Texas Real Estate State Practice Exam

What type of contract involves an individual documented as insane, making it automatically non-binding?

1. Verbal agreement

2. Voidable contract

3. Implied contract

4. Enforceable contract

The correct answer is: Verbal agreement

The correct response to the question regarding the type of contract involving an individual documented as insane is actually that a verbal agreement would not inherently classify as non-binding due to the mental capacity of a party involved. A contract becomes non-binding when one of the parties lacks the legal capacity to enter into an agreement, such as in the case where an individual is deemed insane. In this situation, a voidable contract is established. This means that the contract can be declared invalid by the party who lacks capacity, but not automatically void at the outset. Verbal agreements can still be enforceable if both parties have the capacity to enter into a contract. In contrast, implied contracts arise from actions or conduct rather than explicit agreements and do not apply to situations of mental incapacity. Lastly, an enforceable contract is one that meets all legal requirements and can be upheld in a court of law, which wouldn't apply here if one party lacks the mental capacity to agree. Thus, in this scenario, recognizing the mental incapacity leads to a voidable contract status rather than a straightforward verbal agreement being automatically non-binding.