What is the meaning of "capacity" in contract law?

In contract law, "capacity" refers specifically to the legal ability of parties to enter into a contract. This means that for a contract to be enforceable, the parties involved must have the mental competency and legal standing required to understand the terms and implications of the agreement they are entering into. This capacity is essential because it ensures that individuals are not taken advantage of due to a lack of understanding or legal authority.

Certain factors can affect capacity, including age (typically individuals must be of legal age, which is often 18 years), mental competence (individuals must not be mentally incapacitated or under the influence of drugs or alcohol), and, in some cases, the status of the party (like being a declared bankrupt). If a party lacks capacity, the contract may be void or voidable.

Other options touch on related concepts but do not accurately reflect the legal definition of capacity. Financial resources pertain to a party's ability to perform their obligations but are separate from legal capacity. The physical ability to complete a contract is more about performance capabilities rather than legal eligibility, while the time frame does not relate to capacity at all but instead pertains to contract terms regarding duration.