What does "capacity of parties" refer to in contract law?

The concept of "capacity of parties" in contract law pertains specifically to the ability of individuals or entities to enter into contracts. A party must have the legal capacity to engage in a contract, which typically involves factors such as being of a certain age (typically the age of majority) and having the mental competency to understand the terms and implications of the agreement. If a party lacks the requisite capacity, the contract may be deemed void or voidable, meaning it may not hold legal enforceability.

This understanding underscores the importance of ensuring that all parties involved in a contract are capable of making informed decisions and understanding their legal obligations and rights. The other options, while related to contracts, do not directly address the fundamental legal ability necessary for forming a valid contractual agreement.