Economic Duress

Topics: Contract, Common law, Contractual term Pages: 9 (3723 words) Published: May 21, 2013
A contract is voidable or vitiate under several situations, economic duress is one of the examples. Economic duress is a vitiating factor in a contract as it is a common law defense. When there happens to be an economic duress in a contract, the party can make the contract voidable if the requirements are fulfilled. One needs to be noted that the contract is only voidable instead of being voided completely. A contract has no legal force or effect at all if it is being voided. However, a contract that is voidable simply means that the contract is still legally binding until avoided by the party. The affected party may cancel the contract and claim for remedies. Kerr J proposed that the contract can be set aside when there is economic duress exerting on one of the parties. Occidental Worldwide Investment Corporation v Skibs A/S Avanti, The Sibeon and The Sibotre [1976] 1 Lloyd’s Rep 293

Economic duress is a threat to a person’s financial or business interests. (Contract Law, 10th edn, Jill Poole pg564). The threat must be directed to the person’s financial standing but not to the person himself or his property. (Contract Law in Perspective, John Tillotson pg165). There is an economic duress exerted on a party when one party threatens to breach the contract unless the other party who is being threatened complies or renegotiates with him/her. Normally, the party who is being threatened would rather to comply or renegotiate with the other party, as it would be more practical to do so. This is because the breaching of the contract might bring more disadvantages than to comply with it despite that the party is being threatened. For example, A and B entered into a contract that A would provide something to B and B would pay for it. A then threatened to breach the contract if B did not want to pay more for the stuffs. B is in an urge to get the stuffs or else he will breach another contract with a third party and A is the only company that provides such things. B has no choice but to pay more to A. A has exerted economic duress on B as B is being forced to enter into a new contract to pay more to A. B has no other choice but to agree with it because A is the only supplier he could find. In this case, it is more practical to comply with A because the breaching of the contract will result in disastrous consequences to B. However, the issue here is does the duress negate the consent of the party? This issue will be discussed in detailed later.

Development of Economic Duress
Formerly, with the absence of the doctrine of economic duress, the example mentioned above will be dealt in the light of the doctrine of consideration. Generally, there was no contract if the parties did not provide any considerations. A did not provide any consideration to B in order for B to pay A more. Hence, the promise is not legally binding and B is not contractually obliged to pay A the extra amount of money. However, Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1 has changed the position of law regarding to the doctrine of consideration. The court held that where a party agrees to pay extra in order for the other to perform his existing contractual duty, the promise is binding if the promisor obtained practical benefit or avoided a disadvantage even though there was a lack of consideration. In this case, B has to pay the extra money as he has avoided a disadvantage of breaching the contract with a third party. This leads to a question of fairness. Is it equitable for B to pay more if he is being threatened or forced by A? Obviously, A is taking advantage of B. The doctrine of economic duress is being established to overcome the problems.

Furthermore, before the doctrine of economic duress was established, duress was confined to duress to person G H Treitel, The Law of Contract (11th ed 2003), p 408 and duress to goods only. The law has expanded the concept of duress to economic duress. In the law today, a...
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