Duress
309 Chapter 11: Duress
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Another formation defense is that of duress. The law of duress developed in much the same way as the law of mistake. The early common law judges and lawyers wanted to find a way to hold that no contract had been formed, but they also wanted to avoid appearing to create any new law. So they said that because an offer or an acceptance required free will, a person was not capable of forming a binding contract where the other party had robbed him of his free will by a threat of death, imprisonment, or serious physical injury.
The cases that follow demonstrate that the types of threats that will allow a party to avoid a contract have been expanded rather considerably to include, among other things, the notion of economic duress in the face of no alternative source of supply. The courts, however, still hang on to the old language about free will despite the often corporate nature of the parties, which makes the reference rather quaint.
Austin Instrument, Inc. v. Loral Corp.
Court of Appeals of New York 29 N.Y.2d 124, 324 N.Y.S.2d 22, 272 N.E.2d 533 (1971)
Fuld, Chief Judge.
[1]The defendant, Loral Corporation, seeks to recover payment for goods delivered under a contract which it had with the plaintiff Austin Instrument, Inc., on the ground that the evidence establishes, as a matter of law, that it was forced to agree to an increase in price on the items in question under circumstances amounting to economic duress.
[2]In July of 1965, Loral was awarded a \$6,000,000 contract by the Navy for the production of radar sets. The contract contained a schedule of deliveries, a liquidated damages clause applying to late deliveries and a cancellation clause in case of default by Loral.1 The latter thereupon solicited bids for some 40 precision gear components needed to produce the 310 radar sets, and awarded Austin a subcontract to supply 23 such parts. That party commenced delivery in early 1966.
[3]In May, 1966, Loral was awarded a second Navy contract for the production of more radar sets and again went about soliciting bids. Austin bid on all 40 gear components but, on July 15, a representative from Loral informed Austin's president, Mr. Krauss, that his company would be awarded the subcontract only for those items on which it was low bidder. The Austin officer refused to accept an order for less than all 40 of the gear parts and on the next day he told Loral that Austin would cease deliveries of the parts due under the existing subcontract unless Loral consented to substantial increases in the prices provided for by that agreement---both retroactively for parts already delivered and prospectively on those not yet shipped---and placed with Austin the order for all 40 parts needed under Loral's second Navy contract. Shortly thereafter, Austin did, indeed, stop delivery. After contacting 10 manufacturers of precision gears and finding none who could produce the parts in time to meet its commitments to the Navy,2 Loral acceded to Austin's demands; in a letter dated July 22, Loral wrote to Austin that "We have feverishly surveyed other sources of supply and find that because of the prevailing military exigencies, were they to start from scratch as would have to be the case, they could not even remotely begin to deliver on time to meet the delivery requirements established by the Government . . . Accordingly, we are left with no choice or alternative but to meet your conditions."
[4]Loral thereupon consented to the price increases insisted upon by Austin under the first subcontract and the latter was awarded a second subcontract making it the supplier of all 40 gear parts for Loral's second contract with the Navy. Although Austin was granted until September to resume deliveries, Loral did, in fact, receive parts in August and was able to produce the radar sets in time to meet its commitments to the Navy on both contracts. After Austin's last delivery under the second subcontract in July, 1967, Loral notified it of its intention to seek recovery of the price increases.
[5]On September 15, 1967, Austin instituted this action against Loral to recover an amount in excess of \$17,750 which was still due on the second subcontract. On the same day, Loral commenced an action against Austin claiming damages of some \$22,2503---the aggregate of the price increases under the first subcontract---on the ground of economic duress. The two actions were consolidated and, following a trial, Austin was awarded the sum it requested and Loral's complaint against Austin was dismissed on the ground that it was not shown that "it could not have 311 obtained the items in question from other sources in time to meet its commitment to the Navy under the first contract." A closely divided Appellate Division affirmed (35 A.D.2d 387, 316 N.Y.S.2d 528, 532). There was no material disagreement concerning the facts; as Justice Steuer stated in the course of his dissent below, "(t)he facts are virtually undisputed, nor is there any serious question of law. The difficulty lies in the application of the law to these facts." (35 A.D.2d 392, 316 N.Y.S.2d 534.)
