Which principle states that both parties to a contract must be in a sound mental state?

The principle that states both parties to a contract must be in a sound mental state is known as legal capacity. This principle requires that individuals entering into a contract have the mental ability to understand the terms and implications of the agreement. Legal capacity ensures that parties are not mentally incapacitated due to various reasons, such as mental illness, intoxication, or being a minor, which could impair their ability to make informed decisions. When both parties meet the criteria of legal capacity, they can enter into binding contracts that are enforceable in a court of law. This foundation is crucial in maintaining fairness and legality in contractual agreements.

Informed consent pertains to the understanding and agreement of terms, often used in medical and legal contexts, while competency generally refers to the ability to make sound decisions in various situations but is a broader term that does not just relate to contracts. Duty of care describes a legal or moral obligation to ensure the safety and well-being of others, typically relevant in contexts of negligence rather than contractual agreements.