Negating Contracts by Pressure and Influence
An agreement to which consent is not freely given may be invalid. However, the categories of pressure which will invalidate an agreement are limited. Agreements are frequently entered under economic and personal pressure. Such ordinary pressures will not avoid a contract.
There are a number of circumstances in which agreements may potentially be invalidated by pressure. There are three main categories of case.
The first category often called “duress” requires that there is pressure such as to completely negate consent to the contract. The second category of cases referred to as undue influence may apply to transactions between persons who are in a relationship of trust. The third category comprises so-called unconscionable bargains. These are extreme cases of unfair dealing.
Nature of Operative Duress I
A contract may be invalidated if it can be shown to have been entered under duress. The types of duress which invalidate consent to a contract are limited in scope. The will of the person threatened must be overborne.
Pressure is permitted in business affairs, provided that it is legitimate. Parties often enter contracts which they would not ideally wish to make, but do so under the constraints of economic and personal circumstances. Many contracts are entered under the severest of personal and financial pressure. his kind of financial or personal or circumstantial pressure is not sufficient to invalidate a contract.
Operative duress, sufficient to negate a contract requires some element of improper force or coercion. A contract entered by means of a direct threat to the party or his family and other close persons is void. Contracts entered with a captor while in false imprisonment are likely to be void.
Nature of Operative Duress II
Threats (even to do something lawful) may invalidate consent to contract. Duress is not necessarily limited to threats of violence to a person or property. A contract entered by means of an illegitimate threat may be negated by duress.
Where the source of the pressure is somebody acting on behalf of a party to the contract, that party may be bound by his actions. Where the source of the duress is not the other party but comes from another entity not under the other party’s control, this may be sufficient to cause a denial of specific performance.
The nature of the pressure will be relevant. The courts draw a distinction between acceptable and unacceptable commercial pressures. Even if pressure is lawful, it may be regarded as improper and unfair.
Nature of Operative Duress III
The court determines whether the coercion has had the effect of coercing the other party to enter the contract. The duress or coercion need not be the only factor. The courts focus on the circumstances. The presence or absence of independent advice is relevant. The existence of protest or the existence of an alternative course, such as legal remedy is relevant. Also relevant is whether steps were taken to avoid the contract as soon as possible.
It is not required that the person has entirely crumbled and is left without a choice. The threat need not be the only reason why the contract was entered. If the pressure is illegitimate and it sis a significant factor in the entry into the relevant contract, this may be sufficient to negate a contract on the grounds of duress.
The availability of an alternative course of action will be considered. The alternative must be practical. There may be practical difficulties in obtaining a legal remedy in time in certain cases. In some cases, the availability of an injunction at short notice may be a practical alternative. Other speedy methods of resolution may be available in other contexts, such as under building contracts with clauses providing for arbitration and mediation.
Threats of Harm and Injury
The most blatant form of duress entails coercion by means of violence or threats of violence, false imprisonment other unlawful harm against the party, his family, or persons with whom he has a close relationship. Traditionally, duress was limited to threats of violence.
Intimidation, threats of violence and threats to the life of a party or his relatives will almost inevitably invalidate a contract. A contract procured by threats to life or limb are void. Threats of imprisonment may constitute duress.
The violence or threat need not come from the other party to the contract. A third party may overbear the will of a party, thereby negating consent.
In some cases, duress may amount to a criminal offence. The offending conduct arises where a person with a view to compel another person to do or abstain from doing something he has the right to do, wrongfully and without lawful authority
- uses violence or intimidation against the other person or his family member;
- damages or threatens that other person’s property;
- persistently follows that person from place to place;
- watches and besets the premises or the place where the other resides, works or carries out business;
- follows that person with one or more persons in a disorderly manner through a public place
The person is liable to be convicted of an offence. It is subject on summary conviction, to a fine and or imprisonment up to 12 months or an indictment imprisonment of up to five years.
It is an offence to demand payment of a debt if, by reason of its frequency and other circumstances, the demands are calculated to subject the debtor or a member of his family to alarm, distress, and humiliation.
It is an offence for a person falsely to represent that criminal proceedings may be used for the recover a debt or falsely to represent that he acts in some official capacity to enforce payment or issues a document which falsely claims to have an official character.
Threats Regarding Property
Over time, the principle of negation of contract by duress was extended to threats to a person’s property. The threat to goods such as a threat to destroy property may constitute duress, more recently, certain categories of economic duress have been permitted to negate consent to contracts.
Duress to goods, if sufficiently serious, may be a ground to avoid a contract. For example, a threat to damage or destroy property is capable of constituting duress such as to negate consent to a contract. Where false threats of compulsory acquisition are employed, the courts may refuse specific performance of the contract. In this case, the contract may exist, but the remedy of specific performance may be denied on the basis that the claimant does not have clean hands.
Threats of Criminal Prosecution
Threats of prosecution or of being reported to the authorities may be duress. It is possible to settle civil proceedings but not criminal proceedings. The compromising of a prosecution is itself an offence under criminal law.
The Non-Fatal Offences against the Person Act provides that a person who makes a demand for payment of a debt is guilty of an offence if he falsely represents that criminal proceedings apply to non-payment.
The fact that proceedings which are part of a civil claim are settled does not preclude the possibility of criminal proceedings being taken. Threats of criminal proceedings against close relatives may be sufficient to constitute the duress.
