The effect of duress and undue influence in transactions
Tajudeen is a pharmacist with a small retail store in Olodi Apapa. He embarks on the importation of certain drugs from India, after fulfilling the requirements of the National Agency for Food and Drug Administration and Control (NAFDAC). Being completely new to the business, he engages the services of Godfrey, a clearing agent in the neighbourhood.
Godfrey agrees to facilitate the importation and clearing of the goods at Apapa Wharf in Lagos. The terms of the transaction are discussed and the fees are agreed on. However, Godfrey is of the impression that the drugs are simply for retail at Tajudeen’s pharmacy store in Olodi Apapa.
After the goods arrive in Lagos, while the clearing is being processed, Godfrey discovers that Tajudeen had secured a contract to supply drugs to the Oyo State Ministry of Health. Indeed, the goods at the wharf are specifically for the fulfilment of that contract and not for the retail pharmacy, as previously assumed. In the light of this, Godfrey confronts Tajudeen and renegotiates his fees for an increase of 10 per cent. Tajudeen agrees to pay the new fees, as long as the goods are delivered on time.
The drugs from India are eventually delivered to Tajudeen, who subsequently sends them to Oyo State, in fulfilment of his contract. Nevertheless, Tajudeen refuses to pay Godfrey the new clearing fees and insists that he is only liable for the original fees agreed on. What is the position of the law on a transaction of this nature?
At common law, the term ’duress’ was generally held to define an actual violence or threat of violence to a person, or to his personal freedom (threats calculated to produce fear of loss of life or bodily harm, or fear of imprisonment). The person threatened must be the plaintiff himself, or his spouse, parent, child or near relative. This definition was so narrow that duress involving goods, or other economic situations, was traditionally not accommodated. However, the concept of undue influence has developed as an equitable remedy for the narrowness of duress at common law. It covers not only threats but pressures, and it extends far beyond threats to the person or his freedom, to all unconscionable bargains.
The legal issues involved are:
- The meaning of ‘duress’ in law.
- The incidence of economic duress.
- The effect of duress or undue influence in a transaction.
From the case of Maskell v. Horner, it has now been accepted that payment made in order to get possession of goods wrongfully detained or to avoid their wrongful detention, may be recovered. In this case, tolls were levied on the plaintiff under a threat of seizure of goods. According to Lord Reading, “If a person pays money, which he is not bound to pay, under the compulsion of urgent and pressing necessity or of seizure, actual or threatened, of his goods, he can recover it as money had and received.”
In the transaction between Tajudeen and Godfrey, there was an agreement for the provision of importation and clearing services. The business was entered into on agreed terms but was later renegotiated for an increase of fees payable to the agent.
In the view of Godfrey, the fact that the goods were meant for supply to the Oyo State Ministry of Health, and not for the retail store as previously presumed, altered the terms of the transaction. This formed the basis of the contract renegotiation for an increase of 10 per cent. The argument now is that since Tajudeen agreed to the new fees, he is liable to pay, as the delivery of goods was facilitated to enable him fulfil his contract to Oyo State.
However, this position is not supported by law. Tajudeen entered into an agreement without regard for the purpose of the goods to be imported. It is immaterial whether the goods are for commercial purposes or for private use. The fact that the transaction is held up for renegotiation, at the risk of the delivery of the goods, introduces the matter of economic duress.
In the related case of North Ocean Shipping Co. Ltd. v. Hyundai Construction Co. Ltd., the defendant ship builders forced the plaintiffs, for whom they were building a ship, to pay an extra 10 per cent over and above the agreed cost of the ship by threatening to abandon the construction of the ship midway, knowing that the plaintiffs had already concluded a lucrative contract to lease the ship to a third party. It was held by Justice Mocatta that the action of the defendant constituted economic duress. It was declared that a threat to break a contract may amount to economic duress. Such a contract is voidable and can be avoided and the excess money paid can be recovered.
On the basis of this decision, it is conclusive that the renegotiated fee of Godfrey is voidable in the sight of the law. Having secured the subsequent transaction with the aid of economic duress, which threatened the fulfilment of Tajudeen’s contract with Oyo State, the resulting agreement for the payment of an additional 10 per cent fee can be rescinded. Tajudeen is not liable to make the extra payment.
Principles and cases are from Sagay: Nigerian Law of Contract