Rich & Whillock, Inc. v. Ashton Development, Inc.

• Decision Date: 29 June 1984
• Citation: 204 Cal.Rptr. 86,157 Cal.App.3d 1154
• Court: California Court of Appeals Court of Appeals
• Parties: RICH & WHILLOCK, INC., Plaintiff and Respondent, v. ASHTON DEVELOPMENT, INC., et al., Defendants and Appellants. D000849. Civ. 28919.

Page 86

204 Cal.Rptr. 86

157 Cal.App.3d 1154

RICH & WHILLOCK, INC., Plaintiff and Respondent, v. ASHTON DEVELOPMENT, INC., et al., Defendants and Appellants.

D000849.

Civ. 28919.

Court of Appeal, Fourth District, Division 1, California.

June 29, 1984.

Phillip Stein, Orange, for defendants and appellants.

Thomas E. Wenbourne, El Cajon, for plaintiff and respondent.

WIENER, Associate Justice.

Ashton Development, Inc. and Bob Britton, Inc. appeal from the judgment awarding Rich & Whillock, Inc. $22,286.45 for the balance due under a grading and excavating contract. Following a nonjury trial the court entered judgment after it found a settlement agreement and release signed by Rich & Whillock, Inc. were the products of economic duress and thus provided no defense to its contract claim. We conclude substantial evidence supports the court's finding and affirm the judgment.

Factual and Procedural Background

On February 17, 1981, Bob Britton, president of Bob Britton, Inc., signed a contract for grading and excavating services to be provided by Rich & Whillock, Inc. at a price of $112,990. The work was to be done on a project by Ashton Development, Inc. Bob Britton, Inc. was general contractor on the project and the agent for Ashton Development, Inc. in all dealings with Rich & Whillock, Inc. Work began the day the contract was signed.

In late March 1981 Rich & Whillock, Inc. encountered rock on the project site. A meeting was held at the site to discuss the problem. In attendance were Greg Whillock and Jim Rich, president and vice-president of Rich & Whillock, Inc., Bob Britton, Berj Aghadjian, president of Ashton Development, Inc., and a man from a blasting company. Everyone agreed the rock would have to be blasted. The $112,990 contract price expressly excluded blasting. The contract also stated "[a]ny rock encountered will be considered an extra at current rental rates." In response to Britton's inquiry, Whillock and Rich estimated the extra cost to remove the rock would be about $60,000, for a total contract price of approximately $172,000. They also emphasized, however, the estimate was not firm and the actual cost could go much higher due to the unpredictable nature of rock work.

Britton directed Whillock and Rich to go ahead with the rock work and bill him for the extra costs and said they would be paid. Rich & Whillock, Inc. proceeded accordingly, submitting invoices and receiving payments every other week. The invoices separately stated the charges for the regular contract work and the extra rock work and were supported by attached employee time sheets. Toward the end of April Whillock asked Britton if he had any questions about any of the billings. Britton had no questions and told Whillock to continue with the rock work because it had to be done.

By June 17, 1981, after receiving payments totalling $190,363.50, Rich & Whillock, Inc. submitted a final billing for an additional $72,286.45. After consulting with Aghadjian, Britton refused to pay. When Whillock asked why, Britton explained he and Aghadjian were short on funds for the project and had no money left to pay the final billing. Up until he received that billing, Britton had no complaints about the work done or the invoices submitted by Rich & Whillock, Inc. and had never asked for any accounting of charges in addition to that already provided. Whillock told Britton he and Rich would "go broke" if not paid because they were a new company, the project was a big job for them, they had rented most of their equipment and they had numerous subcontractors waiting to be paid. Britton replied he and Aghadjian would pay them $50,000 or nothing, and they could sue for the full amount if unsatisfied with the compromise.

On July 10, 1981, Britton presented Rich with an agreement for a final compromise payment of $50,000. The agreement provided $25,000 would be paid "upon receipt of this signed agreement," to be followed by a second $25,000 payment on August 10, 1981 "upon receipt of full and unconditional releases for all labor, material, equipment, supplies, etc., purchased, acquired or furnished for this contract up to and including August 10, 1981." Rich repeated Whillock's earlier statements about the probable effects of nonpayment on their business. Britton replied: "I have a check for you, and just take it or leave it, this is all you get. If you don't want this, you have got to sue me." Rich then signed the agreement and received a $25,000 check after telling Britton the agreement was "blackmail" and he was signing it only because he had to in order to survive. Rich & Whillock, Inc. received the second $25,000 payment on August 20, 1981, at which time Whillock signed a standard release form.

