Parties Entering Into an Agreement Do So Voluntarily

Duress can present in different forms however it must amount to such that a person would perform an act that he or she would not ordinarily perform. Duress, in the context of contract law, is a common law defence and if one is successful in proving their claim of duress, the courts will not enforce that contract. What amounts to duress must also be considered i.e. how much coercion must there be and what form must it take before a contract can be avoided.

There has been some debate around the effect duress has on a contract i.e. whether it will render a contract void or voidable. In the Australian case Barton v. Armstrong [1976], Armstrong threatened to kill Barton if he did agree to buy his company shares. The Privy Council held that the plaintiff could not plead duress as it could not be established that it was the only reason he entered into the contract in question. On appeal, it was held that at common law duress was only available where it was entirely responsible for unwillingly entering into a contract however equity allowed a more flexible approach, including accepting the claim of duress, and as such the contract was void. Later cases have resulted in the now widely held belief that duress will render a contract voidable rather than void. If a contract is deemed to be void, in the eyes of the law it is as if that contract never existed however if it is deemed to be voidable, the contract is valid but may be annulled or affirmed by one of the parties to it.

In contract law, duress falls into two broad categories:

? Physical duress; to the person and also to goods,

? Economic duress.

‘At common law duress was originally confined to actual violence or threats of violence to the person’ (McDermott, 2006, p. 687), such as in Barton v. Armstrong. Later cases have established that ‘for duress to arise, the party making the contract need not be the party who was threatened with harm’ (McDermott, 2006, p. 688). In Byle v Byle [1990] a contract between parents and son to convey land was rendered voidable on the grounds of duress after it came to light that the son who was to receive the land had threatened to harm his brother if they did not pass to him.

Should a party enter into a contract because of threats to damage, detain or remove property belonging to them, they can claim to have done so under duress. For many years the courts refused to recognise this form of duress and in Skeate v Beale [1840] a landlord threatened to seize and sell the goods of a tenant if payment of rent was not forthcoming. The plaintiff’s claim that he only entered into the agreement due to the landlord’s threats was rejected by the courts. This ruling was later criticised and in Hawker Pacific v Helicopter Charter [1991] where the defendant threatened to retain a helicopter unless the plaintiff signed a waiver of liability for work performed. The courts upheld the plaintiff’s claim of duress as it was clear the defendant knew the plaintiff needed the helicopter who felt he had no other choice but to enter into the contract.

Economic duress is a relatively recent development and occurs ‘predominantly in cases involving price increases by parties who were already bound to perform the contract for a lesser price’ (McDermott, 2006, p. 693). If a party enters into a contract due to unlawful economic pressure, they can claim they have done so under duress. Economic duress can be difficult to establish given that companies dealing with each other regularly will often voluntarily renegotiate contracts as is necessary in the business world.

In North Ocean Shipping v Hyundai [1979], a shipbuilder who had already agreed a fixed price for a vessel, threatened to refuse to complete the work unless the purchaser paid 10% more than the agreed price, largely because of a fall in currency value. The plaintiff paid the additional amount and Mocatta J decided this constituted economic duress however,

since the plaintiffs had delayed in reclaiming the extra 10% until some months later and had subsequently taken delivery of a second ship their initial claim was defeated due to affirmation.

The idea that pressure alone is sufficient to render a contract voidable on the grounds of duress was tested in Pao On v Lau Yiu Long [1980] where the plaintiff threatened not to proceed with an agreed purchase of shares unless the defendant agreed to additional conditions. The contract went ahead and subsequently the additional conditions were claimed upon with the defendant purporting they were extracted from him under duress. It was in this case that Lord Scarman indicated four features to be considered to determine if duress existed:

? Did the person protest?

? Was there an alternative course of action open to him, such as legal remedy?

? Was he independently advised?

? After entering into the contract did he take steps to avoid it?

The Privy Council held in favour of the plaintiff as while they acknowledged commercial pressure existed, coercion did not.

When considering a claim of duress, there are certain factors which must be taken into account, the first of these being the source of the pressure. ‘The illegitimate pressure must come from the person with whom the victim contracts or his agent or from some other source of which he is aware’ (McDermott, 2006, p. 695). Should the pressure come from a third party, not acting as a representative or agent of the primary party, coercion will not be present. The nature of the pressure must also be examined as not all pressure can be said to be illegitimate. In the commercial world, many decisions are taken when parties are under pressure however it cannot always be said they are taken under duress. Generally speaking, an unjustified threat to breach a contract will be regarded as duress.

Part 2

Consideration

Along with offer & acceptance, intention to create a legally binding agreement and contractual capacity, consideration is an essential element for the formation of a contract. It is ‘the mechanism that the common law uses to distinguish promises that are to be enforced from promises which are not to be enforced’ (McDermott, 2006, p. 101). If A promises to give B his luxury yacht, this is merely a gratuitous promise as B has offered nothing in return. If A subsequently decides not to hand over the yacht, B cannot sue for breach of contract as there is no consideration present. If however, B agrees to give A ‘50,000 for the yacht an enforceable contract comes into being as the promise to exchange money for the boat demonstrates consideration by both parties. Consideration does not have to be monetary; if B agrees to give A his car in exchange for the yacht, consideration is present.

