5. Capacity

Question 1

People whose power (capacity) to enter contracts are limited by law:

Answer 1

1. Minors
2. People with a mental incapacity

Question 2

Are minors bound by contracts they enter into?

Answer 2

Generally NO
- But the other party is bound and can be sued

Question 3

When will contracts BIND minors?

Answer 3

If the contract is for ‘necessaries’
- Including necessary goods and services and contracts of service for a minor’s BENEFIT
- depends on individual circumstance

Question 4

When are contracts made with mentally incapacitated (eg. drunk) people NOT valid?

Answer 4

1. at the time the contract was made, the person was incapable of understanding the nature of the transaction because of the amount of alcohol consumed
2. the other party knew this to be the case

Question 5

If a contract is made with an inebriated individual who cannot understand the contract (and the other party knows this) what can be done?

Answer 5

The contract is voidable
- Binding until person suffering from inebriation terminated it

Question 6

DEF: Corporation

Answer 6

Two or more people form themselves into an association for the purpose of some concerted enterprise (eg. club or trading company)
- and the state has incorporated it

Question 7

Does a corporation have a separate legal identity?

Answer 7

Yes

Question 8

Three main types of corporations:

Answer 8

1. Registered Companies
2. Statutory corporations
3. LLPs