Capps v. Georgia Pacific Corporation
253 Or. 248, 1969 Ore. LEXIS 448, 453 P.2d 935 (1969)
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Rule of Law:
A contract or release may be voided for economic duress if a party's assent was induced by another's wrongful threat that took advantage of the party's dire financial necessity. The key determination is whether the threat deprived the party of their free will and judgment, leaving them with no reasonable alternative but to accede to the unconscionable demand.
Facts:
- Plaintiff and Defendant agreed that Plaintiff would find a lessee for Defendant's industrial property in exchange for a commission.
- Plaintiff secured a 20-year lease for the property, which entitled Plaintiff to a commission of $157,000.
- Plaintiff was in a precarious financial condition, facing immediate foreclosure on his home and repossession of other personal property.
- Plaintiff informed Defendant of his dire financial situation and that the commission was his only available source of funds.
- Defendant, through its agent Harlow Call, acknowledged the debt was owed but refused to pay any part of it.
- Defendant's agent threatened that unless Plaintiff signed a release for only $5,000, Defendant would use its extensive resources and 'powerful and brilliant attorneys' to prevent Plaintiff from collecting any money through legal proceedings.
- Facing the loss of his property, Plaintiff signed the release and accepted the $5,000 payment.
Procedural Posture:
- Plaintiff filed a complaint against Defendant in circuit court (trial court) seeking payment of a $152,000 commission.
- Defendant filed an answer containing a general denial and an affirmative defense based on a signed release.
- Plaintiff filed a reply, asserting the release was invalid due to lack of consideration and economic duress.
- Defendant filed separate demurrers to each of the Plaintiff's affirmative replies.
- The circuit court sustained both of Defendant's demurrers.
- The circuit court entered a judgment on the pleadings for the Defendant.
- Plaintiff appealed the circuit court's judgment.
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Issue:
Does a plaintiff state a valid defense of economic duress to a release agreement by alleging that the defendant, knowing of the plaintiff's extreme financial distress, threatened to withhold a validly owed debt unless the plaintiff accepted a grossly inadequate sum?
Opinions:
Majority - Langtry, J.
Yes. A defense of economic duress is sufficiently pleaded where a plaintiff alleges that a defendant, knowing of the plaintiff's dire financial need, wrongfully threatened to withhold payment of an acknowledged debt to coerce the plaintiff into accepting a grossly inadequate settlement. The court adopted the modern rule of economic duress, which focuses on whether undue or unjust advantage has been taken of a person's economic necessity to coerce them into an agreement. The central question is factual: whether the party was deprived of the free exercise of their will and had no reasonable alternative. The court concluded that Plaintiff's allegations of his desperate financial state, Defendant's knowledge of it, the wrongful threat to withhold funds, and the gross inadequacy of the settlement were sufficient to state a defense of duress that should be tried on its facts.
Concurring - Denecke, J.
No. The allegations do not constitute economic duress, but the judgment should be reversed on other grounds. The concurring opinion argues that it would be 'judicially unwise' to classify these facts as economic duress, believing such circumstances are common in business transactions and that recognizing this defense would lead to instability. Instead, this judge would have reversed because the Plaintiff's reply sufficiently pleaded a lack of consideration. Because the $157,000 debt was liquidated and undisputed, the payment of a lesser sum ($5,000) is not valid consideration to release the entire debt. Therefore, while disagreeing with the majority's reasoning on duress, the author concurs in the result of reversing the lower court's judgment.
Analysis:
This decision represents Oregon's adoption of the modern, more equitable doctrine of economic duress, moving away from older, stricter common law rules. It establishes that a party's financial vulnerability is a relevant factor when assessing whether consent to a contract was freely given. The case broadens the potential for challenging settlement agreements by focusing on the wrongfulness of the pressure applied and the lack of a reasonable alternative for the victim. This precedent requires a fact-intensive inquiry into the bargaining process, potentially unsettling releases that were obtained by exploiting a significant disparity in economic power.
