AD Banker Comprehensive Practice Exam

In order to be valid, a contract must be between individuals considered legally able to enter into an agreement. This principle is known as:

1. Restricted persons

2. Considerations

3. Competent parties

4. Agreement

The correct answer is: Competent parties

The principle of "competent parties" refers to the requirement that all individuals involved in a contract must possess the legal capacity to enter into an agreement. This means that the parties must be of legal age (usually 18 years or older) and have the mental ability to understand the terms and implications of the contract. If any party is deemed incompetent—due to reasons such as being a minor, mentally incapacitated, or under the influence of substances—then the contract may be considered void or voidable. The other options do not capture this legal requirement. "Restricted persons" generally refers to individuals who are not permitted to enter into certain contracts due to legal restrictions, but it does not encompass the broader principle of competency. "Considerations" involve what each party promises to provide in the contract, which is essential for the formation of a contract but does not address the capacity of the parties. "Agreement" simply describes the mutual understanding that forms the basis of a contract but does not involve the legality of the parties' ability to enter into that agreement. Thus, the correct answer, "competent parties," accurately focuses on the necessity that the individuals involved must be legally capable of making binding agreements, ensuring the enforceability of the contract.