One afternoon while Mr. Reston was going home on the bus, his neighbour, Mr. Outovit, offered to sell Reston his car for $4000, a bit below the market value. Reston said, "You might change your mind on that. Better not be too hasty with your offers." Outovit answered, "I want to sell it quickly," and wrote on the back of an envelope: "I hereby offer my neighbour, Reston, my 2011 Chevrolet for $4000 in cash." Outovit then signed his name. Reston wrote, "I accept." The next day, Reston went to his neighbour's house to pay the money and get the car. He learned that Outovit was in the hospital suffering from a reaction to medicines given to him the day before. If Outovit (or his legal representative) refuses to honour the contract on the basis of mental incapacity, which of the following is true?
◦ If Reston can show the written contract, Outovit has no argument and will be bound to honour the contract.
◦ Outovit won't be bound by the contract because there hadn't yet been payment for, or delivery of, the car.
◦ Outovit need only prove that he didn't understand the nature and quality of his act to void the contract.
◦ To get out of a contract on the basis of insanity, you have to be institutionalized.
◦ If it is established that Reston didn't know Outovit was incapacitated at the time of contract and that the deal was fair, Outovit will be bound by the contract even if he didn't understand the nature and quality of his act.
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