Brief - Totem v Alyeska Corp PDF

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Economic Duress

Madden Totem Marine Tug & Barge, Inc. v. Alyeska Pipeline Service co. (1978) FACTS

Substantive facts: - This is a contract action brought by ∏s Totem - Totem is a closely held Alaska corporation. In 1975, Totem entered into a k with Alyeska under which Totem was to transport pipeline construction materials from Houston, TX to a designated port in southern AL, with the possibility of one or two cargo stops along the way. - This was Totem’s first k. - Totem chartered a barge and an ocean-going tug. - The cost of the barge and tug, along with additional costs were made possible by loans to Totem from the VP totem in an individual capacity and Pacific, Inc., a corporation in which Stair was principal stockholder and officer. - Totem was to have completed performance by Aug. 15, 1975. - There were numerous complications from the start: o Alyeska presented that approximately 1800-2100 tons of regular uncoated pipe were to be loaded in Houston and that maybe 6000-7000 tons of materials would be put on the barge at later stops along the wets coast. o Upon arrival, Totem found 6700-7200 tons of coated pipe, steal beams, and valves, haphazardly and improperly piled. o This situation called for remodeling the barge, extra cranes, and ultimately took 30 days rather than the 3 days that Totem had anticipated it would take to load 2,000 tons. o Other causes of delay were: Alyeska assured Totem that it would pay for additional expenses, bad weather, and other administrative problems. - The vessels were travelling more slowly than anticipated because of the extra load. - Totem chartered a 2nd tug. - When Totem reached the Panama Canal, Alyeska had not furnished the written amendment to the parties’ agreement and Totem was afraid Alyeska would not agree to cover the cost of the second tug, so stair notified the Guidry not to go through. - By the time the agreement was amended, the 2nd tug had lost its preferred passage through the canal and had to wait 3 more days to go through. - The vessels also encountered the tail of a hurricane which lasted 9 days and substantially impeded their progress. - The vessels arrived in San Pedro to change crews and refuel. When the vessels docked in Long Beach, CA, Alyeska’s agents commenced off-lading the barge, without Totem’s consent, without the necessary load survey, and without a marine survey, the absence of which voided Totem’s insurance. - Alyeska terminated the contract - Following the termination of the k, Totem submitted termination invoices to Alyeska and began pressing the latter for payment - The invoices were $260,000 and $300,000 - Alyeska official said it could take 6-8 months for payment - Totem was in urgent need of cash as the invoices represented debts which the company had incurred on 10-30 day payment schedules. - If they didn’t get cash soon, they would go bankrupt. - They reached a settlement agreement for $97,500 Procedural facts:

Economic Duress Madden - Totem, Stair, and Pacific filed a complaint against Alyeska where they sought to rescind the settlement and release on the ground of economic duress and to recover the balance allegedly due on the original contract. Totem’s complaint said that Alyeska wrongfully terminated the k and sought miscellaneous other compensatory and punitive damages - Summary motion was granted in favor of ∆s Alyeska ISSUE ON APPEAL:

TREATMENT: Totem’s Argument: - The purported release was executed under duress in that Alyeska wrongfully terminated the k; that Alyeska knew that Totem was faced with large debts and impending bankruptcy; that Alyeska withheld funds admittedly owed knowing the effect this would have on ∏s and that ∏s had no alternative but to involuntarily accept the $97,500 in order to avoid bankruptcy. - These were issues of material fact and therefore trial was necessary Rule(s): Elements of economic duress: 1. The party alleging economic duress must show that he has been the victim of a wrongful act or unlawful act or threat, and 2. Such act or threat must be on which deprives the victim of his unfettered will. TEST: Many courts state the test differently, eliminating use of the vague term “free will” but retaining the same idea. Under this standard, 1) The one party involuntarily accepted the terms of another, 2) Circumstances permitted no other alterative, and 3) Such circumstances were the result of coercive acts of the other party The third element is further explained as follows: In order to substantiate the allegation of economic duress or business compulsion, the ∏ must go beyond the mere showing of reluctance to accept and of financial embarrassment. There must be a showing of acts on the part of the ∆ which produced these two factors. The assertion of duress must be proven by evidence that the duress resulted from ∆’s wrongful and oppressive conduct and not by the ∏’s necessities. -

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On essential element is that the ∏ must show that the other party by wrongful acts or threats, intentionally caused him to involuntarily enter into a particular transaction. o Courts have not attempted to define exactly what constitutes a wrongful act or coercive act, as wrongfulness depends on the particular facts in each case. This requirement may be satisfied where the alleged wrongdoer’s conduct is criminal/tortious but an act or threat must also be considered wrongful if it is wrongful in the moral sense. Rest. 2nd § 492 cmt g. In many cases, a threat to breach a k or to withhold payment of an admitted debt has constituted a wrongful act

Application/Rationale: - Totem has alleged that Alyeska deliberately withheld payment of an acknowledged debt, knowing that Totem had no choice but to accept an inadequate sum in settlement of that debt.

Economic Duress Madden - Totem was faced with impending bankruptcy, Totem was unable to meet its pressidndt debts other than by accepting immediate cash, etc. - Totem involuntarily accepted an inadequate settlement offer from Alyeksa and executed a release of all claims under the k. - The legal principles discussed would constitute this type of wrongful conduct and lack of alternatives that would render the release voidable.

Conclusion: Totem has made a sufficient factual showing as to each of the elements of economic duress to withstand that motion. There were general issues of material fact. Disposition: The superior court erred in granting SJ. Reversed and remanded....