Capacity of parties is one of the five elements required of all legally enforceable contracts alongside:

• Agreement.
• Genuine intentions.
• Consideration.
• Legality of object.

Without all five elements being present in a contract, it may not be legally enforceable and could be considered null and void if challenged in court. 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. Trade names must be attached to a corporation or a natural person via a legal designation in order to gain the capacity necessary to enter into legally enforceable contracts. One caveat to this though is that minors have the ability to enter into contracts for necessities such as food, clothing and shelter under certain circumstances. Capacity of parties is also known as legal capacity.