## Facts

- A grading and excavating subcontractor contracted through the general contractor (the developer’s agent) to perform work for a fixed price, with rock excavation treated as extra work.
- Substantial rock was encountered; the parties agreed blasting and removal would proceed as extra work, with the subcontractor to bill actual added costs.
- The subcontractor performed the extra work and submitted biweekly invoices itemizing base work and rock-work extras with supporting records; the invoices were paid without objection.
- After prior payments, the subcontractor submitted a final invoice for $72,286.45.
- The developer and general contractor acknowledged the final amount was owed but asserted they lacked funds and offered $50,000 as full satisfaction, stating the subcontractor could accept it or receive nothing.
- The subcontractor, a small undercapitalized business facing imminent insolvency without payment, signed a settlement agreement and release for $50,000 under protest and promptly sought legal advice.
- The subcontractor sued to recover the unpaid balance (about $22,286.45), asserting the release was procured by economic duress.

## Issues

1. Whether a settlement agreement and release accepting a reduced sum in full satisfaction of an admitted debt is voidable for economic duress when induced by bad-faith withholding of payment.
2. Whether substantial evidence supported the trial court’s findings that the defendants committed a wrongful act and left the subcontractor without a reasonable alternative but to accept the settlement.

## Decision

- The Court of Appeal affirmed the judgment for the subcontractor.
- Substantial evidence supported the trial court’s finding that the settlement and release were obtained through economic duress.
- The defendants’ refusal to pay an undisputed, acknowledged debt in order to compel a reduced payment constituted a wrongful act.
- Given the subcontractor’s imminent financial collapse and the inadequacy of litigation or lien remedies to provide timely relief, the subcontractor lacked a reasonable alternative to signing.
- The release did not bar recovery; the subcontractor was entitled to the unpaid balance of $22,286.45.

## Legal Principles

- Economic duress (business compulsion) may render an agreement voidable when coercion results from a wrongful act and the victim has no reasonable alternative.
- A “wrongful act” may include bad-faith withholding of payment of an admitted or undisputed debt to obtain a financial advantage.
- Economic duress requires (1) a wrongful act, (2) lack of a reasonable alternative, and (3) inducement—assent caused by the coercion.
- Ordinary hard bargaining and good-faith compromise of a genuine dispute are not economic duress; coercive exploitation of another’s financial emergency to force a disproportionate exchange may be.

## Conclusion

A commercial release executed to obtain partial payment of an admitted debt is voidable for economic duress when the debtor withholds payment in bad faith and the creditor, facing imminent financial ruin and lacking a realistic alternative, agrees only because of that coercion.


Rich & Whillock, Inc. v. Ashton Dev., Inc., 157 Cal. App. 3d 1154 (Ct. App. 1984)