Selmer Co. v. Blakeslee-Midwest Co.
| Decision Date | 29 March 1983 |
| Docket Number | No. 82-2493,BLAKESLEE-MIDWEST,82-2493 |
| Parties | The SELMER COMPANY, Plaintiff-Appellant, v.COMPANY, Westinghouse Electric Corporation, and Federal Insurance Company, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Gerald C. Nichol, Madison, Wis., for plaintiff-appellant.
Brian D. Baird, Borgelt, Powell, Peterson & Frauen, S.C., Milwaukee, Wis., for defendants-appellees.
Before CUMMINGS, Chief Judge, and CUDAHY and POSNER, Circuit Judges.
This appeal by the plaintiff from summary judgment for the defendants in a diversity case requires us to consider the meaning, under Wisconsin contract law, of "economic duress" as a defense to a settlement of a contract dispute.
On this appeal, we must take as true the following facts. The plaintiff, Selmer, agreed to act as a subcontractor on a construction project for which the defendant Blakeslee-Midwest Prestressed Concrete Company was the general contractor. Under the contract between Blakeslee-Midwest and Selmer, Selmer was to receive $210,000 for erecting prestressed concrete materials supplied to it by Blakeslee-Midwest. Blakeslee-Midwest failed to fulfill its contractual obligations; among other things, it was tardy in supplying Selmer with the prestressed concrete materials. Selmer could have terminated the contract without penalty but instead agreed orally with Blakeslee-Midwest to complete its work, provided Blakeslee-Midwest would pay Selmer for the extra costs of completion due to Blakeslee-Midwest's defaults. When the job was completed, Selmer demanded payment of $120,000. Blakeslee-Midwest offered $67,000 and refused to budge from this offer. Selmer, because it was in desperate financial straits, accepted the offer.
Two and a half years later Selmer brought this suit against Blakeslee-Midwest (the other defendants' liability, being derivative from Blakeslee-Midwest's, does not require separate consideration), claiming that its extra costs had amounted to $150,000 ($120,000 being merely a settlement offer), and asking for that amount minus the $67,000 it had received, plus consequential and punitive damages. Although Selmer, presumably in order to be able to claim such damages, describes this as a tort rather than a contract action, it seems really to be a suit on Blakeslee-Midwest's alleged oral promise to reimburse Selmer in full for the extra costs of completing the original contract after Blakeslee-Midwest defaulted. But the characterization is unimportant. Selmer concedes that, whatever its suit is, it is barred by the settlement agreement if, as the district court held, that agreement is valid. The only question is whether there is a triable issue as to whether the settlement agreement is invalid because procured by "economic duress."
If you extract a promise by means of a threat, the promise is unenforceable. This is not, as so often stated, see, e.g., Totem Marine Tug & Barge, Inc. v. Alyeska Pipeline Serv. Co., 584 P.2d 15, 22 (Alaska 1978), because such a promise is involuntary unless "involuntary" is a conclusion rather than the description of a mental state. If the threat is ferocious ("your money or your life") and believed, the victim may be desperately eager to fend it off with a promise. Such promises are made unenforceable in order to discourage threats by making them less profitable. The fundamental issue in a duress case is therefore not the victim's state of mind but whether the statement that induced the promise is the kind of offer to deal that we want to discourage, and hence that we call a "threat." Selmer argues that Blakeslee-Midwest said to it in effect, "give up $53,000 of your claim for extras [$120,000 minus $67,000], or you will get nothing." This has the verbal form of a threat but is easily recast as a promise innocuous on its face--"I promise to pay you $67,000 for a release of your claim." There is a practical argument against treating such a statement as a threat: it will make an inference of duress inescapable in any negotiation where one party makes an offer from which it refuses to budge, for the other party will always be able to argue that he settled only because there was a (figurative) gun at his head. It would not matter whether the party refusing to budge was the payor like Blakeslee-Midwest or the promisor like Selmer. If Selmer had refused to complete the job without being paid exorbitantly for the extras and Blakeslee-Midwest had complied with this demand because financial catastrophe would have loomed if Selmer had walked off the job, we would have the same case. A vast number of contract settlements would be subject to being ripped open upon an allegation of duress if Selmer's argument were accepted.
Sensitive--maybe oversensitive--to this danger, the older cases held that a threat not to honor a contract could not be considered duress. See, e.g., Sistrom v. Anderson, 51 Cal.App.2d 213, 124 P.2d 372, 376 (Cal.App.1942); cf. Batavian Bank v. North, 114 Wis. 637, 645-46, 90 N.W. 1016, 1019 (1902). But the principle was not absolute, as is shown by Alaska Packers' Ass'n v. Domenico, 117 Fed. 99 (9th Cir.1902). Sailors and fishermen (the libelants) "agreed in writing, for a certain stated compensation, to render their services to the appellant in remote waters where the season for conducting fishing operations is extremely short, and in which enterprise the appellant had a large amount of money invested; and, after having entered upon the discharge of their contract, and at a time when it was impossible for the appellant to secure other men in their places, the libelants, without any valid cause, absolutely refused to continue the services they were under contract to perform unless the appellant would consent to pay them more money." Id. at 102. The appellant agreed, but later reneged, and the libelants sued. They lost; the court refused to enforce the new agreement. Although the technical ground of decision was the absence of fresh consideration for the modified agreement, it seems apparent both from the quoted language and from a reference on the same page to coercion that the court's underlying concern was that the modified agreement had been procured by duress in the form of the threat to break the original contract. Cf. Farnsworth, Contracts 271 (1982).
Alaska Packers' Ass'n shows that because the legal remedies for breach of contract are not always adequate, a refusal to honor a contract may force the other party to the contract to surrender his rights--in Alaska Packers' Ass'n, the appellant's right to the libelants'...
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