Summary of Austin Instrument, Inc. v. Loral Corporation
Court of Appeals of New York, 1971
Facts: The defendant (D) won a $6 million Navy contract for radars and bid for 40 precision gear components that are needed for the radars. The D awarded Plaintiff (P) the production of 23 of these parts. The delivery of these parts commenced. Then D received a second contract for navy and D again bid for 40 parts. P told D that P should award P the right to produce all of these parts of the second contract and substantially increase the prices of the current parts and future parts that P will ship to D or P will stop the shipment and production. D looked around for other manufactures but after not finding a reliable alternative, agreed to P’s demands.
Procedure: P brought a lawsuit against D for $17,750 for payment still due on parts shipped. D brought a lawsuit for $22,250 for the increased price of the parts charged by D. The lawsuits were consolidated and court ruled for P.
Issue: Did P use duress (economic) to charge higher prices from D than the original agreement?
Rule: “A K is voidable on the ground of duress when it is established that the party making the claim was forced to agree to it by means of a wrongful threat precluding the exercise of his free will…However, a mere threat by one party to breach the K by not delivering the required items, though wrongful, does not in itself constitute economic duress. It must also appear that the threatened party could not obtain the goods from another source or supply and that the ordinary remedy of an action for breach of K would not be adequate."
Ruling: According to the court, this case was a classic case of economic duress. The P threatened to halt the shipment of parts of D didn’t agree to the higher prices. D looked around for reliable alternatives but couldn’t find any that would meet the timeline of the K that D had with the Navy. Navy was a major client of D and D couldn’t afford to lose it. So it was forced to agree to P’s wishes and P used economic duress to achieve its means. Reversed.