Section 12 of ICA : Section 12: What Is A Sound Mind For The Purposes Of Contracting

Explanation using Example

Imagine that Alice, who has been diagnosed with bipolar disorder, experiences periods of both sound and unsound mind. During a phase when Alice is clear-headed and can understand the consequences of her actions, she decides to sell her car and enters into a contract with Bob. Since Alice is capable of understanding the contract's terms and its impact on her interests at that time, the contract is valid according to Section 12 of The Indian Contract Act, 1872.

However, consider another scenario where Charlie, a normally rational individual, goes out drinking and becomes heavily intoxicated. While in this state, he agrees to sell his expensive watch to Dave for a fraction of its value. As Charlie is unable to comprehend the contract's terms or judge its effect on his interests due to his drunkenness, the contract would not be enforceable under the same law until he regains his sobriety and can make a sound decision.