Fundamentals of Business Laws and Business Communication · Capacity of Parties, Free Consent

Contract by a Person of Unsound Mind: Section 12

Updated 10 October 2026 · Fact-checked

Under Section 12 of the Indian Contract Act, 1872, a person is of sound mind if, at the time of contracting, they can understand the contract and form a rational judgment about its effect on their interests. Under Section 11, an unsound person is incompetent, so the agreement is treated as void.

Understand Persons of Unsound Mind and Other Disqualified Persons

Only a competent person can make a valid contract. Section 11 says a person must be an adult, of sound mind, and not disqualified by any law. Section 12 explains the second condition, soundness of mind.

The test is practical. At the time of making the contract, could the person understand it and judge its effect on their own interests? If yes, the person is of sound mind for that contract. If no, the person is not.

The key words are at the time of making the contract. Soundness of mind is not judged by the person's general label. It is judged at the moment of the contract. So a person who is usually of unsound mind but has a lucid interval (a period of clear thinking) can contract validly during that interval. A person who is usually sound but is, say, in delirium from fever or very drunk at that moment cannot.

The two illustrations of Section 12 cover two cases only. A person who is usually of unsound mind but occasionally sound may contract when sound. A person who is usually sound but occasionally of unsound mind may not contract when unsound. Intoxication is treated in the same way: a drunken person who cannot understand the contract and judge its effect is not of sound mind at that time.

Section 11 also refers to persons disqualified by any law to which they are subject. Examples from other laws include alien enemies, insolvents (for dealing with their estate) and foreign sovereigns. Section 11 does not name them. Companies and other artificial persons are limited by their constitutional documents. A minor is also disqualified, but that is a separate topic.

Section 12 only defines soundness of mind. It is Section 11 that makes a person who is not of sound mind incompetent to contract. By general principle, an agreement with such a person at that time is treated as void, not merely voidable. In exams, choose void and do not credit Section 12 with that result.

Key formulas to remember

Test of soundness of mind (Section 12): Sound mind = can understand the contract AND form a rational judgment about its effect on own interests, at the time of making it; Both parts matter. The time of making the contract is the deciding moment.
Lucid interval rule: Usually unsound + sound when contracting = valid; Usually sound + unsound when contracting = treated as void; Judge the state of mind at the moment of the contract, not the usual state.
Effect of contract by a person of unsound mind: Unsound mind at the time of contract = incompetent (Section 11) = agreement treated as void; It is treated as void, not merely voidable, by general principle. Section 12 only defines soundness of mind. It does not itself say the agreement is void.
Intoxication: Intoxicated so as to be unable to understand and judge = no sound mind at that time = treated as void; Sober or capable = valid; Section 12 treats intoxication like unsoundness: a usually sound person may not contract while so intoxicated.
Necessaries supplied (Section 68): Supplier of necessaries to a person incapable of contracting, or to one whom that person must support, can claim reimbursement from the property of the incapable person; This is a quasi-contractual claim, not enforcement of the contract. The original agreement stays void. Only the incapable person's property answers for it, not the person personally.

How to solve Persons of Unsound Mind and Other Disqualified Persons questions

Use this method for any question on contracts by persons of unsound mind or other disqualified persons.

1Identify the person: lunatic, idiot, drunk or intoxicated, minor, or one disqualified by law.
2Pin down the exact time the contract was made. Soundness is judged then.
3Apply the Section 12 test: could the person understand the contract and judge its effect on their interests at that time?
4If the person was in a lucid interval or fully sober, the contract is valid. If not, the agreement is void.
5Check for the quasi-contractual claim for necessaries supplied (Section 68), which does not make the agreement valid, and whether any law-based disqualification applies.
6Choose the option that states the correct effect: valid, or void (not voidable), with the right reason.

Quickest way: Time of contract check

When to use it: Use it for MCQs with a scenario about a mentally ill or drunk person making a contract.

