contracts

Historically, a newly formed company could not ratify contracts made on its behalf before incorporation.
This has changed; the Companies Act of 1963 allows pre-incorporation contracts ratified after incorporation to be valid.

Agent Liability

Agents can be held personally liable for contracts, depending on the specifics.
If an agent acts in a way which suggests they are a party to the contract, the contract is binding on them.
This is illustrated by the case Kelner v Baxter (1866).

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Description

Explore essential concepts of contract law, including the formation of contracts and the capacity required by the principal. Learn about the ratification process for incapacitated principals and the implications of pre-incorporation contracts. This quiz also covers agent liability, shedding light on important case law.