1 george mason school of law contracts ii duress f.h. buckley fbuckley@gmu.edu

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George Mason School of Law

Contracts II

Duress

F.H. Buckley

fbuckley@gmu.edu

Physical Duress is an easy one

Lee Marvin, as highwaymanLiberty Valance, holding up Jimmy Stewart, The Man Who Shot Liberty Valance (John Ford, 1962)

Physical Duress is an easy one

Restatement § 174

The Highwaymen 1962

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Ninth Circuit Judge Steve Trott

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The Highwaymen 1996

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The HighwaymenTheir Opening Act

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Was that duress?

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Was that duress?

Assume I have the right to do x (sue Johnny Cash) When is it wrongful to say “I will do x

unless you do y”

So what was the duress in Wolf v. Marlton?

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What was the duress in Wolf v. Marlton?

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A white crowd gathers on the front porch at 1863 E. 70th Street in South Los Angeles, where W.H. Whitson planned to sell his home to a black family. Sept. 7, 1949, LA Weekly

Was that duress?

What did the Δ’s do?

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What did the Δ’s do?

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4th Grade Class, Beeler Public School,Marlton NJ, 2007

Was that duress?

Just why was the threat wrongful?Restatement § 175 (an “improper threat”)

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Was that duress?

Just why was the threat wrongful?Wrongful “in a moral sense”? An

“outrageous purpose”?

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Was that duress?

Just why was the threat wrongful?Wrongful “in a moral sense”? An

“outrageous purpose”?When does a party breach “the duty of good

faith and fair dealing” in Restatement § 176(1)(d)?

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Was that duress?

You’re a New Jersey judge in 1959. You’re handed Wolf, and you think segregation is an evil. What do you do?

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Was that duress?

You’re a New Jersey judge in 1959. You’re handed Wolf, and you think segregation is an evil. What do you do?What is worse? Making the threat or

succumbing to it? Or is it the same?

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Was that duress?

You’re a New Jersey judge in 1959. You’re handed Wolf, and you think segregation is an evil. What do you do?How do the incentives cut?

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Was that duress?

What’s the remedy the Π’s seek? And why should that matter?

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Was that duress?

What’s the remedy the Π’s seek? And why should that matter?Rescissionary relief an equitable remedy

The clean hands doctrine

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Was that duress?

Just why was the threat wrongful?Wrongful “in a moral sense”? An

“outrageous purpose”?“malicious motives”?

Can you define malice?

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Was that duress?

Just why was the threat wrongful?Wrongful “in a moral sense”? An

“outrageous purpose”?“malicious motives”?

Can you define malice?

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Orson Welles and Michael MacLiammoir,Othello, 1952

Was that duress?

Just why was the threat wrongful?Wrongful “in a moral sense”? An

“outrageous purpose”?“malicious motives”?

Can you define malice?Restatement § 176(2)(a)

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Was that duress?

Suppose that the threat was to sell the house to a member of the mob? Would that have made a difference?

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Was that duress?

Just why was the threat wrongful?Wrongful “in a moral sense”? An

“outrageous purpose”?“malicious motives”?The intensity of the pressure on the Δs?

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Was that duress?

Is this case like Hochman?“Further instructive is…”

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Improper threats

The threat to reveal an embarrassing secret?

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Improper threats

The threat to reveal an embarrassing secret? Cf. Restatement § 176(1)(a) (“or if the

threat itself…”)Why is blackmail a crime?

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Improper threats

The threat to reveal an embarrassing secret? Cf. Restatement § 176(1)(a) (“or if the

threat itself…”)Why is blackmail a crime?Doesn’t it increase the cost of misbehavior?

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Improper threats

The threat to reveal an embarrassing secret? Cf. Restatement § 176(1)(a) (“or if the

threat itself…”)Why is blackmail a crime?Doesn’t it increase the cost of misbehavior?

What else is going on?

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George Mason School of Law

Contracts II

Duress

F.H. Buckley

fbuckley@gmu.edu

Improper threats

The threat to bring criminal proceedings. Restatement § 176(1)(b)

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Improper threats

The threat to bring criminal proceedings

The bad faith threat to commence a civil action. Restatement § 176(1)(c)

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Improper threats

The threat to bring criminal proceedings

The bad faith threat to commence a civil actionWhat if the Π has no knowledge of Δs

wrongdoing and asks for a settlement that is less than the cost of discovery?

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Contract ModificationAustin v. Loral

Why did Loral agree to the contract modification?

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Contract ModificationAustin v. Loral

Situational monopoliesThe possibility of post-contractual

opportunismWhat should the courts do?

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Contract ModificationAustin v. Loral

Suppose you had been counsel for Austin. How might you have amended your pleadings?

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Contract ModificationAustin v. Loral

Suppose you had been counsel for Austin? How might you have amended your pleadings?UCC §2-209(1)

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Contract ModificationAustin v. Loral

Suppose you had been counsel for Austin? How might you have amended your pleadings?UCC §2-209(1)

UCC § 1-304. Every contract or duty within [the Uniform Commercial Code] imposes an obligation of good faith in its performance and enforcement

Restatement § 89

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Why a different result in Chouinard?

Why a different result in Chouinard?

