Final answer:
The 'capacity to contract' is the legal ability of an individual or entity to enter into a binding contract, which is underpinned by legal attributes like age and mental soundness. Contractual rights enable individuals to make binding agreements using their property, with the legal system providing recourse in case of noncompliance.
Step-by-step explanation:
The capacity to contract refers to an individual or entity's legal ability to enter into a binding agreement. To have this capacity, the party must have the necessary legal attributes, like being of the age of majority and having a sound mind, enabling them to understand the terms of the contract and appreciate its consequences. This capacity is essential as it ensures that all parties involved in a contract, such as a lease agreement, have the ability to legally commit and are held accountable for their obligations under the contract.
Contractual rights stem from property rights and are crucial for enabling individuals to make agreements with others pertaining to the use of their property, with the assurance of legal redress in case of noncompliance. For instance, in an employment contract, a skilled surgeon performs surgery expecting to receive payment for their services. If payment is not made, the legal system provides mechanisms for the surgeon to recover the owed compensation, thereby underlining the interplay between contractual rights and property rights within the economy.