Capacity and incapacity are legal terms that refer to the ability of persons to make certain binding dispositions of their rights, such as entering into contracts, making gifts, or writing a valid will. When a person is barred from engaging in such activities, attempts to do so are void for incapacity.

Incapacity has been held by many courts not to be a defense to torts, however, because immunizing the incapacitated from liability for their wrongs would prevent injured parties from recovering from their losses.

Some categories of people have had their freedom to enter into contracts restricted. These categories obviously vary depending on legal jurisdiction. For example, under British Columbia law the categories are:

* Infants. (The definition of an infant differs in various jurisdictions, depending on what the age of majority is in that jurisdiction.) An infant is not bound by the contracts he or she enters into except for the purchase of necessaries and for beneficial contracts of service. Infants must pay fair price only for necessary goods and services. In contracts between an adult and an infant, adults are bound but infants may escape contracts at their option (i.e. the contract is voidable). Infants may ratify a contract on reaching age of majority. In the case of executed contracts, when the infant has obtained some benefit under the contract, he/she cannot avoid obligations unless what was obtained was of no value. It should be noted that the British Columbia Infants Act (RSBC 1996 c.223) declares all contracts with infants to be unenforceable, including those for necessities. Upon repudiation of a contract, either party can apply to the court. The court may order restitution, damages, or discharge the contract. All contracts involving the transfer of real estate are considered valid until ruled otherwise.

The age of legal capacity is a legislatively or court ordained time when a legal person or legal entity acquires the ability to exercise rights. This age often varies by jurisdiction and the particular rights involved. The right to vote in the United States is currently set at 18 years, while the right to buy and consume alcohol is often set at 21 years by state law. Some laws, such as marriage laws, may differentiate between sexes and allow women to marry younger. There are instances in which a person may be able to gain capacity earlier than the prescribed time through a process of emancipation.

* Insane. Persons claiming insanity must show that they did not understand what they were doing and that the other person knew or ought to have known of the insanity.
* Intoxicated. Contracts entered into while intoxicated are treated like insanity. They must be repudiated as soon as sober.
* Enemy Aliens may have contracts void or suspended in event of outbreak of war.
* Bankrupts: before discharge they must notify creditors, but after discharge they are returned to full capacity. In the United States, some states have spendthrift laws under which an irresponsible spender may be deemed to lack capacity to enter into contracts.
* Corporations. The capacity of corporations depends on the method of incorporation. The capacity of crown corporations are limited by legislation.
* Unions have limited capacity unless the contract relates to union activities.

Under the old common law of England, married women were considered to be incapacitated, but this is no longer the case.

When a person or entity lacks capacity for any reason, including age, a court may declare that person or entity a ward of the state and grant power of attorney to an appointed legal guardian, administrator, receiver, executor or other similar legal functionary.