Which of the following refers to the ability of a person to do a legally valid act?

Certain people lack the legal ability to enter into a binding contract.

In order for a contract to be legally binding, all of the individuals who signed the agreement must have "contractual capacity." Contractual capacity is a legal term that refers to the minimum mental capacity required to enter into an agreement. In other words, individuals who lack the capacity to contract are presumed to not know what they're doing, and they can "void," or set aside, the contract.

The law recognizes three categories of individuals who lack the capacity to contract: minors, individuals with psychological disabilities, and intoxicated persons. If anyone from these categories enters into a contract, the agreement might be considered "voidable" by them. This protects the party who lacks capacity from being forced to go through with a deal that takes advantage of his or her lack of savvy.

Let's look at some situations in which a person might lack the legal capacity to enter into a legally binding contract.

Can a Minor Sign a Contract?

Minors (those under the age of 18, in most states) lack the capacity to make a contract. So a minor who signs a contract can either honor the deal or void the contract. There are a few exceptions, however. For example, in most states, a minor cannot void a contract for necessities like food, clothing, and lodging.

Also, a minor can void a contract for lack of capacity only while still under the age of majority. In most states, if a minor turns 18 and hasn't done anything to void the contract, then the contract can no longer be voided.

Disaffirmance by a Minor

A minor can "disaffirm," or set aside, a contract by stating their intention to not honor the contract. The minor can state this intention verbally (in words or in writing) or through actions that indicate the minor does not intend to honor the contract. For example, if a child entered into an agreement to mow his neighbor's lawn, and then the child sells his lawnmower, that action indicates his intention to disaffirm the contract.

However, the disaffirmation must happen before the minor comes of age, and the minor can't pick and choose which parts of the contract to set aside. Further, if the minor paid provided consideration, such as money to the other party, the other party must give the consideration back to the minor following disaffirmation.

Mental Incapacity and Contracts

A person who lacks mental capacity can void, or have a guardian void, most contracts (except contracts for necessities). As with contracts with minors, the contract is voidable, and not automatically void. In other words, the person who lacked the capacity to enter the contract can either end the contract or permit it to go ahead as agreed on.

In most states, the standard for mental capacity is whether the party understood the meaning and effect of the words comprising the contract or transaction. This is called the "cognitive" test.

Some states use what's called the "affective" test: a contract can be voided if one party is unable to act in a reasonable manner and the other party has reason to know of the condition.

And some states use a third measure, called the "motivational" test. Courts in these states measure capacity by the person's ability to judge whether or not to enter into the agreement. These tests may produce varying results when applied to mental conditions such as bipolar disorder.

Can an Intoxicated Person Sign a Contract?

People who are intoxicated by drugs or alcohol are usually not considered to lack the capacity to contract. Courts generally rule that those who are voluntarily intoxicated shouldn't be allowed to avoid their contractual obligations, but should instead have to take responsibility for the results of their self-induced altered state of mind.

However, if a party is so far gone as to be unable to understand even the nature and consequences of the agreement, and the other (sober) party takes advantage of the person's condition, then the contract may be voidable by the inebriated party.

Answer the following questions and then press 'Submit' to get your score.

Question 1

Which one of the following is not a form of contractual formality?

a) A requirement that a contract be executed by deed

b) A requirement that a contract be in writing

c) A requirement that a contract be witnessed and signed by a judge to verify its legality

d) A requirement that a contract be evidenced in writing

Question 2

Which one of the following types of contract is not required to be made in writing?

a) Agreements regulated by the Consumer Credit Act 1974.

b) A bill of exchange.

c) A contract for the sale or disposition of an interest in land.

d) A contract of guarantee.

Question 3

A person's contractual capacity refers to?

a) The extent to which that person can enter into a legally binding contract.

b) The number of contracts that person is allowed to enter into.

c) The formalities that that person must adhere to in order to create a legally binding contract.

d) The minimum amount of consideration that person must provide in order to create a legally binding contract.

Question 4

Regarding the contractual capacity of a minor, which one of the following statements is true?

a) A minor cannot enter into a legally binding contract, and any such contract is void ab initio.

b) Minors have full contractual capacity providing that the other party is aware that he is dealing with a minor.

c) A contract for the purchase of shares is void if the purchase is made by a minor.

d) Generally, a minor who enters into a contract can enforce the contract against the other party.

Question 5

In relation to mental incapacity, which one of the following statements is true?

a) A contract entered into by a mentally incapacitated person is void if the other party knew of the incapacity.

b) A mentally incapacitated person can enter into a binding contract for the purchase of necessaries.

c) A mentally incapacitated person never has capacity to enter into a legally binding contract.

d) Mentally incapacitated persons are always bound by the contracts they enter into.

Question 6

The doctrine of privity of contract states that?

a) A third party may enforce a contract only if he has an interest in the contract.

b) A contractual term that imposes obligations on a third party is binding upon that party.

c) Only parties to a contract may enforce the contract, and the contract only imposes obligations on the parties to it.

d) Contractual terms are private and a contract will be unenforceable if its terms are revealed to a third party.

Question 7

What does s 1(1) of the Contracts (Rights of Third Parties) Act 1999 state?

a) Section 1(1) states that, subject to the provisions of the Act, a contract can impose obligations on a third party where it is reasonable to do so.

b) Section 1(1) states that, subject to the provisions of the Act, a third party can enforce a term of a contract if the contract expressly provides that he may, or the term purports to confer a benefit on him.

c) Section 1(1) states that a third party can enforce a term of a contract where it is reasonable to do so.

d) Section 1(1) states that a contract can impose an obligation on a third party if the third party consents.

Question 8

Which one of the following types of agreement is NOT excluded from the operation of s 1(1)?

a) Contracts containing a bill of exchange or any other negotiable instrument.

b) Contracts for the sale of goods.

c) Contracts that exist between a company and its members by virtue of the company's constitution.

d) Employment contracts.

Question 9

Aside from the provisions of the Contracts (Rights of Third Parties) Act 1999, the law does provide other exceptions to, or ways to avoid, the doctrine of privity. Given this, which one of the following statements is untrue?

a) The court has a discretion to avoid the doctrine of privity where it feels it is 'just and reasonable' to do so.

b) Statute can exclude the doctrine of privity and provide exceptions to it.

c) Parties can avoid the doctrine of privity by bringing a claim in tort.

d) The doctrine of privity can be avoided if the court is of the opinion that a collateral contract exists between the promisor and a third party.

What is the term for the legal ability to enter into a binding contract?

Which of the following would be considered a valid and legally enforceable agreement?

Which of the following is true regarding capacity to contract?

What is the term for the legal ability to enter into a binding contract quizlet?