Massachusetts Life Producer Practice Exam

Which of the following entities is likely to have unrestricted ability to enter into a contract?

1. Minors

2. Small employers

3. Insane individuals

4. Corporations

The correct answer is: Corporations

The correct choice is corporations because they are legal entities formed under state law, designed to operate as separate legal individuals. This means that corporations can enter into contracts, own property, sue, and be sued in their own name. Their capacity to contract is not restricted like that of minors or individuals deemed insane, who may have limitations placed upon their ability to enter into binding agreements due to age or mental competency respectively. In contrast, minors typically have restricted capacity to contract; in many circumstances, contracts entered into by minors can be disaffirmed. Similarly, insane individuals are often unable to fully comprehend the nature and consequences of their actions, leading to restrictions on their contractual abilities. Small employers, as a descriptor, do not inherently provide any restrictions; however, they operate under regulations that may indirectly affect their contracting abilities, particularly when compared to the unyielding rights that corporations have in entering contracts.