Ask only one question: was the person able to understand and judge at the moment of contracting?
Yes means valid. No means void.
Ignore the person's usual condition, unless it is the same as the condition at the contract time.
Eliminate any option that says voidable. For unsound mind the answer is void.

Common mistakes in Persons of Unsound Mind and Other Disqualified Persons

Saying a contract by a person of unsound mind is voidable.
Students mix it up with coercion, fraud or minors' cases, where other labels are discussed.
Fix: Remember: Section 11 makes such a person incompetent, so the agreement is treated as void, not merely voidable.
Treating a lunatic as always incompetent.
Students judge by the label, not the moment.
Fix: Section 12 allows a contract during a lucid interval. Always check the state at the time of contracting.
Treating a normally sound person as always competent.
Students forget that temporary conditions like delirium or heavy intoxication also count.
Fix: If the person could not understand the contract at that time, the agreement is treated as void, even if they are usually sound.
Saying any drinking makes a contract void.
Students overlook the test of understanding.
Fix: Only intoxication that stops the person understanding the contract and judging its effect makes the agreement treated as void.
Holding the incapable person personally liable for necessaries, or thinking Section 68 makes the contract valid.
Students forget that Section 68 is a quasi-contractual reimbursement right, not enforcement of the agreement.
Fix: The agreement stays void. The supplier can claim reimbursement only from the property of the incapable person (or of the person they must support), not from the person personally.

Worked examples

Example 1

Ramesh is a person of unsound mind who is usually confined at home. During a clear period, he understands what he is doing and sells his scooter to Suresh for a fair price of ₹40,000. Later, Ramesh's family says the contract is void. Is it?

Show the solution

Identify the person: a person usually of unsound mind.
Time of contract: he was in a lucid interval and understood the sale and its effect.
Apply Section 12: a person usually of unsound mind may contract when of sound mind.
So he had capacity at that time.

Answer: The contract is valid. Ramesh can be bound, as he was of sound mind when he made it.

Example 2

Mohan is normally sound, but one evening he is so drunk that he cannot understand what he is signing. He agrees to sell his shop to Kiran. Which is correct? (a) Valid (b) Void (c) Voidable at Kiran's option (d) Illegal

Show the solution

Mohan is usually sound, but we judge the time of the contract.
He was so intoxicated that he could not understand the contract or judge its effect.
Under Section 12, he was not of sound mind at that time.
An agreement by a person not of sound mind is void.

Answer: (b) Void. The agreement is void because Mohan could not understand it when it was made.

Exam tips

Look for the words 'at the time of making the contract'. They usually decide the answer.
Expect options that mix void and voidable. For unsound mind, pick void (the person is incompetent under Section 11), not voidable.
In scenarios about drunk persons, check whether the person could really understand the contract.
Learn the two cases of Section 12 as a pair: usually unsound but sound at contract time is valid, and usually sound but unsound at contract time is treated as void.
Remember that necessaries supplied to an incapable person give only a quasi-contractual right to reimbursement from that person's property. The agreement itself stays void.

Practice questions from Capacity of Parties, Free Consent

Persons of Unsound Mind and Other Disqualified Persons: frequently asked questions

Is a contract by a person of unsound mind valid or void?

If the person was of unsound mind when the contract was made, Section 11 makes them incompetent and the agreement is treated as void by general principle. If they were in a lucid interval and could understand it, it is valid.

What is a lucid interval in contract law?

It is a period when a person who is usually of unsound mind can think clearly. A contract made in that period is valid, as Section 12 judges soundness at the time of the contract.

Is a contract by a drunken person valid?

It depends on the person's state. If the intoxication stopped them understanding the contract and its effect, they lacked sound mind and the agreement is treated as void. If they could still understand it, the contract is valid.

Who else is disqualified from contracting?

Besides persons of unsound mind and minors, Section 11 refers to persons disqualified by any law to which they are subject. Examples from other laws are alien enemies, insolvents in matters of their estate and foreign sovereigns. Section 11 does not list them by name.