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Chouinard v. Chouinard - 568 F.2d 430 (5th Cir. 1978)

Rule:

A contract is voidable where undue or unjust advantage has been taken of a person's economic necessity or distress to coerce him into making the agreement. However, a duress claim of this nature must be based on the acts or conduct of the opposite party and not merely on the necessities of the purported victim. Thus, the mere fact that a person enters into a contract as a result of the pressure of business circumstances, financial embarrassment, or economic necessity is not sufficient. Unless wrongful or unlawful pressure is applied, there is no business compulsion or economic duress, and such a claim cannot be predicated on a demand which is lawful or on the insistence of a legal right.

Facts:

Plaintiff debtors appealed from the United States District Court for the Northern District of Georgia that entered a judgment on a jury verdict, which found that promissory notes executed by plaintiffs to defendant creditors had been made under duress, but that duress had been waived by plaintiffs making voluntary payments on the notes. Defendant creditors contributed to the start-up of plaintiff debtors' security company. There had been a longstanding dispute over the percentage of defendants' ownership in the company. When plaintiffs created financial hardship for the company, defendants seized the opportunity to settle their ownership rights by allegedly forcing plaintiffs to execute promissory notes to buy out their interests in return for defendants' releases of those interests needed by plaintiffs to secure bank financing to meet the company's payroll.

Issue:

Were the promissory notes executed under duress?

Answer:

No

Conclusion:

The court affirmed the judgment on the jury's verdict in favor of defendant creditors because its review of the record established that there was no duress as a matter of law involved when plaintiff debtors executed promissory notes to defendants. Plaintiffs' economic troubles were not caused by defendants. Furthermore defendants were merely asserting their legal rights in forcing a settlement of a stock ownership dispute in plaintiffs' company. It was clear that the financial distress in which plaintiff Fred Chouinard found himself and his company was of his own making. He admitted that he had made "foolish" business judgments that had put the company in a bind regarding its cash flow. Moreover, at that point the banks with whom the company had been dealing withdrew their "line of credit" financing. While there was ample evidence of economic necessity and financial peril, neither the "threat of considerable financial loss" nor "impending bankruptcy" established economic duress. Such economic stress had to be attributable to the party against whom duress was alleged. Mere hard bargaining positions, if lawful, and the press of financial circumstances, not caused by the party against whom the contract is sought to be voided, was not to be deemed duress.

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