Riley Pemberton

Mrs. Garringer-Strickland
MG 3400

Chapter 12 Summary

In the realm of business contracts, two critical elements are capacity and legality.

Capacity refers to the legal ability of parties to enter into contracts, while legality ensures that the

subject matter and purpose of the contract comply with the law. Capacity involves the mental and

legal ability of parties to understand and be bound by a contract. Certain individuals, such as

minors with mental incapacity, or individuals under the influence of substances impairing

judgment, may lack the capacity. The impact of a party lacking capacity can be profound.

Contracts with parties lacking capacity are generally voidable, allowing the incapacitated party

to disaffirm the contract. However, if the incapacitated party affirms the contract upon gaining

capacity, it becomes enforceable. When one party lacks capacity, the consequences can be a

variety. The incapacitated party has the option to disaffirm the contract, potentially leading to

legal challenges and disputes. The other party may face uncertainties, financial losses, or

disruptions in business dealings. Businesses may conduct due diligence to ensure the capacity of

their contracting parties, mitigating risks associated with voidable contracts. Legality ensures

that the contract's subject matter and purpose adhere to the law. Contracts involving illegal

activities or violating public policy are deemed void and unenforceable. Businesses must

scrutinize the legality of contracts to avoid legal repercussions. Legality concerns extend to

specific clauses, terms, or actions that contravene statutory or common law principles. In the

digital age, businesses often enter contracts through online platforms. Ensuring that users have

the legal capacity to enter into agreements and that contract terms comply with applicable laws is

crucial to avoid disputes and legal challenges. Employment contracts must comply with labor
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laws and regulations to ensure legality. Issues such as non-compete clauses, demand careful

consideration to prevent legal entanglements. Real estate contracts require important attention to

legality. Ensuring that the subject matter complies with the zoning laws, environmental

regulations, and property rights is imperative to avoid legal complications. In conclusion, lacking

capacity introduces uncertainties and potential disputes. While illegal contracts jeopardize the

enforceability of agreements. Businesses must navigate these legal nuances carefully, conducting

thorough assessments and due diligence to safeguard their interests and maintain the integrity of

contractual relationships. Corresponding to legal principles ensures that contracts align with

societal norms, fostering an ethical business environment.