![]() ![]() In the business world, commercial pressure is often a corollary of unequal bargaining power between parties. Ī recurring issue that has often cropped up in laying the law relating to economic duress is the distinction between economic duress and mere commercial pressure. Rather, what is essential is the inequity of the act consists in compelling a person to do what he does not want to do. It is not sufficient that the extraction of some economic or financial gain results from the disproportionate standing or relationship of the parties. But, in the case of economic duress, a threat of sorts, which constitutes an illegitimate action must be necessarily present. The defence of undue influence offers protection to persons of mental or physically inadequacy where their capacity to contract need not be justified through some violation, or threatened violation, of a tort or crime. However, the former differs the latter on the ground that unconscionable bargain induced by economic duress is a possibility even between the parties who may not in economic terms be situate differently. Both concepts involve persuasion through improper conduct arising due to the relationship between the parties. Thus, any finding of economic duress must rest not only on the exclusion of consent but on the conjunction of pressure and lack of specific choice.įrom a peripheral observation, the notion of economic duress may share similarities with that of undue influence in contractual negotiations. The Court stated that “ the commercial pressure alleged to constitute economic duress must be such that the victim must have entered the contract against his will, must have had no alternative course open to him, and must have been confronted with coercive acts by the party exerting the pressure”. Lau Yiu Long, the Court laid down specific criteria to constitute economic duress in an attempt to provide an objective definition. It is characterized as ‘an unlawful coercion to perform an act by threatening financial injury at a time when one cannot exercise free will.’ It turns upon whether the commercial pressure exercised by one party on the other was such as to vitiate the other party’s consent by coercion of his will. Thus, the recognition that financial/business compulsion or economic pressure could vitiate the consent to contract paved way for the modern notion of economic duress.Ĭrudely put, economic duress involves a manipulation of the will of a person to do or not to something adverse to his commercial interests, which vitiates the consent of a party. Courts started recognising threats to economic or commercial interests as effective means of coercing unfair agreements. Rapid industrialisation demanded for a new category of duress that would account for inequities in the commercial sphere. However, with the liberal construction of common law principles, duress was no longer limited to cases of threats to the person or goods. As it emerged as a by-product of placing contractual controls on crimes and tort, threats to business of proprietary interests were not contemplated within its ambit. In the early stages of common law, duress was only limited to threats to life or limb. ![]() It may be regarded as the umbrella term which may manifest in three forms duress to person, duress to goods and economic duress. ![]() Simply put, ‘duress’ refers to undue pressure exerted on the will of a contracting party. One such factor which has gradually expanded over time, gaining increased recognition, is that of economic duress.Įconomic Duress is an extension of the classical common law doctrine of ‘duress’. When the consent of parties is subdued by some overbearing factor which deprives the contracting parties of their freedom to contract, their consent is said to be defeated and can no longer be regarded as ‘free’. It is a foundational pillar upon which the legal sanction for contractual promises is buttressed. Mutual consent of the parties, which necessarily must be free consent is sine qua non of a valid contract. Implicit in this statement by Lord Scarman is the axiom that consent is a necessary element of a contract. “Justice requires that men, who have negotiated at arm’s length, be held to their bargains unless it can be shown that their consent was vitiated…” – Lord Scarman. (Dr.) Sairam Bhat, Professor of Law, NLSIU ECONOMIC DURESS AND ITS EFFECT ON CONTRACTUAL OBLIGATIONS IN INDIA
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