B. Duress

• Author: John D. McCamus
• Profession: Professor of Law. Osgoode Hall Law School, York University
• Pages: 367-382

Contenidos

• 1) Introduction.
• 2) The Traditional Categories of Duress.
• a) Duress to the Person.
• b) Duress of Goods.
• 3) Economic Duress.

Page 367

1) Introduction

At common law, contracts entered into on the basis of certain types of coercion categorized as duress are unenforceable. Under traditional doctrine, the categories of duress were few in number and narrowly defined. Thus, the earliest form of duress recognized at common law was actual or threatened violence to the person. It is not surprising that the common law took the view that agreements induced by actual or threatened violence could not be enforced by the person who committed or threatened violence in order to secure the other party’s consent to the agreement. For much of the history of the doctrine of duress, it was not clear that the common law doctrine of duress would hold unenforceable agreements induced by any other form of duress. In the late-twentieth century, however, a new and more open-textured form of duress - economic duress - was recognized as an additional potential ground of unenforceability. It is in this latter context that the task of drawing the line between unacceptable coercion and legitimate commercial pressure has become most difficult. As we shall see, these difficulties have not been completely resolved in English or Canadian law.

In addition to rendering agreements induced by duress unenforceable, the doctrine also provides a basis for restitutionary recovery of

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benefits conferred in the absence of the formation of an agreement. Thus, monies handed over in response to actual or threatened violence to the person would ground recovery of those monies in a restitution-ary claim, notwithstanding the absence of any contractual arrangement to make the payment in question.⁶Our concern here, however, is the extent to which agreements that have been induced by duress are considered enforceable at common law. As the common law did not assume that any form of duress that could ground restitutionary recovery would also necessarily provide a basis for holding that an agreement entered into under such duress would be unenforceable, it is important, for present purposes, to preserve the analytical distinction between these two different forms of relief.

Occasionally, it is suggested that the effect of a finding of duress is that the contract is void ab initio.⁷ Certainly, in cases of actual or threatened violence, it is difficult to see why the perpetrator of the violence or the threat should be entitled to rely on any of the equitable defences⁸ that might be engaged by a holding that such agreements are merely voidable, rather than void.⁹On the other hand, the principal advantage to the coerced party of holding that an agreement is merely voidable rather than void is that the unenforceability of the agreement is at the option of that party. Accordingly, if the coerced party so wishes to, the agreement may be treated as enforceable. Principally for this reason, it appears to be generally accepted that the effect of a finding of duress is that the agreement in question is rendered voidable.¹⁰The other

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important effect of a determination that agreements entered into under duress are voidable rather than void is that third parties who have, in good faith, relied on the validity of the transaction would be protected on the basis of the equitable principle that in such circumstances it is too late to rescind the agreement. A number of cases have held that, in such circumstances, agreements entered into under duress will not be avoided to the prejudice of third parties.¹¹Against this background, we turn to the traditional categories of duress and the recently recognized category of economic duress.

2) The Traditional Categories of Duress

a) Duress to the Person

A contract induced by actual or threatened violence to a person is unenforceable at common law. The doctrine of duress of the person extends beyond violence and threats made to the other party to the agreement to include threats made to the safety of other members of that party’s family. Thus, agreements entered into on the basis of a husband’s threat to kill the wife’s children¹²or by one sibling to harm another in order to induce the parents to enter into an agreement¹³are voidable on the basis of duress. The doctrine extends, as well, to actual or threatened unlawful confinement or imprisonment of a person.¹⁴

Where the duress is constituted by a threat, the threat must be believable¹⁵and believed.¹⁶Although the threat would, of course, normally be communicated directly to the party induced to enter the agreement, it is sufficient if the coerced party learns of the existence of the threat from a third party.¹⁷The Privy Council stated, in Barton v. Armstrong,¹⁸that an agreement induced by duress to the person is generally accepted to be void-

