One of the essential conditions of competency of parties to a contract is that they should be of sound mind. at the time when he makes it. he is capable of understanding it & of forming a rational judgement. ‡ Section 12 reads as follows : ‡ ³A person is said to be of sound mind for the purpose of making a contract if. ´ .

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

‡ Soundness of mind of a person depends on 2 facts ‡ (i) his capacity to understand the contracts of business concerned. . ‡ (ii) his ability to form a rational judgement.

may contract during those intervals.‡ eg. . who is at intervals of sound mind. A patient in a lunatic asylum.

‡ Contracts of persons of unsound mind .

He can enter into contracts during the period when he is of sound mind. He suffers from intermittent intervals of sanity and insanity.LUNATICS ‡ A lunatic is a person who is mentally deraged due to some mental strain or other personal experience. .



‡ Idiocy is permanent whereas lunacy denotes periodical insanity. He does not exhibit understanding of even ordinary matters. ‡ An agreement of an idiot.IDIOTS ‡ An idiot is a person who has completely lost his mental powers. is void. like that of a minor. .


.DRUNKEN PERSON ‡ A drunken or intoxicated person suffers from temporarily incapacity to contract i. ‡ The position of drunken or intoxicated person is similar to that of a lunatic.e. at the time when he is so drunk that he is incapable of forming a rational judgement.


He may be : ‡ (a) An alien friend ‡ (b) An alien enemy .OTHER PERSONS ‡ ALIEN ENEMIES ‡ An alien is a person who is not a subject of Republic of India.

‡ Contracts with an alien enemy may be studied under 2 heads: ‡ (i) contracts during the war ‡ (ii) contacts made before the war . are valid. subject to certain conditions.‡ Contracts with an alien friend.

‡ (i) During the war an Indian citizen cannot enter into a contract with an alien enemy. ‡ (ii) Contracts made before the war may either be suspended or dissolved. . They will be dissolved if they are against the public policy or if their performance would benefit the enemy. He can do so only after he receives a license from Central Govt.

But they cannot be sued in our courts without the prior sanction of the Central Govt.FOREIGN SOVEREIGNS AND REPRESENTATIVES OF A FOREIGN STATE ‡ They can enter into contracts & enforce these contracts in our Courts. .

1956. As regards a company registered under the Companies Act.CORPORATIONS ‡ The contractual capacity of a statutory corporation is limited by the statute governing it. . 1956 its contractual capacity is regulated by its Memorandum of Association & Companies Act.

INSOLVENTS ‡ When a debtor is adjudged insolvent he is deprived of his power to deal in his property. . It is only the Official Receiver or Official Assignee who can enter into contracts relating to his property & sue & to be sued on his behalf.

or to sue on a contract.CONVICTS ‡ A convict when undergoing imprisonment is incapable of entering into a contract. comes to an end when the period of sentence expires or when he is pardoned. This incapacity to contract. .