Brief Fact Summary. Plaintiff Totem and its vice-president Robert Stair brought suit against Defendant Alyeska to rescind an agreement releasing Defendant from all claims in exchange for $97,500. Plaintiff argued that he was forced to sign such agreement to avoid being bankrupt and therefore seek to avoid the agreement on grounds of economic duress.
Synopsis of Rule of Law. Economic Duress exists where (1) one party involuntarily accepts the terms of another, (2) circumstances permitted no other evidence, and (3) such circumstances where the result of coercive acts of the other party.
Plaintiff contracted with Defendant to transport pipeline construction materials from Houston, Texas, to a designated spot in Southern Alaska. From the outset of the operations Plaintiff encountered numerous difficulties which severely delayed performance of the contract. Plaintiff was originally supposed to load between 1,800 to 2,100 tons at Texas, and perhaps pick up another 6,000 to 7,000 tons along the way. Upon arriving in Texas, however, Plaintiff found that it was to load about 6,700 to 7,200 tons of pipe which was poorly loaded and stocked. Although Plaintiff was only supposed to take 3 days to load the pipe, it took them nearly thirty days. Plaintiff continued to encounter difficulties on its way up the coast of California and due to the increased load it was carrying, it was forced to weight three more days for a second tug boat which would assist in carrying the increased load. Defendant required Plaintiff to dock instead in San Pedro, California, where the vessels
which had been carrying the pipeline were unloaded without Plaintiff’s consent. Defendant then cancelled the contract refusing to give a reason for termination. Plaintiffs presented Defendant with an invoice with charges of $260,000 to $300,000. Plaintiff alleged that it was in urgent need of cash, and that if it didn’t soon pay off its bills, it would have had to declare bankruptcy, and that Defendant, who had knowledge of Plaintiff’s financial troubles, deliberately stalled on payment in order to reach a settlement. Plaintiff eventually agreed to release Defendant from all liability in exchange for $97,500. Plaintiff then brought suit to rescind the amended agreement and to recover the balance allegedly owed on grounds of economic duress. The Trial Court granted Defendant’s motion for summary judgment and Plaintiff’s appealed.
Issue. Whether Plaintiff was forced to accept the terms and conditions of the amendment such as to allow rescission based on economic duress.
Held. The Court of Appeals, in overturning the lower Court, held that economic duress exists where (1) one party involuntary accepts the conditions of the other party, (2) circumstances permitted no alternative, and (3) such circumstances were the result of coercive acts of the other party. The Court held the Plaintiff had introduced sufficient evidence to withstand a motion for summary judgment. Plaintiff showed that Defendant had deliberately withheld payments of a debt, with knowledge that Plaintiff had no choice but to accept the conditions of the amendment or declare bankruptcy, and that the only way Plaintiff would be able to avoid bankruptcy would be to accept the amendment. The Court then remanded the case back to the trial court for a complete factual determination of whether a claim for economic duress truly existed.
Discussion. A party may rescind an agreement if they can show that they entered into such agreement under economic duress.