• This is the legal ability of a party to enter into a contractual relationship.
• Not every person has capacity to enter into any contractual relationship.
• A contract entered into by a person with no capacity to contract is unenforceable, for example an infant has no capacity to enter into money borrowing transactions. A registered company has no capacity to enter into transactions beyond the objects prescribed by the memorandum of association. A person of unsound mind has no capacity to contract.