[6]The applicable law is clear and, indeed, is not disputed by the parties. A contract is voidable on the ground of duress when it is established that the party making the claim was forced to agree to it by means of a wrongful threat precluding the exercise of his free will. The existence of economic duress or business compulsion is demonstrated by proof that "immediate possession of needful goods is threatened," Mercury Mach. Importing Corp. v. City of New York, 3 N.Y.2d 418, 425, 165 N.Y.S.2d 517, 520, 144 N.E.2d 400, or more particularly, in cases such as the one before us, by proof that one party to a contract has threatened to breach the agreement by withholding goods unless the other party agrees to some further demand. However, a mere threat by one party to breach the contract by not delivering the required items, though wrongful, does not in itself constitute economic duress. It must also appear that the threatened party could not obtain the goods from another source of supply and that the ordinary remedy of an action for breach of contract would not be adequate.
[7]We find without any support in the record the conclusion reached by the courts below that Loral failed to establish that it was the victim of economic duress. On the contrary, the evidence makes out a classic case, as a matter of law, of such duress.
[8]It is manifest that Austin's threat---to stop deliveries unless the prices were increased---deprived Loral of its free will. As bearing on this, Loral's relationship with the Government is most significant. As mentioned above, its contract called for staggered monthly deliveries of the radar sets, with clauses calling for liquidated damages and possible cancellation on default. Because of its production schedule, Loral was, in July, 1966, concerned with meeting its delivery requirements in September, October and November, and it was for the sets to be delivered in those months that the withheld gears were needed. Loral had to plan ahead, and the substantial liquidated damages for which it would be liable, plus the threat of default, were genuine possibilities. Moreover, Loral did a substantial portion of its business with the Government, and it feared that a failure to deliver as agreed upon would jeopardize its chances for future contracts. These genuine concerns do not merit the label "self-imposed, undisclosed and subjective" which the Appellate Division majority placed upon them. It was perfectly reasonable for Loral, or any other party similarly placed, to consider itself in an emergency, duress situation. 312 [9]Austin, however, claims that the fact that Loral extended its time to resume deliveries until September negates its alleged dire need for the parts. A Loral official testified on this point that Austin's president told him he could deliver some parts in August and that the extension of deliveries was a formality. In any event, the parts necessary for production of the radar sets to be delivered in September were delivered to Loral on September 1, and the parts needed for the October schedule were delivered in late August and early September. Even so, Loral had to "work . . . around the clock" to meet its commitments. Considering that the best offer Loral received from the other vendors it contacted was commencement of delivery sometime in October, which, as the record shows, would have made it late in its deliveries to the Navy in both September and October, Loral's claim that it had no choice but to accede to Austin's demands is conclusively demonstrated.
[10]We find unconvincing Austin's contention that Loral, in order to meet its burden, should have contacted the Government and asked for an extension of its delivery dates so as to enable it to purchase the parts from another vendor. Aside from the consideration that Loral was anxious to perform well in the Government's eyes, it could not be sure when it would obtain enough parts from a substitute vendor to meet its commitments. The only promise which it received from the companies it contacted was for commencement of deliveries, not full supply, and, with vendor delay common in this field, it would have been nearly impossible to know the length of the extension it should request. It must be remembered that Loral was producing a needed item of military hardware. Moreover, there is authority for Loral's position that nonperformance by a subcontractor is not an excuse for default in the main contract. In light of all this, Loral's claim should not be held insufficiently supported because it did not request an extension from the Government.
[11]Loral, as indicated above, also had the burden of demonstrating that it could not obtain the parts elsewhere within a reasonable time, and there can be no doubt that it met this burden. The 10 manufacturers whom Loral contacted comprised its entire list of "approved vendors" for precision gears, and none was able to commence delivery soon enough.4 As Loral was producing a highly sophisticated item of military machinery requiring parts made to the strictest engineering standards, it would be unreasonable to hold that Loral should have gone to other vendors, with whom it was either unfamiliar or dissatisfied, to procure the needed parts. As Justice Steuer noted in his dissent, Loral "contacted all the manufacturers whom it believed capable of making these parts," 35 A.D.2d at 393, 316 N.Y.S.2d at 534, and this was all the law requires.
