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Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: June 12, 2019

Court Refused to Void Contract Because of Economic Duress

On June 4, 2019, Justice Sherwood of the New York County Commercial Division issued a decision in Snyder v. JP Morgan Sec. LLC, 2019 NY Slip Op. 31582(U), refusing to void a contract because of economic duress, explaining:

In the First Cause of Action, plaintiff seeks to have the Agreement, or at least the release sections, declared unenforceable, as he was forced to sign it under extreme duress. In order to justify the  intervention of equity to rescind a contract, a party must allege fraud in the inducement of the contract; failure of consideration; an inability to perform the contract after it is made; or a breach in the contract which substantially defeats the purpose thereof.

The complaint does not allege economic duress, as it does not allege that plaintiff was compelled to sign the Agreement by means of a wrongful threat which precluded the exercise of his free will.

As far as plaintiff alleges this claim based on a theory of economic duress, the claim fails because the mere threat not to correct the allegedly false FINRA filing and the threat to continue to disparage Snyder to his clients are insufficient to support the claim. Economic duress, like duress, generally, provides an injured party with grounds to void a contract. Proof of the existence of economic duress requires a showing that one party to a contract has threatened to breach the agreement by withholding performance unless the other party agrees to some further demand. A party cannot be guilty of economic duress, however, for refusing to do that which it is not legally required to do or for threatening to do that which it is legally authorized to do. Thus, a plaintiff is not entitled to rescind a contract on the ground of economic duress where the menace alleged by the plaintiffs is the exercise of a legal right.

Economic duress is also not present where one party offers the other a business arrangement that the offeree is free to accept or reject. Plaintiff was represented by counsel in the negotiations culminating in signing of the Agreement and was free to accept or reject the Agreement, and does not claim otherwise.

In this case, plaintiff signed the release and accepted the benefits of the Agreement almost three years prior to commencing this action. Having accepted the benefits of the bargain and waited for years before taking action to repudiate it, Snyder has ratified the contract and is barred from asserting duress now.

(Internal quotations and citations omitted).

As this decisions discusses, a claim of duress can relate to economic duress, and not just the paradigm case of someone being forced to sign a contract with a gun to their head. But, as this decision also shows, the standards for pleading duress are demanding. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding a contract entered into under duress.

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