RealTown Words

The legal ability of people or organizations to enter into a valid contract. A person entering into a contract will have full, limited, or no capacity to contract.
Full capacity to contract:
The unlimited ability of a person to enter into a contract that is legally binding. Most adults, including those who are illiterate, have full capacity to contract and are said to be competent parties.
Limited capacity to contract:
The ability of a person to enter into a contract that is legally binding upon himself or herself only under certain circumstances. For example, minors have limited ability to contract, which means that the contract of a minor is valid only if the minor does not disaffirm a contract entered into during his or her minority or shortly after reaching majority. Contracts made by minors to obtain such necessities as food, clothing, and shelter, however, are not voidable by the minor and will be enforced against him or her.
No capacity to contract:
The inability of a person to enter into a valid contract under any circumstances. Such inability can arise when a person has been adjudicated insane or if he or she is an officer of a corporation who is not authorized to execute a contract on behalf of the corporation. Lack of capacity would also cover acts of a corporation beyond the powers as defined in the articles of incorporation.