313 [12]It is hardly necessary to add that Loral's normal legal remedy of accepting Austin's breach of the contract and then suing for damages would have been inadequate under the circumstances, as Loral would still have had to obtain the gears elsewhere with all the concomitant consequences mentioned above. In other words, Loral actually had no choice, when the prices were raised by Austin, except to take the gears at the "coerced" prices and then sue to get the excess back.
[13]Austin's final argument is that Loral, even if it did enter into the contract under duress, lost any rights it had to a refund of money by waiting until July, 1967, long after the termination date of the contract, to disaffirm it. It is true that one who would recover moneys allegedly paid under duress must act promptly to make his claim known. In this case, Loral delayed making its demand for a refund until three days after Austin's last delivery on the second subcontract. Loral's reason---for waiting until that time---is that it feared another stoppage of deliveries which would again put it in an untenable situation. Considering Austin's conduct in the past, this was perfectly reasonable, as the possibility of an application by Austin of further business compulsion still existed until all of the parts were delivered.
[14]In sum, the record before us demonstrates that Loral agreed to the price increases in consequence of the economic duress employed by Austin. Accordingly, the matter should be remanded to the trial court for a computation of its damages.
[15]The order appealed from should be modified, with costs, by reversing so much thereof as affirms the dismissal of defendant Loral Corporation's claim and, except as so modified, affirmed.
[The dissenting opinion of Judge Bergan is omitted.---Eds.]
Notes
1.In paragraph 3 the court quotes from Loral's letter of July 22. Review that quoted language. This letter is a perfect example of good lawyering behind the scenes to create a factual record for later litigation. The letter, and the response it elicited, serves as evidence to prove the second main element of economic duress: no alternative source of supply and a need to accede to the wrongful demand.
2.One of the jobs of a lawyer handling a transaction is to shape the parties' relationship and create a record of events for later litigation should that relationship deteriorate. Not only is this useful when it comes to litigation, but being prepared to litigate can actually help avoid litigation: the other side may sense this preparedness and evaluate the weaknesses in its own position accordingly. Thus, as in rock climbing, counsel should mind the ascent and be forward looking while all the while creating a useful record and preparing to "fall correctly" if falling becomes necessary.
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Totem Marine Tug & Barge, Inc. v. Alyeska Pipeline Service Co.
Supreme Court of Alaska 584 P.2d 15 (1978)
Burke, Justice.
[1]This appeal arises from the superior court's granting of summary judgment in favor of defendants-appellees Alyeska Pipeline Services, et al., in a contract action brought by plaintiffs-appellants Totem Marine Tug & Barge, Inc., Pacific, Inc., and Richard Stair.
[2]The following summary of events is derived from the materials submitted in the summary judgment proceedings below.
[3]Totem is a closely held Alaska corporation which began operations in March of 1975. Richard Stair, at all times relevant to this case, was vice-president of Totem. In June of 1975, Totem entered into a contract with Alyeska under which Totem was to transport pipeline construction materials from Houston, Texas, to a designated port in southern Alaska, with the possibility of one or two cargo stops along the way. In order to carry out this contract, which was Totem's first, Totem chartered a barge (the "Marine Flasher") and an ocean-going tug (the "Kirt Chouest"). These charters and other initial operations costs were made possible by loans to Totem from Richard Stair individually and Pacific, Inc., a corporation of which Stair was principal stockholder and officer, as well as by guarantees by Stair and Pacific.
[4]By the terms of the contract, Totem was to have completed performance by approximately August 15, 1975. From the start, however, there were numerous problems which impeded Totem's performance of the contract. For example, according to Totem, Alyeska represented that approximately 1,800 to 2,100 tons of regular uncoated pipe were to be loaded in Houston, and that perhaps another 6,000 or 7,000 tons of materials would be put on the barge at later stops along the west coast. Upon the arrival of the tug and barge in Houston, however, Totem found that about 6,700 to 7,200 tons of coated pipe, steel beams and valves, haphazardly and improperly piled, were in the yard to be loaded. This situation called for remodeling of the barge and extra cranes and stevedores, and resulted in the loading taking thirty days rather than the three days which Totem had anticipated it would take to load 2,000 tons. The lengthy loading period was also caused in part by Alyeska's delay in assuring Totem that it would pay for the additional expenses, bad weather and other administrative problems. 315 [5]The difficulties continued after the tug and barge left Houston. It soon became apparent that the vessels were traveling more slowly than anticipated because of the extra load. In response to Alyeska's complaints and with its verbal consent, on August 13, 1975, Totem chartered a second tug, the "N. Joseph Guidry." When the "Guidry" reached the Panama Canal, however, Alyeska had not yet furnished the written amendment to the parties' contract. Afraid that Alyeska would not agree to cover the cost of the second tug, Stair notified the "Guidry" not to go through the Canal. After some discussions in which Alyeska complained of the delays and accused Totem of lying about the horsepower of the first tug, Alyeska executed the amendment on August 21, 1975.
