The sound mind of a person is a necessary element for the capacity of contract. As minor person, person of unsound mind is also regarded as incapable or incompetent to contract and if such person makes any contract that is void. It means the party of contract must have sound mind to create valid contract.

The sound mind means normal condition of mind by which the person can understand the nature and consequence of his action. If person looses soundness of mind he does not differentiate wrong and right of his work. Due to the unsoundness of mind of such persons, they are prevents by law from being treated as incapable to enter in to a contract.

Although Section 3(b) of Nepal Contract Act, 2056 has made a provision that a person of unsound mind is incompetent to make contract but it has not defined the term "unsound mind of person." The Indian Contract Act, 1872 has clearly defined the term "sound mind of person." According to Section 12 of Indian Contract Act, 1872 a person is said to be of sound mind; for the purpose of making a contract, if at a time when he makes it, his capable of understanding it and of forming a rational judgment as to its effect upon his interest.

 On the basis of this definition it is clear that a person, having a capacity to understand the terms of the contract and ability to form a rational judgment, is a person of sound mind. The unsoundness of mind may arise from idiocy, lunacy or insanity as well as drunkenness and slow pace of mind. A person with mental illness, dumb, extreme age and blind people are also fall under the category of the persons of unsound mind.

A person, who is usually of unsound mind, but occasionally of sound mind, may make contract when he is of sound mind. Similarly, a person, who is usually of sound mind but occasionally of unsound mind, may not make a contract when he is of unsound mind. Basically, unsoundness is caused by idiocy, (permanent insanity) lunacy or insanity, (temporarily sound and temporarily unsound) drunkness, (unsound up to effect of drinks) hypnotism (unsound for certain span of time because of another's tactics) and mental decay (incompetence caused by old age or over excitement of other physical defects).

The guardian of the unsound mind can make contract on behalf of such person. Similarly, the contract relating to necessaries supplies with a person of an unsound mind is taken as a valid one and supplier can claim his amount from the property of such person. Unsoundness causes the free consent or reasonability of promise.


  Effects of Contract with unsound minded person

  • Generally, the position of contract with a person of unsound mined is similar with a minor. A contract made with person of unsound mind is void and is not enforceable; however, a contract made for the interest or benefit of such person is valid and enforceable by law.
  • The guardian of unsound minded person can make contract with other person for the interest or benefit of such person.  Sec. 3(3) of NCA 2056
  • In case of necessaries supplied to such person or any his dependents is deemed to have been enforceable. Sec.11(a) of NCA 2056