In: Accounting
Capacity is a required element for a contract to be valid
because a contract is a binding agreement. It’s important that the
persons entering into the contract fully understand what they are
agreeing to before they agree to it.
At the time Nancy Leonard was presented with the contract and
signed it, she was intoxicated because of the tranquilizers she had
been prescribed by her doctor due to the emotional stress caused by
the loss of her 5 year old son. Having been given tranquilizers the
night before, a prescription for tranquillizers, and having taken a
pill with a beer an hour before Raskin arrived she would have been
extremely intoxicated at the time she signed the contract. Not only
is having Leonard sign a contract while intoxicated ethically wrong
it is also illegal. Nancy Leonard was clearly taken advantage
of.
The salesman made multiple mistakes. First Raskin actively sought
out Leonard because she had lost her son. Second, he preyed on the
fact that she had other children and used what may be considered
undue influence as a trusted life insurance salesman to sway her to
purchase the life insurance for the children. He also pointed out
how expensive funerals were and she signed believing that it could
cost her less money if something were to happen to another one of
her children in the future. This is an example of someone
pressuring her to sign under economic duress. Lastly, he allowed
her to enter into a contract when she was intoxicated. With the
amount of tranquilizers she was on at the time, she had to have
been visibly intoxicated and he shouldn’t have had her sign and
commit to the insurance policy.
Businesses have a responsibility to be ethical in their business
practices. One way this insurance company could have made sure they
were entering into a contract with someone who had the capacity to
do so would be to not target specific demographics of people for
the insurance. The company unfairly targeted families living in an
area where multiple children were killed by drive by shootings.
They preyed on emotions and economic situations of the potential
policy holders. The insurance company could have offered insurance
to everyone in the area and surrounding areas instead of targeting
Leonard specifically. To make sure the other parties have the
capacity is as simple as training your employees who present the
contracts and making sure that the presenters of the information
are clear on why it’s important to not allow a person who may not
have the capacity to sign the contract.
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