Law Of Contract Capacity Definition

In order to have a legally binding contract, the parties to the contract must have the capacity to understand the terms of the contract and to enter into the contract voluntarily. Capacity is usually not an issue with adults, but there are exceptions. For example, a person who is under the influence of drugs or alcohol may not have the capacity to understand the terms of a contract. A person who has a mental disability may also lack the capacity to understand the terms of a contract.

A person who does not have the capacity to understand the terms of a contract is said to lack contractual capacity. A person who lacks contractual capacity can still be bound by a contract if they enter into it willingly, but they can also void the contract if they later decide that they do not want to be bound by it.