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Capacity to Make Contracts

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CAPACITY TO MAKE CONTRACTS

The capacity of certain persons to conclude contracts is restricted by law. The law recognizes that certain people are either wholly or partly incapable to make a contract. The aim of this assignment is to explain and consider the critical legal matters the individuals and organisations have to consider when entering into a contract with these people.
Contracts are part of everyday life and every business will need to make a contract and most businesses will have to make very many. Therefore it is necessary for an organisation as well as for individuals to understand that a contract is a legally binding agreement. In order for a contract to be legally enforceable the law demands agreement, consideration and intention to create legal relations (Maclntyre, 2008). It is generally believed that every person can make a binding contract as they wish (Maclntyre, 2008). But because the contract is a legally binding agreement, the law recognises some specific groups who either have not reached the maturity or do not have the capacity to fully understand the nature and extend of agreements that they make with others. Therefore it is important for every organisation and individual to understand that a number of persons have a restricted capacity to contract. These are minors, persons of unsound mind, drunks and corporations (Owens, 2001). All others can make a binding contract as they please.
Beale, Bishop and Furmston (2008) argue that the law of minors` contracts is very difficult and space precludes a full attention of it. The Family Law Reform Act 1969, s. 1 explains that a minor is a person who has not reached the age of 18. Until the Act came into effect on 1 January 1970, the age of majority was 21 (Owens, 2001). Contracts made by minor fall into three categories and these are valid contracts, voidable contracts and void contracts.

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