In December 1981 Rich & Whillock, Inc. filed this action for damages for breach of contract. The court found Ashton Development, Inc. and Bob Britton, Inc. were liable for the $22,286.45 balance due under the contract, and that the July 10 agreement and August 20 release were unenforceable due to economic duress. On the latter point the court found Britton and Aghadjian "never really disputed the amount of plaintiff's charge in that they never asked for an accounting nor documentation concerning the extra work." The court also stated it disbelieved Britton when he testified Rich & Whillock, Inc. had agreed to do the extra work for a sum not to exceed $90,000. By disbelieving Britton and finding no dispute about the actual amount owed, the court impliedly found Britton and Aghadjian acted in bad faith when they refused to pay Rich & Whillock, Inc.'s final billing and offered instead to pay a compromise amount of $50,000. Based upon its finding of bad faith, the court concluded the July 10 agreement and August 20 release were signed "under duress in that plaintiff felt they would face financial ruin if they did not accept the lesser sum and that defendants, knowing this, threatened no further payment unless plaintiff accepted the lesser sum."

Discussion

"At the outset it is helpful to acknowledge the various policy considerations which are involved in cases involving economic duress. Typically, those claiming such coercion are attempting to avoid the consequences of a modification of an original contract or of a settlement and release agreement. On the one hand, courts are reluctant to set aside agreements because of the notion of freedom of contract and because of the desirability of having private dispute resolutions be final. On the other hand, there is an increasing recognition of the law's role in correcting inequitable or unequal exchanges between parties of disproportionate bargaining power and a greater willingness to not enforce agreements which were entered into under coercive circumstances." (Totem Marine T. & B. v. Alyeska Pipeline, Etc. (Alaska 1978) 584 P.2d 15, 21, fn. omitted.)

California courts have recognized the economic duress doctrine in private sector cases for at least 50 years. (Young v. Hoagland (1931) 212 Cal. 426, 430-432, 298 P. 996.) ¹ The doctrine is equitably based (Burke v. Gould, supra, 105 Cal. at p. 281, 38 P. 733) and represents "but an expansion by courts of equity of the old common-law doctrine of duress." (Sistrom v. Anderson (1942) 51 Cal.App.2d 213, 220, 124 P.2d 372.) As it has evolved to the present day, the economic duress doctrine is not limited by early statutory and judicial expressions requiring an unlawful act in the nature of a tort or a crime. (Civ.Code, § 1569, subd. 2; ² Burke v. Gould, supra, 105 Cal. at p. 282, 38 P. 733; see generally 1 Witkin, Summary of Cal. Law (8th ed. 1973) Contracts, §§ 337-338, pp. 284-286; 13 Williston on Contracts (3d ed. 1970) §§ 1601, pp. 648-649, 1602, pp. 650-651, 656-657.) Instead, the doctrine now may come into play upon the doing of a wrongful act which is sufficiently coercive to cause a reasonably prudent person faced with no reasonable alternative to succumb to the perpetrator's pressure. (Leeper v. Beltrami (1959) 53 Cal.2d 195, 203-205, 1 Cal.Rptr. 12, 347 P.2d 12; Louisville Title Ins. Co. v. Surety Title & Guar. Co. (1976) 60 Cal.App.3d 781, 799-802, 132 Cal.Rptr. 63; Thompson Crane & Trucking Co. v. Eyman (1954) 123 Cal.App.2d 904, 908-910, 267 P.2d 1043; accord, Totem Marine T. & B. v. Alyeska Pipeline, Etc., supra, 584 P.2d at pp. 22-23; see also 13 Williston on Contracts, supra, §§ 1603, pp. 663-665, 1617, pp. 704, 706; Annot., Refusal to Pay Debt as Economic Duress or Business Compulsion Avoiding Compromise or Release (1981) 9 A.L.R. 4th 942, 946-947.) The assertion of a claim known to be false or a bad faith threat to breach a contract or to withhold a payment may constitute a wrongful act for purposes of the economic duress doctrine. (Leeper v. Beltrami, supra, 53 Cal.2d at pp. 203-204, 1 Cal.Rptr. 12, 347 P.2d 12; Louisville Title Ins. Co. v. Surety Title & Guar. Co., supra, 60 Cal.App.3d at pp. 799-800, fn. 6, 132 Cal.Rptr. 63; accord, Totem Marine T. & B. v. Alyeska Pipeline, Etc., supra, 584 P.2d at p. 22.) Further, a reasonably prudent person subject to such an act may have no reasonable alternative but to succumb...