Often times, the court would not enforce a contract if it was made under duress. Traditionally, this meant that the party would be under the threat (or actually having) physical harm. This broadened slightly with the undue influence standard. However, the standard was still limited to those with close relationships (such as family members or beneficiaries of trusts).
Now, the courts have expanded these principles. Duress now applies to property and economic duress. Undue Influence has expanded outside of confidential relationships.
Totem Marine Tug & Barge, Inc. v. Alyeska Pipeline Service Co.
584 P.2d 15 (Alaska 1978).
Totem is the plaintiff. They lost and appealed.
Question
Is economic duress recognized in this jurisdiction? If so, did Totem present enough facts to overcome summary judgment?
Rule
Duress exists when:
- “One party involuntarily accepted the terms of another,
- Circumstances permitted no other alternative, and
- Such circumstances were the result of coercive acts of the other party.”
If any one of the elements are not met, there is no duress.
Holding
Totem could potentially show duress and this is up for the finders of fact to determine. Reversed and Remanded.
Facts
Totem was new in the business of being a barge. Alyeska was their first contract in the business to gather pipes in Texas and ship them up to the company in Alaska. However, several complications arose including the amount of piping was much more than anticipated, weather, and other delays slowed down the shipment. Additionally, slow response times from Alyeska made it unclear what Totem was supposed to do with the shipment.
Eventually, Alyeska complained and terminated the contract. Totem issued invoice to be paid and Alyeska said that payment would be provided between 1 day and 6-8 months. However, due to the economic strain, Totem needed the cash soon or risk bankruptcy. Totem and Alyeska had a meeting. Alyeska, knowing of the situation did not pay the full amount of $300,000 but instead settled for $97,500. Along with this settlement was a release that Totem would not have any claim against Alyeska.
Claiming that the contract was done under duress, Totem sued for the remainder of the invoice.
Analysis
Noting the elements of duress, each one must be met to prove economic duress. The court has expanded it’s understanding to include economic duress. However, just because there is expansion does not mean that the elements are easily satisfied.
First, one party must involuntarily accept the terms of another. Here, this may be evidenced by the financial strain put on by Totem to either accept bankruptcy or the inadequate release. With no other options, the signing becomes involuntary.
Second, there must be no other alternative. Here, we see the alternative was only the release or the bankruptcy.
Finally, the results must be by the coercive acts of the other party. Here, this could be shown by Alyeska knowing of the financial peril, deliberately not paying the funds, and providing an inadequate release. As such, this element can be satisfied if the facts turn out to be true.
Consequently, this is an issue for the jury to determine if the facts are true leading to a conclusion of economic duress.
Additional Notes
The traditional common law was that there needed to be a threat of physical harm, loss of limb, mayhem, or imprisonment. Since then, the law has broadened to include forms of economic coercion “which force a person to involuntarily enter into a particular transaction.” This is a subjective test, not objective. Why, people have different thresholds for what could create economic duress (e.g. a poor person may need the money sooner than a rich person).
Economic duress
“Where a party involuntarily accepts terms where circumstances permit no alternative as a result of the coercive acts of the other party.”
However, a wrongful act alone is not enough to establish economic duress. In addition, the wrongful act has to produce no choice but to accept the terms.
The consequence of economic duress is that the contract is voidable.
Odorizzi v. Bloomfield School District
54 Cal. Rptr. 533 (Ct. App. 1966).
Odorizzi is the plaintiff. His complaint was dismissed and he appealed.
Question
Was there undue influence?
Rule
Undue influence is “taking an unfair advantage of another’s weakness of mind; or. . .taking a grossly oppressive and unfair advantage of another’s necessities or distress.”
In other words, undue influence is the excessive pressure to persuade the other party to concede.
Ultimately, there are two elements:
- A lessened capacity to make a free contract.
- Application of excessive strength of one party over the weakened party. Which can be shown by the following factors
- Discussion of transaction at inappropriate time.
- Enactment of transaction in unusual place.
- Demand of immediate completion.
- Emphasis of consequences for delay.
- Multiple persuaders against one servient party.
- Lack of third-party counsel to weakened party.
- Statements that there is no time to seek outside counsel.
Holding
The plaintiff’s pleading does state a cause of action for undue burden. Consequently, the judgment is reversed and remanded.
Facts
Odorizzi was a school teacher. However, he was arrested, questioned, booked, and had to post bail. All of which resulted in 40 hours of loss of sleep. At this time, the school district approached Odorizzi inviting him to resign. They stated that if he did not resign, they would have to fire him and make it public leading to his embarrassment. They also stated that there was no time to contact an attorney for advice. However, they did assure him that if he resigned this would not affect his ability to obtain a job later.
So, in this condition, Odorizzi accepted the resignation. Later, the charges were dropped and Odorizzi went to the school to obtain his old job. However, the school refused. At this point, Odorizzi sued.
Analysis
First, there is no duress or menace present here. This is because there was no unlawful action present. Stating that you will take legal action does not invoke duress.
Second, there was no actual or constructive fraud. For actual fraud, some of the elements meant to establish fraud was missing. Additionally, there was no constructive fraud because there was no confidential relationship between the parties.
Third, there was no mistake. Again, elements were missing.
Finally, there is undue influence. Here, the plaintiff meets both the elements of undue burden. For the first element, the plaintiff was in a weakened state, having gone through extensive proceedings and was lacking in sleep. For the second element, the plaintiff was approached by the school officials in this weakened state and used excessive means to compel his signature. This excessive use is easy to tell because the officials insisted in the completion of the contract right then, right there, stating that there was no time to consult with an attorney. Additionally, the officials listed out consequences that would arise with the delay and there was no third-party there to help counsel the plaintiff.
Additional Notes
Here, the plaintiff brought several claims: fraud, mistake, menace, duress, and undue influence. However, there was no duress, menace (debatable), fraud, or mistake.
Here, the court defines undue influence as, “persuasion which tends to be coercive in nature, persuasion which overcomes the will without convincing the judgment.”
Things that strengthen the argument but are not essential include misrepresentations and confidential relationships. All that needs to be done is because they were taking an unfair advantage of another’s weakness of mind.
So, the plaintiff can show that they were in a weakened condition or the other party used overpersuasion strength (or both).
- Discussion of transaction at inappropriate time.
- Enactment of transaction in unusual place.
- Demand of immediate completion.
- Emphasis of consequences for delay.
- Multiple persuaders against one servient party.
- Lack of third-party counsel to weakened party.
- Statements that there is no time to seek outside counsel.
Disclaimer
The content contained in this article may contain inaccuracies and is not intended to reflect the opinions, views, beliefs, or practices of any academic professor or publication. Instead, this content is a reflection on the author’s understanding of the law and legal practices.
