Capacity of parties refers to each party who is entering a contract. Each is required by law to have the mental and intellectual capacity to understand the terms of the contract and to make the decision to enter it. Therefore, people such as minors, those of reduced mental acuity, and people under the influence of drugs or alcohol would not legally meet the capacity required to enter into an insurance contract.Other parties considered by law to have no legal capacity are trade names. A trade name on its own is considered to have no legal status and therefore have no legal capacity to enter into contracts.