Legal Definitions - business compulsion

Business compulsion is a legal concept that describes a situation where one party is forced into a contract or agreement due to severe economic pressure or threats from another party, leaving them with no reasonable alternative but to comply. It is a specific form of economic duress. For business compulsion to apply, the pressure exerted must be wrongful or unlawful, not merely the result of tough negotiation in a competitive market. The party claiming business compulsion must demonstrate that they were deprived of their free will and had no practical choice but to agree to the unfavorable terms to avoid significant and immediate financial ruin.

Here are some examples illustrating business compulsion:

• A small, specialized manufacturing company, which supplies a critical component exclusively to a much larger electronics corporation, has a long-term contract in place. When the electronics corporation faces unexpected market competition, it demands that the manufacturer immediately reduce its component price by 30% for all future deliveries, threatening to terminate the contract entirely and find an alternative supplier overseas if the manufacturer refuses. The manufacturer knows that losing this contract would lead to immediate bankruptcy, as they have no other significant customers and their machinery is highly specialized for this component. Feeling they have no choice, the manufacturer agrees to the reduced price.

  This illustrates business compulsion because the electronics corporation leveraged its dominant position and the manufacturer's dependence to impose a drastic price reduction under threat of financial ruin, leaving the manufacturer with no reasonable alternative but to accept the unfavorable terms.

• A construction company is midway through building a large commercial complex when its sole supplier of a unique, custom-fabricated steel beam suddenly announces a 200% price increase, demanding immediate payment for all future deliveries. The supplier knows that the construction company cannot quickly find another vendor capable of producing the custom beams, and any delay in the project would trigger massive penalty clauses in its contract with the client. To avoid these catastrophic penalties and keep the project on schedule, the construction company reluctantly agrees to pay the exorbitant new price.

  Here, the supplier engaged in business compulsion by exploiting the construction company's urgent need and lack of immediate alternatives, threatening severe economic consequences (project delays and penalties) to force an unreasonable price increase.

• A popular local restaurant operates in a prime downtown location under a month-to-month lease. The landlord, aware that the restaurant has invested heavily in custom fixtures and has built a loyal customer base tied to that specific address, suddenly demands that the restaurant sign a new five-year lease with a 75% rent increase and a clause allowing the landlord to terminate the lease with only 60 days' notice. The landlord threatens immediate eviction if the restaurant owner does not sign the new lease within 48 hours. The owner knows that relocating the restaurant would mean losing their customer base, incurring massive moving and build-out costs, and likely going out of business, so they sign the new, highly unfavorable lease.

  This is an example of business compulsion because the landlord used the threat of immediate eviction and the restaurant's significant investment in its current location to force the owner into an extremely disadvantageous long-term lease, overcoming their free will due to the threat of severe economic loss.