Duress and undue influence: consent that was not free

New York, nineteen sixty six. Loral Corporation holds a six million dollar Navy contract to build radar sets, with a delivery schedule, liquidated damages for lateness, and a cancellation clause. It has subcontracted twenty three precision gear parts to a small company, Austin Instrument. Austin has been delivering since early in the year. In May, Loral wins a second Navy contract and asks for bids again.
Austin bids on all forty parts. Loral says it will get only the ones it bid lowest on. The next day Austin's president tells Loral that Austin will stop delivering under the existing subcontract unless Loral agrees to substantial price increases, backdated to the parts already delivered, and gives Austin all forty parts on the new contract. Then Austin stops delivering.
Loral telephones the ten manufacturers on its approved list. None can produce the parts in time. Loral writes to Austin. We have feverishly surveyed other sources of supply and find that because of the prevailing military exigencies, were they to start from scratch as would have to be the case, they could not even remotely begin to deliver on time. Accordingly, we are left with no choice or alternative but to meet your conditions.
Loral pays the increases. A year later, three days after Austin's last delivery, Loral demands the money back, twenty two thousand dollars. Austin says, you agreed. You signed. You had lawyers. You could have sued us for breach instead. And two courts agree with Austin.
So here is the question. Loral agreed to the new prices. Nobody held a gun to anyone. Is an agreement made because the alternative was commercial disaster a real agreement? Think about it before I go on, because businesses face this every week, and the law's answer is narrower than the instinct.
And now the question I keep asking. What exactly did these people promise each other? Gears at a price, then gears at a higher price. In Module Four the question was whether the second promise had consideration. Today the question is whether it was consented to at all. The defenses of duress and undue influence say that a promise extracted by improper pressure, or by overpersuasion of a weakened mind, may be avoided though every formal element is present.
Here is the first line for the board. A contract is voidable on the ground of duress when it is established that the party making the claim was forced to agree to it by means of a wrongful threat precluding the exercise of his free will. Two elements. A wrongful threat. And no reasonable alternative. A threat to breach a contract, or to withhold payment of an admitted debt, in bad faith, is wrongful.
Second line, and it is the limit. A mere threat by one party to breach the contract by not delivering the required items, though wrongful, does not in itself constitute economic duress. It must also appear that the threatened party could not obtain the goods from another source of supply and that the ordinary remedy of an action for breach of contract would not be adequate. Hard bargaining is not duress. Duress is a wrongful threat that leaves no way out.
Third line. Undue influence is different. It is persuasion which overcomes the will without convincing the judgment. It needs no threat and no misrepresentation. It needs a person unduly susceptible, from illness, grief, exhaustion or dependence, and pressure that is excessive in the way it is applied. A party may be led but not driven.
Now the case. Austin Instrument against Loral, New York Court of Appeals, nineteen seventy one, Chief Judge Fuld. We find without any support in the record the conclusion reached by the courts below that Loral failed to establish that it was the victim of economic duress. On the contrary, the evidence makes out a classic case, as a matter of law, of such duress.
The wrongful threat was Austin's. It is manifest that Austin's threat, to stop deliveries unless the prices were increased, deprived Loral of its free will. Then the court looked hard at the alternatives, because that is where these cases are won and lost. Loral's Navy contract had staggered deliveries, liquidated damages, and possible cancellation. It did a substantial portion of its business with the Government, and it feared that a failure to deliver as agreed upon would jeopardize its chances for future contracts.
Could Loral have bought elsewhere? The ten manufacturers whom Loral contacted comprised its entire list of approved vendors for precision gears, and none was able to commence delivery soon enough. As Loral was producing a highly sophisticated item of military machinery requiring parts made to the strictest engineering standards, it would be unreasonable to hold that Loral should have gone to other vendors, with whom it was either unfamiliar or dissatisfied.
Could Loral have sued instead? Loral's normal legal remedy of accepting Austin's breach of the contract and then suing for damages would have been inadequate under the circumstances, as Loral would still have had to obtain the gears elsewhere with all the concomitant consequences mentioned above. In other words, Loral actually had no choice, when the prices were raised by Austin, except to take the gears at the coerced prices and then sue to get the excess back.
