Concept of Duress in contract law

“Duress has been described as ‘the pressure of a big stick or the bottom line’. It is invoked by a party who claims that he was forced into entering the contract or modifying a term in the contract"

Contract Law, Paul A. McDermott

With reference to case law discuss the concept of Duress in contract law.

A party to a contract may plea duress if he or she feels they were unduly pressurised into agreeing to it or to amending its terms. A common sense approach would render the contract null and void, however, it can be difficult to ascertain the true extent of the duress, was the party being threatened with violence against them or their family? Was their property threatened? Or were they just deeply encouraged to agree to its terms? With this in mind, we need to identify what level of duress can render a contract void ab initio or voidable.

In the case of Cumming v Ince (1847) 11 Q.B. 112, a private mental asylum patient was threatened into signing away all her property or the committal order bestowed upon her would never be removed. It was found that the patient had signed away her property under duress and the contract was void. This is different in comparison to the case of Barton v Armstrong (1976) A.C. 104. The plaintiff threatened to kill the defendant if he did not sell his interest in the company they were both major shareholders in. The judge found that the defendant would have sold his share anyway because of business needs and that this was, in fact, his main reason for selling. At this time duress could only be pleaded where it was the sole reason for entering a contract. The courts therefore ruled in favour of the plaintiff.

The two cases differ as duress is clearly prominent in Cumming v Ince but the defendant had ulterior motives for selling in Barton v Armstrong. However, the appeal court for the Barton v Armstrong case later ruled that the original view taken was incorrect and that a plea of duress should stand even if it were not the only reason for entering into a contract. The contract was then void in favour of the defendant in the face of normally being voidable in modern day circumstances.

The above examples both indicate how duress can void or make an agreement voidable but it can be more difficult to identify what level of coercion makes contracts voidable. As McAleer (30 October 2010: 67) points out,

‘There is a large difference between a gun to the head and being subject to a pushy salesman’.

We have all, at one point or another, been subject to the persuasiveness of eager salesmen but by giving our signature does mean we have been coerced into agreeing to a contracts terms? The likelihood is that we have not unless some harmful threat has been set upon us by that salesman. Therefore it is unlikely that any plea for duress would stand in court.

Economic duress can also make a contract voidable. This has often been the plea where the price originally agreed from the outset of the contract has been increased by the other party. That other party may increase the price for legitimate reasons such as notable differences in exchange rate, raw material price fluctuation or even just simple human error. Human error is evident in the case of Atlas Express Ltd v Kafco (1989) 1 All ER 641. Both parties agreed to a contract where the defendant’s merchandise of basketware would be delivered by the plaintiff’s haulage company to Woolworths branches. The price agreed was based on the plaintiff’s assessment of what each load could carry. In fact, a miscalculation meant that original evaluation of what each load could carry was inaccurate and the plaintiff wanted more money for the extra loads they would have to bear. The defendant felt they had no option but to agree to the new price as they were fearful they would not get anyone else to distribute their goods, consequently jeopardising their contract with Woolworths, which it was seriously dependent on. The lack of new consideration in this contract (as the plaintiff was already obliged to deliver the basketware under the terms of the original contract) meant that Tucker J ruled in favour of the defendant under economic duress regardless of the innocent mistake made when estimating the load. There were no reasonable alternatives that the defendant could of availed of and pursued duress in a law court.

Whilst economic duress can be clearly evident in a case, this does not always render the contact voidable. This is shown in North Ocean Shipping Co. Ltd v Hyundai Construction Co. Ltd (The Atlantic Baron) (1978) 3 All ER 1170. Here, payment for building a ship for the plaintiff was to be received by way of instalments. Due to the devaluation of the dollar, the defendants demanded an increase in the agreed price. The plaintiff reluctantly agreed and the credit letter was subsequently increased. The Shipping Company later sued for the extra monies paid but was unsuccessful as Turner (2003: 133) states,

‘...the increase in the letter of credit was sufficient consideration for the fresh promise, and also the delay meant that the contract was affirmed’.

It was in the Shipping Company’s best interests to agree to the increase in price even with the realisation of the duress forced upon them.

In all the above case examples, the underlying threat has more or less been a breach of the law. This raises the question, is it necessary for the duress plea to include economic pressure, breach of contract or a crime? Whilst the answer is no, this does not mean that the duress plea will stand. In the case of CTN Cash and Carry v Gallaher (1994) 4 All ER 714, the plaintiff claimed duress on the grounds that they had been coerced into paying for delivery of cigarettes that they had indeed ordered, but that had been stolen due to the defendant’s mistake of delivering them to the wrong address. The defendant believed the delivery was the plaintiff’s responsibility and therefore threatened to withdraw credit facilities if they did not pay. In the original contract it did state that the defendant reserved the right to withdraw credit facilities at any given time, without notice. The courts ruled in favour of the defendants as they conceded the threat was lawful. While the method of obtaining payment was unfavourable the defendants conduct did not amount to duress.

We have seen how duress can take many different forms and all facts shall be considered before a court will rule in favour of a duress plea. As Stone (2000: 228) describes,

‘The remedy that the victim of duress will be seeking is to escape from the agreement that has resulted from duress – in other words rescission’.

