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1 George Mason School of Law Contracts I Duress F.H. Buckley

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1 1 George Mason School of Law Contracts I Duress F.H. Buckley

2 Physical Duress is an easy one Lee Marvin, as highwayman Liberty Valance, holding up Jimmy Stewart, The Man Who Shot Liberty Valance (John Ford, 1962) 2

3 Physical Duress is an easy one Restatement § 174 3

4 The Highwaymen 1962 Steve Trott on the far left 4

5 Ninth Circuit Judge Steve Trott 5

6 The Highwaymen

7 The Highwaymen Their Opening Act 77

8 Was that duress? 8

9 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 9

10 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? 10

11 What about blackmail, then? 11 David Letterman

12 Improper threats Does the blackmailer have the right to reveal that Letterman preyed on his female staffers? 12

13 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? 13

14 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? 14

15 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? 15

16 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? 16

17 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? 17

18 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? 18

19 Improper threats Restatement § 176(1)(a) (or if the threat itself…) Restatement § 176(2)(a). 19

20 Improper threats How would life be different were blackmail legalized? 20

21 Improper threats How would life be different were blackmail legalized? Blackmail Inc.: more resources expended to discover dirt. 21

22 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 22

23 Improper threats Is that the kind of world we want? If not, why not? 23

24 Improper threats Is that the kind of world we want? If not, why not? Should we want a right to sin in private? 24

25 Improper threats Is that the kind of world we want? If not, why not? Should we want a right to sin in private? 25 The Scarlet Letter

26 Improper threats Is that the kind of world we want? Are the social norms blackmail would enforce always benign? 26 Don Murray and Charles Laughton, Advise and Consent (1962)

27 So what was the duress in Wolf v. Marlton? 27

28 What was the duress in Wolf v. Marlton? 28 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 28

29 Was that duress? What did the Δs do in the end? 29

30 What did the Δs do? 30 4th Grade Class, Beeler Public School, Marlton NJ,

31 Was that duress? Just why was the threat wrongful? Restatement § 175 (an improper threat) 31

32 Was that duress? Just why was the threat wrongful? Wrongful in a moral sense? An outrageous purpose? 32

33 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)? 33

34 Was that duress? Youre a New Jersey judge in Youre handed Wolf, and you think segregation is an evil. What do you do? 34

35 Was that duress? Youre a New Jersey judge in Youre 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? 35

36 Was that duress? Youre a New Jersey judge in Youre handed Wolf, and you think segregation is an evil. What do you do? How do the incentives cut? 36

37 Was that duress? Whats the remedy the Πs seek? And why should that matter? 37

38 Was that duress? Whats the remedy the Πs seek? And why should that matter? Rescissionary relief an equitable remedy The clean hands doctrine 38

39 Was that duress? Just why was the threat wrongful? Wrongful in a moral sense? An outrageous purpose? malicious motives? Can you define malice? 39

40 Was that duress? Just why was the threat wrongful? Wrongful in a moral sense? An outrageous purpose? malicious motives? Can you define malice? 40 Orson Welles and Michael MacLiammoir, Othello,

41 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) 41

42 Was that duress? Suppose that the threat was to sell the house to a member of the mob? Would that have made a difference? 42

43 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? 43

44 Was that duress? Is this case like Hochman? Further instructive is… 44

45 Improper threats The threat to bring criminal proceedings. Restatement § 176(1)(b) 45

46 Improper threats The threat to bring criminal proceedings The bad faith threat to commence a civil action. Restatement § 176(1)(c) 46

47 Improper threats The threat to bring criminal proceedings The bad faith threat to commence a civil action What if the Π has no knowledge of Δs wrongdoing and asks for a settlement that is less than the cost of discovery? 47

48 Contract Modification Austin v. Loral Why did Loral agree to the contract modification? 48

49 Contract Modification Austin v. Loral Situational monopolies The possibility of post-contractual opportunism What should the courts do? 49

50 Contract Modification Austin v. Loral Suppose you had been counsel for Austin. How might you have amended your pleadings? 50

51 Contract Modification Austin v. Loral Suppose you had been counsel for Austin? How might you have amended your pleadings? UCC §2-209(1) 51

52 Contract Modification Austin v. Loral Suppose you had been counsel for Austin? How might you have amended your pleadings? UCC §2-209(1) Restatement § 89 52

53 Why a different result in Chouinard? 53

54 Why a different result in Chouinard? Was this a situational monopoly? 54

55 Rescue at Sea How do Admiralty Courts handle rescue claims? Post v. Jones 55

56 Rescue at Sea How do Admiralty Courts handle rescue claims? Post v. Jones What would an efficient rescue contract look like? 56

57 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 57

58 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 58

59 Ex post Rescue Contracts Lets assume that the rescuer just happens upon victim and they bargain over a rescue. 59

60 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 60 *I assume that all attempted rescue are successful

61 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. 61 *I assume that all attempted rescue are successful

62 Rescue Contracts Suppose that the rule of duress prevented the rescuer from bargaining for any recovery 62

63 Rescue Contracts Suppose that the rule of duress prevented the rescuer from bargaining for any recovery How much would the rescuer invest in R? 63

64 Rescue Contracts Suppose that the law imposed a positive Good Samaritan duty to resuce? 64

65 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? 65

66 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 66

67 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? 67

68 Ex Ante Rescue Contracts How could such a thing exist? 68

69 Ex Ante Rescue Contracts How could such a thing exist? 69

70 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 70

71 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 71

72 Ex ante Rescue Contracts By investing in pre-rescue care x the victim can reduce the probability that hell need to be rescued And how would he do this? 72

73 Ex ante Rescue Contracts By investing in pre-rescue care x the victim can reduce the probability that hell need to be rescued And how would he do this? 73

74 Ex ante Rescue Contracts By investing in pre-rescue care x the victim can reduce the probability that hell need to be rescued He might take extra precautions or extra care He might avoid dangerous places 74

75 Ex ante Rescue 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 75

76 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? 76

77 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? 77

78 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 78

79 Efficient Rescue Contracts Loss if ship goes down is p V (1-p R )L p V is the probability that the victim will need a rescue, and p R is the probability of a rescue 79

80 Efficient Rescue Contracts Loss if there is a rescue is p V p R R + x + y, where p V is the probability that the victim will need a rescue, and p R is the probability of a rescue 80

81 Efficient Rescue Contracts An efficient duress rule would minimize the Social Costs of the rescue C: C(x,y) = p V (1-p R )L + p V p R R + x + y, where p V is the probability that the victim will need a rescue, and p R is the probability of a rescue 81

82 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 82

83 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? 83

84 Efficient Rescue Contracts What is the rescuer awarded under Admiralty Law? Do you think that y* > 0? 84

85 Efficient Rescue Contracts On 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. Ill give you food and water, says Conrad, in exchange for all your money. Livingston is a millionaire. Think it over…, says Conrad. 85

86 Efficient Rescue Contracts On 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. Ill 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? 86

87 Efficient Rescue Contracts Status 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. 87

88 So who owes Status Obligations? Innkeepers 88

89 So who owes Status Obligations? 89 Physicians Cosmetic surgery vs. Emergency Medical Whats the difference?

90 So who owes Status Obligations? 90 Physicians Restaurants Pharmacists

91 91 George Mason School of Law Contracts I Fraud F.H. Buckley 91


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