[6]By this time the "Guidry" had lost its preferred passage through the Canal and had to wait two or three additional days before it could go through. Upon finally meeting, the three vessels encountered the tail of a hurricane which lasted for about eight or nine days and which substantially impeded their progress.
[7]The three vessels finally arrived in the vicinity of San Pedro, California, where Totem planned to change crews and refuel. On Alyeska's orders, however, the vessels instead pulled into port at Long Beach, California. At this point, Alyeska's agents commenced off-loading the barge, without Totem's consent, without the necessary load survey, and without a marine survey, the absence of which voided Totem's insurance. After much wrangling and some concessions by Alyeska, the freight was off-loaded. Thereafter, on or about September 14, 1975, Alyeska terminated the contract. Although there was talk by an Alyeska official of reinstating the contract, the termination was affirmed a few days later at a meeting at which Alyeska officials refused to give a reason for the termination.
[8]Following termination of the contract, Totem submitted termination invoices to Alyeska and began pressing the latter for payment. The invoices came to something between \$260,000 and \$300,000. An official from Alyeska told Totem that they would look over the invoices but that they were not sure when payment would be made perhaps in a day or perhaps in six to eight months. Totem was in urgent need of cash as the invoices represented debts which the company had incurred on 10--30 day payment schedules. Totem's creditors were demanding payment and according to Stair, without immediate cash, Totem would go bankrupt. Totem then turned over the collection to its attorney, Roy Bell, directing him to advise Alyeska of Totem's financial straits. Thereafter, Bell met with Alyeska officials in Seattle, and after some negotiations, Totem received a settlement offer from Alyeska for \$97,500. On November 6, 1975, Totem, through its president Stair, signed an agreement releasing Alyeska from all claims by Totem in exchange for \$97,500.
316 [9]Five months later, on March 26, 1976, Totem, Richard Stair, and Pacific filed a complaint against Alyeska, which was subsequently amended. In the amended complaint, the plaintiffs sought to rescind the settlement and release on the ground of economic duress and to recover the balance allegedly due on the original contract. In addition, they alleged that Alyeska had wrongfully terminated the contract and sought miscellaneous other compensatory and punitive damages.
[10]Before filing an answer, Alyeska moved for summary judgment against the plaintiffs on the ground that Totem had executed a binding release of all claims against Alyeska and that as a matter of law, Totem could not prevail on its claim of economic duress. In opposition, plaintiffs contended that the purported release was executed under duress in that Alyeska wrongfully terminated the contract; that Alyeska knew that Totem was faced with large debts and impending bankruptcy; that Alyeska withheld funds admittedly owed knowing the effect this would have on plaintiffs and that plaintiffs had no alternative but to involuntarily accept the \$97,500 in order to avoid bankruptcy. Plaintiffs maintained that they had thus raised genuine issues of material fact such that trial was necessary, and that Alyeska was not entitled to judgment as a matter of law. Alyeska disputed the plaintiffs' assertions.
[11]On November 30, 1976, the superior court granted the defendant's motion for summary judgment. This appeal followed. [We reverse.---Eds.]
* * *
[12][A] court's initial task in deciding motions for summary judgment is to determine whether there exist genuine issues of material fact. In order to decide whether such issues exist in this case, we must examine the doctrine allowing avoidance of a release on grounds of economic duress.
[13]This court has not yet decided a case involving a claim of economic duress or what is also called business compulsion. At early common law, a contract could be avoided on the ground of duress only if a party could show that the agreement was entered into for fear of loss of life or limb, mayhem or imprisonment. The threat had to be such as to overcome the will of a person of ordinary firmness and courage. Subsequently, however, the concept has been broadened to include myriad forms of economic coercion which force a person to involuntarily enter into a particular transaction. The test has come to be whether the will of the person induced by the threat was overcome rather than that of a reasonably firm person.
