When entering into a contract, it is important to understand the legal concept of capacity. Capacity refers to a party`s legal ability to enter into a contract and be bound by its terms.

In order for a contract to be enforceable, all parties must have the capacity to enter into the agreement. This means that they must be of legal age, have the mental capacity to understand the terms of the agreement, and not be under duress or undue influence.

If a party lacks capacity, the contract may be voidable or unenforceable. For example, a contract entered into by a minor may be voidable at the option of the minor. Similarly, a contract entered into by someone who is mentally incapacitated may be unenforceable.

Capacity also refers to a party`s ability to perform under the contract. For example, a corporation may have the legal capacity to enter into a contract, but may lack the financial capacity to perform its obligations under the agreement. In this case, the contract may be unenforceable if the other party is aware of the corporation`s lack of financial capacity.

Capacity is an important factor to consider when entering into any contract. It is important to ensure that all parties have the legal and financial capacity to enter into and perform under the agreement. Failure to do so can result in a voidable or unenforceable contract, leading to costly disputes and legal battles.