Contract Law Essentials

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Questions and Answers

What circumstance prevents a person from entering into a contract?

  • Having occasional issues of unsound mind
  • Being a minor
  • Being a foreign diplomat
  • Being inebriated to the point of not understanding the contract (correct)

Which of the following individuals is NOT disqualified from entering a contract?

  • A legal adult with sound mind (correct)
  • A person of unsound mind
  • A foreign sovereign
  • An insolvent individual

What happens to an agreement made with a person deemed an idiot?

  • It is valid until a court declares it void.
  • It can be enforced if proven valid.
  • It is void and has no legal effect. (correct)
  • It can be voidable at the discretion of the idiot.

Under what condition can a person of unsound mind enforce a contract?

<p>For their benefit or for necessities for themselves or dependents (C)</p> Signup and view all the answers

How can a lunatic enter into contracts?

<p>They may enter into contracts during periods of sanity. (C)</p> Signup and view all the answers

Which of the following groups is disqualified by law from entering into contracts?

<p>Corporations and companies (A)</p> Signup and view all the answers

Which scenario would NOT disqualify a person from contracting?

<p>Having sound mind under all circumstances (B)</p> Signup and view all the answers

What is true about contracts made by persons who are usually of unsound mind?

<p>These contracts are void if made during a period of unsoundness. (A)</p> Signup and view all the answers

Which of the following best describes a person who is too intoxicated to comprehend an agreement?

<p>They are incapable of forming a rational judgment. (D)</p> Signup and view all the answers

Which statement accurately reflects the principle regarding void agreements?

<p>Agreements made with individuals of unsound mind are void ab initio. (A)</p> Signup and view all the answers

What is the liability of a minor when acting as an agent for a principal?

<p>The principal is liable for actions of the minor within the ordinary course of business. (C)</p> Signup and view all the answers

Which of the following statements about minors and negotiable instruments is true?

<p>Minors can execute, negotiate, or endorse negotiable instruments but bear no personal liability. (D)</p> Signup and view all the answers

Under what conditions can a guardian enter into contracts on behalf of a minor that are enforceable against the minor?

<p>The contracts must be within the authority of the guardian and benefit the minor. (B)</p> Signup and view all the answers

Which of the following accurately describes a minor's ability to act as a shareholder in a company?

<p>Minors can become shareholders if the shares are fully paid up and not prohibited by company articles. (C)</p> Signup and view all the answers

What characterizes a person as having an unsound mind in terms of contract capability?

<p>The person lacks both the ability to understand contract terms and to form rational judgments. (A)</p> Signup and view all the answers

What is the age of majority for entering into a contract as defined in the Majority Act 1875?

<p>18 years (D)</p> Signup and view all the answers

Which of the following describes the nature of agreements made by a minor?

<p>Void ab-initio and unenforceable (B)</p> Signup and view all the answers

In which situation does a minor attain the status of a major at the age of 21?

<p>When a guardian is appointed under the Guardians and Wards Act (A)</p> Signup and view all the answers

What is the consequence when a minor claims to void a contract they entered into?

<p>The contract is declared void, and no repayment is required (D)</p> Signup and view all the answers

Which group of individuals is NOT competent to contract as per the Contract Act, 1872?

<p>Persons disqualified by law (A), Minors (D)</p> Signup and view all the answers

What is required from a minor who falsely represents their age and receives property?

<p>They must return the property if it is traceable. (A)</p> Signup and view all the answers

In which scenario can a minor enforce a mortgage executed in their favor?

<p>If it is executed on their behalf by an adult. (A)</p> Signup and view all the answers

What defines necessaries for a minor?

<p>Items required to maintain a person's state and wellbeing. (D)</p> Signup and view all the answers

Can a minor be personally liable in a partnership?

<p>No, they can share in profits but aren't personally liable. (C)</p> Signup and view all the answers

What was determined in the case of Nash v Inman regarding the coats purchased by a minor?

<p>The coats did not constitute a necessity. (D)</p> Signup and view all the answers

Flashcards

Minor's contracts for necessaries

Minors can be bound to contracts for items essential to maintain their status (e.g., food, shelter, education).

Minors as contract beneficiaries

Minors can benefit from contracts without personal liability (e.g., receiving property or money).

Minors and partnership

Minors cannot form partnerships but can receive partnership benefits with consent.

Restoring property to minors (false statements)

A minor who obtained property under false pretenses may have to return it if traceable.

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Contracts enforceable by/for a minor

Agreements made in a minor's favor (like mortgages) are enforceable by them or others on their behalf.

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Void Agreement (Idiot)

A contract with a person legally determined as an idiot is completely invalid from the beginning.

