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Different Elements of Duress in Contract Law

University: University of Glasgow

  • Unit No: 10
  • Level: Undergraduate/College
  • Pages: 9 / Words 2142
  • Paper Type: Assignment
  • Course Code:
  • Downloads: 39

INTRODUCTION

Contract law is a body of law that governs, enforce and interprets with the matters of a contract related with exchange of goods, services, property and money. It also including validity of an agreement, misrepresentation, duress, legality, undue influence etc. In the present report detail discussion related with economic duress is presented along with development of common law related with it. Different elements of Duress are discussed to determine whether as contract is entered by a party as a result of threat. In recent times court has been giving recognition to economic duress and valid claims are being identified and same is also discussed in below report.

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QUESTION 1

Duress: under contract law duress means that a person have entered into an agreement due to threat. The party who have entered into contract under duress may have it set aside. Originally duress was recognised under common law as threat of unlawful physical violence but in recent times economic duress is also given identification and are considered as valid claims in the court. Under law vigilant factor for duress in a contract is absence of free consent. Pressure do not amount duress and is considered as undue influence. The effect on a contract under duress is that it always makes a contract voidable not void (Feldman, 2015).

LAWS and CASE LAWS:

"if a person is compelled to sign a lease or some other contract under an impending threat of having his house burnt down or a valuable picture gashed, without presence of any threat of physical violence to anyone. Would allow that agreement to be voidable”. The above statement includes two statements regarding validity of a contract and determination of types of duress in contractual agreement. In this statement, coercion due to threat is not necessity which is directed through one party to contract. It would invalidate a contract when someone is forced or threatened to come in agreement. It is reflected as positive aspect when contract entered which cannot be considered as valid agreement. In the above scenario, person was compelled to sign lease or contract under threat of burning house or valuable picture gashed but with absence of threat of physical violence. The application of duress is expanded and recognised which might be economic in nature and to deal with threat or damaging its goods and property as well. Hence, it is recognised with reflection of duress and money paid with absence of obligation to repay it and person under threat of damage to its property might be recovered. So, court would make statement that with these circumstances' person must make clear that payment was done under protest.

Duress to a person:

When a person enters into a contract due to threat of physical violence, it can be set aside on the ground that element of free consent was missing and reason to enter contract was threat.

Barton v Armstrong [1975]:

in this case there was conflict of interest between directors and one of the managing directors Barton enters into agreement under death threats to sale companies share. Shortly after this company became insolvent and it was held in court that the contracts entered by Barton was under threat of death and that it could be set aside. (MacLean, Verrelli and Chambers, 2017)

Economic duress:

A party to contract is said to be under economic duress when it is left with no choice but to agree to term of the other party. The agreeing party have a choice to go to court to set aside the contract if it can prove that contract was agreed under economic duress (ECONOMIC DURESS - LEGAL REGULATION OF COMMERCIAL PRESSURE, 2018).

First identification of Economic duress: the doctrine of economic duress was first established in case of The Sibeon and the Sibotre. The contract was not voidable but present of coercion was there.

Kerr J. Occidental Worldwide Investment Corporation v Skibs A/S Avanti, {The Sibeon and The Sibotre} [1976] 1 Lloyds Rep 293

In this case the court first recognise the element of duress under a contractual agreement. The client asked to renegotiate the price of two vessel it wants to purchase, stating the at this price client would become insolvent. Though this was not a real fact and client negotiated the cost of vessels being feared that they would lose a valuable customer and sold them to defendant. After knowing the fact plaintiff claimed in the court that contract must be set aside. In was held that on basis of economic duress contract could be rendered as voidable. There was a coercion of will to influence free consent and commercial pressure was not sufficient.

In this case Kerr. J. rejected thee fact that 'English law knows duress only to the person and duress to goods'. He stated that English law was 'open to further developments in relation to contracts entered under some form of compulsion not amounting to duress to the person. The contention was made that before making any decision court must take into consideration the fact that party had entered to contract with free consent and under no pressure (Loke, 2017).

Next development in this regard was taken in case of;

North Ocean Shipping Co v Hyundai Construction Co (The Atlantic Baron) [1979]

Following the guideline of Kerr.J economic duress was found to exist in this case. The defendant agreed to build a ship for the plaintiff for a certain price in US dollar denomination. After entering into the contract there was fall in value of dollar by 10% and defendant said that he would not deliver the boat unless the other party pay an extra amount equal to 10 % fall in value of dollar. The claimant paid the extra amount and brought an action against defendant 8 months. It was held in the court that contract was voidable under duress but due the fact that it was brought to court after a long-time and it affirmed to a pay extra amount the claim was rescinded (North Ocean Shipping v Hyundai Construction (The Atlantic Baron) [1979] QB 705, 2018).

in this case it was held in the court that though in this case that plaintiff was compelled to to by threat to agree to pay excess amount. However, the judge denied to grant any relief stating that plaintiff by his own act affirm the contract. The judge of this case Mocatta J. reviewed the authorities and agreed that compulsion is an element of duress and is applicable to a person, property or any right of a person who pays. It was concluded that compulsion in a contract might take form of economic duress and a threat to break contract amounts to duress. He supported the claim of Kerr.J that other than duress to person contract could not be voidable.

