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Economic Duress & Undue Influence
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Economic Duress & Undue Influence
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Economic Duress and Undue InfluenceVitiating Factors
Factor affecting at least one party’s consent to contract.
May render contract void or voidable.
Void vs Voidable
If a contract is void, parties will be treated as if they had never made a contract.
If a contract is voidable. Affected party can rescind contract, subject to certain bars.
Bars to rescission applying to all vitiating factors taught under misrepresentation.
Duress and Undue Influence
A party may have entered a contract under threat or undue pressure.
Two doctrines permit such a party to have a contract set aside (rescission):
Duress (common law) – threat to person, property or financial interests.
Undue influence (equity) – usually more subtle pressure.
Rescission on ground of undue influence may be possible even where pressure came
from third party.
Elements of Economic Duress
Illegitimate threat or pressure.
Victim had no real practical choice but to agree.
Threat or pressure induced victim to contract.
Victim protested at time of contract or shortly thereafter.
Duress – Development
Duress to person used to be the only form of duress that permitted rescission.
Barton v Armstrong (1975).
Barton and Armstrong were major company shareholders.
Following a meeting, it was agreed that Barton would buy Armstrong’s interest.
Barton and Armstrong had an agreement drawn up and it was executed.
Barton then brought an action against Armstrong claiming that he was coerced into
buying Armstrong’s share and that Armstrong had threatened to have him murdered
if he did not buy it. Barton also alleged that Armstrong also exerted unlawful
pressure over him, which Barton claimed made the terms of the agreement
voidable.
Whether Barton was in fact coerced or whether he signed the agreement out of
commercial necessity and the coercion amounted to an ancillary motive. In either
event, whether the agreement was voidable.
The appeal by Barton was allowed. It was held that the equitable rule allowed for
any agreement that was as a result of some duress and fraudulent misrepresentation
, (in that all parties were consenting), did enable the agreement to be set aside and
considered voidable.
Further, even if the agreement was signed firstly out of commercial necessity, the
fact that coercion had occurred made the agreement void as any duress was likely to
have an effect on a party, forcing them to sign. It was for Armstrong to prove that
there was no unlawful pressure or duress which coerced Barton into signing the
contract.
He was entitled to relief even if there were no threats coercing him to sign the
contract.
Doctrine was extended to cover also duress to property.
Astley v Reynolds (1731).
Money was paid under duress of goods, the availability of a legal remedy didn’t
prevent the court from reaching a conclusion that the payment was caused by
illegitimate pressure.
In 1960s, courts started to check fairness of economic pressure leading to contract.
D & C Builders v Rees (1966).
The builders sought payment from Rees for building work done and materials
supplied in respect of alterations and repairs completed on Rees’ shop.
Rees did not pay, but the work continued and a second bill was issued. Builders
started to have financial difficulties so requested the funds again.
Rees offered Builders a reduced lump sum in payment of the debt and stated that if
it was not accepted, they would get nothing. A cheque was issued after Builders
feared they would receive no payment at all and Rees provided a receipt stating the
funds were in full payment of the account.
Builders brought action for the balance and Rees filed a defence stating that the
work was defective and that Builders had entered into a binding agreement.
The appeal by Rees was dismissed. The agreement was invalid as there was no
consideration in favour of Builders for reducing the value of the amount owing by
Rees.
Builders had been under duress to accept a reduced amount due to their financial
position which Rees was aware of and took advantage of. An acceptance arising from
a threat does not amount to a settlement.
Lord Denning MR – no promissory estoppel because of unfair pressure.
Doctrine of economic duress emerged.
Economic Duress
, Idea that threat to financial interests may permit rescission was first canvassed by
Kerr LJ in The Sibeon and The Sibotre.
Common situation raising possibility of duress is threat of breach of contract unless
contract is renegotiated.
But duress must not be found too easily.
In the past, some contract changes could be resisted on the ground of lack of
consideration.
Atlas Express v Kafco (Importers and Distributors) Ltd (1989).
The Kafco imported basket ware and entered a contract with Atlas to sell and deliver
baskets to Atlas retail stores.
Atlas tried to negotiate a further term in the contract for a minimum order of £440
per trailer load.
Several days later, an Atlas representative turned up to Kafco’s premises with an
empty trailer and told Kafco that if the trailer was not returned with £440 worth of
goods as the new minimum, the trailer would be driven away unloaded.
Kafco reasonably believed they would be unable to negotiate further terms of the
contract and thereby sabotaging their opportunity to trade with Atlas, so they felt
compelled to sign the agreement and meet the new terms of minimum stock trade.
The agreement continued until Kafco sent them money on account and a letter
stating they had signed the contract under duress. Atlas sued for the money on
account.
Whether Kafco signed in duress, even though they had honored the contract.
Judgment was awarded in favour of Kafco. Kafco were found to have signed the
agreement under economic duress as they felt that in the circumstances they had no
alternative but to sign the varied contract.
Kafco had not approved the new terms of the agreement (as they had previously
rejected the proposed variation) and further, there was no consideration for the new
agreement as the variation placed Kafco in a less favourable position financially.
Thus, their non-payment of the money of account resulted from the duress.
But this is now more difficult:
Williams v Roffey Bros & Nicholls (Contractors) Ltd (1991).
The appellants Roffey Bros, were builders who were contracted to refurbish 27 flats
belonging to a housing corporation. The contract had a penalty clause for late
completion.
The appellants subcontracted some work to Williams, a carpenter. When Williams
fell behind with his work the appellants offered him bonus payment to finish on
time. Williams carried on working until the payments stopped.
He sued the appellants for breach of contract.
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