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Economic Duress

What Is Economic Duress?

Economic duress refers to a situation where an individual or entity is forced into a contractual agreement or obligation due to unlawful or improper pressure or threats related to their financial stability.

This concept recognizes that not all agreements are entered into freely and that significant economic pressure can undermine the voluntariness of an agreement.

Economic Duress Explained

The doctrine of economic duress is applied in legal contexts to determine the validity of contracts and agreements.

It hinges on the principle that consent obtained under severe economic pressure, which leaves the victim with no reasonable alternative but to agree, is not genuine consent. For a claim of economic duress to be successful, the pressured party must demonstrate that:

1. The pressure exerted was illegitimate or unlawful.

2. The pressure was a significant cause in their decision to enter into the contract.

3. They had no reasonable alternative but to accept the terms offered.

Economic duress can involve threats to break a contract, withhold payments, or any other coercive economic measures that force an individual or company into a disadvantageous position.

The legal system aims to protect parties from being coerced into agreements that they would not have otherwise made under fair circumstances.

The Term Economic Duress in Different Legal Contexts

Economic duress is relevant in both commercial transactions and employment relations. In commercial law, it may affect the enforceability of contracts when a party has been forced into the agreement through financial pressure.

In employment law, economic duress might be claimed if an employee is compelled to sign a contract under the threat of unreasonable harm, such as wrongful termination or significant changes to their employment conditions.

Common Misconceptions About the Meaning of Economic Duress

A common misconception is that any financial pressure constitutes economic duress. However, not all financial pressures are considered unlawful or illegitimate.

The legal concept of economic duress specifically involves coercive, wrongful threats or actions that leave the victim with no reasonable alternative. Normal commercial pressures, such as hard bargaining or the threat of losing a deal, typically do not qualify as economic duress.

Another misunderstanding is that economic duress can only be claimed by individuals or smaller entities against larger, more powerful entities.

While it's true that smaller parties may often be the victims of economic duress, the doctrine applies to any situation where the criteria are met, regardless of the size or power of the parties involved.

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What Is Economic Duress?

Economic Duress Explained

The Term Economic Duress in Different Legal Contexts

Common Misconceptions About the Meaning of Economic Duress

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