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FLK1 · Multiple-choice practice

FLK1 Contract Law — Question 30

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Question

Alice, a small business owner, enters into a contract with Bob to purchase inventory for her shop. Bob realizes that Alice is in urgent need of the inventory to fulfil existing client orders and threatens to withhold the delivery of the inventory unless Alice agrees to pay a significantly higher price than originally negotiated. Feeling pressured and fearing the consequences of not receiving the inventory on time, Alice reluctantly agrees to Bob’s demands and signs the contract. Can Alice subsequently rescind the contract with Bob?

  1. Yes, Alice can rescind the contract with Bob on the grounds of economic duress since a threat to breach a contract is considered illegitimate.
  2. No, Alice cannot rescind the contract with Bob on the grounds of economic duress since she ultimately agreed to the terms of the contract in writing.
  3. Yes, Alice can rescind the contract with Bob on the grounds of economic duress since the price demanded by Bob was significantly higher than the market value of the inventory.
  4. No, Alice cannot rescind the contract with Bob on the grounds of duress since Bob did not engage in physical threats or violence.
  5. No, Alice cannot rescind the contract with Bob as a threat to breach a contractual obligation is not illegal.

Answer and explanation

Correct answer: A. Yes, Alice can rescind the contract with Bob on the grounds of economic duress since a threat to breach a contract is considered illegitimate.

In this scenario, Bob’s conduct of exploiting Alice’s urgent need for the inventory to demand a significantly higher price constitutes economic duress. Economic duress occurs when one party to a contract will use an illegitimate threat to obtain an unfair advantage, and the other party feels compelled to agree. Bob’s threat to withhold the delivery of the inventory unless Alice agrees to pay a higher price exploits Alice’s vulnerable position and deprives her of meaningful choice in the transaction. While a threat to breach a contract is not illegal (in the criminal sense), it will be considered illegitimate. Therefore, Alice can rescind the contract with Bob on the grounds of economic duress.

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