Palmer Barge Line, Inc. v. Southern Petroleum Trading Co., Ltd., s. 83-2354

• Decision Date: 12 November 1985
• Docket Number: Nos. 83-2354,84-2485 and 84-2677,s. 83-2354
• Citation: 776 F.2d 502
• Parties: PALMER BARGE LINE, INC., Plaintiff-Appellee, v. SOUTHERN PETROLEUM TRADING CO., LTD., Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 502

776 F.2d 502

PALMER BARGE LINE, INC., Plaintiff-Appellee, v. SOUTHERN PETROLEUM TRADING CO., LTD., Defendant-Appellant.

Nos. 83-2354, 84-2485 and 84-2677.

United States Court of Appeals Fifth Circuit.

Nov. 12, 1985.

Benckenstein, McNicholas, Oxford, Radford, Johnson & Nathan, Mary Ellen Blade, Beaumont, Tex., for plaintiff-appellee.

Gibbs & Ratliff, L. Rand Dennis, Houston, Tex., for defendant-appellant.

Appeal from the United States District Court for the Eastern District of Texas.

Before GARZA, TATE and JOHNSON, Circuit Judges.

JOHNSON, Circuit Judge.

Palmer Barge Line, Inc. ("Palmer Barge") brought this maritime action pursuant to Rule 9(h) of the Federal Rules of Civil Procedure seeking to recover damages from Southern Petroleum Trading Company, Ltd. ("Southern Petroleum") for breach of a charter-party. In response to Palmer Barge's complaint, Southern Petroleum asserted that Palmer Barge had signed a release absolving Southern Petroleum of any liability arising out of the charter. After a bench trial, the trial court concluded that Palmer Barge had signed the release under economic duress and thus that the release was invalid. The trial court then entered judgment in favor of Palmer Barge awarding $294,657.02 in damages for breach of the charter. Southern Petroleum appeals from the judgment of the trial court. This Court concludes that the release was not obtained by economic duress. The judgment of the trial court is reversed and judgment is rendered in favor of Southern Petroleum.

I. BACKGROUND

On June 17, 1980, Southern Petroleum entered into an agreement with Palmer Barge to charter the M/V PALMER and two barges. The charter-party, which was to terminate on June 16, 1981, specified the daily charge for the vessels and obligated Southern Petroleum to pay all fuel and lubrication charges. Until September 1980, Southern Petroleum used the vessels in its business and made regular payments to Palmer Barge.

Beginning in September 1980, however, Southern Petroleum fell behind in making payments under the charter. At an October 1980 meeting with John Palmer, president of Palmer Barge, a representative of Southern Petroleum, Herb Jamison, stated that Southern Petroleum wanted to cancel the charter. Southern Petroleum believed that it had been fraudulently induced into signing the charter at a price well above the market price by its own employee, Mike Schneider. John Palmer denied any knowledge of Schneider's scheme to defraud Southern Petroleum and refused to cancel the charter. According to Palmer, after the October meeting with Herb Jamison, Palmer was notified by Jamison during a telephone conversation that Southern Petroleum would not pay the money due under the charter pending settlement of the charter dispute.

On November 4, 1980, an attorney for Southern Petroleum wrote Palmer Barge that the charter would be cancelled effective November 11 and that Palmer Barge was authorized and urged to recharter the vessels in accordance with its responsibility to mitigate damages. After receiving the November 4 letter, Palmer Barge retained an attorney to provide advice regarding its charter dispute with Southern Petroleum. The attorney retained by Palmer Barge met with Southern Petroleum's attorney in an attempt to settle the dispute. After this meeting, Palmer Barge's attorney drafted a proposed cancellation agreement which was signed by John Palmer and forwarded to Southern Petroleum's attorney under cover of a letter dated November 13, 1980. Under this proposal, Palmer Barge agreed to cancel the charter in exchange for payment by Southern Petroleum of $357,216.16. At the time of Palmer Barge's proposal, Southern Petroleum owed approximately $278,000.00 in past due payments under the charter.

Southern Petroleum rejected Palmer Barge's proposal but made a counteroffer to Palmer Barge. Southern Petroleum proposed to pay Palmer Barge approximately $283,000.00 in exchange for an agreement to cancel the charter. Palmer rejected this proposal but on Saturday, November 14, 1980, Palmer agreed to cancel the charter in exchange for $278,231.82, the amount due as of November 12, 1980, under the charter. Under the terms of the cancellation agreement, Palmer agreed to cancel the June 17, 1980, charter and to release Southern Petroleum from all claims arising out of either the charter or cancellation of the charter. ¹

Despite Palmer Barge's efforts to recharter the vessels previously chartered by Southern Petroleum, Palmer Barge ultimately received far less in charter fees than it would have under its charter with Southern Petroleum. Consequently, Palmer Barge filed the instant maritime action against Southern Petroleum for breach of contract on September 29, 1981, in the United States District Court for the Eastern District of Texas. The case was tried on February 17, 1983, by consent before a United States Magistrate. On May 20, 1983, the trial court entered judgment in favor of Palmer Barge and awarded damages of $294,657.02 based on the trial court's finding that the November 14, 1980, cancellation agreement was executed under economic duress and was thus invalid. ² The sole issue presented on appeal is whether the trial court properly concluded that the cancellation agreement was obtained by economic duress.

II. DISCUSSION

In the instant case, Southern Petroleum refused to make payments under the charter pending settlement of its dispute with Palmer Barge. However, the failure or refusal to pay a contractual debt, without more, is insufficient to establish economic duress. Hartsville Oil Mill v. United States, 271 U.S. 43, 49, 46 S.Ct. 389, 391, 70 L.Ed. 822 (1926) ("a threat to break a contract does not in itself constitute duress"). The party seeking to establish economic duress must show that a wrongful threat ³ was made which was of such character as to destroy the free agency of the party to whom the threat was directed. See Lee v. Hunt, 631 F.2d 1171, 1178 (5th Cir.1980), cert. denied, 454 U.S. 834, 102 S.Ct. 133, 70 L.Ed.2d 112 (1981) (applying Texas law); Tower Contracting Co., Inc. of Texas v. Burden Brothers, Inc., 482 S.W.2d 330, 335 (Tex.Civ.App.--Dallas 1972, writ ref. n.r.e.); Sanders v. Republic National Bank of Dallas, 389 S.W.2d 551, 554 (Tex.Civ.App.--Tyler 1965, no writ). ⁴ The determination of whether a party's will has been overcome is a question of fact which must be decided according to the totality of circumstances in a given case. Although duress is difficult to prove, a showing of imminent financial distress coupled with the absence of any reasonable alternative to the terms presented by the wrongdoer may be sufficient to establish economic duress. See Sonnleitner v. C.I.R., 598 F.2d 464, 468 (5th Cir.1979).

The trial court in the instant case found that Southern Petroleum's refusal to pay money due under the charter created sufficient financial distress to constitute economic duress. After carefully reviewing the record, however, this Court is constrained to hold that the finding of the trial court was clearly erroneous. In finding economic duress, the trial court relied upon testimony by John Palmer that Palmer Barge "needed the money" and "would be in bad shape" without the money. Record Vol. II at 27-28. Palmer also testified that Palmer Barge had "an economic gun" held to its head by Southern Petroleum and that if Palmer Barge hadn't received the money due, "the poorhouse [was] just a step away." Record Vol. II at 56.

Given the circumstances in the instant case, Palmer's general statements that Palmer Barge needed the money due under the charter failed to establish financial distress. Moreover, Palmer's conclusory allegations of financial need were simply not...