Persons of Unsound Mind, and Persons Disqualified by Law

In one line

A person is of sound mind for contracting if, at the moment of making the contract, they can understand it and judge what it will do to their own interests, and the law asks about that moment and not about a diagnosis.

In the words a student can write in an exam: section 12 of the Indian Contract Act 1872 provides that "A person is said to be of sound mind for the purpose of making a contract, if, at the time when he makes it, he is capable of understanding it and of forming a rational judgment as to its effect upon his interests." A person usually of unsound mind but occasionally of sound mind may contract when he is of sound mind, and a person usually of sound mind but occasionally of unsound mind may not contract when he is of unsound mind.

Why the law has this at all

Section 11 makes soundness of mind a condition of competency but does not say what it means. Without a definition the courts would be left to decide whether "unsound mind" meant a medical condition, a legal status, or something else, and each answer would produce a different and unsatisfactory rule.

A medical test would be too wide and too narrow at once. Many people with a diagnosed illness manage their affairs perfectly well, and many people with no diagnosis at all are, on a given evening, incapable of understanding anything.

A status test, under which a person once declared of unsound mind is permanently disabled, would be worse: it would strip the person of the ability to deal with their own property for life.

So the Act chose a functional and momentary test. It asks what this person could do at the time of this contract. That protects those who genuinely cannot judge, without disabling anyone permanently.

The provision itself

"A person is said to be of sound mind for the purpose of making a contract, if, at the time when he makes it, he is capable of understanding it and of forming a rational judgment as to its effect upon his interests.

A person who is usually of unsound mind, but occasionally of sound mind, may make a contract when he is of sound mind.

A person who is usually of sound mind, but occasionally of unsound mind, may not make a contract when he is of unsound mind."

The Act's own illustrations:

"(a) A patient in a lunatic asylum, who is at intervals of sound mind, may contract during those intervals.

(b) A sane man, who is delirious from fever or who is so drunk that he cannot understand the terms of a contract, or form a rational judgment as to its effect on his interests, cannot contract whilst such delirium or drunkenness lasts."