What is meant by "capacity" in the context of valid contracts?

In the context of valid contracts, "capacity" refers to the legal ability of the parties involved to enter into a binding agreement. This means that each party must possess the mental competence and legal standing to understand the terms of the contract and to be held accountable for fulfilling its obligations. For instance, minors, individuals with mental incapacities, or those under the influence of substances may lack the necessary capacity to contract. Therefore, option A accurately captures the essence of "capacity" as it pertains to contractual obligations, ensuring that all parties can comprehend their responsibilities and the consequences of their agreement. Understanding this concept is crucial for ensuring that contracts are enforceable and maintain their validity.