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Lunatic's Contract

A contract made by someone with disordered thinking (lunatic) can be void; their mental state affects the validity.

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Intoxicated Person's Contract

A contract made by someone too drunk to understand the agreement's terms is void.

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Unsound Mind (Generally Unsound)

A contract by someone permanently of unsound mind is void from the start (void ab initio).

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Unsound Mind (Occasionally Sound)

A person usually of unsound mind can make a valid contract when sound-minded.

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Minors and Contract Capacity

Individuals under the age of majority (typically 18) lack the legal ability to enter into contracts that are binding in a court of law.

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Void Contract with Minor

A contract entered into with a minor is considered void from the start (ab initio). It has no legal force and cannot be legally enforced.

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Age of Majority for Contractual Purposes

In most cases, it is established by law and sets the age at which a person can legally enter into agreements that a court will enforce.

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Exception to Minor's Contractual Capacity

In certain situations, individuals below 18 can have access to legal consent for contracts; this typically occurs through a court-appointed guardian or a court of wards.

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Consequences of a Minor's Contract

A minor's agreement is void ab-initio, creating no binding obligations, and does not require repayment (or other action) depending on the specific financial transaction.

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Minor as Agent

A minor can act as an agent for an adult, binding the adult to contracts made by the minor. However, the minor is not personally liable.

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Minor as Insolvent

A minor cannot be declared insolvent because they are not considered legally competent to contract.

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Minor and Negotiable Instruments

Minors can sign and transfer negotiable instruments like checks, but they are not personally liable for the obligations.

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Unsound Mind for Contracts

A person is considered of unsound mind for contract purposes if they lack the ability to understand the contract and its effects on their interests.

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Idiot's Contractual Capacity

An idiot, someone with severe mental impairment, is completely incapable of entering into legally binding contracts.

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Sound Mind, Unsound Contract?

A person who is usually mentally sound but temporarily incapacitated cannot contract during that period.

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Drunkenness and Contracts

A person so intoxicated they can't comprehend contract terms or consequences cannot enter into a binding agreement.

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Unsound Mind, Enforceable Benefit?

A person of unsound mind can still enforce contracts made for their benefit.

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Alien Enemies & Contracts

People at war with a country cannot legally enter into contracts with that nation.

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Who Else Can't Contract?

Besides minors and the mentally unsound, other groups are legally barred from contracting, including foreign sovereigns, insolvents, and convicts.

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Study Notes

Capacity to Contract

  • A person who is usually of sound mind but occasionally of unsound mind may not make a contract when he is of unsound mind.
  • A sane man who is so drunk that he cannot understand the terms of a contract cannot enter into a contract whilst drunkenness lasts
  • Exceptions: The position of contracts with persons of unsound mind is as under:
    • He may enforce a contract for his benefit
    • His due against him for the supply of necessaries to him or to any of his dependents.

Persons Disqualified by Law

  • Besides minors and persons of unsound mind, there are others who are disqualified from contracting under the provisions of some other laws.
    • Aliens;
    • Foreign sovereigns, diplomatic staff, and accredited representatives of foreign states;
    • Insolvents;
    • Convicts; and
    • Corporations.

Minor as an Agent

  • A minor can act as an agent and bind his principal by his acts without incurring any personal liability
  • Third persons for the ordinary course of dealings

Minor as an Insolvent

  • A minor cannot be declared insolvent because he is not competent to contract.

Minor can execute negotiable instruments

  • The minor is competent to draw, negotiate or endorse the negotiable instruments. It may however be noted that the minor will not incur any personal liability under such instruments. But, the negotiable instruments executed in favour of the minor can be enforced by him.

Contract by minor's guardian

  • The contracts entered into on behalf of a minor by his guardian or manager of his estate can be enforced by or against the minor if the contract is within the scope of the authority of guardian or manager.

Minor as a share-holder or member of a company

  • A minor can become a share-holder or member of a company if the shares are fully paid up and the articles of association do not prohibit so.

Minor as guarantor

  • A minor cannot be a guarantor.

Persons of Unsound Mind

  • A person is said to be of unsound mind for the purpose of making a contract, if at the time when he makes it, is capable,
    • To understand the terms of the contract
    • To form a rational judgment as to its effect upon his interests.
  • Thus, if a person is not capable of both, he is said to have suffered from unsoundness of mind. The examples of persons having an unsound mind include idiots, lunatics and drunken persons.
  • Idiot: a person who has completely lost his mental faculties of thinking. Such a person is completely incapable of contract.

Position of Agreements by a Minor

  • An agreement with a minor is void ab-initio. An agreement with a minor does not create any legal rights and obligations between the concerned parties.

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