The Chicken Game in Rebel without a Cause

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Swerve Straight

Swerve Tie, Tie -10, 10

Straight 10, -10 -100, -100

Player 2

Player 1

Modeling the Chicken Game

Examples of Chicken

Chouinard?

Examples of Chicken

Chouinard? The Constitution of 1789?

Examples of Chicken

Chouinard? The Constitution of 1789 The decision to provision Fort

Sumpter?

Rescue Contracts

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SS Strathclyde, 1876

Rescue at Sea

How do Admiralty Courts handle rescue claims? Post v. Jones

Rescue at Sea

How do Admiralty Courts handle rescue claims? Post v. Jones What would an efficient rescue contract

look like?

Rescue at Sea

How do Admiralty Courts handle rescue claims? Post v. Jones What would an efficient rescue contract

look like? It would minimize all costs associated

with the possibility that the ship will be lost PLUS the rescue costs

Ex post Rescue Contracts Ex post, rescuer happens upon victim

and they bargain over a rescue.

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Ex post Rescue Contracts Ex post, rescuer happens upon victim

and they bargain over a rescue.

The rescuer will attempt a rescue* provided that L > R, where: L = the cost of the loss if no rescue R = the cost of the actual rescue

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*I assume that all attempted rescue are successful

Ex post Rescue Contracts Ex post, rescuer happens upon victim

and they bargain over a rescue.

The rescuer will attempt a rescue* provided that L > R, where: L = the cost of the loss if no rescue R = the cost of the actual rescue

The bargaining surplus to be divided between them is thus L – R.

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*I assume that all attempted rescue are successful

Rescue Contracts

Suppose that the rule of duress prevented the rescuer from bargaining for any recovery

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Rescue Contracts

Suppose that the rule of duress prevented the rescuer from bargaining for any recovery How much would the rescuer invest in R?

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Rescue Contracts

One tends to assume that the rescuer scoops the entire bargaining surplus of L – R.

Do you think this is what happened in Post v. Jones?

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Ex Ante Rescue Contracts

Suppose that rescuer and victim had to bargain ex ante for a rescue, before the victim embarked on his voyage

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Ex Ante Rescue Contracts

Suppose that rescuer and victim had to bargain ex ante for a rescue, before the victim embarked on his voyage Both parties might want to invest in pre-

rescue care

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Ex Ante Rescue Contracts

Now we have to include pre-rescue costs x and y, where: x = the pre-rescue costs born by the

victim in anticipation of the loss y = the pre-rescue costs born by the

rescuer in anticipation of the reward from the rescue

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Ex ante Rescue Contracts

By investing in pre-rescue care x the victim can reduce the probability that he’ll need to be rescued And how would he do this?

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Ex ante Rescue Contracts

By investing in pre-rescue care x the victim can reduce the probability that he’ll need to be rescued He might avoid dangerous places He might take extra precautions or extra

care

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Ex anteRescue Contracts

By investing in pre-rescue care y the rescuer can increase the probability of a successful rescue. He might frequent dangerous places He might take extra precautions or extra

care

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Rescue ContractsAn example of y

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Efficient Rescue Contracts

An efficient duress rule would minimize the Social Costs of the rescue C And these are?

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Efficient Rescue Contracts

An efficient duress rule would minimize the Social Costs of the rescue C What is the probability the vessel will go

down? What is the cost of the rescue? What are the pre-rescue costs for rescuer

and victim?

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Efficient Rescue Contracts

An efficient duress rule would minimize the Social Costs of the rescue C:

C(x,y) = Loss if ship goes down + Rescue Costs + x + y

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Efficient Rescue Contracts

An efficient duress rule would minimize the Social Costs of the rescue C:

C(x,y) = pV(1-pR)L + pVpRR + x + y, where pV is the probability that the victim will need

a rescue, and pR is the probability of a rescue

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Efficient Rescue Contracts

An efficient duress rule would minimize the Social Costs of the rescue C:

Let x* and y* be the cost-minimizing (or efficient) levels of pre-rescue care by the victim and rescuer, respectively

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Rescue Contracts Suppose that the rule of duress limited

the rescuer to a recovery of R upon a rescue. How much would the rescuer invest in y?

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Efficient Rescue Contracts

What is the rescuer awarded under Admiralty Law?

Do you think that y* > 0?

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Efficient Rescue ContractsOn Dry Land?

Livingston is an explorer who finds himself without food or water, alone in the desert. After a week he comes across an inn, owned by Conrad. “I’ll give you food and water,” says Conrad, “in exchange for all your money.” Livingston is a millionaire. “Think it over…,” says Conrad.

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Efficient Rescue ContractsOn Dry Land?

Livingston is an explorer who finds himself without food or water, alone in the desert. After a week he comes across an inn, owned by Conrad. “I’ll give you food and water,” says Conrad, “in exchange for all your money.” Livingston is a millionaire. “Think it over…,” says Conrad.

Does y* > 0?

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Efficient Rescue ContractsStatus Obligations

The optimal pre-rescue costs of the innkeeper might be 0. In that case, the rescuer is adequately compensated if he is given R for the rescue.

Enforcing a rescue contract which gives him L gives him an excessive incentive to take pre-rescue care; the victim will also take excessive care in this case.

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George Mason School of Law

Contracts II

Fraud

F.H. Buckley

fbuckley@gmu.edu