[14]At the outset it is helpful to acknowledge the various policy considerations which are involved in cases involving economic duress. Typically, those claiming such coercion are attempting to avoid the consequences of a modification of an original contract or of a settlement and release agreement. On the one hand, courts are reluctant to set aside 317 agreements because of the notion of freedom of contract and because of the desirability of having private dispute resolutions be final. On the other hand, there is an increasing recognition of the law's role in correcting inequitable or unequal exchanges between parties of disproportionate bargaining power and a greater willingness to not enforce agreements which were entered into under coercive circumstances.
[15]There are various statements of what constitutes economic duress, but as noted by one commentator, "The history of generalization in this field offers no great encouragement for those who seek to summarize results in any single formula." Dawson, Economic Duress An Essay in Perspective, 45 Mich.L.Rev. 253, 289 (1947). Section 492(b) of the Restatement of Contracts defines duress as:
any wrongful threat of one person by words or other conduct that induces another to enter into a transaction under the influence of such fear as precludes him from exercising free will and judgment, if the threat was intended or should reasonably have been expected to operate as an inducement.
[16]Professor Williston states the basic elements of economic duress in the following manner:
1.The party alleging economic duress must show that he has been the victim of a wrongful or unlawful act or threat, and
2.Such act or threat must be one which deprives the victim of his unfettered will. 13 Williston on Contracts, § 1617 at 704 (footnotes omitted).
[17]Many courts state the test somewhat differently, eliminating use of the vague term "free will," but retaining the same basic idea. Under this standard, duress exists where: (1) one party involuntarily accepted the terms of another, (2) circumstances permitted no other alternative, and (3) such circumstances were the result of coercive acts of the other party.
The third element is further explained as follows:
In order to substantiate the allegation of economic duress or business compulsion, the plaintiff must go beyond the mere showing of reluctance to accept and of financial embarrassment. There must be a showing of acts on the part of the defendant which produced these two factors. The assertion of duress must be proven by evidence that the duress resulted from defendant's wrongful and oppressive conduct and not by the plaintiff's necessities.
W. R. Grimshaw Co., supra, 248 F.2d at 904.
[18]As the above indicates, one essential element of economic duress is that the plaintiff show that the other party by wrongful acts or threats, 318 intentionally caused him to involuntarily enter into a particular transaction. Courts have not attempted to define exactly what constitutes a wrongful or coercive act, as wrongfulness depends on the particular facts in each case. This requirement may be satisfied where the alleged wrongdoer's conduct is criminal or tortious but an act or threat may also be considered wrongful if it is wrongful in the moral sense. Restatement of Contracts, § 492, comment (g); Gerber v. First National Bank of Lincolnwood, 30 Ill.App.3d 776, 332 N.E.2d 615, 618 (1975); Fowler v. Mumford, 48 Del. 282, 9 Terry 282, 102 A.2d 535, 538 (Del. Super. 1954).
[19]In many cases, a threat to breach a contract or to withhold payment of an admitted debt has constituted a wrongful act. Implicit in such cases is the additional requirement that the threat to breach the contract or withhold payment be done in bad faith.
[20]Economic duress does not exist, however, merely because a person has been the victim of a wrongful act; in addition, the victim must have no choice but to agree to the other party's terms or face serious financial hardship. Thus, in order to avoid a contract, a party must also show that he had no reasonable alternative to agreeing to the other party's terms, or, as it is often stated, that he had no adequate remedy if the threat were to be carried out. What constitutes a reasonable alternative is a question of fact, depending on the circumstances of each case. An available legal remedy, such as an action for breach of contract, may provide such an alternative. Where one party wrongfully threatens to withhold goods, services or money from another unless certain demands are met, the availability on the market of similar goods and services or of other sources of funds may also provide an alternative to succumbing to the coercing party's demands. Generally, it has been said that "(t)he adequacy of the remedy is to be tested by a practical standard which takes into consideration the exigencies of the situation in which the alleged victim finds himself." Ross Systems, 173 A.2d at 262.
