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.