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IAI Actuarial Core Principles · Business Management · Sources of Indian law and valid contracts

Dr Nair, a person of unsound mind who has lucid intervals, enters into a contract to sell his flat to Gopal Realty during a period in which he is clearly in a lucid state and able to understand the terms and judge their effect on his interests. Under the Indian Contract Act, 1872, what is the position?

The contract is valid. Under Section 12 of the Indian Contract Act, a person who is usually of unsound mind may still contract during a period when he is of sound mind, meaning he can understand the contract and judge its effect on his interests at that time.

  1. AThe contract is void because a person who is ever of unsound mind cannot contract
  2. BThe contract is voidable at Dr Nair's option because of his history
  3. CThe contract is valid, because a person usually of unsound mind may contract when of sound mind at the timeCorrect
  4. DThe contract is valid only if a court-appointed guardian signs it
  5. The contract is valid only if Gopal Realty proves the price was fair

Explanation

Section 12 states that a person usually of unsound mind but occasionally of sound mind may contract when of sound mind. The test is capacity at the time of contracting, so a lucid interval suffices. Option A ignores this rule.

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