[21]An available alternative or remedy may not be adequate where the delay involved in pursuing that remedy would cause immediate and irreparable loss to one's economic or business interest. For example, in Austin Instrument, supra, and Gallagher Switchboard Corp. v. Heckler Electric Co., 36 Misc.2d 225, 232 N.Y.S.2d 590 (N.Y. Sup. Ct. 1962), duress was found in the following circumstances: A subcontractor threatened to refuse further delivery under a contract unless the contractor agreed to modify the existing contract between the parties. The contractor was unable to obtain the necessary materials elsewhere without delay, and if it did not have the materials promptly, it would have been in default on its main contract with the government. In each case such default would have had grave economic consequences for the contractor and hence it agreed to the modifications. In both, the courts found that the alternatives to agreeing to the modification were inadequate (i.e., suing for breach of 319 contract or obtaining the materials elsewhere) and that modifications therefore were signed under duress and voidable.
[22]Professor Dalzell, in Duress By Economic Pressure II, 20 N. Carolina L. Rev. 340, 370 (1942), notes the following with regard to the adequacy of legal remedies where one party refuses to pay a contract claim:
Nowadays, a wait of even a few weeks in collecting on a contract claim is sometimes serious or fatal for an enterprise at a crisis in its history. The business of a creditor in financial straits is at the mercy of an unscrupulous debtor, who need only suggest that if the creditor does not care to settle on the debtor's own hard terms, he can sue. This situation, in which promptness in payment is vastly more important than even approximate justice in the settlement terms, is too common in modern business relations to be ignored by society and the courts.
[23]This view finds support in Capps v. Georgia Pacific Corporation, 253 Or. 248, 453 P.2d 935 (1969). There, the plaintiff was owed \$157,000 as a commission for finding a lessee for defendant's property but in exchange for \$5,000, the plaintiff signed a release of his claim against defendant. The plaintiff sued for the balance of the commission, alleging that the release had been executed under duress. His complaint, however, was dismissed. On appeal, the court held that the plaintiff had stated a claim where he alleged that he had accepted the grossly inadequate sum because he was in danger of immediately losing his home by mortgage foreclosure and other property by foreclosure and repossession if he did not obtain immediate funds from the defendant. One basis for its holding was found in the following quote by a leading commentator in the area of economic duress:
The most that can be claimed (regarding the law of economic duress) is that change has been broadly toward acceptance of a general conclusion that in the absence of specific countervailing factors of policy or administrative feasibility, restitution is required of any excessive gain that results, in a bargain transaction, from impaired bargaining power, whether the impairment consists of economic necessity, mental or physical disability, or a wide disparity in knowledge or experience.
Dawson, Economic Duress---An Essay In Perspective, 45 Mich. L. Rev. 253, 289 (1947).
[24]Turning to the instant case, we believe that Totem's allegations, if proved, would support a finding that it executed a release of its contract claims against Alyeska under economic duress. Totem has alleged that Alyeska deliberately withheld payment of an acknowledged debt, knowing that Totem had no choice but to accept an inadequate sum in settlement of that debt; that Totem was faced with impending bankruptcy; that Totem 320 was unable to meet its pressing debts other than by accepting the immediate cash payment offered by Alyeska; and that through necessity, Totem thus involuntarily accepted an inadequate settlement offer from Alyeska and executed a release of all claims under the contract. If the release was in fact executed under these circumstances,5 we think that under the legal principles discussed above that this would constitute the type of wrongful conduct and lack of alternatives that would render the release voidable by Totem on the ground of economic duress. We would add that although Totem need not necessarily prove its allegation that Alyeska's termination of the contract was wrongful in order to sustain a claim of economic duress, the events leading to the termination would be probative as to whether Alyeska exerted any wrongful pressure on Totem and whether Alyeska wrongfully withheld payment from Totem.6
REVERSED and REMANDED.
Notes and Questions
1.The R2d §§ 175 and 176 state the modern law of duress, stripped of all the old common law baggage. Be sure to analyze these two cases under these rules. Would the results be the same?
2.The UNIDROIT principles cover duress in articles 3.9 (threat) and 3.10 (gross disparity). How do these standards differ from those of the R2d? Be sure to analyze these two cases under the principles, too.
3.Could the Alaska Packers case from Chapter 7 (on pre-existing duty) have been decided as a duress case? If so, does that take away from the policy argument in favor of the pre-existing duty rule?