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able rather than void and is therefore unenforceable at the option of the victim of the violence or threat. It is sufficient if the violence or threat constituted a reason for entering the agreement and thus, as in Barton v. Armstrong itself, the fact that the party may have entered into the agreement even in the absence of threatened violence, the duress remains operative. In this case, in the course of a battle for control by two major shareholders of a corporation, one made a death threat to the other in order to cause the latter to enter into an agreement to buy out his shareholding. Although the evidence indicated that the threatened party believed that, in any event, some transaction of this kind was necessary for the future of the company, the death threat was held to be sufficient to engage the doctrine of duress. Further, the Privy Council held that the burden is placed upon the party issuing the threat to establish that the threat did not contribute to the decision to enter into the agreement.

b) Duress of Goods

As a matter of restitutionary law, the common law concept of duress was extended beyond actual or threatened violence to the person to include interference with property rights. Thus, in a leading case,¹⁹where a pawnbroker demanded an excess payment from the pawner in order to release the pawned goods, the payment was recoverable in a restitution claim. The doctrine would also apply to payments extracted by a landlord through improper distraint of a tenant’s goods.²⁰The doctrine applies, more generally, to payments extracted through the improper seizure or retention of the plaintiff’s personal property.²¹It is applicable both to an actual seizure of goods and to a threatened seizure.²²Curiously, however, it has been held until recently that the doctrine of duress of goods does not apply so as to vitiate a contract induced by improper seizure or retention of an individual’s goods. The leading case, Skeate v. Beale,²³concerned a wrongful distraint of a tenant’s goods by a landlord. Although monies paid in direct response to an improper distraint would be recoverable, the court held, in Skeate v. Beale, that an agreement entered into in the same circumstances would be enforceable. The tenant

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had given a promise to pay and the court held that the mere fear that one’s goods may be lost "does not deprive anyone of his free agency who possesses that ordinary degree of firmness which the law requires all to exert."²⁴This distinction between sums paid and sums promised to be paid does not appear to be defensible and would appear to be inconsistent with the decisions extending the common law of duress to duress of goods. Indeed, in Knutson v. Bourkes Syndicate,²⁵the Supreme Court of Canada expressed doubt concerning the holding in Skeate v. Beale and, more recently, English courts have clearly indicated that the decision should no longer be considered to constitute good law.²⁶

3) Economic Duress

Much earlier than other common law jurisdictions, the United States extended the concept of duress beyond the traditional forms of duress to other kinds of economic pressure.²⁷In English law, however, recognition of economic duress as a form of coercion that could undermine the enforceability of an agreement induced thereby did not come until the late 1970s. In the leading case of Pao On v. Lau Yiu Long,²⁸the Privy Council confirmed the earlier suggestions of English trial judges²⁹to the effect that economic duress could serve to vitiate or negate consent to a contractual arrangement. In common with many of the modern duress cases, Pao On involved a threatened breach of contract. It will be recalled³⁰that this case concerned a guarantee given in the context of a transaction involving the sale of a company owned by the plaintiffs to Fu Chip, a company owned by the defendant Lau, in return for shares in Fu Chip. In order to ensure the value of that consideration, the plaintiff had exacted a guarantee from Lau that the shares would have a certain value on a particular date, failing which the plaintiff could require Lau to purchase them at the stipulated value.

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Although the intention of the guarantee was thus to protect the value of the purchase price paid for the plaintiff’s company, the wording of the guarantee was such that if the value of the Fu Chip shares was in excess of the stipulated value, Lau could purchase the shares at the stipulated price and enjoy the increased value of the shares. When the plaintiff belatedly appreciated that the guarantee had taken this form, he indicated that he would refuse to close the transaction unless a new guarantee was issued by Lau enabling the plaintiff to retain the shares should their value exceed the stipulated price. Lau, confronted by the unattractive possibility of negative publicity for Fu Chip should the deal fail to close, took legal advice and decided to issue a second guarantee in the requested form. The trial judge observed that Lau did not anticipate the dramatic fall in the stock market...