When entering into a contract, it is important to understand the concept of capacity. Capacity refers to a person`s ability to enter into a legally binding agreement. In other words, it is the ability to understand the terms of the contract and the ability to comply with those terms.

There are two types of capacity: contractual capacity and legal capacity. While they may sound similar, there are important differences between the two.

Contractual capacity relates to a person`s ability to enter into a specific contract. It is the ability to understand and agree to the terms of that specific contract. For example, if a person agrees to sell their car to someone else, they have the contractual capacity to do so. They understand the terms of the sale and agree to them.

Legal capacity, on the other hand, refers to a person`s ability to enter into any contract at all. This is a broader concept that relates to a person`s general ability to understand and enter into contracts. In order to have legal capacity, a person must have the mental ability to understand the terms of the contract and the legal consequences of entering into that contract.

The difference between the two can often be illustrated through the example of minors. Minors, by definition, have limited legal capacity. They are generally not considered capable of entering into legally binding agreements until they reach the age of majority. However, a minor may still have contractual capacity in certain situations. For example, a 16-year-old may have the contractual capacity to buy a car if they understand the terms of the purchase and have the means to comply with those terms.

It is important to understand the difference between contractual capacity and legal capacity when entering into a contract. If a person enters into a contract without the proper capacity, the contract may be voidable or unenforceable. This could result in significant legal and financial consequences.

In summary, contractual capacity refers to a person`s ability to enter into a specific contract, while legal capacity refers to their general ability to enter into any contract. It is important to consider both types of capacity when entering into a contract to ensure that it is legally binding and enforceable.