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

Under the Indian Contract Act, 1872, a person is said to be of sound mind for the purpose of making a contract if, at the time of making it, he is:

A person is of sound mind for contracting if, when making the contract, he can understand it and form a rational judgment about its effect on his interests. The test applies at the time of contracting, not to his medical history.

  1. ACapable of understanding it and forming a rational judgment as to its effect on his interestsCorrect
  2. BNot under the care of any guardian or court appointed manager
  3. CFree from any medical diagnosis of mental illness at any time in his life
  4. DRepresented by an advocate at the time of signing the agreement

Explanation

The test of sound mind is applied at the time the contract is made. The person must be able to understand the contract and form a rational judgment about its effect on his interests. A past or future medical history is not the test, so the third option is wrong.

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