Capacity

From the Latin Latin: capacitas (ability, capability).

In one sentence

The legal and mental ability to enter into a binding contract.

Plain English

Capacity means you have the legal right and mental ability to make a contract. Most adults have capacity, but some people don't—like children, people with severe mental illness, or those under the influence of drugs or alcohol at the time of contracting. If someone lacks capacity, any contract they sign may be voidable, meaning the other party can't force them to follow through. Courts look at whether the person could understand what they were agreeing to.

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Example

A 16-year-old signs a contract to buy a motorcycle. Because minors generally lack capacity to enter binding contracts, the teenager can cancel the deal later. However, an adult who was drunk when signing might also lack capacity if they can show they didn't understand what they were signing.

Used in a sentence

“The court found that the elderly man lacked capacity to make the will because he had advanced dementia.”

Related terms

Minor

A person who has not reached the legal age of adulthood, usually 18.

Voidable Contract

A contract that one party can cancel or reject, but is otherwise valid.

Mental Incapacity

Lacking the mental ability to understand a contract's nature, terms, or consequences.

competency hearing

A court proceeding to determine whether a defendant can understand trial and assist in their own defense.

Contract Formation

The process by which parties create a legally binding agreement.

Offer

A proposal to enter into a binding agreement on specific terms.

Acceptance

Agreeing to the exact terms of an offer, creating a binding contract.

Consideration

Something of value exchanged by each party to make a contract binding.

This page is a plain-English reference and is not legal advice. Laws vary by jurisdiction and change over time. For specific situations consult a licensed attorney.