Legal Consequences
-common theme of overreaching
Unenforceability
Statute of frauds
Statute of limitations
Illegality/public policy
“voidable”: the party that is on the end that feels agreeved has the power to ratify the contract or to avoid it
fraud/misrepresentation
incapacity (age/infirmity)
duress-economic/undue influence
illegality/public policy
Void: valid contract never forms to begin with
Exchange or promises without consideration
Physical duress
Illegality/public policy
Why do we care?
How do we know what kind of influence is permissible? (Professor Attiyah)
What kind of test will help us figure this out?
Pp. 383-88, 396-402, 403-4, 414-27
All contracts involve some form of coersion/influence
When duress and/or undue influence is involved, the defense to enforceability of an agreement is based on how the agreement happened
The law of duress is not limited to physical duress
Austin Instrument, Inc. v. Loral Corporation
Court of Appeals of New York
29 N.Y.2d 124, 272 N.E.2d 533 (1971)
this is another contract modification case
under what circumstances can a party modify an agreement?
Austin chooses to breach, and if they do, it forces Loral to breach with the Navy
During Vietnam War (profit making, self interested parties against the backdrop of a national security problem)
Parties:
P: supplier of gear components for radar sets
D: producer of radar sets
Procedural History:
9/15/67: P files action against D to recover $17,500 which was due on the second subcontract
same day: D filed suit against P, claiming $22,250 in damages for the price increases under the first subcontract (economic duress)
actions consolidated; P awarded sum requested, D’s case dismissed on the grounds that it did not show it could not have obtained the gear components from another source in time to meet its commitment
closely divided appellate court affirmed
Court of Appeals remanded case to trial court to assess damages and recommended that the dismissal of D’s claim be reversed.
Facts:
7/1965: D awarded 6 million dollar contract by Navy to produce radar sets
D solicited bids for components needed to produce the sets and awarded subcontract to P to supply 23 parts
delivery began in early 1966
5/1966: D awarded second contract from Navy for radar sets
P bid on all 40 components
7/15/66: D rep. informed P’s president would only be awarded contract if low bidder
P refused to accept an order of less than 40; the next day P told D that deliveries under the existing subcontract would cease unless D consented to substantial price increases provided for by the agreement (retroactively and prospectively) and placed an order for all 40 parts
P stopped delivery shortly after
D contacted 10 manufacturers, but none could produce the parts in time to meet the delivery commitments to the Navy
7/22: D acceded to P’s demands; letter stated that D was left with no choice but to accept
– What did Austin know? Do we want to know?–> threatening party’s motive?
Issue: Whether the trial court was correct in holding that D did not make a case for economic duress
Holding: The trial court erred in holding that D did not make a case for economic duress.
Reasoning:
The evidence clearly shows duress. P’s threat to stop deliveries unless the prices were increased deprived D of free will. Because D did a lot of business with the government and had orders that must be filled in the months to come, it was reasonable for D to consider itself in an emergency, duress situation. D also demonstrated that it could not obtain the parts from someone else in a reasonable time because it consulted with 10 other manufacturers before agreeing to P’s demands.
Test: wanted to see if Loral’s free will was overcome by Austin’s threat?
Threat of breach unless . . .
No substitute available
Normal breach of contract remedy is not adequate
Court says Loral actually had no choice but to ascede to the demands of Austin
-This is a philosophical idea (free will) and just a question of fact
– Loralà consequencesà not equivalent to free will
Pressure
Terms in K with Navy
Loral needed K with navy
Possible future contracts
R2K 175?
1. Whether there is a wrongful conduct (improper threat)/or constraints th
out convincing the judgment. It involves the use of excessive pressure to persuade one vulnerable to such pressure, pressure applied by a dominant subject to a subservient object. Undue susceptibility may be total weakness of the mind, leaving a person without understanding, a lesser weakness, which destroys the person’s capacity to make a contract even though he is not totally incapacitated, or an even lesser weakness, which provides sufficient grounds to rescind a contract. Here P pleaded that such weakness at the time he signed the resignation prevented him from freely and competently applying his judgment to the problem before him. It is plausible that exhaustion and emotional turmoil may have incapacitated him to the point that he could not fully exercise his judgment.
Overpersuasion is present because the school board reps assured P they were trying to help him, that he should rely on their advice, there was no time to consult an attorney, if he didn’t resign ASAP the school would suspend and dismiss him from his position and publicize it, and resigning would not jeopardize his chances of securing a teaching job somewhere else
Policy:
Elements of Overpersuasion: (these elements show up in cases like this)
(1) discussion of the transaction at an unusual or inappropriate time
(2) consummation of the transaction in an unusual place
(3) insistent demand that the business be finished at once
(4) extreme emphasis on untoward consequences of delay
(5) the use of multiple persuaders by the dominant side against a single servient party
(6) absence of third-party advisers to the servient party
(7) statements that there is no time to consult financial advisors or attorneys
Other:
