In contract terms, what does 'legal capacity' refer to?

The concept of 'legal capacity' in contract terms specifically refers to the ability of a person to enter into a legally binding contract. This means that an individual must possess the mental competency and legal authority to understand the terms of the contract and the implications of their agreement. Legal capacity generally requires that the person be of the age of majority (usually 18 years old in most jurisdictions) and not be mentally incapacitated or under the influence of substances that impair judgment.

This understanding is crucial in contract law because if a party lacks legal capacity, the contract may be considered void or voidable. For instance, minors typically lack full legal capacity, so contracts they enter into can often be rescinded.

Other options relate to different aspects of contractual agreements. While the ability to sign a contract without restrictions and the ability to negotiate terms are related to the process of forming a contract, they do not define legal capacity itself. Similarly, the ability to terminate a contract legally concerns the enforcement or dissolution of a contract rather than the foundational ability to enter into it in the first place.