Threats of Civil Proceedings
The proper use of the legal process and the making of a lawful claim and seeking remedies does not amount to duress, even though it exerts pressure on the defendant. A person is allowed to take lawful proceedings in good faith. If the unusual and narrow circumstances in which an action constitutes an abuse of process, this may constitute duress.
Where a person has a bona fide claim, its settlement is generally legitimate. This is so even though the other party regards the claim as entirely baseless. However, Iif the claim can be shown to constitute an abuse of process, then it would not be legitimate.
Where pressure is exerted through the legal system in relation to an unconnected matter, this may amount to duress.
Economic Duress I
Economic duress is where one person obtains a benefit by exerting illegitimate economic pressure. Many practices amounting to economic duress will also be prohibited by statute as unfair commercial practices. See generally, the sections on unfair consumer contracts and unfair commercial practices.
Economic duress such as to invalidate an apparent contact must be something considerably more than commercial or economic pressure. There must be an unfair taking of advantage or coercion, for economic duress to be legally effective. The pressure must be illegitimate. Relevant factors include the source of the pressure, the nature of the pressure and its effects.
Economic Duress II
Commercial or economic pressure by itself is not enough to negate a contract. There is no general principle that renders void contracts between persons of unequal economic standing. A person is entitled to act in his own legitimate interests. It may be difficult to draw the line between legitimate pressure and economic duress.
The exercise of lawful rights may be illegitimate in certain circumstances if it is exploitative or constitutes an unfair practice. Equally, acting unlawfully but with good motives or in circumstances which are legitimate, would not necessarily constitute duress
Legitimate pressure may arise where there is a genuine dispute over rights. If there is a genuine dispute about rights and liabilities, there is unlikely to be unlawful duress.
The illegitimate pressure must come from the other party, his agents or other sources of which he is aware.
Refusing to Deal
Generally, a person is entitled not to contract with any person with whom he does not choose to do so. Suppliers are entitled to cease supplies in circumstances that do not constitute a breach of contract. A refusal to enter a contract or a threat not to do so will generally be legitimate, subject to competition rules.
A bank is entitled to enforce a security and guarantee where there the loan is breach or it is on demand. Refusal to lend monies to a business in difficulty is entirely legitimate from the perspective of a lender. This is subject to recent codes of conduct, which constrain banks and lenders in some cases.
Generally, a person may contract or refuse to contract with whomsoever he wishes, notwithstanding how inconvenient the result may be to the third party. There is no general principle of inequality of bargaining power. A person is generally allowed to act in their own self-interest, in this sense.
The principal limitation arises from competition law in relation to the abuse of a dominant position. However, few traders will have a dominant position in their market.
Duress is more likely to arise in relation to the variation of an existing contract. Where a party to a contract requires extra money to that which he already obliged to do, this may be illegitimate for the purposes of duress. Where a person offers to do something over and above his duty, this is less likely to be operative duress.
Many of the cases on economic duress involve a contractor seeking extra money beyond that provided the contract, at a very critical time in the contract. A threat to breach the contract may itself constitute economic duress. Where such a threat is made without justification, it may be sufficient to render void the contract or a variation of the contract.
Formerly, it was the case that money paid under a mistake of law was not recoverable. Where the parties are in an unequal position, the courts have recognised that demands for payments, for example, by a public authority, may involuntary and may accordingly be the subject matter or restitution. The House of Lords has proceeded in the last 15 years to overturn the traditional rule in respect of mistakes of law.
A threat by a public authority to exercise power unlawfully may amount to duress. Where money is paid to a public official to perform something which he is under a duty to do, this may be an abuse of office and be recoverable.
Effect of Duress
It must be shown that the duress actually affected the decision to enter the contract. The court considers whether the person had an alternative course of action, such as a legal remedy, whether he protested, what steps he took to avoid the contract or protest and whether he had independent advice. The existence of a practical alternative is important
If duress is proved, the party who acted under duress may elect to avoid the contract. Restitution may be ordered, to the extent practicable. If a transaction is set aside, the person who has benefited may have to account for any profits made or benefits received. Credit may be given for the expenses incurred by the party who allegedly exercised undue influence.
A delay in seeking relief from a court may cause the court to refuse or limit it. If a person does not seek immediate relief after the duress has lifted, then he may be deemed to affirm contract. If this is the case, then it is too late to claim to set aside the contract on the basis of duress.
References and Sources
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Clark, R. Contract Law in Ireland 8th Ed. (2016) Ch.12
Friel, R. The Law of Contract 2nd Ed, (2000)
McDermott, P. Contract Law (2001) 2nd Ed (2017) Ch14
Enright, M. Principles of Irish Contract Law (2007)
Clark and Clarke Contract Cases and Materials 4th Ed (2008)
English Textbooks and Casebooks
Poole, J. Casebook on contract law. (2014) 12th edition
Stone and Devenney, The Modern Law of Contract 10th Ed (2015)
McKendrick, Contract Law 10th Ed (2013)
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Chen-Wishart, M. (2015) Contract law. 5th Ed.
Cheshire, Fifoot and Furmstons, Furmstons and Fifoot Cheshire, Fifoot and Furmston’s law of contract. OUP.
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Poole, J.Casebook on contract law. 12th Ed. (2014).
Poole, J. Textbook on contract law. 12th Ed. (2014)
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Beale, H. G., Bishop, W. D. and Furmston, M. P. Contract: cases and materials. 5th ed. (2008)
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UK Practitioners Texts
Chitty on Contracts 32nd Edition, 2 Volumes & Supplement (2016)
The above are not necessarily the latest edition.