According to Section 12: 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 judgment 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.”
Illustration: (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 judgment as to its effect on his interests, cannot contract whilst such delirium or drunkenness lasts.
In Inder Singh V. Parmeshwardhari Singh (AIR 1957 Pat 491), a property worth about Rs. 25,000 was agreed to e sold by a person for Rs. 7,000 only. His mother proved that he was a born idiot incapable of understanding the transaction. The court held sale to be void. The Court observed: “According to Sec. 12, the person entering into a contract must be person who understands what he is doing and is able to from a rational judgment as to whether what he is about to do is to his interest or not. The crucial point, therefore, is to find out whether he is entering into the contract after he has understood it and in regard to his interest… It does not necessarily mean that a man must be suffering from lunacy to disable him from entering into a contract. A person may behave in a normal fashion, but at the same time, he may be incapable f forming a judgment of his own… In the present case (he) was incapable of exercising his own judgment.”
Illustration (b): to Section 12 shows that a delirious or drunken person is in the same category as a person of unsound mind.
Under English law, a person of unsound mind is competent to contract, although he may avoid his contract if he satisfies the court that he was incapable of understanding the contract and the other party knew it. The contract is voidable at his option.
An agreement by a person of unsound mind is absolutely void as against him but he can derive benefit under it. Further, the property of an insane person is always liable for necessaries supplied to him or to any one whom he is legally bound to support..