One more point, timing. One who would recover moneys allegedly paid under duress must act promptly to make his claim known. Loral waited a year, until three days after Austin's last delivery. Reasonable, the court said, because Loral feared another stoppage of deliveries which would again put it in an untenable situation. The dissent thought all of this was a question of fact resolved below. The majority thought the record allowed only one answer.
Now Alaska, nineteen seventy five, and duress by withholding money. Totem Marine, a new company on its first contract, agrees to carry pipeline materials from Houston to Alaska for Alyeska. Everything goes wrong. Three times the promised tonnage on the dock in Houston, thirty days to load instead of three, a second tug, a hurricane. At Long Beach, Alyeska takes the cargo off without a survey and terminates the contract, refusing to say why.
Totem sends invoices for between two hundred and sixty and three hundred thousand dollars. Alyeska says it will look them over but is not sure when payment would be made, perhaps in a day or perhaps in six to eight months. Totem's creditors are demanding payment and, without immediate cash, Totem would go bankrupt. Totem's lawyer tells Alyeska so. Alyeska offers ninety seven thousand five hundred dollars. Totem signs a release of all claims and takes it.
Four months later Totem sues to set aside the release for economic duress. The trial court throws the case out on summary judgment. The Supreme Court of Alaska, in Totem Marine against Alyeska Pipeline, nineteen seventy eight, Justice Burke, had never decided an economic duress case, and it wrote the elements out. Duress exists where 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.
On wrongfulness. In many cases, a threat to breach a contract or to withhold payment of an admitted debt has constituted a wrongful act. Implicit in such cases is the additional requirement that the threat to breach the contract or withhold payment be done in bad faith. On alternatives. The victim must have no choice but to agree to the other party's terms or face serious financial hardship.
And on why a lawsuit is not always an alternative. An available alternative or remedy may not be adequate where the delay involved in pursuing that remedy would cause immediate and irreparable loss to one's economic or business interest.
The court quoted Professor Dalzell. Nowadays, a wait of even a few weeks in collecting on a contract claim is sometimes serious or fatal for an enterprise at a crisis in its history. The business of a creditor in financial straits is at the mercy of an unscrupulous debtor, who need only suggest that if the creditor does not care to settle on the debtor's own hard terms, he can sue.
So the court held that Totem's allegations, if proved, would support a finding that it executed a release of its contract claims against Alyeska under economic duress. Alyeska deliberately withheld payment of an acknowledged debt, knowing that Totem had no choice but to accept an inadequate sum. Back for trial.
Note the qualifier the court added. Totem would have to prove Alyeska knew, and acted to squeeze. Financial embarrassment alone is not duress. The duress must come from the defendant's wrongful and oppressive conduct and not by the plaintiff's necessities.
Now the third case, where nobody threatened anything wrongful, and the consent still failed. California, June nineteen sixty four. An elementary school teacher is arrested on a criminal charge, questioned, booked, and released on bail. He has been awake for forty hours.
The next day the superintendent and the principal come to his apartment. They say they are trying to help him, that he should take their advice and resign at once, that there is no time to consult an attorney, and that if he does not resign the district will suspend and dismiss him and publicize the arrest. If he resigns, nothing will be published. He signs.
In July the charge is dismissed. In September he asks for his job back and is refused. He sues to rescind his resignation. The Court of Appeal, in Odorizzi against Bloomfield School District, nineteen sixty six, Justice Fleming, went through the defenses one by one. Not duress. A threat to take legal action is not unlawful unless the party making the threat knows the falsity of his claim, and the district had the right, even the duty, to bring dismissal proceedings. Not fraud. Not mistake.
But undue influence. The court defined it. Persuasion which tends to be coercive in nature, persuasion which overcomes the will without convincing the judgment. The hallmark of such persuasion is high pressure, a pressure which works on mental, moral, or emotional weakness to such an extent that it approaches the boundaries of coercion. In this sense, undue influence has been called overpersuasion.
Two elements. Undue susceptibility in the servient person and excessive pressure by the dominating person. The weakness need not be long-lasting nor wholly incapacitating, but may be merely a lack of full vigor due to age, physical condition, emotional anguish, or a combination of such factors. Forty hours without sleep, the day after an arrest, qualified.
