The capacity of parties refers to their legal ability to enter into a contract. Not everyone has the capacity to enter into a contract, and contracts entered into by individuals or entities lacking the necessary capacity may be void or voidable. To have the capacity to contract, a person must be of sound mind and must not be under the influence of drugs, alcohol, or any other condition that impairs their ability to understand the terms of the contract. Minors are generally considered to lack the capacity to contract, although there are exceptions for certain types of contracts.