The classic definition of consideration comes from Currie v. Misa [1875] where Lush J stated:

‘A valuable consideration in the sense of the law may consist either in some right, interest, profit, or benefit accruing to one party, or some forbearance, loss or responsibility, given, suffered or undertaken by the other.’

One exception to the general rule that consideration must be present when a promise is made relates to a promise contained in a deed under seal as under these circumstances, the promise is taken as being seriously meant and therefore consideration is no longer required.

Consideration can be classified into three categories:

? Executory; a promise to do something, or to refrain from doing something, in the future. This is the most common form of consideration and the contract does not begin until performance has commenced.

? Executed; a unique type limited to unilateral contracts where consideration and performance occur at the same time.

? Past; should a promise be made some time after a voluntary act has been performed it is not supported by consideration.

For consideration to be valid it must be sufficient but it does not need to be adequate. ‘Adequacy refers to the situation where the price paid by a person is out of proportion to the value of what he obtains in return’ (McDermott, 2006, p. 102). The courts do not involve themselves in whether or not a contract is fair and equitable to both parties ; if A wanted to sell his luxury yacht to B for ’10 it is clear the consideration is not adequate however this does not affect the validity of the consideration. Manners LC stated ‘If there be a fair and bona fide consideration, the court will not enter minutely into it, and see that it is full and ample.’

In Chappell & Co v. Nestle [1960], Nestle were offering a popular record in return for 1/6d along with 3 wrappers from their chocolate bars and the court held that the wrappers were sufficient consideration despite the fact that are essentially worthless and normally discarded.

Whilst consideration does not have to be adequate, it does have to be sufficient i.e. ‘it must be something that is capable of being recognised as consideration by the courts’ (McDermott, 2006, p. 103). In the American case Hamer v. Sidway [1891] an uncle promised to pay his nephew $5000 if he refrained from ‘drinking liquor, using tobacco, swearing and playing cards or billiards for money’ until the age of 21. The nephew refrained and the courts held he had provided sufficient consideration by refraining from engaging in the activities stated which he was legally entitled to.

An example of what does not amount to sufficient consideration can be found in O’Neill v. Murphy [1936] where a builder sued a Canon in respect of works completed to parish buildings. The defendant claimed the contract between the parties involved daily prayers being said for the builder in return for work completed however the court held that prayers did not amount to sufficient consideration.

Natural love and affection is not deemed to amount to sufficient consideration, nor does moral obligation. In Zecevic v. The Russian Orthodox Christ the Saviour Cathedral [1988] the priest and the Church were sued for failing to perform a funeral service and the question arose as to whether or not there was any consideration given in exchange for the service. It was held in court that because at no time payment was made or promised no legal consideration was involved.

If an individual is bound to perform a duty, this is not regarded as sufficient consideration unless ‘the duties performed go beyond those that are required’ (McDermott, 2006, p. 107). Public servants are bound to perform their public duty thus a doctor could not enforce a promise to pay him for examining a sick child in the course of his normal working day. One of the leading cases of this nature is Glasbrook v. Glamorgan [1925] where the owners of a coal mine sought police protection of the mine during a strike. The police offered to provide a patrol of the mine however the owners wanted a static presence which was provided after additional payment was agreed. The mine owners subsequently refused to pay claiming consideration was not present as the police were under a public duty to provide the protection. The House of Lords agreed that whilst this was the case, the police had exercised their discretion to provide increased protection and thus could amount to sufficient consideration.

Similarly, the performance of an act one party is already contractually obliged to fulfil is not deemed to be consideration for a further promise. In Stilk v Myrick [1809] the captain of a ship agreed to pay his crew additional wages to make the voyage home short-handed after two sailors deserted. He refused to pay and the crew sought to recover their what they had been promised however the courts found that no further consideration had been provided and the crew were merely undertaking what they had already agreed to do. Given that this case occurred some 200 years ago, there have been more recent examples which challenge this ruling.

The famous rule in Pinnel’s case states that part payment of an existing debt, paid on the due date, will not satisfy the whole debt owed as no further consideration has been provided. Exceptions to this rule include where a new element has been introduced so as to amount to fresh consideration. In the same way, if a third party satisfies part of the debt, this is considered to amount to fresh consideration and the debtor will have no recourse to recover the balance. A third example is promissory estoppel which holds that a person is prevented from reneging on a promise, not supported by consideration, which another person has relied upon.

Consideration has been the subject of many cases in law and has been criticised on many occasions however it remains a necessity for the formation of an enforceable contact and a crucial element of contract law.