Generally, courts will respect and enforce the terms of a contract. However, one exception to that rule involves situations where one party was coerced into signing a contract by the other party. Economic duress occurs when one side threatens to breach the agreement if the other party doesn’t accept the new terms. When it occurs, the party who was coerced can void the contract. However, as demonstrated by a recent case, proving economic duress is difficult.
In CRG at Arnot Mall, Inc., et al v. Feehan, (2019 NY Slip Op 08467), the parties had entered into an agreement pursuant to which the Defendant (“Feehan”) was to purchase four (4) McDonald’s restaurant locations from the Plaintiff. The Contract of Sale (the “Contract”) provided that Feehan was to receive a “reinvestment credit” in an amount to be determined prior to closing. This was to cover the cost of improvements required by McDonald’s’ organization. Subsequently, McDonald’s determined that $725,000.00 would need to be expended for improvements, meaning that Feehan would receive a credit in that amount against the $4,200,000 purchase price. However, rather than reduce the price by the reinvestment credit, the parties renegotiated the transaction and reduced the price by approximately $315,000.00 and closed the transaction. It was in connection with this amendment to the Contract that Feehan raised her claim of economic duress. The lower court found there was economic duress, but the New York Appellate Division, Third Department disagreed finding the requirements were not met.
To establish economic duress, the party claiming to have been under duress must demonstrate, by admissible proof, that the other party threatened to breach the agreement by withholding performance unless the aggrieved party agreed to an additional demand. The mere threat of a breach is insufficient if the party who has been threatened can obtain the goods or services elsewhere and can thereafter pursue the customary legal remedies for a breach of contract against the alleged offender.
The Court in CRG apparently believed that Feehan “could have obtained performance of the contract from another source” and that Feehan had additional legal remedies available to her. Indeed, Feehan’s husband, while testifying on behalf of the Defendant, had indicated that he and Feehan had “weighed whether to take possession of the restaurants and then sue to have the original agreement enforced or not take possession and then sue Plaintiff for specific performance” but had instead chosen to close the transaction. The Court found that the fact that Feehan had chosen neither of the options she had considered did not mean that such remedies were not available.
It should be noted that a contract procured through economic duress is not automatically void and unenforceable but is rather only voidable by the party who claims to have been under duress. The failure to take immediate action to void a contract entered into under economic duress can constitute a ratification of the same even where economic duress is eventually proven.
If you feel you have been coerced into entering an agreement under economic duress or if you are defending a claim based upon economic duress, please contact one of our litigation attorneys.