Then the court did something useful. It listed the marks of overpersuasion. Discussion of the transaction at an unusual or inappropriate time. Consummation of the transaction in an unusual place. Insistent demand that the business be finished at once. Extreme emphasis on untoward consequences of delay. The use of multiple persuaders by the dominant side against a single servient party. Absence of third-party advisers to the servient party. Statements that there is no time to consult financial advisers or attorneys.
If a number of these elements are simultaneously present, the persuasion may be characterized as excessive. Count them in the teacher's apartment. Two persuaders, one teacher. His home, not the office. The day after his arrest. Resign now. No time for a lawyer. Dire consequences if you wait. Every mark but one. The court also drew the other line, because it wanted to be clear that undue influence is not buyer's remorse.
There are second thoughts to every bargain, and hindsight is still better than foresight. Undue influence cannot be used as a pretext to avoid bad bargains or escape from bargains which refuse to come up to expectations. The woman who buys a dress on impulse, the man who buys desert land expecting another Palm Springs. They must abide the consequences of the risks inherent in managing our own affairs.
And it said what the district should have done. If a day or two after the teacher's release the superintendent had called him into the office in business hours, explained the Education Code, told him charges were contemplated and that he might resign, told him he was free to consult counsel and to think it over overnight, it is extremely unlikely that any complaint about the use of excessive pressure could ever have been made. The pleading stated a case. The teacher got his trial.
Put the three cases side by side. Loral, a wrongful threat and no alternative. Duress. Totem, a debt withheld in bad faith from a company about to go under. Duress, if proved. The teacher, no wrongful threat at all, but a weakened man and a high pressure carrot and stick technique. Undue influence. Different doctrines, one idea. The law enforces bargains because they are chosen, and these were not.
Now let's change one fact. Austin had told Loral, we are raising prices because our steel costs have doubled and we will lose money on every part at the old price, and Loral could have bought the gears from two other approved vendors, though at a slightly higher price and three weeks later. Choose an answer before I go on.
Now Loral probably loses. Two things have changed. The threat looks less like bad faith and more like a genuine request to modify, which Module Four allows where circumstances have changed. And there is an alternative. Two approved vendors, a few weeks and a few dollars away, is exactly the reasonable alternative that Loral could not find. Duress requires both a wrongful threat and no way out. Take away either and the agreement stands.
Change one fact again. Alyeska had disputed Totem's invoices in good faith, believing the extra charges unjustified, and Totem, solvent and well financed, had taken the ninety seven thousand to avoid the nuisance of litigation. Choose.
No duress. The Alaska court required a threat to withhold payment of an admitted debt, in bad faith, and a victim with no choice. A good faith dispute is not a wrongful act, and a solvent company choosing settlement over a lawsuit has an alternative and has simply exercised it. That is what releases are for. The Totem holding is a shield for the desperate, not a way out of every settlement that looks thin in hindsight.
Change one fact a third time. The teacher had been visited a week after his release, rested, at the school office, told he could take the weekend and consult a lawyer, and had signed on the Monday. Choose.
Then the court's own hypothetical governs, and there is no undue influence. The marks of overpersuasion are gone. Ordinary time, ordinary place, no demand for haste, advice available. The teacher may still regret his choice, but he made it, and the court told us in advance that second thoughts do not unmake a bargain.
Here is what people get wrong here, and why it is tempting. The first mistake is calling hard bargaining duress. A supplier who says pay more or we walk, when you can buy elsewhere or sue, has made a threat but not a duress. The second mistake is forgetting the bad faith requirement in the debt cases. A genuine dispute settled cheaply is not coercion.
The third mistake is confusing undue influence with fraud. The persuaders in the teacher's apartment may have believed every word. Undue influence is about the manner, the pressure on a weakened will, not the truth of what was said.
Here is the rule, in one breath. A contract is voidable for duress where a wrongful threat, including a bad faith threat to breach or to withhold an admitted debt, leaves the victim no reasonable alternative, and voidable for undue influence where excessive pressure, applied in a manner that overcomes the will without convincing the judgment, is brought to bear on a person unduly susceptible to it. Hard bargaining, good faith disputes and second thoughts are none of these. Now, five questions.