Pao On v Lau Yiu Long [1980]

In this case a threat was given by the claimant for not completing the main contract for purchase of share until all subsidiary contracts are met which including indemnity and guarantee. Defended was eager for execution of main contract as public announcements were made and he did not want the share prices to be affected in case shares were not purchased. Before agreeing to term of subsidiary agreement legal advice was taken by defendant and when claimant sought to enforce indemnity and guarantee defendant made a claim to set aside the contract on basis of economic duress.

Four factors were identified by Privy council for assessing the presence of economic duress:

  1. Did the person claiming to be coerced, protest or not?
  2. Did the person have any other option of action available with him/her?
  3. Were independent advise given to them?
  4. Did they took any step to avoid the contract after they entered into it?

It was held in this case that, defendant did not protest at time and could have enforced the contract through specific performance thus alternative solution was available to him. Though he had taken legal advice before entering to contract but no action was taken to avoid the agreement. Therefore, there is no presence of economic duress and it is mere commercial pressure (Contracts Entered Under Duress, 2018).

The Privy council upheld decision of trial judges that the defendants had adequately considered the matter for avoiding litigation and formed the opinion that the risk in giving the guarantee was more evident than actual one and disagreed with claim of Kerr J. that there had been mere commercial pressure but no coercion.

Universal Tankships v International Transport Workers Federation (The Universal Sentinel) [1983]

This was case in which ITWF (international Transport Worker Federation) blacked a ship the universal Sentinel, so that it can leave the port. Many demand relating to pay were made and demanded to pay a large sum of money to Sea fears international Welfare funds. The owner paid the sum to ensure that ships leave the port and then climes were maid to recover the sum paid to welfare fund.

It was held that money has been pulled out under economic duress and could be recovered. Contention was made by house of lords that in earlier case laws were wrong to look on the fact of Coercion of the will that vitiate consent. During a comparison with defence in criminal law it was determined that a person acting under duress have an intention to commit offence but is punished for the crime because they had no choice but to submit.

Accordingly, the court identified two elements of duress:

  • compulsion of the will i.e. absence of choice
  • illegitimacy of the pressure :first it was though that threat must be unlawful.

In this case requirement of vitiation of consent i.e. influence on free concept was replaced. With deciding of this case an example was set in common law as a successful claim to recover money can be made on grounds of 'economic duress'.

From above decide case law over time it can be seen that earlier concept of duress was present in common as a threat of physical violence. With time various cases were presented in court and concept of economic duress came into existence.

Elements of Economic duress:

  1. Pressure: Duress which was rendered with voidable contract along with physical duress as it was recognised. In the present scenario, law is settled fairly with two important ingredients for contract voiding on economic duress ground. There must be presence of illegitimate pressure with significant implication for claim and to enter in contract.
  2. Fact of coercion: It is directly concerned with coercive effect as it inquires about consent of complaint which was given on true aspect. In the similar aspect, complainant's defective consent alone is not considered as enough for constituting duress.
  3. The consequences of resisting pressure: The most important element is consequences of resisting pressure which impairs complainant's free exercise of judgement should be illicit. It should be directly concerned with its quality on basis of defendant's conducts for exerting pressure. It must behave in such aspect, where pressure in directly impacting consent of complainant with context of illicit (Bhana, 2015).

Related Sample: Impact of English Legal System

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CONCLUSION

From the above report it can be concluded that economic duress is not a new concept in common law of UK but it had evolved over time and for better only. The first case in which need of economic duress was seen in The Sibeon and The Sibotre, 1976 and then further cases were presented in 1979, 1980 and 1983 and with deciding of each case concepts ad elements of economic duress were set out. Further it can be interpreted that for the given statement in the question it can be stated that in threat other than of physical violence amounts to economic duress provided that all elements are satisfied and person claiming it might get relief under law and the contract may be set aside by court. Hence, findings of economic duress are easy or simple, economic coercion through its nature is insidious and subtle. High insidious is referred as cases where duress victim directly attempts for exploiting own submission for threat as outcome of deliberate choice of business.

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