Duress occurs when a person is influenced to sign a contract under pressure. Duress can be applied when a contract is made or when a contract was modified. Typical examples of duress include threats to personal liberty, threats of actual violence, and excessive economic pressure.
Duress is determined not by the nature of the pressure though, but by the state of mind induced in the victim. If you sign a contract under duress, the court may find the entire contract invalid.
When Does Duress Occur in Contracts?
Duress occurs when a person has been forced to do something by means of a threat. A person may raise a duress defense when force or violence is used to compel him to enter into a contract. When a person raises a duress defense, the accused asserts that the contract should be invalid because he did not voluntarily enter into the contract. The person can only hold the contract invalid if the other party was the immediate cause and harm of the duress. One example of duress in contract law would be if one party signed the contract only because they were coerced or forced because they were threatened in a way.
What Is Economic Duress?
Another form of duress in contracts law is economic duress. This form of duress is commonly found in commercial contract disputes. Economic duress occurs when one party uses economic pressure to unfairly force another party into a contract. Courts will look very closely at the nature of the economic duress to determine if the pressure is unfair. However, not all threats to breach a contract will constitute economic duress, especially if the threats were lawfully made.
However, not all threats to breach a contract will constitute economic duress, especially if the threat was simply legal action and/or a typical event in average business dealings. A party which threatens to cancel the contract or which promises to bring a lawsuit to force performance is not committing duress.
In addition, the threat must come from the other party, not a third party or an outside force. War, for instance, is not a valid form of economic duress, even if one party was in physical danger.
What Is Physical Duress?
Physical duress occurs when a person is forced entering into a contract as a result of threat of physical bodily harm on them or their family. If the person enters into the contract and agrees to the terms of the contract, but has no intent to enter the contract, and only did it if they were forced to, then the contract would not be binding.
What Is Consideration?
Consideration is the bargaining and exchange of goods or services. Consideration is considered the heart of a contract; without consideration, there is no contract. One of the fastest ways to check for duress is to see if proper consideration was given.
When duress is applied, one party will benefit but the other party will only receive that which was originally promised. A promise to do what a promisor was already legally bound to do is not consideration. Note that this does not automatically mean that duress was applied, but the fact that only party was enriched from the modified agreement is highly suspicious. However, if both parties benefit, then consideration exists, which makes it unlikely that duress was a factor.
For example, A agrees to mow B’s lawn in exchange for $100. However, A decides that he wants $200 instead. If A and B renegotiate the terms, A gets $200 in exchange for A mowing B’s lawn and doing B’s homework, then there is consideration and thus a valid contract.
Suppose though, that A refuses to mow B’s lawn until B gives A $200 instead of the initially agreed $100. This alone would not establish duress, but a court would certainly look into the circumstances more.
How Can Duress Be Proven?
To prove duress in contracts, a party must show: (1) a continuous contract exists between the plaintiff and the defendant (2) the defendant threatens to terminate the preexisting contract and (3) the plaintiff under this duress accepts the terms of the contract and enters the contract solely because of it.
Sometimes it is difficult to tell if duress is being applied. Courts examine other factors to determine if undue pressure is being exerted on one party by another:
- Timeframe for completion of contract performance for each party
- Bargaining power of both sides at the time the agreement was made
- The parties’ mental states at the time the agreement was made
- Whether the parties’ believed that the agreement was fair at the time the agreement was made
- Whether there were reasonable alternatives to contract modification or creation at the time the agreement was made
- Whether ordinary legal remedies (i.e. suing for breach of contract) was a reasonable solution to the problem. If a party feels they don’t have to time to conduct a lawsuit, they may make a bad bargain.
What Can You Do if You Enter into a Contract under Duress?
If you are sued for breaching a contract or you made a contract under conditions you think might constitute duress, you should speak to a business lawyer immediately to learn more about your rights, possible defenses, and how to deal with the complicated legal system.