Contract Law - Economic Duress
[STEP 1] Identify Original Contract and variation
Original contract
The three elements required for a valid contract are:
a) agreement (offer and acceptance);
b) intention to create legal relations; and
c) Consideration.
Initially, there is clearly a binding contract between X and Y.
There is agreement and consideration. X offers to do X for consideration of Y, which is
accepted by Z.
There is a presumption of intention to create legal relations given the commercial
context (Edwards v Skyways), and nothing to rebut this.
Variation - [INSERT VARIATION AS TITLE]
However, C may seek to have the variation set aside for duress when [INSERT
VARIATION].
Agreement and intention to create legal relations still exist (see above).
[INSERT RELEVANT RULE FOR INTENTION FROM BELOW]
- Assessment of parties’ intention in making an offer is objective, the courts
deciding what a reasonable person would have thought was going on from what
was said and done between the parties (Smith v Hughes).
- For commercial agreements, there is a very strong presumption of contractual
intention, i.e. that the parties intended the agreement to be legally binding
(Edwards v Skyways).
- This is rebuttable where specific wording states that the agreement was
not formal or legal (Rose and Frank Co v Crompton Bros).
- For domestic and social agreements (eg an agreement between family
members) the presumption is that there is no intention to create legal relations -
Balfour v Balfour (agreement between spouses)
, - This presumption can be rebutted where, due to the nature of their
relationship, the parties would not have been prepared to rely on
honourable undertakings and so would have intended to create legal
relations (Merritt v Merritt).
[STEP 2] Is there consideration for the variation?
Consideration
Consideration is ‘some right, interest, profit or benefit accruing to the party or some
forbearance, detriment, loss or responsibility given, suffered or undertaken by the other’
(Currie v Misa).
Is the performance of one’s existing contractual duties good consideration in exchange
for a promise from the other of additional payment?
The general rule is that the performance of an existing contractual duty will not amount
to good consideration in exchange for a promise of additional payment from the other
party (Stilk v Myrick).
Exceptions:
One exception is if the defendant exceeds their duties or confers an extra benefit for the
claimant’s promise to pay more, additional payment may amount to sufficient
consideration (Hartley v Ponsonby).
APPLY - This does not apply, as D did not provide something extra.
However, the principle in Williams v Roffey Bros states that if D has not done something
extra, the performance of an existing contractual duty owed to the other party may be
consideration for the promise of extra money if all the following criteria are satisfied:
- 1) There is a contract for the supply of goods or services in return for payment;
- 2) Before performance is completed, one party has reason to doubt whether the
other will perform their obligations;
- 3) A promise of extra payment is made in return for the promise to perform the
contractual obligations on time;
- 4) As a result of giving their promise, the promisor confers a practical benefit, or
removes a disbenefit;
- 5) The promise of extra money is not given under economic duress or fraud
(Carillion Construction Ltd v Felix).
, [IF DURESS IS CLEARLY THE ISSUE] The first four criteria are satisfied. Briefly cover
all four.
[STEP 3] Consider economic duress
Economic duress
The issue is economic duress. The burden of proving duress is on the party who alleges
it: [INSERT C / or INSERT D IF USED AS DEFENCE].
[IF D USING DURESS AS A DEFENCE] Duress may be used as a defence if the other
party tries to enforce a variation of the contract or claim damages for breach (Atlas
Express v Kafco). Ds agreed to pay the extra money, but did not pay it and so were
sued by Cs.
Economic duress is (Carillion Construction Ltd v Felix):
a) Illegitimate threat or pressure;
b) Which led to no practical choice for the innocent party; and
c) Was a significant factor in inducing C to enter the contract of variation.
Illegitimate threat or pressure
Factors taken into account by Dyson J in Carillion Construction include:
[INCLUDE RELEVANT ONES ONLY]
- whether there has been an actual or a threatened breach of contract;
- whether the person allegedly exerting the pressure has acted in good or bad
faith;
- whether the victim had any realistic practical alternative but to submit to the
pressure;
- whether the victim protested at the time; and
- whether he affirmed and sought to rely on the contract.
[IF CLOSE TO NORMAL COMMERCIAL BARGAINING] Dyson J also emphasised
that illegitimate pressure must be distinguished from the pressures of normal
commercial bargaining.
