Cabot Corp. v. AVX Corp. - 448 Mass. 629, 863 N.E.2d 503 (2007)

Rule:

The elements of economic duress have been described as follows: (1) that one side involuntarily accepted the terms of another; (2) that circumstances permitted no other alternative; and (3) that said circumstances were the result of coercive acts of the opposite party. To show duress, a victim must go beyond the mere showing of a reluctance to accept and financial embarrassment and show that acts of the other party produced these factors. Thus, in order to substantiate the allegation of economic duress or business compulsion, there must be a showing of acts on the part of the defendant which produced the financial embarrassment. The assertion of duress must be proved by evidence that the duress resulted from defendant's wrongful and oppressive conduct and not by plaintiff's necessities.

Facts:

J. AVX Corporation (AVX) manufactured capacitors for electronic products. In the years immediately preceding the contract, the tantalum market favored buyers and AVX purchased it from Cabot Corporation (Cabot), a major supplier of tantalum powder and wire, at preferable prices without entering binding, long-term contracts. When demand for capacitors and the tantalum used in their manufacture increased dramatically in late 2000, Cabot took advantage of what was then a seller's market to negotiate a multi-year deal aggressively. In January 2001, AVX entered into a multi-year supply contract with Cabot. Eighteen months after executing the contract, AVX brought suit in Federal court, claiming that the contract was the product of economic duress. The trial court granted summary judgment to Cabot, concluding that there was no economic duress where the contract was the product of hard bargaining and not any unlawful or wrongful act, and where the values exchanged between the parties were not disproportionate. AVX appealed and the Supreme Judicial Court of Massachusetts transferred the case from the Appeals Court on its own motion.

Issue:

Was the contract between the parties a product of economic duress, and therefore, voidable?

Answer:

No.

Conclusion:

The Court noted that the elements of economic duress were: (i) that one side involuntarily accepted the terms of another; (ii) that circumstances permitted no other alternative; and (iii) that said circumstances were the result of coercive acts of the opposite party. Thus, in order to substantiate the allegation of economic duress or business compulsion, there must be a showing of acts on the part of the defendant which produced the financial embarrassment. The assertion of duress must be proved by evidence that the duress resulted from defendant's wrongful and oppressive conduct and not by plaintiff's necessities. In this case, the Court held that AVX could not show duress, as there was no dispute that the strength of Cabot’s bargaining position in negotiating the supply contract, as well as AVX’s weakened position, was the result of a worldwide shortage of tantalum. Cabot had not created the situation, but merely taken advantage of it. Absent any legally cognizable restraint, Cabot was free to drive whatever bargain the market would bear. The Court further held that AVX had ratified the supply contract by its actions since it did not assert duress until 18 months after the contract was executed. Moreover, AVX accepted the benefits afforded it, demanded that Cabot deliver the tantalum in the quantities and in the time frames specified, and asserted the most-favored-customer protections of the contract.