Setting Aside a Contract Induced by Undue Influence

In one line

Section 19A is the remedy half of undue influence: it makes the contract voidable, and it gives the court a power it has nowhere else in this part of the Act, to set the contract aside on whatever terms are just.

In the words a student can write in an exam: section 19A of the Indian Contract Act 1872 provides that "When consent to an agreement is caused by undue influence, the agreement is a contract voidable at the option of the party whose consent was so caused", and that any such contract "may be set aside either absolutely or, if the party who was entitled to avoid it has received any benefit thereunder, upon such terms and conditions as to the Court may seem just."

Why undue influence has its own section

Section 19 deals with coercion, fraud and misrepresentation, and makes contracts induced by them voidable. Undue influence was originally in that list and was taken out of it: section 19 now reads "coercion, fraud or misrepresentation", with a footnote recording the omission, and section 19A was inserted to deal with undue influence separately.

The reason is the second half of section 19A, which has no counterpart in section 19. Where coercion or fraud is proved, the injured party simply avoids the contract and section 64 requires benefits to be restored. Undue influence is different in a practical way: it typically arises inside a continuing relationship, often a family or a lending relationship, and the party seeking relief has usually received something real, a loan, maintenance, years of care, that cannot simply be handed back.

So the Act gave the court a discretion: it may set the contract aside absolutely, or it may set it aside on terms. That is an equitable power, and it exists so that relief from an unfair bargain does not become a windfall.

The provision itself

"When consent to an agreement is caused by undue influence, the agreement is a contract voidable at the option of the party whose consent was so caused.

Any such contract may be set aside either absolutely or, if the party who was entitled to avoid it has received any benefit thereunder, upon such terms and conditions as to the Court may seem just."

Broken down

First limb: voidable, at one party's option only

1. Voidable, not void. The contract is fully valid until avoided. Obligations under it are live, and a third party who acquires rights for value before avoidance is protected.
2. At the option of the party whose consent was so caused. Only the influenced party may avoid. The dominant party is bound throughout and cannot escape by pointing to his own conduct.
3. The option may be waived. A party who, with knowledge of the facts and free of the influence, affirms the contract, expressly or by conduct such as continuing to take its benefits, loses the right to avoid. Delay after the influence has ceased tells against relief.