Question

CASE 12-3 TELEKENEX IXC, INC. V. CHARLOTTE RUSSE, INC. COURT OF APPEALS OF WASHINGTON, DIVISION ONE 158 Wash. App. 1037 (2010) FACTS: In December 2004, Charlotte Russe entered into a Master Service Agreement with AuBeta Network Corporation for communication services at its retail stores. The agreement was renewed several times. Just before it was to terminate in March of 2009, Tom Hunsinger from AuBeta e-mailed Giri Durbhakula, Charlotte Russe’s Vice President of Technology. Hunsinger stated that Charlotte Russe would need to “make a commitment to Telekenex to avoid service disruption.” Telekenex was taking over the contract. Durbhakula then received a proposed amendment to the Master Service Agreement. Charlotte Russe only had two days to respond. Durbhakula signed the Amendment but pointed out that nobody had explained to Charlotte Russe why the existing Agreement was no longer valid. Durbhakula stated that “it has been made clear repeatedly that our service would be shut off if we do not sign up to a long term commitment.” Page 247 Two months later, Durbhakula told Chaney that Charlotte Russe believed the Amendment was unenforceable. Charlotte Russe obtained a Temporary Restraining Order, enjoining Telekenex from terminating Charlotte Russe’s service. Meanwhile, Telekenex sued Charlotte Russe for breach of contract. Pleadings were served on Charlotte Russe, but the papers were lost and Charlotte Russe did not answer. The trial court entered a default judgment against Charlotte Russe. Charlotte Russe appealed, arguing that it had presented substantial evidence of a strong defense of duress to Telekenex’s claims. ISSUE: Is economic loss in the business setting sufficient to establish a defense of duress? REASONING: In Washington, business compulsion is a type of duress in which a party is left with a choice between suffering a serious business loss or making a detrimental payment. Typically, duress will serve as a defense to a breach of contract claim only if the breaching party was left with no reasonable alternative but to agree to the terms demanded by the other party. Moreover, the defense will fail if the party claiming duress contributed to his own vulnerability. For example, a party who actively tries to sell his business, seeks out a purchaser, and accepts a very low bid will be unlikely to claim duress. However, when a party, such as Charlotte Russe, is operating under a contract that is not expiring, the party does not have notice of termination under the terms of the contract, and there is no indication of self-imposed pressure to enter into the agreement, the defense may succeed. Finally, the defense is available when a party who does not immediately accept the terms will suffer an immediate and substantial business loss. Here, Charlotte Russe established that if it had failed to agree to the terms, 185 of its stores would have been unable to connect to the Internet, connect to the company data center, use the telephone, process customer purchases, track inventory, keep employee time cards, or access company e-mail. Charlotte Russe’s inability to perform its business would have resulted in financial harm as well as harm to the company’s goodwill and reputation. DECISION AND REMEDY: The case was originally decided on a motion for default judgment. The court found that Charlotte Russe had established a prima facie defense of duress and remanded for further proceedings. SIGNIFICANCE OF THE CASE: This case demonstrates that duress in the business setting must amount to more than the simple pecuniary loss. To establish the duress defense, one must be able to prove significant business loss. Why would there be different rules for economic duress when the case involves a business as opposed to an individual?

Answer 1

In legal terms, duress refers to forcing a person to do something or to sign an agreement by threatening their personal life, character or other personal entity.

When an individual accepts to do something only because he/she is being threatened or under duress the regulation is likely to invalid the contract or conclude that he/she is not legally responsible for his forced actions.

A contract is not valid until all concerned parties have signed it willingly. However, many people take undue advantage of this rule and change their minds or decide later that they are not pleased with the contract and make an effort to get out of it. Establishing that an agreement was entered into under duress cannot be so easy.

For instance, J and A are in a loving relationship. J is also A’s boss and holds a senior position in their firm. When A shares with J that she is looking for a new flat to reside in, J offers to purchase it for her. J purchases a very expensive flat for her using the firm’s funds. A promises to pay him back in installments. When they break up two months later A had paid only a quarter of what she owed J.

A meets J and gives her a paper on which it was written “I, A consent to repay J the invoice value of the flat.” He requests her to sign it, but A says that she doesn’t owe him anything and declines. When J begins to create a scene in front of his friends A unwillingly signs it.

When A continues to refuse to pay, J takes legal action against her in court to claim the outstanding balance on the flat. At the court trial, A claims that she signed it under duress and doesn’t have to pay him anything.

In this illustration of duress claim, A explains the supposed duress was forced upon her and it also included J’s uncomfortable comments about him having recordings of their meetings. J claims that he used the firm’s resources to pay for the flat and they will face a huge loss if she doesn’t pay him back. The judge finds this very hilarious and instructs him to go home. Due to this, the firm faced a huge loss that financial year.

Duress comes in numerous forms but it entails a determined use of threat or force to induce an individual to sign the agreement or to engage in some action. This type of force can be either physical or emotional which eventually makes the person think he has no alternative left, but to sign the agreement. Although some type of duress may be difficult to establish in a court of law, the exercise of physical force, or convincing risk of physical harm, if established consequences in cancellation of the agreement and may also result in criminal accusation against the person responsible.

Duress when it’s affected excuses the defendant's behavior but it does not substantiate the commission of the offence. There is a component of endorsement or support in the case of justifications.