4.If Alaska Packers and these economic duress cases were decided under the U.C.C. (no pre-existing duty rule but the modification must be in good faith), is there any need for the defense of economic duress? Isn't lack of good faith a lesser, necessarily included standard within economic duress?
Problem 11-1
Mary Inventor developed a new program for screening e-mail to eliminate spam. She got a federally-guaranteed loan from Bank to market the program. Her marketing effort encountered considerable resistance at first, but early in 321 2010 it took off and it began to look as if her product would be a major success. Unfortunately, the government guarantee expired in June 2010, and her loan came due at that time. Bank refused to renew the loan and demanded payment. Ms. Inventor tried a number of other lending institutions, but none of them was willing to lend her the money she needed to pay off the loan from Bank and to continue her marketing efforts because she had neither collateral nor a track record. The only person who would give her the money she needed was Shark, who demanded a 51% percent ownership interest in the business as compensation for the "risk" he was taking. Ms. Inventor reluctantly agreed to the deal Shark proposed. Now the business is doing well and Ms. Inventor has come to you to ask if you can help her "get back all that Shark has pressured me out of."
(a)Will the doctrine of duress help her case under the approach of the R2d? Under the UNIDROIT principles?
(b)Does she have a claim against Bank or only against Shark?
Problem 11-2
In 1917, the United States entered World War I. At that time German submarines were inflicting heavy losses on ships crossing the Atlantic. The need to get American troops and supplies to Europe made it imperative for the United States government to get a large number of ships built in the shortest possible time. The government approached the nation's largest shipbuilder and was told that the shipbuilder would build ships for the government only if it was compensated under a plan that provided (i) the shipbuilder was paid the cost of construction plus an additional percentage of cost as its profit, (ii) if the actual cost of construction of any ship was greater than the estimated cost, the government paid the actual cost plus the profit percentage based on the actual cost, (iii) if the actual cost was less than the estimated cost, the shipbuilder got its profit computed on the estimated cost plus it got half the difference between the actual cost and the estimated cost as a bonus for saving the government money, and (iv) the shipbuilder got to estimate the costs all by itself. The government agreed to the contract, and when the shipbuilder made a claim for its enormous profit, the government claimed the defense of duress.
How should the court decide the case under the approach of the R2d? Under the UNIDROIT principles?
Lawyering Skills Problem
You are general counsel for an insurance company (again). The company's standard-form release to be signed by people whom the company has compensated for injuries allegedly caused by its insured reads:
Releasor hereby releases, acquits and forever discharges Releasee and any other persons and entities of and from any and all actions, causes of action, claims, demands, damages, costs, loss of services, expenses and compensation on account of or in any way growing out 322 of any and all known and unknown personal injuries resulting or to result from the accident that occurred on or about [date and time], at or about [location].
In spite of the language of the release, you are worried that there are some courts that might hold that it does NOT release claims for injuries, known or unknown, based on the doctrine of duress.
You have been asked to re-write the release to make it more likely that courts will enforce the release as written and reject any duress challenge to it. Explain what you would do. Specific examples of how you would redraft it are preferred.
NOTE: Don't worry about the California Civil Code section discussed earlier in the book. You will have local counsel draft a California-specific release. You will also, of course, have a law clerk do research to see if there are other states that have unusual requirements. But your job here is just to draft a basic release that will do the job in the ordinary run-of-the-mill state.
1[A liquidated damages clause provides that if there is a breach, the breaching party will pay a specific ("liquidated") amount in damages. Liquidated damages are covered in Chapter 21.---Eds.]
2The best reply Loral received was from a vendor who stated he could commence deliveries sometime in October.
3[\$22,250 in 1971 dollars is roughly the equivalent of \$138,000 in 2019 dollars using the CPI and the GNP Deflator.---Eds.]
4Loral, as do many manufacturers, maintains a list of "approved vendors," that is, vendors whose products, facilities, techniques and performance have been inspected and found satisfactory.
5By way of clarification, we would note that Totem would not have to prove that Alyeska admitted to owing the precise sum Totem claimed it was owed upon termination of the contract but only that Alyeska acknowledged that it owed Totem approximately that amount which Totem sought.
6We make no comment as to whether Alyeska's termination of the contract was wrongful nor as to the truth of Totem's other allegations.