Restatement § 174: When Duress by Physical Compulsion Prevents Formation of a Contract
If conduct that appears to be a manifestation of assent by a party who does not intend to engage in that conduct is physically compelled by duress, the conduct is NOT effective as a manifestation of assent
Restatement § 175: When Duress by Threat Makes a Contract Voidable
(1) If a party’s manifestation of assent is INDUCED by an improper threat by the other party that leaves the victim no reasonable alternative, the contract is voidable by the victim
(2) If a party’s manifestation of assent is induced by one who is not a party to the transaction, the contract is voidable by the victim UNLESS the other party to the transaction in good faith and without reason to know of the duress either gives value or relies materially on the transaction
Restatement § 176: When a Threat is Improper
(1) A threat is improper if
(a) what is threatened is a crime or a tort, or the threat itself would be a crime or a tort if it resulted in obtaining property,
(c) what is threatened is the use of civil process and the threat is made in bad faith, or
(d) the threat is a breach of the duty of good faith and fair dealing under a contract with the recipient (used in Totem)
(2) A threat is improper if the resulting exchange is not in fair terms, AND
(a) the threatened act would harm the recipient and would not significantly benefit the party making the threat,
(b) the effectiveness of the threat in inducing the manifestations of assent is significantly increased by prior unfair dealing by the party making the threat, or
(c) what is threatened is otherwise a use of power for illegitimate ends
(Economic Duress / Breach of Good Faith / R § 175)
FACTS
P had contracted to transport pipeline construction materials from Texas to Alaska for D
D’s failure to proceed in accordance w/ terms and specifications in contract caused considerable delays and occasioned P’s hiring of a second tug to handle extra tonnage
After D terminated w/out reason, P submitted invoices worth $300,000 and advised D of financial constraints, since P was faced w/ possibility of bankruptcy
D only offered $97,500 in cash for settlement of all P’s claims
ISSUE
Is economic duress a ground for voiding a contract?
HELD
A party’s manifestation of assent induced by an improper threat by the other party, such as a breach of the duty of good faith and fair dealing under a contract with the recipient, that leaves the victim with no reasonable alternative, will render the contract VOIDABLE by the victim
Since D deliberately withheld payment of an acknowledged debt, knowing that P had no choice but to accept an inadequate sum in settlement of that debt, the contract was made under economic duress and is deemed voidable by P
Dissent, J. Posner
Concerned that parties may claim economic duress later on to avoid settlement agreements / Doesn’t want to undermine settlement agreements b/c there is a societal interest in having people settle claims
Restatement § 177: When Undue Influence Makes a Contract Voidable (Used in Odiorizzi)
(1) Undue influence is unfair persuasion of a party who is under the domination of the person exercising the persuasion OR who by virtue of the relation between them is justified in assuming that that person will not act in a manner inconsistent with his welfare
(2) If a party’s manifestation of assent is induced by undue influence by the other party, the contract is voidable by the victim
(3) If a party’s manifestation of assent is induced by one who is NOT a party to the transaction, the contract is voidable by the victim UNLESS the other party to the transaction in good faith and without reason to know of the undue influence wither gives value or relies materially on the transaction
Odorizzi v. Bloomfield School District
(Voidable Contract under Undue Influence / R § 177)
FACTS
P, a teacher in D’s School District, was arrested for criminal homosexual activities
D came to his home after P hasn’t slept in 40 stressful hours and convinced P to resign by threatening to dismiss P if didn’t, occasioning embarrassing publicity and impairing his chance for future jobs
P subsequently acquitted but D refused reemployment
HELD
Where a party’s physical and emotional condition is such that excessive persuasion leads to his own will being overborne, so that in effect his actions are not his own, a charge of undue influence so as to rescind a resignation or contract may be sustained
Excessive Pressure
P approached at his apt. immediately after release
P threatened with such publicity if he did not immediately resign
Approached by both superintendent and the principal of his school
P not given an opportunity to think the matter over or consult outside advice
Undue Susceptibility (no confidential relationship)
P hadn’t slept in 40 hours / just released from jail / tired and weak of mind
