“INTERPRETING SECTION 12 OF

THE INDIAN CONTRACTS ACT,1872”

Submitted to Submitted by
Dr. Balwinder Kaur Swastik Yadav
Law of Contracts-1 Semester I
H.N.L.U, Raipur Section “C”, Roll
153
ID No. 22/2022/2617

Date of Submission
25th august, 2022
BARE ACT

“CHAPTER II Of Contracts, Voidable Contracts and Void Agreements

S 12. What is a sound mind for the purposes of contracting—

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 judgement 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.

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 judgement as to its effect
on his interests, cannot contract whilst such delirium or drunkenness lasts.”1

INTRODUCTION

[s 12.1]

The section gives the test of soundness of mind. It specifies that the soundness
must be present at the time the contract is made. The second and third
paragraphs deal with instances in which a person is frequently or infrequently
of unsound mind.

[s 12.2] Test of Soundness of Mind

1
“The Indian Contract Act, 1872, S 12, NO. 47 Acts of Parliament,1872(India)”.
Section 12 requires that the person be capable of comprehending the contract
and having a reasonable grasp of its effect on his interests at the time the
contract is made. The person alleging the contract is void owing to insanity
bears the burden of proving that he or she was insane at the time the contract
was formed.2

The ability to grasp the conditions of the contract is used to determine

unsoundness of mind. There cannot be a set sanity criterion that applies to all
transactions. If a person appears normal but is incapable of formulating an
opinion about his own interests, the law will protect him.3

If a person is not of sound mind because of his mental condition, he is not in a

position to grasp rationally whether the contract is likely to function in his
favour or not. To be valid, the contract must satisfy the test of soundness of
mind when it is formed. A person's mental incapacity or loss of memory does
not render them ineligible to engage into a contract. If a person, despite
appearing to be of sound mind, is unable to comprehend the nature of such a
contract, the notions relevant to pardanashin women will apply. Unsoundness
of mind owing to old age is only regarded when the mind becomes vacuous as
a result of old age.4

[s 12.3] Contract in Sound Intervals

The second paragraph of the section provides that when a person is of sound
mind but is typically of unsound mind, he may engage into a contract. In the
bare acts, refer to Illustration (a). As a result, even someone of unsound mind
can contract during intervals when he is of sound mind. The competence of the
unsound person to contract during the intervals of sound mind must be
determined under the terms of this section; adjudication of a person of

2
“Sudama v Rakshpal Singh, 2013 SCC Online All 13428: (2013) 99 ALR 351: (2013) 121
RD 157.”
3
“Gibbons v Wright, (1954) 91 CLR 423.”
4
“Indar Singh v Parmeshwardhari Singh, AIR 1957 Pat. 491.”
"unsound mind" under laws relating to mental health would simply transfer
the burden of evidence onto the person who claims sanity.5

When unsoundness of mind is proven by definite medical proof, the fact that
the individual was in a sound mind at the time he formed the contract must
also be proven by as much strong and demonstrable evidence.

[s 12.4] Contract in Unsound intervals

Intoxication can cause unsoundness of mind, which can be so severe that it

impairs a person's capacity to make rational judgments. In the bare acts, refer
to Illustration (b). Furthermore, while the provision recognises that “a person
who is normally of unsound mind may create a contract when he is of sound
mind,” the intoxication should be proved to impact the person's cognitive
capacity at the time the contract is made.6

[s 12.4.1] Evidence and Burden of Proof

Mental ability does not have to be shown exclusively by medical data. It may
be demonstrated that the behaviour was not only inconsistent with the person's
nature, but also could not be reasonably explained. The burden of proof falls
on the individual who relies on insanity, and that person must prove it
sufficiently. The existence or lack of sound mind at the moment of contracting
is an issue of fact. Previous or subsequent mental disorder may not be
significant unless it creates a suspicion of such condition at the time of
contracting. The law demands that there be strict factual proof that the
unsoundness was present at the time the contract was being signed.7

In circumstances where a person if of “sound mind but occasionally unsound

mind,” “The burden of proof is on the party asserting unsoundness to
demonstrate that it existed at the time of the contract”. It must be demonstrated
that the party was sufficiently intoxicated that they were unable to grasp the
5
“Bahadur Singh Chhetri v Bir Bahadur Singh, AIR 1956 Cal 213”.
6
“Yogender Singh v Prem Lata, 2013 SCC OnLine Del 3899”.
7
“Sona Bala Bora v Jyotirindra Bhatacharjee, (2005) 4 SCC 501: [2005] 3 SCR 454.”
meaning and consequences of an agreement in order to prove the plea. The
question of whether a contract is dissolved by unsoundness of mind is
generally determined by the inference to be taken from the evidence, rather
than the belief or disbelief of the witnesses examined in court.8

CONCLUSION

The presence of section 12 in the Indian contract act ,1872 is of significance as

it functions as a protective mechanism for safeguarding the interest of parties
by disregarding the validity of contracts which are made on indiscretion.
Although, it is often found that it is difficult to prove unsoundness or
soundness of mind at any particular instance of time, or that the level of
intoxication had no effect on decision making but, the very presence of this
section gives a sense of having a guardian against such contracts.

8
“Ram Sunder Saha v Kali Narain Sen Choudhury, AIR 1927 Cal 889, 104 IC 527;
Jyotirindra Bhattacharjee v Sona Bala Bora, AIR 2005 Gau 12.”