What is meant by contractual capacity?

Contractual capacity refers to the legal ability of individuals to enter into a contract. It is a fundamental principle that both parties involved need to understand and possess the competency to make binding agreements. This competency typically means that both parties must be of legal age (usually 18 or older in most jurisdictions) and must have the mental capacity to comprehend the nature and consequences of the contract they are entering into.

The reason why the assertion about both parties being legally competent is correct lies in the premise that if one or both parties lack the necessary competence, the contract could be rendered void or voidable. For example, if one party is a minor or mentally incapacitated, they may not have the legal capacity to agree to the contract terms fully. Therefore, for a contract to be enforceable, both parties must have the requisite legal capacity to understand and agree willingly to the terms laid out in the agreement.

In contrast, the other options present misunderstandings about the nature of contractual capacity. While awareness of legal implications and written contracts may play roles in the validity of certain agreements, they do not define the core aspect of contractual capacity itself, which is strictly focused on the competency of the parties involved.