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George Mason School of Law

Contracts I

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)

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Physical Duress is an easy one

Restatement § 174

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The Highwaymen 1962Steve Trott on the far left

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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”

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Was that duress?

Is the general principle that, provided one has the right to do x, one is permitted to extract some advantage by a threat to do x?

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What about blackmail, then?

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David Letterman

Improper threats

Does the blackmailer have the right to reveal that Letterman preyed on his female staffers?

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Improper threats

Does the blackmailer have the right to reveal that Letterman preyed on his female staffers?

Does the blackmailer have the right to ask Letterman for money?

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Improper threats

Does the blackmailer have the right to reveal that Letterman preyed on his female staffers?

Does the blackmailer have the right to ask Letterman for money?

Does the blackmailer have the right to ask Letterman for money and to tell him he will reveal the information if he is not paid?

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Improper threats

Does the blackmailer have the right to ask Letterman for money and to tell him he will reveal the information if he is not paid?

How do two rights make a wrong?

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Improper threats

Does the blackmailer have the right to ask Letterman for money and to tell him he will reveal the information if he is not paid?

Does blackmail usefully impose a cost on transgressive behavior?

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Improper threats

Does the blackmailer have the right to ask Letterman for money and to tell him he will reveal the information if he is not paid?

Does blackmail usefully impose a cost on transgressive behavior? Is it an answer that, if the blackmail is

paid, the information is not revealed?

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Improper threats

Does the blackmailer have the right to ask Letterman for money and to tell him he will reveal the information if he is not paid?

Does blackmail usefully impose a cost on transgressive behavior?

Why then is blackmail a crime?

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Improper threats

Restatement § 176(1)(a) (“or if the threat itself…”)

Restatement § 176(2)(a).

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Improper threats

How would life be different were blackmail legalized?

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Improper threats

How would life be different were blackmail legalized? Blackmail Inc.: more resources expended

to discover dirt.

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Improper threats

How would life be different were blackmail legalized? Blackmail Inc.: more resources expended

to discover dirt. Less transgressive behavior Greater effort to hide transgressive

behavior

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Improper threats

Is that the kind of world we want? If not, why not?

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Improper threats

Is that the kind of world we want? If not, why not?

Should we want a right to sin in private?

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Improper threats

Is that the kind of world we want? If not, why not?

Should we want a right to sin in private?

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The Scarlet Letter

Improper threats

Is that the kind of world we want? Are the social norms blackmail would

enforce always benign?

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Don Murray and Charles Laughton,Advise and Consent(1962)

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

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Was that duress?

What did the Δ’s do in the end?

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What did the Δ’s do?

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

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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

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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?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 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)Restatement § 89

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Why a different result in Chouinard?

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Why a different result in Chouinard?

Was this a situational monopoly?

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Rescue at Sea

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

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Rescue at Sea

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

look like?

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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 Social Costs

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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

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Ex post Rescue Contracts Let’s assume that the rescuer just

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.

If the parties can reach an agreement, 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

Suppose that the law imposed a positive Good Samaritan duty to resuce?

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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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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? Bilateral monopolies vs. competition

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Ex Ante Rescue Contracts

Suppose that rescuer and victim could bargain ex ante for a rescue, before the victim embarked on his voyage How could such a thing exist?

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Ex Ante Rescue Contracts

How could such a thing exist?

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Ex Ante Rescue Contracts

How could such a thing exist?

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Ex Ante Rescue Contracts

Suppose that rescuer and victim could 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

To minimize social costs, we now 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 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 take extra precautions or extra

care He might avoid dangerous places

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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 take extra precautions or extra

care He might frequent dangerous places

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Efficient Rescue Contracts

An efficient duress rule would minimize the Social Costs of the rescue C Adding in pre-rescue care x and y, what

would the Social Cost C be?

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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

Loss if ship goes down is pV(1-pR)L 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

Loss if there is a rescue is 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:

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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So who owes Status Obligations?Innkeepers

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So who owes Status Obligations?

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Physicians Cosmetic surgery vs. Emergency

Medical What’s the difference?

So who owes Status Obligations?

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Physicians

Restaurants

Pharmacists

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George Mason School of Law

Contracts I

Fraud

F.H. Buckley

fbuckley@gmu.edu

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