What does "capacity to contract" mean in legal terms?

The phrase "capacity to contract" refers specifically to the legal ability of an individual or entity to enter into a binding contract. This concept is fundamental in contract law as it ensures that all parties involved in an agreement have the mental and legal ability to understand the terms and implications of the contract.

Having the capacity to contract means that individuals must be of a certain age (usually the age of majority, which is 18 in most jurisdictions) and possess the mental competence to comprehend the nature of the agreement being made. Entities, such as corporations, must also have the legal authority established under their governing documents to enter into agreements.

Although negotiating terms, signing documents, and executing a contract on behalf of another party may involve aspects of contract law, they do not intrinsically define "capacity to contract." Rather, those activities presuppose that the parties have the legal capacity to engage in the contract in the first place. Thus, the correct answer emphasizes the fundamental ability to form a legally enforceable contract.