No practical choice
APPLY
[STEP 1] Identify Original Contract and variation
Original contract
The three elements required for a valid contract are:
a) agreement (offer and acceptance);
b) intention to create legal relations; and
c) Consideration.
Initially, there is clearly a binding contract between X and Y.
There is agreement and consideration. X offers to do X for consideration of Y, which is
accepted by Z.
There is a presumption of intention to create legal relations given the commercial
context (Edwards v Skyways), and nothing to rebut this.
Variation - [INSERT VARIATION AS TITLE]
However, C may seek to have the variation set aside for duress when [INSERT
VARIATION].
Agreement and intention to create legal relations still exist (see above).
[INSERT RELEVANT RULE FOR INTENTION FROM BELOW]
- Assessment of parties’ intention in making an offer is objective, the courts
deciding what a reasonable person would have thought was going on from what
was said and done between the parties (Smith v Hughes).
- For commercial agreements, there is a very strong presumption of contractual
intention, i.e. that the parties intended the agreement to be legally binding
(Edwards v Skyways).
- This is rebuttable where specific wording states that the agreement was
not formal or legal (Rose and Frank Co v Crompton Bros).
- For domestic and social agreements (eg an agreement between family
members) the presumption is that there is no intention to create legal relations -
Balfour v Balfour (agreement between spouses)
, - This presumption can be rebutted where, due to the nature of their
relationship, the parties would not have been prepared to rely on
honourable undertakings and so would have intended to create legal
relations (Merritt v Merritt).
[STEP 2] Is there consideration for the variation?
Consideration
Consideration is ‘some right, interest, profit or benefit accruing to the party or some
forbearance, detriment, loss or responsibility given, suffered or undertaken by the other’
(Currie v Misa).
Is the performance of one’s existing contractual duties good consideration in exchange
for a promise from the other of additional payment?
The general rule is that the performance of an existing contractual duty will not amount
to good consideration in exchange for a promise of additional payment from the other
party (Stilk v Myrick).
Exceptions:
One exception is if the defendant exceeds their duties or confers an extra benefit for the
claimant’s promise to pay more, additional payment may amount to sufficient
consideration (Hartley v Ponsonby).
APPLY - This does not apply, as D did not provide something extra.
However, the principle in Williams v Roffey Bros states that if D has not done something
extra, the performance of an existing contractual duty owed to the other party may be
consideration for the promise of extra money if all the following criteria are satisfied:
- 1) There is a contract for the supply of goods or services in return for payment;
- 2) Before performance is completed, one party has reason to doubt whether the
other will perform their obligations;
- 3) A promise of extra payment is made in return for the promise to perform the
contractual obligations on time;
- 4) As a result of giving their promise, the promisor confers a practical benefit, or
removes a disbenefit;
- 5) The promise of extra money is not given under economic duress or fraud
(Carillion Construction Ltd v Felix).
, [IF DURESS IS CLEARLY THE ISSUE] The first four criteria are satisfied. Briefly cover
all four.
[STEP 3] Consider economic duress
Economic duress
The issue is economic duress. The burden of proving duress is on the party who alleges
it: [INSERT C / or INSERT D IF USED AS DEFENCE].
[IF D USING DURESS AS A DEFENCE] Duress may be used as a defence if the other
party tries to enforce a variation of the contract or claim damages for breach (Atlas
Express v Kafco). Ds agreed to pay the extra money, but did not pay it and so were
sued by Cs.
Economic duress is (Carillion Construction Ltd v Felix):
a) Illegitimate threat or pressure;
b) Which led to no practical choice for the innocent party; and
c) Was a significant factor in inducing C to enter the contract of variation.
Illegitimate threat or pressure
Factors taken into account by Dyson J in Carillion Construction include:
[INCLUDE RELEVANT ONES ONLY]
- whether there has been an actual or a threatened breach of contract;
- whether the person allegedly exerting the pressure has acted in good or bad
faith;
- whether the victim had any realistic practical alternative but to submit to the
pressure;
- whether the victim protested at the time; and
- whether he affirmed and sought to rely on the contract.
[IF CLOSE TO NORMAL COMMERCIAL BARGAINING] Dyson J also emphasised
that illegitimate pressure must be distinguished from the pressures of normal
commercial bargaining.
No practical choice
APPLY