But as we have seen this is a lot easier said than done. Illegitimate pressure put on a person may force them into agreeing to something that they do not actually want to agree to. Furthermore, the degree of that pressure may very well give them grounds to claim duress in a court of law.

“Consideration is some right, interest, profit or benefit for one party, or some detriment, forbearance or loss suffered by another."

Currie v. Misa (1875) LR 10 Ex 153 at 162.

Discuss the rules of consideration in the context of these comments using relevant examples in your answer.

Consideration can be defined as what parties give or promise to each other as part of an agreement or contract. It may be looked upon that one party to an agreement is receiving a benefit to the detriment of the other party. Consideration is what makes an agreement legally binding however it has been argued that the doctrine should be void. Even if this were the case we would still need some understanding of what can make an agreement enforceable and what cannot.

Promises will be unenforceable if no consideration is present. This was apparent in the case of Aga Khan v Firestone and Firestone (1992) ILRM 31, where it was found that consideration was absent on the sale of land. As Morris J (as he then was) states (McDermott, 2001: 101),

‘It was a voluntary document given by Mr. Firestone in the hope of cementing business relationships. Nowhere in the evidence can I find any suggestion of it forming part of the overall deal...

Accordingly it follows that the agreement being a voluntary agreement is unenforceable’.

There are three types of consideration, executory, executed and past consideration. In order for executory consideration to take place, promises exchange from both parties to the agreement and the contract is carried out at a future date. This is the most common type of consideration. Executed consideration is only applicable in unilateral contracts where the offeree is under no obligation until the other party fulfils their side of the contract. Past consideration is no consideration at all as consideration cannot come into play after the agreement has taken place.

In the eyes of the law, consideration must but sufficient but does not need to be adequate. For consideration to be sufficient it must represent something of value in the courts. However, the value placed on the consideration does not need to be in proportion to the value of the exchange. The courts feel that the parties to a contract are the best judge as to what is adequate for them when it comes to putting a value on the exchange. For example, if I were to sell my car worth £10000 to another party for £100, this £100 which represents consideration, is completely out of proportion to the real value of my car. It would, however, be my decision to sell the car at this cost and the courts would never question the actual physical value put on the exchange. In the case of Chappell & Co v Nestlé (1960) AC 87, wrappers from Nestlé chocolate bars along with a sum of money formed part of the consideration against the gramophone records offered by Nestlé. As Lord Somervell said (McKendrick, 2003: 87),

‘A peppercorn does not cease to be good consideration if it is established that the promise does not like pepper and will throw away the corn’.

This consideration was held to be sufficient even though the wrappers were disposed of by Nestlé.

Not every exchange will form good consideration. It can be difficult to identify what is deemed as valuable. Where an agreement based on natural love and affection or prayers exists, these will not be held as sufficient consideration in court. The same goes for moral obligation and is evident in the case of Zecevic v The Russian Orthodox Christ the Saviour Cathedral (10 August 1988, unreported), HC (Ont). When performing a funeral, a priest or his church would normally expect to receive a sum between $0 and $800 however no set fees were associated with this act. Payment was never discussed between the parties and the plaintiff sued as the funeral did not take place as agreed. As no consideration existed the courts ruled in favour of the defendant.

Consideration comes into question with performance of existing duties already imposed. Where the duty is already imposed by law no consideration will be evident. This was apparent in the case of Collins v Godefroy (1831) 109 ER 1040, where a police officer was due to give evidence at the defendant’s trial. The defendant wanted to ensure the police officer would attend, therefore promised to pay him a sum of money to ensure he would. As the police office was lawfully bound to attend anyway, the agreement was unenforceable. The same principal applies where someone is bound by an existing contract to fulfil a duty. Actually completing that duty will not amount to consideration.

Similar rules apply where someone performs a duty that they already owe to another party. Say, I agree to pay a builder £50000 to build my house. The work is taking a little longer to complete than anticipated so I offer an additional £10000 to finish the job ASAP. Whilst I have offered to pay extra funds in order for the work to be done quicker, there is no new consideration on the builder’s part as he is bound by the original contract to complete the building of my home anyway. No new contract has formed therefore I would not be forced to pay the £10000 if it were to go to court.

Where a party accepts a smaller amount for a debt already owed, they are still able to sue to for the remaining amount under the law. With regards to Pinnel’s case, this new agreement is not binding as the debtor has only fulfilled part of the original agreement. This rule will not apply where the figure is to be set by the courts. There are some exceptions to the rule in Pinnel’s case. Promissory Estoppel as defined by McAleer (30 October 2010: 24) as,

‘Where a person makes a promise, not supported by consideration, to waive a debt or other obligation and where the promise acts on the promise, the promisor is prevented from denying that he made the promise, on the grounds of justice and equity’.

This is evident in the case of Coombe v Coombe (1951) 1 All ER 767. The judge held that it was irrelevant there was a lack of consideration and found in favour of the wife.

We have seen that consideration can take many forms in addition to cold hard cash. While ‘quid pro quo’ may sum it up in a simple way, the exceptions can often contradict the true meaning of consideration. Nevertheless it is obvious it is one of the key elements that will need to be present for a contract to be legally binding regardless of how inadequate the consideration actually is.