Monday, December 1, 2008
Blakeslee-Midwest owed Selmer $120,000, but it offered to pay only $67,000. As Selmer was on the brink of collapse and desperately needed the cash, it accepted the partial payment. Two years later, Selmer sued claiming that the settlement was the product of economic duress. Most courts might be sympathetic to such a claim, but this case was decided by Judge Posner, who believes that permitting an insolvent party to avoid a settlement on the basis of economic duress would remove all incentives for parties to enter into settlements with parties in financial distress, thus hastening the latter's ruin. So long as the Blakeslees of the world are not responsible for the economic hardship faced by the other party, a court should not permit avoidance of a settlement agreement on the basis of economic duress. At least, that seems to be Posner's rule, although his discussion suggests that a court might take other factors into account as well, such as whether the settlement was somewhat close to the amount owed and whether there was some reason why the party, perhaps seeking to benefit from its partner's economic position, could not have paid the full amount owed.
As the editors of the casebook that I use, Contracts: Law in Action, point out, Judge Posner's rule might be a good one, but it likely was not the law of Wisconsin at the time Judge Posner decided this diversity case that was governed by Wisconsin law. Unfortunately, the governing precedent in Wisconsin, Wurtz v. Fleischman, does not set forth a very clear rule of law. The intermediate appellate court had decided the case based on a law review note that proposed treating duress as though it were a tort. Wisconsin's high court did not contradict that view but simply remanded to the trial court because the intermediate appellate court had decided factual issues. But the Wisconsin court did not seem to think the rule for economic duress should depend on whether or not one party was resopnsible for the other party's economic difficulties.
My understanding is that most states follow some version of Posner's rule on economic duress.
Selmer v. Blakeslee-Midwest
In Selmer v. Blakeslee-Midwest,
Judge Posner creates a new test.
Mere business stress
Does not make duress.
Thus breaching parties are blessed.